Saturday, 13 September 2008

Green-collar jobs are the biggest prize

Published Date: 13 September 2008
By Charles Henderson

WITH Europe aiming to generate a fifth of its energy from renewable technologies by 2020, and the UK hoping to contribute a tenfold increase in energy it generates this way, to 15 per cent, a green vision has been set for the next decade.
The government is consulting industry and planners, and the Renewable Energy Strategy (RES), due for publication next year, will set out the route-map for this green transformation.There are three energy types to consider – electricity, heat and transport – each with different technologies and demand. For example, renewable electricity is relatively established, but, renewable heat and transport has almost no installed capacity.To meet our 15 per cent target, we need to ensure each sector grows considerably. The RES suggests increases of 32 per cent of electricity (from less than 5 per cent today), 14 per cent in heat (1 per cent today) and 10 per cent transport (under 1 per cent today)If we do not meet one sector target, we will need to exceed in another, or trade carbon with other countries."Whilst we were burning North Sea oil, Germany were building the wind turbines, and Scandinavian countries were building biofuel wood burners," explains Jason Ormiston, the chief executive of trade association Scottish Renewables, But he is positive about Scottish renewables industries: "With the certainty of renewable energy targets in the RES, businesses will plan the finance, resources, and production they need," he says."This will be good news for Scotland, which is a leader in manufacturing wave and tidal technologies, and offshore engineering. Based on the evidence of the government's support of wind-generated electricity, I believe we could transform the way we generate heat and power transport."Adam Bruce, chair of the British Wind Energy Association (BWEA), is equally positive future of renewable energy: "With renewables, we have a great opportunity to put people back in touch with the energy they consume, and contribute to Scottish communities," he says.Scotland currently generates three gigawatts (GW) of energy from its renewable installations – with hydro-electric and wind making up the vast majority, at about 1.4 GW each. A GW of electricity is enough to power about 650,000 homes.According to the RES consultation, key growth areas are expected to be wind power, with up to 28 GW of extra UK capacity, split roughly 50/50 between on and offshore. This could represent a further 7,000 turbines, depending on size, in addition to the 2,000 or so already installed.According to Mr Bruce, the next phase of onshore development in Scotland is likely to take place down the M74 corridor, then the Highlands, with offshore development possible in the Shetland Isles, Dogger Bank and English west coast.Heating accounts for 47 per cent of UK carbon emissions, but only about a half of 1 per cent is generated directly from renewables. Heat cannot travel for long distances, so technologies must be local. The likely solutions are biomass (such as heat from wood burning) and microgeneration (including solar water heating and heat pumps). Most effective is combined heat and (electricity) power (CHP) generation, in the community.Demands for wood from industries such as furniture manufacture, could be a barrier to large-scale biomass use. Nevertheless, Balcas, a biofuel company, will next year open its £24m plant in Invergordon, which will produce enough wood pellets to heat 20,000 homes every year, provide electricity to the grid and create 38 full-time posts. In all, investment in the renewable sector could represent up to £60 billion by 2020, stimulating 160,000 "green collar" jobs, according to the government's Forum for Renewable Energy Development in Scotland (FREDS). If the opportunity is seized, many of these could be in Scotland.Offshore wind, for example, needs construction, cable laying, and decades of maintenance. Burntisland Fabrications, in Fife, employs up to 500 for its construction contracts, and demand for offshore turbine bases represents a growing workload. Marine energy is also promising. Scotland's wave and tidal power resources are estimated at 10 per cent and 25 per cent of the EU totals respectively. Scottish Renewables estimates that a fifth of the UK's electricity could be produced in Scottish waters. Businesses such as Edinburgh-based Aquamarine Power are developing wave and tidal technologies to help reduce Scotland's emissions. Future overseas export of the technologies will also help balance Scotland's energy payments deficit.Carbon is one of the more esoteric markets that economists have dreamt up. The right to trade pollution credits may seem bizarre, or downright unethical to some, but this "flexible mechanism" is a vital device to tackle climate change. A "carbon credit" is created when a new measure, process or technology (including energy efficiency, renewable energy and forestry) reduces or absorbs carbon emissions, and ownership of the "difference" is claimed.By putting a limit on emissions, at a country, business, or even personal level, and allowing trading to take place, the most cost-effective solution may be reached. Once carbon is valued in this way, it is commoditised and written into financial models, such as development plans. Carbon finance will, one day, make the world go round.The market for carbon credits doubled in size globally, to $64bn in 2007, and will boom over the next few years. The European Emissions Trading Scheme, for power stations and primary manufacturers, is the world's largest, covering four-tenths of the EU's total greenhouse gas emissions. To come, is the Carbon Reduction Commitment, which will include a further 5,000 UK businesses and public sector organisations, including hotels and hospitals, from 2010. The City of London is a growing carbon hub – and Scottish banks have a toehold.Investment managers have long recognised "carbon risk", as well as clean technology opportunities. The Carbon Disclosure Project (CDP) informs investors, representing over $41 trillion of assets under management, with a unique analysis of how the world's largest companies are responding to climate change.HBoS has been ranked as a climate leader by the CDP. With 23 million customers, 66,000 employees and £100bn of funds under management, it can use its influence to good effect. The bank reduces and offsets all its direct emissions, and was the first in Europe to announce its intention to carbon label a banking product. HBOS is keeping a watching brief on carbon trading.The RBS Group, with 40 million customers and 170,000 employees, influences the carbon debate at a high level. It recently co-hosted a summit on the low-carbon economy. The bank is a leading carbon trader, and works with Scottish businesses, amongst its many clients. It also offers a voluntary carbon offset service to businesses and individuals. RBS has a long commitment to the energy sector and is ranked in the top ten clean technology investors, worldwide, with $1.5 billion committed in 2007 alone. Although a large proportion of its investments are in conventional fossil fuelled power, clean technology is a growing portfolio. "Political leadership on carbon bodes well for the Scottish economy, as it sends an important signal, and attracts investment," says Gavin Tait, head of carbon trading at RBS. He adds: "Carbon trading could be a good thing for Scotland, as it plays into the hands of countries which lead the way in clean energy."Scotland's potential for renewable energy is large, and its stake in the carbon market is relatively small, but significant and growing. In Monday's article, we will find out how some of our leading businesses in food, drink, transport and water are tackling the climate challenge.• Charles Henderson is director of Climate Futures, an Edinburgh-based consultancy. The third article in this series will appear on the business pages on Monday.

Gordon Brown fails to take Government advice on insulation

Jon Swaine
Last Updated: 5:01pm BST 12/09/2008

Despite having declared that people should lag their lofts to beat soaring fuel bills, Gordon Brown has not yet made his own home energy efficient.

A study for The Daily Telegraph discovered that just hours after the Prime Minister unveiled the Government's plan to help homeowners save money by conserving fuel, a window at the front of 10 Downing Street was leaking a substantial amount of heat.

Image showing heat loss from Number 10 Downing Street
A No 10 spokesman also admitted that the building's roof had not been insulated.Martin Hosier, of TS Thermal Survey, which advises businesses on insulation, said: "There is considerable heat loss from the basement window."The kitchen or a central heating boiler is the likely source. The equipment may well be inefficient and poorly insulated, and one would have hoped that heat exchanger systems would be in place to retain some of the lost energy for heating elsewhere in the building."
A spokesman for No 10 admitted: "We have taken significant steps to improve our energy efficiency but like many households and businesses there is more we can do.
"We have already replaced our light bulbs with energy efficient fittings and replaced the old heating and cooling systems.
"Fifty per cent of our electricity comes from renewable sources and each evening all PCs are turned off.

"But we plan to do more and are currently looking into insulating the roof spaces and replacing boilers and hot water systems."
She added that Mr Brown's house in Fife is fitted with solar panels.
After moving in last year, David Cameron, the Conservative leader, gave his home in West London a £150,000 environmental makeover.
A wind turbine and solar panels were built on the roof in an attempt to make the family more energy self-sufficient, while the house is fully insulated and double-glazed.
However a study last month suggested that the manufacture of a turbine like Mr Cameron's may produce more carbon dioxide than it goes on to save, because of low wind speeds in urban Britain.
A spokesman for the Tory leader said: "They've had a lot of work done on their house. It's a very important issue for David."

EU accused over failure to tackle illegal logging

The EU has been accused of abandoning laws to end illegal logging as campaigners claim the commission is undermining its green credentials.

By Louise Gray, Environment Correspondent Last Updated: 2:16PM BST 12 Sep 2008

Deforestation accounts for 20 per cent of all greenhouse gas emissions Photo: EPA
Europe is the largest market for timber in the world. However, up to a fifth of imports are illegally felled from protected rainforests.
The European Commission was meant to bring forward legislation this week to end the trade inside EU borders.
But the vote was delayed and environment groups now fear it could be years before any decision is made.
Leading environmental groups including the World Wildlife Fund, Greenpeace and Friends of the Earth have written to President of the EU Manuel Barroso to demand legislation is brought forward.
Deforestation accounts for 20 per cent of all greenhouse gas emissions, more carbon dioxide than is produced by all worldwide transport, and the group fear that the EU's inaction on illegal logging signals wider complacency over climate change.
DIY wooden goods, furniture, paper and pulp are a massive market in Europe and environnmentalists fear the delay is being caused by pressure from industry groups as well as wrangling over the right way forward for legislation.
In a strongly-worded letter the group claim that the US is ahead of the EU in controlling illegal timber and any further delay will "jeopardize EU leadership" on environmental matters.
It read: "We are gravely concerned that the EU's response towards the pressing problem of deforestation, illegal logging and related trade has been repeatedly delayed for no apparent reason. We believe that it is in the EU's interests to establish a level playing field and to support progressive companies rather than to tolerate bad practice by inaction."
Barry Gardiner, the Prime Minister's special envoy on forestry, said the legislation has been repeatedly "fudged" and now risks being abandoned altogether.
Owen Espley, forests campaigner at Friends of the Earth, said: "It is very important that the EU shows leadership in eradicating the market for illegal timber in Europe. If they do not we can expect the deforestation to continue, forest communities to lose their homes and livelihoods and the corruption and human rights abuses around illegal logging to get worse."
Deforestation was came to the fore this week after Prince Charles called on the City to set up financial markets to protect the rainforest.

Britain's worst polluters set for windfall of millions

A flagship European scheme designed to fight global warming is set to benefit companies in almost all sectors of the British economy, a Guardian investigation has revealed
David Adam, environment correspondent,
Friday September 12 2008 18:08 BST

Castle Cement's Ribblesdale works in Clitheroe, Lancashire. Photograph: Christopher Thomond
A flagship European scheme designed to fight global warming is set to hand hundreds of millions of pounds to some of Britain's most polluting companies, with little or no benefit to the environment, an investigation by the Guardian has revealed.
Dozens of multinational firms stand to benefit from the windfall, which comes from the over-allocation of carbon permits under the European emissions trading scheme.
The permits are given to companies by the government, and are supposed to account for their carbon pollution over the next five years. But figures published by the European Commission show that many companies have been allocated far too many permits, which they can sell for cash.
The scheme is supposed to only distribute as many permits as companies require, with one permit allocated for each tonne of CO2 produced.
The figures, compiled by the Guardian and the campaign group Sandbag, suggest that up to 9m extra annual permits have been allocated to 200 companies across almost all sectors of the British economy, from steel and cement making, to car manufacturing and the food and drink industry. Dozens of household names such as Ford, Thames Water, Astra Zeneca and Vauxhall are among the companies that could benefit.
One of the largest over-allocation of permits is to Castle Cement, which makes a quarter of all British cement at three works in Lancashire, north Wales and Rutland. The figures show carbon dioxide emissions from the three plants have fallen from 2.3m tonnes in 2005 to 2.1m tonnes in 2007. Yet, under the ETS, the firm has been handed enough permits to produce 2.9m tonnes CO2 for each of the next five years - an annual surplus of 829,000 permits.
A spokesman for Castle Cement said: "Castle Cement will not require all its allocated permits to cover CO2 emissions in 2008 as we continue to reduce our impact on the environment in line with our sustainability strategy.
"Total CO2 emissions from our three works are likely to be less than in 2007 due to further improvements in efficiency, increased use of low-carbon fuels and a weakening demand for cement caused by the general economic downturn. Surplus credits will be traded."
At the current price of £21, the company could sell its surplus permits for £83.5m over the five years.
Ford said it expected an annual surplus of almost 80,000 permits, which it would consider selling. Astra Zeneca said it would sell permits from its expected annual surplus of 37,000, but that the resulting money would be used to improve environmental performance. Thames Water, Heathrow Airport and Toyota were among companies who said they had not decided what to do with surplus credits.
Each company's surplus was calculated using figures published by the European Commission on corporate CO2 emissions for 2007, and annual permit allocations for 2008-12, under the ETS second phase.
The over-allocation comes from the way the government calculated the likely emissions of each site owned by the companies in the scheme. Each site's permit allocation was based on average emissions from 2000-2003, but also took into account projected growth and improvements in energy efficiency.
Campaigners say the allocations were also influenced by industry group lobbying. A source at a major UK car manufacturing firm, which has been allocated more than double the number of permits it needs, told the Guardian they were given out based on "magical logic".
Karsten Neuhoff, an expert in emissions trading at Cambridge University, said the over-allocation to so many companies was "an indication of the bargaining power of industry".
He said: "We may agree as a society that we need to cut emissions, but when it comes down to individual companies and then individual installations and individual behaviours, we say 'oh no, we can't cut them here'. Everyone is a special case."
Not all apparent surpluses are over-allocation of permits. Some companies, including those in the cement and offshore industries, have been given extra permits to account for changes in the way their emissions are measured. Steel maker Corus, which has the largest apparent annual surplus of 2.8m, says the extra credits for 2008 must cover 10% more of its operations than were counted in 2007.
A few companies have been allocated fewer permits than they require. The Leeds Teaching Hospitals NHS Trust, with an apparent annual deficit of 5,800 said it would need to buy permits this year.
The only sector to be given fewer permits than it needs is the electricity supply industry, which is more than 70m short. The government says this is because they are not subject to international competition, and they can pass on the cost of buying permits to customers. The under allocation to the UK electricity sector means emissions overall will reduce by some 60m tonnes a year.
Bryony Worthington, founder of Sandbag, said: "The way this is set up the environment takes all the risk and business doesn't take any. Hundreds of companies have been given a free ride while those that do have to buy permits can simply pass on the costs.
"That means electricity customers are effectively subsidising heavy industry's right to pollute, while being urged to make environmental sacrifices in their own lives."
Sandbag will launch a campaign this week to pressure companies to surrender surplus credits. It aims to take a million permits out of circulation, which it hopes will raise the price and make companies more likely to invest in clean technology.
The environment department Defra said it would not discuss allocations for individual companies. A spokesperson said: "It is of course impossible to predict what any company or installation's exact emissions for the next five years by looking at their emissions in 2007.
"Decisions on allocations were made on a sound historical basis. It is natural that economic, sectoral, production and technical factors will see emissions at individual installations differ from the predictions.
"What matters is that regardless of individual fluctuations, all emissions in the scheme are constrained by the overall cap, if one installation increases its emissions, the same amount of emissions have to be cut elsewhere."
· Additional reporting by Alexandra Topping

A permit to print money

Far from incentivising emissions cuts, the EU's carbon trading scheme provides a grotesque subsidy for the biggest polluters

Oliver Tickell,
Friday September 12 2008 18:30 BST

There is a "magical logic" in the way hundreds of billions of pounds' worth of carbon allowances are given away to polluting companies, an employee of an major UK carmaker told the Guardian. That company, as David Adam reveals, was given twice as many allowances – tradable pollution permits created by the EU's Emission Trading System (EUETS) – as it actually needs to cover its own emissions. The remainder it will sell in the UK's dynamic carbon market, receiving a multimillion-pound windfall profit. This is strange. Under the "polluter pays" principle, a longstanding cornerstone of the UK's environmental policy, polluters are meant to pay for the cost of their pollution – that is, for the damage that their pollution causes to others (for example, in harming health or damaging property). For carbon dioxide, the main pollutant responsible for global warming, Nicholas Stern argued in his famous Review that every tonne of CO2 emitted to the atmosphere imposes damage worth $25 to $85 per tonne on society as a whole. It follows that this cost should be paid by the companies responsible.But in the looking-glass world of the EUETS, the "polluters pays" principle is replaced by its mirror image – the "polluters get paid" principle. This is very magical indeed for the companies that benefit, and for their shareholders. As for the logic ... well, who needs logic when there is money to fill your boots with, and serious money at that? As we struggle to stay afloat amid rising fuel and food costs, the falling pound and a collapsing property market, there is at least one thing we can be glad of: the carbon market is booming. Between 2006 and 2007, the market for EUETS allowances grew 104%, turning over an astonishing $50bn (pdf).Carbon fortunes are indeed being made, and many of them in the City of London, which dominates the global carbon marketplace. But the biggest winners of all are the biggest polluters, the power companies, which benefit to the tune of €30bn per year. According to energy regulator Ofgem, the UK's power companies will receive a £9bn windfall profit from their free allowances between 2008 and 2012. And now a broader range of industrial companies are cashing in on the carbon bonanza.The problem arises from the very structure of the EUETS. When it was set up in 2005, each country was given its own allocation of allowances, and they passed on the allowances to the biggest industrial polluters based on their historic greenhouse gas emissions – the more they had been polluting, the more allowances they were given – in a process known as "grandfathering". And companies are still being given allowances based on those same historic levels of pollution, even if they have reduced their emissions since then.There is one sense in which this is fair enough: companies that have become more efficient deserve their reward. After all, this is why they invested in efficiency in the first place. But this is not quite as fair as it looks. It means that companies that had already raised their energy efficiency before the EUETS came into being are being penalised. Those that deliberately bloated their carbon emissions, which they can now bring down easily at little cost, are getting the biggest reward. Moreover, the system effectively bars new players in any industry that would have to buy all their allowances – creating unshakeable established monopolies.More fundamentally, we must recognise that the EUETS allowances are a form of money – tradable instruments like, for example, government bonds issued by the Treasury. We would not be very impressed by a chancellor who gave away billions of pounds' worth of government bonds to banks. We should be equally unimpressed with the EUETS as it gives away 2bn carbon allowances a year, worth – at today's price of €23.35 – €47bn. There is an alternative. At the inception of the EUETS, every economist in town was imploring the EU to sell the carbon allowances by auction, up to the emissions cap, to avoid all the entirely predictable consequences of grandfathering. This way, the polluters would be competing to buy their allowances, and their would come back to the public purse where it could be used either to reduce the level of taxation generally, or to finance projects to reduce emissions - investing in energy conservation, for example, or renewable energy. But under pressure from industry lobbyists, the EU caved in. Amazingly, the EU's rules even prohibited individual countries from auctioning their allowances, just in case they wanted to.Since then, there have been reforms. Under Phase 2 of the EUETS, which runs from 2008 to 2012, countries are allowed to auction their allowances, up to a limit of 10%. The percentage will go up in Phase 3 (2013 to 2020) to 60%, but we will probably have to wait until 2021 for 100% auctioning – if we're lucky. And by then, the public purse will have been sold out to the tune of €500bn or more.Say what you might about Brussels lobbyists, they are worth their weight in gold – at least, to the companies who pay them. In this particular case, about 1bn troy ounces, or 30,000 tonnes of the stuff. Now, there's magical logic for you. Midas, eat your heart out!

Investors urge SEC on reporting oil climate impact

By Michael Szabo Reuters
Published: September 12, 2008

LONDON: Major investors from the U.S., Canada and the UK are pressuring the United States Securities and Exchange Commission (SEC) to require energy companies to assess the environmental impact of oil and natural gas reserves.
A group of 19 environmental, investor and non-profit groups want the regulators, under new proposals, to ask that oil and gas companies disclose reported reserves that have higher than average greenhouse gas emissions associated with their extraction, production and combustion.
The group includes London's F&C Asset Management , Ceres, a North American coalition of investors and the California Public employees' Retirement System (CalPERS), the largest U.S. pension fund.
"We urge the SEC to pay more careful attention to the implications of climate change and carbon-related regulations ... since the risks and challenges posed are likely to grow rapidly in the coming years, with significant consequences for the oil and gas industries," the group said in an open letter.
"We are concerned that climate change, and policies adopted to combat greenhouse gas emissions, could render certain assets -- particularly those with high carbon intensity -- uneconomic."

Governments in the U.S. and Canada are considering climate change legislation that introduces so-called cap and trade schemes, limiting national emissions and putting a price on carbon dioxide (CO2).
Under such schemes, companies with carbon-intensive operations will be forced to buy permits to cover their emissions.
"Putting a price on carbon will change the dynamics of the energy marketplace," Daniel Yergin, chairman of Cambridge Energy Research Associates (CERA), said in a report earlier this year.
Heavy industry in the European Union have had to pay for emissions since 2005. European CO2 permits currently trade around 23.00 euros (18.28 pounds) per metric tonne.
With mandatory emissions reporting, the investors said they can assess the risk profile of energy companies more effectively.
"The energy consumption required to extract a barrel from Canadian tar sands is very different to a simple barrel of crude from the Gulf of Mexico," said Elizabeth McGeveran, a senior vice president at F&C, in a statement.
Research published on Tuesday on the potential impact of emissions trading schemes on superannuation funds shows that implementing carbon-efficient investment strategies does not hurt returns, UK-based environmental researchers Trucost said.
Norway's sovereign wealth fund sold its entire $850 million (480.8 million pounds) stake in mining group Rio Tinto , blaming it for environmental damage in Indonesia, the Norwegian government said this week.

California's Tighter Green-Energy Plan Advances

Boards Seek Big Rise In Renewable Power Over Next 12 Years
By REBECCA SMITHSeptember 13, 2008;

California's two energy agencies Friday endorsed a plan that would require utilities to obtain a third of their electricity from renewable sources by 2020.
The California Energy Commission, a policy-and-planning agency, and the California Public Utilities Commission, which regulates utilities, issued the joint recommendation that, if implemented, would be the most ambitious renewable-energy plan in the U.S.

But the target raises questions about how much the goal could cost consumers. The plan's price tag is "the question of the hour," says Jackalyne Pfannenstiel, an economist who chairs the California Energy Commission. She endorses the goal but said it could be modified because of cost hurdles or other barriers. She believes, however, that the cost of renewable energy will eventually fall.
In a joint recommendation to the California Air Resources Board, the lead agency on climate-change matters, the energy commission and the public-utilities commission said the 33% goal is needed for California to reduce greenhouse-gas emission 29% by 2020 -- the key provision of the landmark environmental law signed by Gov. Arnold Schwarzenegger in 2006.
Already, the state appears likely to miss its current target of garnering 20% of its electricity from renewable resources by 2010. As electricity consumption has increased, the portion of renewable energy California consumes has actually been dropping, from 14% in 2003 to 12.7% last year.
The proposed policy faces votes by several regulatory bodies and could be implemented either through a state law or an executive order by Gov. Schwarzenegger.
Setting such an ambitious target is risky. It could compel state regulators to approve numerous renewable-energy development projects which later turn out not to be feasible or economically viable. That could raise electricity prices and limit supply down the road.
So far, the utilities commission has approved all the renewable-energy contracts that have come before it. Even so, fewer than 500 of the 6,000 megawatts of renewable generating capacity that is under contract to utilities are in operation.
Developers face big obstacles as they try to expand the state's wind, solar and geothermal power. Many of the biggest projects currently planned are in mountain and desert locations. They face rising construction costs, local opposition and complicated regulatory reviews. In addition, some of these proposed projects still lack the infrastructure to transmit the electricity from generators to users.
"The biggest barrier to meeting the state goal is getting transmission access," said Amber Mahone at Energy and Environmental Economics, a San Francisco research firm hired by the utilities commission to estimate the potential impact of the new renewables goal.
The recommendation also supports creation of a cap-and-trade system among Western states to limit greenhouse-gas emissions by the power sector and other polluters. That is also expected to be a difficult policy to implement.
In a preliminary analysis of the greenhouse-gas-reduction program released this spring, Energy and Environmental Economics said a 33% renewable goal could push average electricity prices to about 17 cents per kilowatt hour in California by 2020, a 30% increase over the current average cost of about 13 cents.
It is impossible to know for sure. There is no public disclosure of the costs. The renewable-energy contracts between utilities and the public-utilities commission, which number about 90 so far, aren't public documents.
Consultants hired by the utilities commission to analyze costs say they will rely on their own estimates because they don't want to work from confidential data that others can't verify.
The public-utilities commission uses an "avoided cost" method to determine whether renewable projects will generate power at reasonable prices. So long as a renewable-energy contract offers electricity at no more than what it would cost to get electricity from a newly built gas-fired power plant, a contract is deemed reasonably priced. Currently, the benchmark price is about 10 cents a kilowatt hour, not including energy-delivery costs. Since gas-fired electricity costs have risen sharply with higher fuel costs, that set price has increased.
But there are indications that some of the newly planned projects may have difficulty generating power at previously approved prices. Recently, generators have been asking for exceptions that would allow them to be compensated at prices even higher than the benchmark set by the commission. Fifteen contracts have been approved at prices above the commission's initial benchmark and nine more are pending.
Other developers that have received contract approval now want to renegotiate with the state because their costs are rising. The utilities commission has approval to spend as much as $750 million extra on new or renegotiated contracts. A staff member at the commission said she expects the sum will be reached "pretty quickly."
Other variables could also hamper California's goal. One immediate threat is the expiration of federal tax credits for wind and solar projects that are keeping many projects afloat. Expensive upgrades to the electricity-transmission grid also are needed to open up development areas, such as the Tehachipi Mountains that divide Northern California from Southern California. Nearly $2 billion in transmission upgrades are needed there for 1,500 megawatts of wind development. So far, only three of 11 segments of a transmission upgrade have garnered necessary approvals.
PG&E Corp.'s Pacific Gas and Electric Co. and Southern California Edison, owned by Edison International, support a higher goal but say there needs to be flexibility. Sempra Energy's San Diego Gas & Electric Co., with the least renewable energy under contract, opposes a 33% target unless changes are made. The utility would like to be able to sign deals with out-of-state producers, for instance. "We support renewables," says Bill Ichord, SDG&E's vice president of regulatory affairs, "but it needs to be done in a rational way."
Write to Rebecca Smith at

Senate Panel Leaders Offer Energy Tax Plan

By COREY BOLES September 12, 2008;

WASHINGTON -- The heads of the Senate Finance Committee put forward a $40 billion package of tax credits for investors in renewable energy sources, to be offset by new taxes on the oil and natural-gas industry. The measure's future is uncertain as Congress jockeys to address voter energy concerns ahead of the election.
Separately, House Speaker Nancy Pelosi (D., Calif.) said funding for loans to U.S. auto makers to allow them to invest in environmentally cleaner vehicles will be put in place before Congress adjourns in three weeks. But Rep. Pelosi indicated the loan deal will be closer to the $25 billion proposed by lawmakers last year, not the larger numbers floated by auto makers.
Negotiations on the loans are continuing. Rep. Pelosi said the loans could either be offered as part of a broader economic stimulus bill or a resolution to fund the government through the elections.
The proposal to extend tax credits for solar and wind energy and other alternatives to oil came from Sens. Max Baucus, (D. Mont.), and Charles Grassley, (R. Iowa), the chairman and ranking Republican on the Senate Finance Committee. "This is crucial, this is vital, we've got to move on this, we can't wait," said Mr. Baucus. Mr. Grassley said he hoped Republicans would vote for the package.
The credits are likely to be attached to a wider energy bill that will include provisions on drilling. The plan is expected to be introduced as soon as next week in the House.
The package includes a new tax credit for nuclear-energy production and a credit for capturing and storing carbon dioxide. The wider renewable-energy credits are extended to 2011, expanding an earlier one-year extension.
To pay for the credits, an existing tax credit for major integrated and state-owned oil companies will be eliminated, which is estimated to raise $13.9 billion over the next decade.
An excise tax will be applied to the removal of any taxable crude oil or natural gas recovered from the outer continental shelf, expected to raise $17 billion over 10 years, as well as three other measures raising revenue. The oil industry has opposed cutting these tax breaks.
Write to Corey Boles at