California’s energy woes

Pity poor California, as it faces up to its energy future with a mixture of ambition and dread.

It is one of the states hardest-hit by the US recession, suffering a massive budget deficit and unemployment above 12 per cent. As for its ability to shift to a lower-carbon economy, well, it’s complex. It may have the advantage of light industry, a declining oil industry and a strong energy efficiency regime, but it’s population also very much tied to car transport. Meanwhile, that falling oil revenue – and the potential from offshore resources – is something the state could do with, not only to address its immediate financial problems but also, as Gregor has suggested, to fund the expense of shifting away from road-based infrastructure.

Gregor has written a lot about California in the past year and yesterday he pointed out that gasoline is over $3 a gallon in South California, and while that’s not near the heights it reached in 2008, the effect could be much worse:

While the $4.00 and $5.00 dollar gasoline of late Winter and Spring 2008 was painful, and was falling over a quickly deteriorating situation in California’s economy, this recent gasoline move to post-financial crisis highs is falling over extremely high unemployment in California as a whole. Indeed, the broader measure of unemployment in the metro areas mentioned above would be even higher, as California’s U-6 measure is at least as high as 19.6%.

Remember those forecasts last year that >$80 a barrel oil could damage recovery in developed countries? Many of the major developed economies have come technically out of recession since then, including the US, and $100/barrel is the dangerous price more recently mentioned by Merrill Lynch’s Francisco Blanch. But regions like California might be a good demonstration of just how much an $80 crude floor could hurt.

Meanwhile California’s politicians are struggling with the state’s ambitions, signed into law in 2006, to reduce its greenhouse gas emissions to 1990 levels by 2020, regardless of what is agreed in Congress.

BP and Chevron yesterday complained about the state’s plans for a cap-and-trade system by 2012, particularly the suggestion that all allowances will be auctioned, instead of being given away as is often the case. California wants to auction allowances so that the proceeds can be used to offset higher household energy costs, which is no doubt politically essential.  At the same time, California’s Energy Commission has asked the Environmental Protection Agency to slow down its own plans to require big emitters to obtain permits. It says EPA rules could interfere with the state’s plans to increase renewable and natural gas-fired power by causing ‘gridlock’ to new power plant constructions.

Interestingly, the state is also considering paying householders to use less energy, as a potentially cost effective measure.

And the frontrunner to replace Arnold Schwarzenneger as the next Republican gubernatorial candidate, former Ebay chief Meg Whitman, is making strong statements against the whole 2020 emissions plans, saying it will jeopardise recovery and jobs.

It goes without saying that businesses’ desire for regulatory certainty is falling on deaf ears.

Related links:

Gasoline and unemployment in Southern California (Gregor)

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