Can Carbon Emissions Markets Accelerate Smart Grid Progress?

The California Air Resources Board (ARB) recently initiated rule making for the state’s cap and trade regulation as part of AB 32, and it’s an important tactic towards reducing California’s greenhouse gas (GHG) emissions.  The first step to reduce the state’s GHG emissions to 1990 levels by the year 2020, and then an additional 80% reduction target by 2050.  Other tactics include standards for cleaner vehicles, low-carbon fuels, renewable electricity and energy efficiency, and the state’s big three investor-owned utilities (IOUs), Pacific Gas and Electric, San Diego Gas and Electric, and Southern California Edison have already been building the percentages of electricity supplied by renewable energy sources. 

A similar market is already in deployment on the east coast in a program called the Regional Greenhouse Gas Initiative or RGGI, as mentioned in my blog on December 13.  California’s Air Resources Board is also working on a regional level with the Western Climate Initiative  (WCI) for eventual development of a regional cap-and-trade program.

There are still many questions that need to be answered about the California program, including the number of allowances that will be extended to companies and how the revenues from this program will be spent.  One intriguing idea for revenue allocation is to make it “cap and dividend” or “cap and paid”, and it could be used to encourage Smart Grid deployments.

This program idea is similar to the structure of Alaska’s annual payouts on oil dividends to each citizen in that state.  The estimates of the size of California’s emissions market volume range from $3 billion to $58 billion by 2020.  At least one commission of economists recommended disbursing 75% of the revenues realized from California allowance auctions to households, and using 25% for activities focused on low income communities, such as adaptations to climate changes.  Distributing auction revenues to all California citizens would be a great economic boon for the state economy.  Check disbursements could include education about initiatives that each household can take to reduce their GHG emissions, such as putting solar on rooftops, buying EVs, or making buildings more energy-efficient.  Investments in these areas certainly further Smart Grid technologies focused on localized electricity production and intelligent consumption. 

Offsets present another interesting opportunity to encourage Smart Grid-related projects.  Offsets are credits for reduced emissions (or carbon capture) through forestry projects and reduction of methane at dairy farms.  That’s a nice start, but why stop there?  Why not encourage offsets for state-based investments in microgrids or distributed generation (DG) facilities that use clean renewable energy sources and energy storage technologies to ensure reliable energy supplies?   Offset programs would then provide market certainty and opportunities for microgrid and DG technologies and businesses, and accelerate deployment of these solutions, which in turn reduce GHG emissions.   This policy could enable public/private partnerships between schools and companies to put solar on rooftops for reduced emission credits or replace diesel back-up generators at hospitals with cleaner natural gas and battery facilities to earn offsets.  Investments in projects like these would also accelerate deployments of Smart Grid technologies, reduce grid vulnerability, improve school financial situations, and create viable new businesses. 

The passage of AB 32 has already had beneficial impacts for a Smart Grid – the IOUs are already building their renewables portfolios.  However, the California carbon emissions market can do more to promote Smart Grid progress, and a cap and paid distribution of revenues and appropriate offset policies can accelerate investments and growth in Smart Grid technologies and businesses.