BILL ANALYSIS Ó SENATE COMMITTEE ON ENVIRONMENTAL QUALITY Senator Bob Wieckowski, Chair 2015 - 2016 Regular Bill No: SB 180 Hearing Date: 4/29/15 ----------------------------------------------------------------- |Author: |Jackson | |----------+------------------------------------------------------| |Version: |4/20/2015 | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant|Rebecca Newhouse | |: | | ----------------------------------------------------------------- Subject: Electricity: emissions of greenhouse gases ANALYSIS: Existing law: 1. Requires California Public Utilities Commission (PUC), by February 1, 2007, in consultation with CEC and the California Air Resources Board (ARB), to establish a GHG emission performance standard for all baseload generation of load-serving entities at a rate of emissions of GHG that is no higher than the rate of emissions of GHGs for combined-cycle natural gas baseload generation. 2. Requires CEC, by June 30, 2007, in consultation with PUC and the ARB, to establish a GHG emission performance standard for all baseload generation of publicly owned utilities (POU) at a rate of emissions of GHG that is no higher than the rate of emissions of GHGs for combined-cycle natural gas baseload generation. 3. Prohibits a load-serving entity, or a POU, from entering into a long-term financial commitment for baseload electricity generation unless that generation complies with the GHG emission performance standard. 4. Specifies that CO2 that is permanently disposed of in geological formations, in compliance with applicable laws and regulations, does not count toward emissions of the powerplant in determining compliance with the GHG emission performance standard. 5. Requires PUC to consider net emissions from the process of SB 180 (Jackson) Page 2 of ? growing, processing, and generating the electricity from the fuel source when calculating GHG emission by facilities generating electricity from biomass, biogas, or landfill gas energy. This bill: 1.Redefines "GHG emission performance standard" to mean permissible levels of emissions of GHG for peaking and nonpeaking generation of electricity. 2.Defines "nonpeaking generation" to mean electricity generation from a powerplant that is designed and intended to provide electricity at an annualized plant capacity factor to be determined by PUC and CEC, in consultation with California Independent System Operator (CAISO), considering both current energy generation needs, as well as energy generation needs as the GHG emission performance standards for nonpeaking generation are implemented. 3.Defines "peaking generation" as electricity generation from a powerplant that is designed and intended to provide electricity at an annualized plant capacity factor to be determined by PUC and CEC, in consultation with CAISO, considering both current energy generation needs, as well as energy generation needs as the GHG emission performance standards for peaking generation are implemented. 4.Directs PUC and CEC each, but in consultation with one another and ARB, by June 30, 2017, to adopt a GHG emission performance standard for nonpeaking generation and for peaking generation of load-serving entities and POUs, respectively, to be updated every five years based on new technology. 5.Directs PUC and CEC to establish its initial GHG performance standard for nonpeaking and peaking generation at the lowest level each agency determines to be technologically feasible without risking the reliability of the electrical grid and of electric service, or hampering further deployment of renewable generation resources or reductions of greenhouse gas emissions, and taking into consideration siting factors such as altitude, regional climate, and operating capacity. 6.Prohibits, as of July 1, 2017, a load-serving entity or a POU from entering into a new long-term financial commitment for peaking or nonpeaking generation unless the source of the generation complies SB 180 (Jackson) Page 3 of ? with the applicable GHG emission performance standard. 7.Specifies that nonpeaking emissions performance standard applies only to nonpeaking powerplants and the peaking emissions performance standard applies only to peaking powerplants. 8.Requires PUC, in calculating GHG emissions by facilities generating electricity from biomass, biogas, or landfill gas energy to reconsider and modify its prior decisions implementing this section in light of the best and most recent scientific information available. 9.Defines carbon capture and storage (CCS) as any method that prevents the release of GHGs into the atmosphere. 10.Specifies that GHGs that are prevented from being released into the atmosphere as a result of carbon capture and storage or carbon capture and sequestration, in compliance with applicable laws and regulations, do not count as emissions of the powerplant in determining compliance with the GHG emission performance standard. 11.Declares any CCS project associated with an application for certification by CEC as a related facility for permitting purposes. 12.Specifies that the provisions of the bill become operative on January 1, 2017. Background 1. SB 1368 and Coal-Generated Electricity. In the early 2000's, coal-fired powerplants supplied about one-fifth of the electricity consumed in California, with about half of that from coal imports. From 2007 to 2012, coal energy imports declined by 18%, and energy from in-state coal and petroleum (pet) coke plants declined by 62%. According to a CEC report on current and expected coal use updated last November, "Coal-based energy supplies totaled 23,323 gigawatt hours (GWh) in 2012, equal to about 8% of the statewide energy requirements to serve California loads. Nearly all these SB 180 (Jackson) Page 4 of ? energy imports are tied to long-term utility power purchase agreements, ownership interests or procurement contracts, some of which have been in place for decades. Publicly owned utilities in Southern California have most of the long-term contracts with out-of-state coal plants." Specifically, of the coal energy imports in 2012, the largest share, 44 percent went to LA Department of Water and Power, followed by 24% to Southern California Edison, 7% to Anaheim, and 5 percent to California Department of Water Resources. "The supply of coal-fired energy procured by California utilities from out-of-state plants or generated in California by coal and pet coke plants is expected to decline by 38% between 2012 and 2022. In these years, associated greenhouse gas emissions are expected to drop from about 23.8 million metric tons (MMT) of carbon dioxide equivalent (CO2e) to 14.8 million metric tons." According to CEC, this decline in coal contract deliveries in due in large part to the constraints imposed by the EPS created by Senate Bill SB 1368 (Perata) Chapter 598, Statutes of 2006. Specifically, SB 1368 (Perata), Chapter 598, Statutes of 2006, required CEC and PUC to adopt a greenhouse gas emission performance standard (EPS) for baseload electricity generation and prohibits the state's utilities from entering into long-term financial commitments unless any baseload generation supplied under the long-term financial commitment complies with the GHG emission performance standard. SB 1368 required the EPS to be capped at a rate of GHG emissions that did not exceed the rate of GHG emitted by a natural gas-fired combined-cycle powerplant used for baseload generation. Pursuant to SB 1368, the GHG emission performance standard was set at 1,100 pounds of carbon dioxide (CO2) per megawatt-hour (MWh) by PUC and CEC. Since all existing contracts with coal-fired generating facilities provide baseload energy supplies that exceed emissions limits defined by the EPS (On average, coal combustion releases approximately 2,250 pounds of carbon dioxide into the atmosphere for each MWh generated), as these contracts expire, they cannot be renewed or extended with another long-term contract. 2. Peaking and Baseload Plants. Baseload power is defined as electricity generation from a SB 180 (Jackson) Page 5 of ? powerplant that is designed to provide electricity at least 60% of the total hours in a year (a 60% capacity factor). Baseload power contracts are for power that is intended to be operating to meet demand night and day and throughout the year. This is different from peak power, which is intended to be available only at those times of the day and year when demand spikes. Baseload power generally comes from more efficient power plants and tends to be cleaner and cheaper than peak power. One reason is due to inherent inefficiencies with starting and stopping electricity generation. Another reason is, because peaking plants run inconsistently and usually for short periods of time due to high electricity demand, it is less cost effective for powerplant operators to finance upgrades for those plants. Another type of generation, load-following generation, is becoming increasingly important with implementation of the Renewable Portfolio Standard, which requires utilities meet 33% of their retail sales of electricity with renewable resources by 2020. Load-following generation is usually powered through natural gas powerplants, and is necessary to match the increases and decreases in electricity demand throughout the day. As more renewables are integrated into the grid, baseload power generation will likely decline, and faster ramping load-following generation, used to balance the electricity supply from intermittent renewable resources, will likely increase. SB 1368 required an EPS for baseload power, defined in the initial legislation as plants running at 60% capacity annually, but did not specify an EPS for peak power, or "peaking generation." SB 180 sunsets existing provisions for the determination of an EPS for baseload generation, and instead, directs CEC and PUC to set a "peaking" and "nonpeaking" or baseload-type, emission performance standard. SB 180 also requires PUC and CEC to determine what annualized plant capacity factor qualifies electricity generation for "peaking" and "nonpeaking" generation. 3. Carbon Capture and Sequestration. Studies by a broad range of governmental and non-governmental SB 180 (Jackson) Page 6 of ? organizations on the international, federal and state level report that carbon capture and storage (CCS) is a critical component of an effective strategy for achieving stringent global greenhouse gas (GHG) emission reductions. CCS in most cases refers to technologies that capture CO2 emissions from powerplants and other large industrial sources and the subsequent compression, transport, and injection of the carbon into a geological formation that prevents its release to the atmosphere. The "storage" aspect of CCS can be accomplished by the injection of CO2 into large, deep underground porous reservoir rock saturated with brackish water. These formations are estimated by a joint CEC and Department of Conservation report to have a capacity of tens to hundreds of metric gigaton of CO2. As a reference, statewide GHG emissions are approximately half a gigaton. Some proponents of CCS also contend that carbon can be "stored" in another way, specifically during a process known as enhanced oil recovery (EOR). EOR is a process that injects a fluid, such as steam or CO2, into an oil or gas well with declining reserves in order to pressurize the well and increase oil and gas production (and mobility, in the case of oil) from those reserves. During CO2 EOR, some of the CO2 partially dissolves in the oil, and is retrieved with recovered oil, while the remaining CO2 presumably remains trapped underground. Recently, there have been reports on alternatives to geologic sequestration, or EOR CO2 storage. Specifically, mineral carbonation is emerging as an area of interest and potential alternative to geologic injection of CO2. Mineral carbonation involves the reaction of CO2 with magnesium and calcium oxides to produce inert carbonite materials, which then may be used to generate commercially viable byproducts for various applications. In California due to the fact that fossil fuels, including oil for transportation and natural gas for electricity production, will constitute a substantial component of California's emissions for some time to come, CCS is viewed by some as a technology with great potential to reduce the carbon footprint of new and existing powerplants burning natural gas in order to meet California's GHG goals. According to ARB's 2008 Scoping Plan, CCS within California and the Western region could help achieve SB 180 (Jackson) Page 7 of ? the GHG goals for 2050. An ARB resolution in December 2010 directed the executive officer to initiate a public process to establish a protocol to account for geologic sequestration and provide recommendations on how such sequestration should be addressed in the cap and trade program. In the United States, there are two large scale CCS projects that are capturing CO2 from coal-fired powerplants. One of these is a 582 MW project in Mississippi and the other is a 250 MW powerplant in Texas. One CCS project that is currently in the planning phase is the Hydrogen Energy California (HECA) project. The HECA project would construct an integrated gasification combined cycle powerplant that also plans to manufacture hydrogen from coal and petroleum coke to generate 300 megawatts of electricity, produce nitrogen-based fertilizers and capture 90% of CO2 produced from the gasification process. The project would be located on a 453-acre site in Kern County currently used for agricultural purposes about seven miles west of Bakersfield. The HECA project plans to transport the CO2 by pipeline to Occidental of Elk Hills, Inc. (OEHI) for use at the adjacent Elk Hills Oil Field for enhanced oil recovery. Although there have been a handful of nonpower plant CCS projects in operation for over two decades, the first large-scale powerplant CCS project on the globe became operational last October. The Boundary Dam project in Saskatchewan, Canada uses coal as a feedstock and produces about 110 MW, and sells the captured CO2 projects for EOR. CCS projects are very expensive. The Boundary Dam project produces a relatively small amount of power (110 MW) and costs $1.3 billion. It received $240 million from the Canadian Government. The Kemper County project in Mississippi now under construction is now projected to cost almost $5.6 billion, and the HECA project in Kern County is expected to cost over $4 billion. The federal Department of Energy is contributing $408 million and $437 million in tax credits. CEC reports that the HECA project application review process has had serious delays because the HECA applicant has not provided information required by CEC staff to complete their environmental impact statement. In March, a motion was filed by interveners to terminate the SB 180 (Jackson) Page 8 of ? application process. HECA responded that they are no longer certain about the viability of the carbon capture and sequestration site proposed for the project and they are pursuing alternative plans for how they would use and store the captured CO2. SB 1368 specifies that CO2 captured from a powerplant and permanently sequestered in geological formations does not count toward the powerplant's emissions under EPS. CEC's EPS regulations do not count CO2 projected to be successfully sequestered and considers CO2 successfully sequestered if the project includes the capture, transportation, and geologic formation injection of CO2 emissions, complies with all applicable laws and regulations, and has an economically and technically feasible plan that will result in the permanent sequestration of CO2 once the sequestration project is operational. SB 180 amends statute by deleting references to geologic formations, and instead specifies that GHGs that are prevented from being released into the atmosphere as a result of carbon captures and storage or carbon capture and sequestration, in compliance with applicable laws and regulations, does not count toward determining compliance with the GHG emission performance standard. 4. CEC's Licensing and Siting Powerplants. The California Energy Commission is the lead agency for licensing thermal powerplants 50 megawatts and larger and the plants related facilities, including transmission lines, fuel supply lines, water pipelines, under the California Environmental Quality Act (CEQA) and has a certified regulatory program under CEQA. Under its certified program, CEC is exempt from having to prepare an environmental impact report. Its certified program, however, does require environmental analysis of the project, including an analysis of alternatives and mitigation measures to minimize any significant adverse effect the project may have on the environment. According to CEC's website, "The Energy Commission's license/certification subsumes all requirements of state, local, or regional agencies otherwise required before a new plant is constructed. The Energy Commission coordinates its review of the facility with the federal agencies that will be issuing permits SB 180 (Jackson) Page 9 of ? to ensure that the Energy Commission certification incorporates conditions of certification that would be required by various federal agencies." Two different review processes that are available for powerplants at CEC are the 12-month review (also called "Application for Certification") and the Small Power Plant Exemption (SPPE). The SPPE is available for projects between 50 MW and 100 MW, provided the proposed project does not create an unmitigated significant impact on environmental resources. 5. PUC's Decision D.07-01-039 and Biomass Powerplants. PUC's 2007 decision 07-01-039 adopted an interim GHG emissions performance standard for new long-term financial commitments to baseload generation undertaken by all load-serving entities, consistent with the requirements and definitions of SB 1368 In this decision, PUC classified bioenergy generation as compliant with the GHG emission performance standard of 1,100 lbs CO2/MWh emissions performance standard, even though out of the stack often times carbon emission can be much higher than the standard, based on the conclusion that bioenergy generation avoided GHGs that would have otherwise occurred in the disposal of the biomass materials. According to PUC, "In particular, the record shows that electric generation using biomass (e.g., agricultural and wood waste, landfill gas) that would otherwise be disposed of under a variety of conventional methods (such as open burning, forest accumulation, landfills, composting) results in a substantial net reduction in GHG emissions. This is because the usual disposal options for biomass wastes emit large quantities of methane gas, whereas the energy alternatives either burn the wastes that would become methane or burn the methane itself, generating CO2 . Since methane gas is on the order of twenty to twenty-five times more potent as a GHG than CO2, and since methane has an atmospheric residence time of twelve years, after which it is converted to atmospheric CO2, trading off methane for CO2 emissions from energy recovery operations leads to a net reduction of the greenhouse effect." Comments 1. Purpose of Bill. SB 180 (Jackson) Page 10 of ? According to the author, "In recognizing the changing landscape of electricity generation in California, SB 180 creates two new Emissions Performance Standards-one for "nonpeaking generation" and another for "peaking generation"-that will limit the amount of carbon dioxide power plants may emit. SB 180 requires that the state adopt the lowest EPSs that are technologically feasible without putting the reliability of the electrical grid and electric service at risk, and requires the EPSs to be revised downward every five years based on technological advances. This will force California to phase out its dirtiest power plants, which are typically located in disadvantaged communities with high levels of pollution, and will eventually lead California toward a fossil-fuel free future for energy generation." 2. CEC and Lowering the EPS. In 2012, the Natural Resources Defense Council (NRDC) and the Sierra Club formally proposed CEC consider revising the EPS to a level lower than the 1,100 pound standard, contending an EPS of 825-850 pounds was economic and feasible. NRDC and Sierra Club stated that they did not believe the EPS was sufficiently stringent to require the use of the most efficient and least polluting baseload fossil-fueled technology commercially available in 2012. CEC considered the proposal and, in the end, concluded "that the current EPS for POUs should not be lowered at this time for several reasons." In explaining its reasoning, CEC stated that the current EPS had: Successfully prevented new long-term investments by California utilities in high-emitting baseload resources, such as coal facilities. Encouraged the early divestiture of existing high-GHG emitting baseload resources. More generally, CEC expressed concern that lowering the EPS for baseload power could impede California utilities' ability to provide the operational flexibility necessary to cost-effectively integrate renewables resources. They note that "if the EPS standard is set so low that it precludes powerplants with fast start capabilities, which are inherently less efficient, carbon emissions could increase." SB 180 (Jackson) Page 11 of ? However, SB 180 directs PUC and CEC to establish its initial GHG performance standard for nonpeaking and peaking generation at the lowest level each agency determines to be technologically feasible without risking the reliability of the electrical grid and of electric service, or hampering further deployment of renewable generation resources or reductions of greenhouse gas emissions. The bill also requires PUC and CEC to take into consideration, when setting the EPS altitude, regional climate and operating capacity. For nonpeaking generation, SB 180 does not ensure PUC and CEC will set a lower EPS. In fact, SB 180 gives PUC and CEC the discretion to set EPS standards that are lower, identical, or even higher, than the current EPS based on their determinations of what standard will ensure grid reliability and operational flexibility necessary for renewable integration, as well as ensuring a standard that does not impede GHG emissions reductions. However, SB 180 does ensure that PUC and CEC set an EPS for "peaking generation," which is a type of generation that is not currently captured under the EPS requirements of SB 1368. 1. Reconsider and Modify. SB 180 requires that PUC reconsider and modify its previous decision on EPS compliance for biomass facilities. Their decision determined that although biomass facilities typically had higher GHG emissions rates than natural gas powerplants, they prevent the release of methane, a much more potent GHG. Additionally, carbon from biomass was recently pulled out of the atmosphere. Decision making at PUC is a long and costly process. The author may wish to consider if there is a less formal, time-consuming and costly way to have PUC revisit this issue in order to provide guidance on whether the science indicates a change from the previous decision is necessary. Additionally, since a reconsideration of this decision based on best available science does not necessarily mean that a different finding will be made, an amendment is needed to strike "and SB 180 (Jackson) Page 12 of ? modify" from the bill, so as not to presuppose the outcome of this reevaluation by PUC. 2. Carbon Capture and Sequestration. SB 180 attempts to accomplish two goals regarding carbon capture and storage/sequestration: (1) Clarification that any CCS project associated with an application for certification of an electrical generating facility is a related facility for purposes of CEC's parallel process for siting and licensing powerplants under the California Environmental Quality Act (CEQA), and (2) Creating a technology neutral definition of CCS for purposes of the emission performance standard in the bill. The former aim is an attempt to preempt CEQA litigation surrounding potential CCS projects that would be used to sequester GHGs from powerplants, but that are not physically connected or close to the powerplants, by providing in the bill that these CCS projects associated with powerplants are considered related facilities, and therefore one project, for purposes of CEC's CEQA regulatory process. The latter goal comes from recent research suggesting that other forms of storing or sequestering carbon besides injecting into geologic formations, such as mineral absorption, can be used to prevent the release of the GHGs into the atmosphere. However, SB 180 deletes language relating to CO2 being "permanently sequestered" in an effort to make the statute technology neutral. To more closely mirror the original language of SB 1368, while still not prescribing which technology should be used, an amendment is needed to specify that for carbon capture and storage associated with EPS compliance, GHGs must be permanently sequestered, so as to prevent them from being released into the atmosphere. Related/Prior Legislation SB 1368 (Perata), Chapter 598, Statutes of 2006, prohibited POUs and load-serving entities from entering into long-term financial commitments for generation unless the baseload power complied with an emissions performance standard, established by PUC and CEC. SOURCE: Author SB 180 (Jackson) Page 13 of ? SUPPORT: American Lung Association, California Asian Pacific Environmental Network Breathe CA California Black Health Network California League of Conservation Voters Clean Power Campaign Climate Parents Coalition for Clean Air Coastal Environmental Right Foundation Environment California Environmental Action Committee of West Marin Environmental Defense Fund National Parks Conservation Association Sierra Club California OPPOSITION: California Manufacturers and Technology Association California Municipal Utilities Association M-S-R Public Power Agency Northern California Power Agency Pacific Gas and Electric Company Southern California Edison ARGUMENTS IN SUPPORT: Supporters state that that the state must reduce our emission rates substantially below those specified by SB 1368. They also state that creating the new designation for peaker plants is critical since they will be relied on for grid resiliency, renewable integration and to meet peak demand, and that current law effectively exempts all peaking plants from the EPS. They also note that the bill will ensure that new power plants meets the highest level of emissions standards possible, and that SB 180 will strongly incentivize renewable technologies which produce less toxic air pollution then the fossil fuel plants they will replace. ARGUMENTS IN OPPOSITION: Opponents state the SB 180 is an unnecessary approach that may place reliability, affordability and carbon reductions at risk, as the state continues to transition to more renewable energy generation. They note that the purpose of establishing an EPS under SB 1368 was to prohibit long term contracts with coal-fired generation facilities and that SB 1368 is achieving those objectives. They SB 180 (Jackson) Page 14 of ? also oppose SB 180 as a piecemeal mandate that increases costs and further constrains an already complex system. They note there are multiple energy and emission reduction policies that are already cost-effectively reducing GHG emissions by electric utilities. DOUBLE REFERRAL: This measure was heard in Senate Energy, Utilities and Communications Committee on April 7, 2015, and passed out of committee with a vote of 8-3. -- END --