Climate Change and

The California Public Utilities Commission’s Role


Climate Change Implications

Concentrations of greenhouse gases[1] (GHGs) have increased sharply in the atmosphere from pre-industrial levels.  Human activities are largely responsible for much of this build-up. The concentrations of these gases have increased approximately 30% above pre-industrial concentrations.  Most of the observed warming over the past 50 years is likely due to the increase in greenhouse gas concentrations.  The primary activities that have resulted in the increasing amounts are from burning fossil fuels for energy production, manufacturing, and transportation. One of the significant results attributed to these emissions is an increase of the earth’s average temperatures and the changing of weather patterns over time. The increase in average and peak surface temperatures threatens to disrupt the natural functioning of the planet that provides the basis for all human activities, including the global economy and California’s participation in it.


The scientific community widely acknowledges the issue of climate change and there is growing consensus about its potential effects. While the timing and magnitude of exact effects remain uncertain, reports and studies modeling the environmental impacts indicate that the changes will likely be significant and that temperature and weather pattern changes have, in fact, already begun. Effects on rainfall and temperature will, in turn, affect energy supply and demand, water availability, agricultural production, population migration, and the economy. 


Several studies have published recently specifically focus on climate change impacts in California.  One of the most recent studies published in the Proceedings of the National Academy of Sciences and conducted by several universities and research institutions specifically profiled projected average temperature, snowpack, and reservoir changes.[2]  The study modeled two scenarios.  The first assumed fossil fuel use continues at its present pace.  The second modeled significant increases in the use of renewable energy.  Although temperature change in the latter scenario was not as alarming as in the first, the study still concluded that the remaining fossil fuel emissions could push average high temperatures up by four to six degrees by 2070, with increases in incidents of heat waves and reductions in snowpack and rainfall.


The social and economic impacts are significant.  Worldwide, natural disasters in the first 10 months of 2004 cost the insurance industry more than $35 billion, up from $16 billion in 2003, not to mention the devastating effects on human lives and local economies.[3] Further, the U.N. Environment Program anticipates an increase in the frequency and intensity of extreme weather events.  Swiss Re and other insurance companies have acknowledged that climate change will continue to have an impact on the insurance industry.


The United States is the world’s largest emitter of greenhouse gas emissions (GHG), accounting for roughly 25 percent of global emissions, but accounts for under 5 percent of the world’s population.  The federal EPA estimates that electricity generation, transportation, and industrial activities collectively contribute 80 percent of emissions.


Climate change has been studied extensively for more than thirty years.  In the face of clear and overwhelming scientific evidence, the time has come for California to act.



California’s Contribution

California, home to 36 million people, is the nation’s largest consumer of residential, commercial, and transportation energy, and is second only to Texas in industrial energy use.  California also has the largest and most diverse economy of any state, including the biggest agricultural economy.  When compared to global economies, California ranks sixth.


The state’s sheer size presents significant regional, national, and global implications.  In 2000, California emitted approximately 420 million metric tons of carbon dioxide equivalents from energy related sources[4].  In comparison, the state of Washington emitted 94 million tons, and Oregon emitted 61 million tons.  When examining at the numbers, one cannot help but recognize that our energy-related GHG contributions represent a significant proportion of overall West Coast and United States contributions.


Based upon current projections, California’s emissions growth rate will outpace that of our neighbors by 1.6% per year. The major contributors of greenhouse gases are transportation (nearly 50%) and electricity consumption (25-30%).  Residential, industrial, commercial, agricultural, and non-energy related sources each contribute the remaining 25 percent. 


The implications of climate change on California’s economy are significant. Not only does the state rely on existing weather patterns for annual rainfall and snowpack conditions, it relies on these patterns to ensure the viability of the state’s businesses, economy, and resources.  Impacts on availability of water resources and energy demands due to increasing average and peak temperatures and shortened growing seasons could threaten the industries that California relies upon to drive and sustain the California economy. The implications on vital resources are projected to be significant by 2070[5].



Examples include:



Moving Toward Solutions: Policy Options and Voluntary Business Actions

In the United States, climate change is currently an issue most aggressively addressed at the local, state, and regional levels.  While close to two hundred countries have endorsed an international effort to address climate change globally, the Bush Administration has chosen not to ratify the Kyoto Protocol treaty.  With Russia’s ratification in November 2004, the Protocol will go into effect on February 16, 2005. Between 2008 and 2012, the 38 signatory industrialized countries have committed to cut their greenhouse gas emissions to levels that average 5.2 per cent below 1990 levels. In addition, the emissions trading regimes and other market mechanisms established under the Protocol have begun implementation.  Countries that do not ratify the Protocol will be barred from participating in these market-based mechanisms, and may also be barred from parallel national and multi-national trading regimes of parties to the Protocol.[6]  At this point, it is unclear whether the terms of the Protocol will be expanded to allow for individual states, such as California, to participate in the Protocol and its related programs.


Despite the uncertainty and delay of U.S. participation, many businesses are taking steps to mitigate their emissions. Legislators in the U.S. have proposed bills that would define and regulate GHGs, and lawsuits have been filed against the EPA by environmental organizations and states for failing to address climate change and pollution requirements and classifications.  In 2004, California and seven other states filed a lawsuit against the nation’s five largest utility companies demanding that they reduce their emissions[7].  In addition, the California Air Resources Board (CARB) recently unanimously approved groundbreaking and highly effective rules to reduce GHG emissions from automobiles.  Under the CARB proposed regulations, the auto industry must cut GHG emissions from cars and light trucks beginning with 2009 models.  Compliance with the new regulation is estimated to reduce greenhouse gas emissions from light duty passenger vehicles by 18% in 2020 and 27% in 2030.[8]


Current climate change policy-related efforts in California include the West Coast Governors’ Global Warming Initiative efforts[9] and research on impacts and strategies[10], the Climate Action Registry’s[11] voluntary emissions tracking program established by the state legislature, the California Climate Change Advisory Committee,[12] and the joint energy agencies’ Energy Action Plan.[13]  In addition, many working groups are in place to collectively address the issue and share information and resources.


Recently, several studies analyzed the impacts of climate change in California and have provided similar recommendations on how best to address the issue. The Tellus Institute’s findings on behalf of the West Coast Governors’ Global Warming Initiative[14], the Pew Center on Global Climate Change, The Union of Concerned Scientists, The Columbia Journal of Environmental Law, and other research all recommend similar actions to reduce emissions including:

·       Tracking and reporting of greenhouse gas emissions

·       Improved energy efficiency and conservation efforts

·       Improved vehicle efficiency and alternative transportation systems

·       Updated building and appliance efficiency standards

·       Increased power plant efficiency

·       Increased renewable energy generation

·       Implementation of an electricity sector GHG policy


It is clear that the California Public Utilities Commission (CPUC) has the opportunity to direct or influence each of the above recommendations as they relate to the CPUC’s regulated utilities’ activities.  Whether through continued and improved energy efficiency and renewable portfolio standard efforts, the encouragement of regulated entities to accelerate deployment of cleaner fleet vehicles, efforts to inform the public, or the accurate reporting of GHG emissions, CPUC policy influences the behavior of the regulated industries including the offer and delivery of products and services.


We have the opportunity to reduce greenhouse gas emissions, and to accelerate development and adoption of new clean technologies. Innovative solutions to address the issue of climate change can be fostered by CPUC policies and actions taken by regulated utilities.  This effort is necessary to ensure that California businesses continue to participate proactively and effectively in the regional, national, and international economies.   


Businesses and their shareholders worldwide are beginning to address global warming and to identify policies and actions necessary to facilitate mitigation.  Many businesses anticipate that mandatory reductions or limits will eventually be put in place, and GHG emissions trading programs are likely to be developed.  Businesses can best comply with future limits and rules if there is both consistency and coordination among states and countries.  What businesses – and the economy –don’t tolerate well is uncertainty and unnecessary risk. 


Swiss Re, an insurance giant, says the word is getting out about financial risk associated with GHG emissions, but not fast enough.  In a recent survey, “80% of CEOs said that climate change was a potential risk, but only 40% were doing something about it.  That’s not good to hear for insurers.[15]  Further, the Columbia Journal of Environmental Law concludes that “the issue of climate change has the potential to affect significantly the well-being of corporations involved in a wide variety of business sectors.  Counsel to such corporations should educate themselves to both the risks and the opportunities that this issue presents to their particular companies and advise their clients accordingly.[16]  They identify potential for litigation, directors’ and officers’ liabilities, shareholder initiatives, and disclosure obligations as potential external drivers for companies to address the issue of climate change. 


The California State Controllers Office has begun to look at the issue of financial risk associated with energy use and GHG emissions and is working with the financial community to encourage companies to adopt sustainable business practices.  Investors of all sizes are calling for environmental disclosure from businesses, and shareholder resolutions on the issue are increasingly being proposed.  Development and use of sustainable business practices are becoming recognized as central to the longevity of a firm’s core business.  


The business case for addressing climate change is becoming more evident.  Business for Social Responsibility (BSR), a non-profit think-tank, has developed working papers on climate change[17] and energy efficiency.  They cite many success stories of companies as large as Alcoa and Dupont that have implemented significant efforts to mitigate their emissions contributions.  BSR offers the following implementation steps to companies interested in reducing their energy consumption and pollution: 1) Improve energy efficiency, 2) Limit Transportation, 3) Purchase Renewable Energy, 4) Trade Emissions, 5) Offset Carbon Emissions, 6) Measure and Report GHG Emissions.  In addition, BSR provides general guidelines to help companies create a corporate climate action plan.


Perhaps most importantly, BSR’s research indicates that many companies who incorporate climate change mitigation efforts into their company’s guidelines find that they can save money, increase revenues, enhance their brand, and boost productivity.  They identify the following real and tangible benefits to companies that have effectively addressed climate change:


- Reduced operating costs                                - Improved productivity and quality

- Increased market share                                  - Enhanced brand

- New revenue sources                          - Mitigation of future regulatory impacts

- Improved cost-to-growth ratios


Further, many experts believe that the majority of technologies needed to address climate change are already in existence.  While there is no doubt that additional research and technologies are needed, and programs and technologies need to be improved and developed, “humanity can solve the carbon and climate problem in the first half of this century simply by scaling up what we already know how to do.”[18]  By developing a proactive and coherent set of programs and policies to address greenhouse gas emissions, California not only has the opportunity to mitigate climate change, but it also has the opportunity to develop and implement climate-friendly business practices and technologies.  Global warming is being discussed and addressed worldwide.  By taking a leadership position on the issue, California can influence, incubate, and benefit from products, services, and business models that will lead the way to the next phase of the industrial age.



The CPUC’s Role

The CPUC recognizes the importance of taking steps now to reduce GHG emissions. We have the opportunity to make a significant contribution to emissions reductions statewide and nationally and to demonstrate responsible participation within the economy. By taking a leadership role and significantly reducing GHG emissions, we can encourage acceleration of similar actions across the U.S. 


The CPUC has recently undertaken efforts to identify and address GHG emissions associated with regulated energy utilities.  Our initial activities included the adoption of the Energy Action Plan in May 2003.  The Energy Action Plan articulates the joint commitment of this Commission and the California Energy Commission (CEC) to energy resource planning that reflects “continuing progress in meeting the state’s environmental goals and standards, including minimizing the energy sector’s impact on climate change.”  More specifically, the Energy Action Plan recognizes the need to “encourage companies that invest in energy conservation and resource efficiency to register with the state’s voluntary Climate Action Registry.” 


The four largest California energy utilities (Southern California Edison Company, Pacific Gas and Electric Company, Southern California Gas Company, and San Diego Gas and Electric Company) are members and active participants in the California Climate Action Registry, and are currently measuring and developing inventories of their GHG emissions. The CPUC is also a member, and we are in the process of inventorying our own GHG emissions.  The two most important steps initially taken are: first, to build a complete and accurate inventory of emissions and, second, to develop a plan to reduce or mitigate those sources of emissions. 


In June 2004, the CPUC requested that its regulated energy utilities address key issues pertaining to climate change as part of their long-term energy procurement planning. This includes internal planning and measurement of GHGs, an assessment of the utilities’ current GHG emissions profile, and any steps the utilities have taken to minimize the release of these gases. Building on this information and on the substantial input from interested stakeholders, the Commission took two significant steps, when it adopted its most recent Procurement Order[19], in December 2004:

·       Greenhouse Gas Adder: The IOUs are now required to employ a “greenhouse gas adder” when evaluating competitive bids to supply energy. This adder is designed to capture the financial risk to IOU ratepayers of emitting GHGs, recognizing the likelihood that these emissions will be limited by regulation in the future. The adder will improve the cost-effectiveness of energy efficiency and renewable generation resources.

·       Incentives Framework: The Commission is now investigating, as part of a general framework of incentives to promote the selection of environmentally sensitive energy resources, the creation of a “carbon cap” to be applied to each IOU’s resource portfolio.


We are now turning our attention to other CPUC regulated industries (water, telecommunications, and transportation), and anticipate that we will undertake efforts with all regulated industries similar to those of the energy sector. We have begun by encouraging all of our regulated industries to participate in the Climate Registry and to initiate the process of benchmarking their GHG-related activities.


We recognize our direct role related to energy utilities and their supply-side contributions and demand-side reductions.  In addition, many of the actions highlighted in the West Coast Governors’ Report in the areas of building, industrial and electricity supply strategies apply to all of the utilities we regulate.  Much of this work has only just begun, and we would be well-served by identifying and implementing additional efforts to significantly reduce emissions in California. 


We also recognize the importance of targeting transportation strategies, since the transportation sector is the most significant contributor of GHG emissions in California.  While our role here is not quite as direct, it is imperative that we identify opportunities to accelerate adoption of low emissions vehicle standards by regulated transportation companies and all other regulated utilities utilizing fleet vehicles. 


In addition, we will continue our collaborative efforts with other state agencies including the California Energy Commission, CAL EPA, and the California Air Resources Board to address this issue.  We will also pursue additional collaborative efforts to identify best practices and to develop climate action policies, including the staff recommendations developed by the West Coast Governors’ Global Warming Initiative that were announced in November 2004.


The CPUC is poised to play a key role in helping to reduce both the footprint and the impact of GHG emissions on California’s economy and public health and to contribute positively to the long-term growth of businesses operating in this state.  Addressing climate change and developing a climate action plan is simply an intelligent business decision. As the international community moves forward to implement the Kyoto Protocol and other efforts to reduce GHG emissions, California and its businesses have the opportunity to lead with development and adoption of innovative technologies and business solutions.


Recommended Next Steps for the CPUC and IOUs


Regulated Utilities’ Procurement and Operational Activities:

·       Establishment of Greenhouse Gas Emissions Baseline- Require all IOUs to develop and maintain accurate baseline information for their GHG emissions information that is verified by independent or third-party evaluators. 

·       Emissions Reduction Plan- Require all IOUs to develop a GHG emissions reduction plan that, at minimum, targets key sources of emissions.

·       Energy Procurement- Require energy utilities to use avoided cost studies currently underway at the CPUC to determine procurement plans, quantify operational and procurement costs, and to establish costs associated with their current emissions levels- including quantification of existing economic risk.  Direct the IOUs to include a requirement in their contracts with merchant generators that the generators track their emissions according to CA Registry protocols, certify these emissions according to CA Registry protocols, and make them publicly available.

·       General Operational Acquisitions- Require all IOUs and transportation companies to incorporate consideration of climate change impacts in all operational activities and supply chain procurement activities (similar to CPUC diversity goals efforts).

·       Fleets- Working with other relevant state agencies, require early adoption of low emission vehicles for all utilities’ fleets including light and heavy-duty vehicles.  Efforts should include transportation and all other CPUC regulated entities. Recognize economic value implicit in travel reduction efforts.  Enhanced-efficiency-factor costing methodologies have been developed and are one example of how a purchasing methodology can reduce petroleum consumption and vehicle-related emissions of pollutants.

·       Cost Recovery- Adopt climate change-related policy guidelines for business operations as well as procurement and acquisitions activities. The CPUC should support reimbursement cost recovery where appropriate.


Existing Programs:

·       Renewable Energy Programs- Continue to accelerate and expand the Renewable Portfolio Standard and renewable energy procurement, including implementing requirements for Energy Service Providers. Identify and implement funding sources and programs to meet the goals of the Governor’s Million Solar Roofs Initiative.

·       Energy Efficiency- Expand cost-effective programs to meet adopted energy savings goals and the Governor’s Green Building Initiatives.  Support and participate in acceleration of building and appliance codes and standards. Implement recommendations to begin tracking GHG reductions associated with energy efficiency programs.

·       Demand Response- Broaden program efforts to increase participation in demand response programs including time-of-use and critical peak pricing programs to further reduce overall and peak energy demand. 

·       Educational Information- Leverage existing utility ratepayer outreach and education efforts that promote demand reduction and clean energy sources to include information about climate change. (For instance, bill insert information could include information about climate change and consumer actions that can be taken to reduce their energy demand through energy efficiency, renewables, demand response, and other programs, where appropriate).

·       Qualifying Facilities- Require QFs to track GHG emissions.

·       Coordination- The CPUC should work with other state agencies and stakeholders to coordinate more effectively ratepayer programs related to demand side reductions and clean energy.


Information Sharing:

·       Local, Statewide, and Regional Collaboration- Continue to collaborate with other agencies and organizations on climate change initiatives. Work with the Governor’s office to implement policies and programs related to climate change, including discussion/review of potential regional cap and trade programs for load serving entities. Recognize and coordinate with the West Coast Governors’ Global Warming Initiative and its proposed strategies to reduce emissions and adapt to expected changes. Collaborate with Public Utilities Commissions and Public Service Commissions in other states to promote information sharing and coordination of efforts.

·       Best Practices- Facilitate communication among all utilities to share best practices, key learnings, and to further develop a climate action plan- including CPUC hosting of an all-industry open meeting in February 2005 on the topic.

·       Climate Action Registry- Continue to promote participation in the Climate Action Registry by regulated utilities.  Expand encouragement to include non-residential participants in ratepayer-funded energy efficiency programs and projects.  Work with the Registry to incorporate its protocols and knowledge, where appropriate.



Climate change presents a unique and difficult challenge, and, ultimately, a potentially devastating threat to California’s economic, environmental, and social well-being.  Fortunately, we are constantly learning more about how to mitigate future changes and adapt to expected changes to come.  It is only through immediate planning and action, that we can hope to reduce the negative impacts within California and help lead the nation by demonstrating enlightened leadership and a commitment to action.




·       J. Kevin Healy, Jeffrey M. Tapick, Columbia Journal of Environmental Law, Climate Change:  It’s Not Just a Policy Issue for Corporate Counsel— it’s a Legal Problem (Vol. 29, No.1, 2004),

·       West Coast Governors’ Global Warming Initiative documents, Staff Recommendations, November 2004: and, Turning the Corner on Global Warming Emissions: An Analysis of Ten Strategies for California, Oregon, and Washington by the Tellus Institute, July 2004

·       S. Pacala, R. Socolow, Science Magazine, Stabilization Wedges: Solving the Climate Problem for the Next 50 Years with Current Technologies, August 13, 2004, Vol. 305

·       Pew Center on Global Climate Change, Climate-friendly Energy Policy: Options for the Near Term, Brief Number 5,, and Climate Change Activities in the U.S.

·       Proceedings of the National Academy of Sciences, Emissions pathways, climate change, and impacts on California, Sept 2004.

·       Union of Concerned Scientists, Climate Change in California: Choosing Our Future, September 2004.

·       Cinergy, Air Issues Report to Stakeholders: An Analysis of the Potential Impact of Greenhouse Gas and Other Air Emissions Regulations on Cinergy Corp., December 2004,

·       Business for Social Responsibility, Issue Briefs: Climate Change, April 2003.


·       Newsclips:

o      Miguel Bustillo, Los Angeles Times, Risk to State Dire in Climate Study, August 17, 2004.

o      Wall Street Journal, UN: Weather-Related Insurance Costs Hit Record $35 Billion in 2004, December 16, 2004.

o      John Carey with Sarah R. Shapiro, Business Week, Global Warming, Aug 16, 2004, Pg. 60, Vol. 3896.

o      National Geographic, Global Warming, September, 2004.

o      Various Governor Schwarzenegger Press Releases.


·       Other Resources for Reference (this list is just a start):

o      Summary of National Climate Change Programs:

o      Federal Legislation:

o      Bibliography of Climate Change Documents:


Table 1:  Summary of Strategy Impacts

Source:  Ten GHG Reduction Strategies for the West Coast-

Tellus Institute on behalf of the West Coast Governors’ Initiative on Global Warming


Emissions (MMtCO2e)














Cost-related impacts

Energy Emissions (Base Case)








Emissions Reductions








Building and Industry Strategies








     Codes and Standards







Over $1 billion in NPV benefit by 2020.

     Efficiency Programs*







Over $10 billion in NPV benefit by 2020.

     Industry Carbon Policy







Significant cost savings (not calculated).

     Combined Heat and Power*







Roughly breakeven cost.

   Electricity Supply Strategies








     Renewable Portfolio Standard*







Net cost or benefit depends on fate of Production Tax Credit.

     Electricity Sector Carbon Policy*







Average cost of reductions between $0-$20/tCO2.

Transportation Strategies








     Light Duty Vehicle GHG   








Studies indicate reductions could be cost-effective.

     Vehicle Miles Traveled (VMT)








Difficult to estimate, given multiple impacts.

     Freight Strategies







Studies indicate reductions could be cost-effective.

     Alternative Fuels*







Medium/high cost (up to $80/tCO2), many co-benefits.

   Total Reductions








Emissions After Strategies








   Percent Reduction (vs. Base Case)
















MMtCO2e = the equivalent of 1 million tons of CO2 emitted

Zero values reflect reductions of less than 0.5 MMtCO2e






* Because each policy was analyzed on a sequential basis, the electricity emission savings for items lower on the list are much lower than would be estimated if they were analyzed on their own (i.e. with no other policies present).  For example, the efficiency activities reduce the amount of renewables needed to meet the RPS targets.  Similarly, a smaller quantity of alternative fuels are needed for the 10% ethanol and 20% biodiesel blends, because the LDV standards and freight strategies significantly lower fuel demands.  Were these strategies considered first, or implemented alone, their emissions savings would appear much larger.











[1] Primary greenhouse gases influenced by humans are carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6).  Carbon dioxide is the most significant contributor to global warming from human activities.  Visit the EPA’s website at for a more thorough overview of GHGs.

[2] A copy of “Emissions Pathways, Climate Change, and Impacts on California” published by the Proceedings of the National Academy of Sciences can be found at  See table at the end of the report for a summary of projected impacts on temperature, mortality, and water availability.

[3] “Weather-Related Insurance Costs Hit Record,” WSJ, 12/16/2004

[4] Tellus Institute for the West Coast Governors’ Global Warming Initiative, Turning the Corner on Global Warming Emission, page ii.  Energy related sources include: fuel use in transportation, electricity supply, buildings, and industry.

[5] “Emissions Pathways, Climate Change, and Impacts on California” published by the Proceedings of the National Academy of Sciences.

[6] Climate Change: It’s Not Just a Policy Issue for Corporate Counsel— it’s a Legal Problem,” Columbia Journal of Environmental Law, Vol. 29, No. 1, p. 96.

[7] For a link to the complaint filed, visit  For a link to Attorney General Lockyer’s press release on the matter, visit

[8] For a link to the press release issued on 9/24/04, visit:  A fact sheet can be found at

[9] Visit for the most recent documents developed for the West Coast Governors’ Global Warming Initiative.

[10] Information about the Public Interest Energy Research Program can be found at

[11] Visit for more information.

[12] For more information on the Climate Change Advisory Committee visit:

[13] Visit for information about the Energy Action Plan.

[14] See Table 1 for a summary of strategies and potential savings impacts identified by the Tellus Institute in their June 2004 Report on  behalf of the West Coast Governors’ Global Warming Initiative.

[15] “Global Warming,” Business Week.  John Carey with Sarah R. Shapiro, Aug 16, 2004, Pg. 60, Vol. 3896.

[16] “Climate Change: It’s Not Just a Policy Issue for Corporate Counsel— it’s a Legal Problem,” Columbia Journal of Environmental Law, Vol. 29, No. 1, p. 113

[17] BSR Issue Brief: Climate Change:

[18] S. Pacala, R. Socolow, Science Magazine, Stabilization Wedges: Solving the Climate Problem for the Next 50 Years with Current Technologies

[19] A copy of  Decision 04-12-048 adopted in Proceeding R.04-04-003 can be found at