This “solvency” issue gives state commissioners broad authority. In the dozen or so states where insurance commissioners are elected, these officials often have their eyes on higher office. For instance, insurance officials and some Sacramento observers argue California’s ambitious commissioner – Dave Jones, a former Democratic assemblyman who is mulling a race for attorney general – is imposing a politically motivated diktat on companies and dressing it up as a campaign for solvency.

The issue: Jones is calling for insurance companies to divest “voluntarily” from their investments in thermal-coal companies and in utility companies that make heavy use of coal. He has vowed to publicize – some say “shame” – insurance companies that don’t comply with the request. Given that 1988’s Proposition 103 grants the California commissioner vast powers to prescribe which factors companies use to adjust rates and to approve or deny proposed rate increases, insurance officials wonder about the voluntary nature of the policy.

The “Climate Risk Carbon Initiative” divestment request applies to direct investments in companies that gain more than 30 percent of their revenues from thermal coal. In practice, these are some of the most conservative investments around, including monopoly utilities whose returns are set by regulation. It also requires insurance companies that do business in the state to answer a variety of questions about such investments, even if they are headquartered outside California. The goal is to pressure companies to divest from these holdings.

“The commissioner decided to request voluntary divestment from thermal coal enterprises this year following consideration of recent studies that show coal investments represent significantly higher financial risk than other investments over time,” the California Department of Insurance explains. “Moreover, since 2011, coal prices, cash flows, and company valuations have fallen sharply, thus adversely affecting and bankrupting numerous coal companies.”

“Politics,” the department says, “has nothing to do with the decision to ask insurers to divest from thermal coal.”

That sounds reasonable, but insurers typically make conservative investment decisions. Jones and other advocates for divestment make it seem as if these companies are heavily invested in high-risk stocks. They suggest these companies will be stuck with enormous “stranded assets” as the nation moves away from coal-based energy and toward alternative-energy sources. But insurance companies hold few coal-related stocks and bonds as a percentage of their overall investments. Even if the “stranded asset” argument were correct, it would barely cause a blip in their portfolios.

In a letter to the insurance commissioner last year, leaders of major insurance-company trade associations reminded him: “For regulated utilities, the risk of loss due to stranded assets is remote. Utility companies operate on a cost-plus system. Precedent is in place that supports the recovery of all costs deemed to have been prudently incurred.”

By contrast, some of the investments the insurance commissioner prefers – in “green” energy, for instance – are risky. As my R Street Institute colleague R.J. Lehmann noted in an article last year, “Greentech Media publishes an annual list of solar company failures and has noted that ‘(k)eeping track of failing solar companies in 2011 and 2012 bordered on full-time work.’”

Why hasn’t the insurance commissioner called for divestment from these companies?

The answer seems obvious. California’s government has embraced climate change in a big way. Gov. Jerry Brown has addressed the United Nations and a conference at the Vatican, where he has depicted the issue in stark terms. In his view, the future of human existence is at stake. California has passed a first-in-the-nation cap-and-trade system to roll back industrial emissions to 1990 levels, along with other legislation designed to decrease public use of petroleum products dramatically. It’s a popular cause here, and isn’t lost on any up-and-coming politician.

Whatever one’s view of man-made climate change, it remains an iffy proposition to suggest it is threatening the long-term solvency of major insurance companies. These investments already reflect the risks involved in the energy sector. Every knowledgeable investor knows about the changing regulatory climate. Private investors are better able than government planners to evaluate such matters and make decisions accordingly.

Indeed, as I pointed out in my recent R Street study, one of the nation’s most widely respected investors, Warren Buffett, recently rejected calls by an activist group and investor in his Berkshire Hathaway Corp. to report on climate-change risks. For instance, many activists argue that insurance companies aren’t properly pricing these risks and aren’t being aggressive enough in tackling the potential long-term problems. Buffett believes in climate change but doesn’t see a risk in his company’s insurance holdings.

“As a citizen, you may understandably find climate change keeping you up nights,” Buffett said in his company report. “As a homeowner in a low-lying area, you may wish to consider moving. But when you are thinking only as a shareholder of a major insurer, climate change should not be on your list of worries.” Buffett suggested even an uptick in the frequency or severity of climate-related catastrophes wasn’t much of a problem for the insurance industry, given that rates are set annually. Moreover, as a major provider of reinsurance – that is, insurance for insurance companies – Berkshire might actually benefit from more demand driven by climate change, given that reinsurance prices have been falling for years.

These companies’ futures depend on their ability to evaluate risks and benefits. They all have teams of actuaries and risk-management professionals who have a vested interest in making the most sophisticated guesses about future events. Elected officials, by contrast, are more apt to be swayed by political winds. A previous Republican insurance commissioner and gubernatorial candidate, Steve Poizner, in 2010 tried to force insurers to divest from investments in multinational companies that did business in Iran. This type of thing is nothing new.

“Divestment comes at the expense of meaningful action,” wrote Frank A. Wolak, director of the Stanford University Program on Energy and Sustainable Development. “It will do nothing to reduce global greenhouse emissions. It will not prevent these companies from raising capital.” And indeed, the state government’s push for divestment in non-insurance areas – i.e., forcing the California Public Employees’ Retirement System to take a similar approach – has been met with a similar backlash.

One can never know the motives of insurance commissioners, past or present. But it’s a safe bet that private investors making their own decisions with their own money are almost certainly more trustworthy than politicians making investment decisions based on the latest political winds. By all means, commissioners should work to assure that insurers can fulfill whatever claims are made in the future – but they shouldn’t bootstrap that legitimate authority into a politically motivated crusade.

Steven Greenhut is the founding editor of CalWatchdog. He is Western region director of the R Street Institute and a Sacramento-based columnist. Write to him at sgreenhut@rstreet.org.

The Los Angeles Times broke the story this week of how UC pension officials had sold $30 million in holdings in companies that run private prisons. Such companies are criticized by activists who believe they are unaccountable and that the U.S. criminal-justice system is much too quick to consign young offenders to prisons for long periods, making it highly unlikely they will lead productive lives. The UC decision was both applauded and criticized, per the Times:

“By selling their shares they’re sending a message … that the UC system is against human rights abuses,” said Kamilah Moore, who graduated from UCLA in 2014 and is a field organizer for the Afrikan Black Coalition, a student advocacy group. …

 

Xavier Harris, who graduated this month from UC Merced, where he was a member of the black student union, said he was encouraged by the move. “It shows [administrators] are listening when we said this is an issue that affects our friends and families,” he said. “They should be in the business of education, not profiting from incarceration.” …

 

Ivo Welch, a finance professor at UCLA’s Anderson School of Management, said that UC administrators may be too sensitive to outside pressure.

 

“If you start going down the list of Fortune 500 companies, I’m sure we can come up with reasons we should divest from each one,” he said. “I’m almost left speechless by how we pamper student whims.”

Previous divestment decision also based on risk

In September, UC sold its $200 million worth of shares in companies in the coal and oil sands extraction business. UC officials had a slightly different tone in describing this divestment, acknowledging student protests but also saying there were legitimate questions about risks. This is from a Reuters report:

Chief Investment Officer Jagdeep Bachher said slowing global demand, an increasingly unfavorable regulatory environment pose insurmountable challenges for coal mining companies.

 

The profitability of companies focused on developing crude from Canadian oil sands has also fallen amid low global oil prices, Bachher said, making those companies increasingly risky investments.

But the next divestment target of student activists — Israeli-owned businesses or corporations that do considerable business with Israel — seems likely to be vastly more difficult to achieve. Such a politically fraught decision would be made by UC regents, not by staff. And the man generally considered the most influential regent — billionaire financier Richard Blum, husband of Sen. Dianne Feinstein — is an intense critic of the BDS (Boycott Divestment Sanction) movement that seeks to punish Israel for its treatment of Palestinians.

In 2013, he abstained from joining an otherwise-unanimous vote to approve the selection of Sadia Saifuddin as a student representative on the regents board in 2014-15. Saifuddin was a leader of the BDS movement at UC Berkeley and belonged to campus groups that the Simon Wiesenthal Center said were explicitly anti-Semitic.

More recently, Blum has fought for a tough UC speech code protecting Jewish students from what he depicts as steadily escalating intimidation and bullying from UC students associated with the BDS movement and other anti-Israeli groups. This led Los Angeles journalist Conor Friedersdorf to write a piece for The Atlantic about free speech on campus that compared Blum with students at UCLA who seek to regulate and punish other students for being insensitive to or insufficiently concerned about minorities.

But the honeymoon could be over for millions of Southern California residents served by municipal utilities. Moody’s Investors Service warns they will be hard-hit by the state’s latest edict on increased use of renewable energy to supply electricity:

On Oct.. 7, Gov. Jerry Brown signed a bill requiring all California utilities to generate 50 percent of the electricity they sell to retail customers from renewable energy by 2030. The legislation will be credit negative for municipal utilities if ratepayers balk at higher prices that come with the transition to renewable energy from coal-fired generation.

 

Municipal electric utilities in Southern California would be particularly affected given their reliance on coal-fired generation. Coal-fired generation has historically supplied cities like Los Angeles and Anaheim with more than 40 percent of their electricity. In contrast, Northern California cities such as San Francisco and Sacramento derive all of their electricity from sources other than coal such as solar, hydroelectricity and natural gas.

 

The Los Angeles Department of Water and Power and other Southern California municipal utilities have thus far managed the shift to other sources from coal without major ratepayer protest, allowing them to increase rates and maintain a sound financial performance. But Los Angeles ratepayers are facing a likely 3.4 percent annual water and power rate increase over the next five years to help support the further transition to cleaner energy.

 

For utilities, the Clean Energy and Pollution Reduction Act of 2015 increases the percentage of electricity coming from renewable energy to 50 percent by 2030 up from the current 33 percent by 2020. We expect the utilities will meet the 33 percent requirement. However, ratepayer affordability and technical challenges will become increasingly difficult as utilities reach towards the more significant 50 percent renewable standard.

Infrastructure costs also likely to buffet ratepayers

Moody’s says another factor could also yield future rate shocks:

[Municipal] utilities will face another major challenge in whether the transmission grid can adequately handle the intermittent renewable resources that will begin to dominate California’s power supply mix. LADWP benefits from owning and operating its transmission system and has variable resources such as a pumped storage facility and gas-fired units to balance the system. The city of Anaheim recently added the Canyon natural gas fired unit and Southern California Public Power Authority financed the Magnolia unit in Burbank to help compensate for shortfalls in solar or wind energy. In the long term, the need to successfully integrate more renewables into the grid will likely require similar additional capital investment.

But while customers of the region’s two giant investor-owned utilities — Southern California Edison and San Diego Gas & Electric — won’t be as hard hit by the latest state edict, they will also pay unique bills in coming years not borne by customers of municipal utilities. Unless a California Public Utilities Commission decision is overturned, customers of the two utilities will pick up 70 percent of the $4.7 billion cost of shuttering the broken San Onofre nuclear power plant. SCE owns 80 percent of the plant, SDG&E 20 percent.

“Terminal Logistics will start building the $250 million Oakland Bulk and Oversized Terminal at the Oakland Global Trade & Logistics Center later this year,” reported the San Jose Mercury News, “and hopes to finish the 35-acre project in 2017.”

Though potentially lucrative, the deal has sent California environmentalists into crisis mode. For years, environmental groups inside and outside the state have invested heavily in convincing public opinion that coal use is harmful and should be abandoned.

Scrambling opposition

Opponents of the coal deal have found themselves struggling to reverse its political momentum. In addition to familiar faces like the Sierra Club and groups like WildEarth Guardians, the Mercury News noted, Oakland’s own city leaders have voiced their dismay while leaving open the question of just how to proceed. “Obviously, we’re going to work with our business partners to try and reach a mutually acceptable way of moving forward,” said Mayor Libby Schaaf. “This is a very important project for the city of Oakland, and this policy resolution is important also.”

The difficulty in turning back the deal reached all the way to the White House, which sparked outrage among environmentalists by advancing a parallel initiative designed to market Utah’s coal. The proposal, which would put millions of tons of the resource on the auction block, drew an unhappy press release from WildEarth, Sierra Club and other organizations.

“Selling more coal portends disaster for our public lands, our climate and our clean energy future,” said Jeremy Nichols, WildEarth Guardians’ climate and energy program director. “While President Obama is calling for action to combat climate change, his administration seems to be doing everything they can to appease the coal industry and open the door for more carbon pollution.”

Looking to head off a wave of opposition, state officials backing the plan have underscored that Utah coal burns cleaner than the alternative in the Asian markets where it would be headed. Laura Nelson, director of the state’s Office of Energy Development, called the port project “an opportunity for those markets to displace dirtier coal with Utah coal, which has a lower sulfur and water content and higher BTU, which means it produces energy more efficiently.”

Market momentum

Defenders of the plan, meanwhile, also pointed out that coal transportation was just a first step in building a broader economic relationship.

Gordon Walker, chairman of Utah’s Permanent Community Impact Fund Board, told the Salt Lake Tribute that commodities ranging from alfalfa and grain to salt and iron ore could soon follow along the shipping line opened up by the coal deal.

“What we are doing is creating through-put for other commodities that are coming online. Potash is going to be a big deal,” Walker said, referring to the proposed Potash Ridge mine in Beaver County. “This benefits all of rural Utah. We have created a bigger pie.”

Given the sheer size and cots of the project, supporters like Walker had an incentive to emphasize the staying power of the new arrangement with Oakland. To ready the port that will receive the coal, the Tribute noted, Utah will spend over $50 million in federal mining royalties — allocated by the board, in the form of a low-interest loan, to the state’s most significant mining counties.

Costs and benefits

Like any major infrastructure venture, the port plan has offered Utahns a tradeoff between potential benefits and a certain level of risk. As in-state critics have observed, though the specific terms of the 66-year contract have yet to be hammered out, the full cost of port construction has been estimated to top out around $275 million.

In 2010, for example, the California Public Employees’ Retirement System faced criticism for “thumbing its nose” at a state law written by Sen. Joel Anderson, R-El Cajon, intended to force CalPERS to divest in firms doing business with Iran.

Calpensions.com explained this defiance at the time:

Consultants have estimated that boycotts of corporate stocks to end racial apartheid in South Africa and reform the tobacco industry cost CalPERS and CalSTRS billions of dollars, with no hard evidence of any results.

Now when pressured to sell or “divest” investments, a new policy adopted by the California Public Employees Retirement System last year gives priority to the “fiduciary duty” to manage money for the benefit of retirees.

Pressure to sell or “divest” investments for other reasons is met by “constructive engagement” with targeted corporations, if dumping the holdings and barring future purchases are not in the best financial interest of members of the retirement system.

CalSTRS more pliant than CalPERS

Now CalPERS and CalSTRS are facing new pressure to take stands on issues. Senate President Pro Tem Kevin de Leon, D-Los Angeles, is pushing a bill that could force the giant pension funds to begin scrapping their coal investments.

CalSTRS is taking a less pugnacious stand than CalPERS did over Anderson’s law. According to Capitol Weekly, “The CalSTRS board directed its staff and consultants last week to evaluate the risk of investments in thermal coal companies, jumping ahead of pending legislation that would require CalSTRS and CalPERS to divest thermal coal holdings.”

But CalSTRS is in a bind over demands from the California Federation of Teachers that it end its investments in gun makers. More from Capitol Weekly:

Last week the California Federation of Teachers led a large and emotional protest of the CalSTRS failure to divest holdings in the manufacturer of an assault rifle used to kill 20 children and six educators at a Connecticut elementary school in December 2012.

“CalSTRS has hundreds of billions in investments,” Jeff Freitas, CFT secretary-treasurer, told the board. “Even if we take a loss in removing this portfolio from our retirement fund, it is the right thing to do.”

CalSTRS quickly sold $3 million in stock of two other gun manufacturers. But its holding in the assault rifle manufacturer, estimated at $8.8 million two years ago, is part of a $375 million investment in a long-term Cerberus private equity fund.

If it broke the Cerberus contract, CalSTRS could suffer a major financial loss and, some fear, perhaps the ability to contract in the future with top private equity funds, which are expected to provide above-market returns.

Investment czar: Divesting doesn’t cause change

While CalSTRS seems more willing than CalPERS to change its investments to take political stands, Chris Ailman, its top investment advisor, isn’t convinced this approach makes sense. He made his views known at the last CalSTRS board meeting:

“I’ve been involved in five divestments for our fund,” Ailman told the CalSTRS board last week. “All five of them we’ve lost money, and all five of them have not brought about social change.”

This observation about divestment being symbolic, not consequential, appears particularly on point with gun manufacturers, given constitutionally guaranteed rights of gun ownership.

We hear plenty of CARB critics from libertarian and conservative circles. Here’s what a sharp liberal critic of CARB sounds like:

Now, say a utility in a carbon market wants to reduce its carbon emissions. It could build renewable energy generation, or launch efficiency or demand-response programs, but gosh, that stuff is expensive and difficult. Isn’t there something easier and cheaper? Why yes! Here’s two other things it could do.

One, it could sell its ownership stake in a coal plant and buy a stake in a natural gas plant. Voilà! The net emissions of its power portfolio has declined.

Or two, it could shuffle power contracts away from coal plants to unspecified sources, which are treated as natural gas. (More sinister yet, it could help a coal plant obscure the source of its power, rendering it unspecified.) Again: voilà! For bookkeeping purposes, its emissions have fallen.

See what’s wrong here? In both cases, the utility reduced the emissions for which it is responsible, but real-world emissions did not decline at all. The same amount of dirty energy is still feeding into the western grid. The emissions just got “shuffled” off the California utility’s books.

For obvious reasons, resource shuffling is bad news for carbon markets. It makes carbon emissions into a meaningless shell game, exactly the sort of shenanigans cap-and-trade critics are always warning about.

CA regulators saw problem coming

Liberal lawmakers have long downplayed this potential problem. But Roberts says CARB was aware of it and wrote AB 32 to avoid it — at least in theory:

AB32 contains strong language on leakage, saying that regulations must “minimize leakage” and that emission reductions achieved under the program must be “real, permanent, quantifiable, verifiable, and enforceable by the state board.”

And the initial guidance document written by regulators (which details the mechanics of how AB32 is to be implemented) stated clearly that “resource shuffling is prohibited and is a violation of this article.” In fact, the initial guidance contained a provision that would have forced utility executives to testify under oath that their emission reductions were real and not merely shuffled. Powerful and unambiguous stuff!

UC Berkeley research fellow Danny Cullenward tells the story of what happened next:

“[Banning resource shuffling outright] proved controversial. In the months leading up to the beginning of the market’s first compliance period, several stakeholders objected to the resource shuffling rules and began agitating for reforms. The first public proposal came from California’s investor-owned utilities, which in September 2012 advocated a series of exemptions to the prohibition on resource shuffling. The following month, [the California Air Resources Board] directed its staff to develop modifications to the resource shuffling regulations, providing 13 fully developed ‘safe harbor’ exemptions to the definition of resource shuffling directly comparable to, if not more permissive than, the Joint Utilities Group proposal. A few weeks later, CARB staff released a new regulatory guidance document that incorporated these safe harbors, almost word for word.”

So the new AB32 regulations now say that resource shuffling is prohibited … except “when the substitution occurs pursuant to the conditions listed in section 95852(b)(2)(A).” Just a little tweak, right? Except 95852(b)(2)(A) contains loopholes wide enough to sneak a coal plant through. (To see for yourself, check out the current regulations, pp. 106-108.)

In other words: California regulators caved.

CARB’s self-reverence may not be deserved

One person’s view of what constitutes caving might well be another person’s reasonable compromise. But it’s still interesting to see a liberal, deeply informed out-of-state journalist — Roberts lives in Seattle — investigate the air board and conclude that the agency’s high opinion of itself isn’t warranted.

David Roberts will find lots of libertarian and conservative Californians probably agree with him on this, starting with Cal Watchdog contributor … Dave Roberts.

But the state Senate has had only Darrell Steinberg, D-Sacramento, as president from 2008 until a few weeks ago. Steinberg left to media accolades this fall. Note this long Q&A in which the Bee reporter’s framing is consistently favorable to the former teacher.

Yet his successor, Sen. Kevin de Leon, D-Los Angeles, is off to the roughest start of any Californian assuming a high-profile office since Lane Kiffin took over as coach of the Oakland Raiders.

De Leon has gotten skeptical to scathing media responses for a relatively long list of things in a relatively short time.

More perceived screw-ups since Walters tore him up

On Dec. 4, Sacramento Bee columnist Dan Walters blasted him for a “series of blunders.”

Walters ripped de Leon for verbal gaffes that proved hugely damaging to a Central Valley Assembly Democratic hopeful; for a self-important, pompous “inaugural” ceremony in Los Angeles; and for gutting many of the Senate’s most experienced policy analysts because of murky budget problems. Insiders said if the Senate really were hurting, the logical thing to do was lay off the political apparatchiks on all Senate staffs, not the people with the institutional memory.

The knocks have kept coming since Dec. 4.

De Leon’s announcement last week that he would pressure CalPERS and CalSTRS to disinvest from coal-affiliated companies — but not those in oil or natural gas — struck a chord in the wrong way with just about everyone.

I talked to one insider who said there was disbelief among lawmakers that 1) this symbolic, hollow gesture was highlighted as an early priority of de Leon’s and 2) that de Leon wouldn’t realize this would seem insubstantial and not worthy of his time. Another Sacramento watcher told me he couldn’t believe de Leon would focus on this trivia instead of grabbing a chance to be enviros’ hero by talking up a fracking ban. New York state’s passage of such a ban last week shows how much it’s where greens want to go.

Oversight office abruptly scrapped

Then de Leon was pulverized last week by editorials in both the Bay Area Newspaper Group and its sister Los Angeles News Group over other actions as well. This is from the Vallejo Times-Herald’s version:

“De León has eliminated a team of Senate aides dedicated to evaluating state government institutions and programs. He declined to renew the Senate’s Office of Oversight and Outcomes, established in 2008 by then-Senate President Darrell Steinberg with a goal “to ensure taxpayer dollars are being spent wisely and productively.

“The four-person staff’s combined salaries of about $379,000 seemed a small price for the good it did.

“Among the reports the office produced just last year were ones on the misuse of student meal funds by school districts, including $158 million in misappropriations and unallowable charges by Los Angeles Unified; about how the state’s system for overseeing substance-abuse counselors failed to flag sex offenders; and assigning blame for problems with the $373 million state payroll system. Among earlier reports was one looking at 10 tax breaks that, over a decade, cost state coffers $6.3 billion more than anticipated.”

Accused of wide range of political sins

What’s interesting is that these criticisms of de Leon don’t just focus on money-grubbing or another particular sin that politicians sometime specialize in. Implicitly, they make quite a sweeping case.

In possibly costing an Assembly candidate a chance at victory, de Leon is accused of poor political acumen.

In staging a showy unofficial “inaugural,” de Leon is accused of grandiosity.

In his Senate shakeups, de Leon is accused in one of a power grab and, in the other, of showing ignorance of the importance of a new but respected Sacramento institution.

In thinking that going after coal while ignoring fracking would make him look good, de Leon is accused of — to be blunt — stupidity.

The Sacramento version of the Stockholm syndrome

That is a pretty sweeping bill of particulars. What’s going on here?

The most obvious problem is that de Leon is politically tone-deaf in a way that’s striking for someone who’s made such a rapid ascent.

But the less obvious problem is that a lot of times it’s not fun to cover politics. It feels sleazy, disheartening, transactional, petty and repetitive. Steinberg made it feel more principled and sincerely, earnestly progressive.

That mattered to a bigger chunk of the Sacramento media-political establishment than people far from the state Capitol might imagine. This establishment didn’t miss Steinberg’s, er, colorful predecessor Don Perata at all.

It should be obvious what the investment strategy should be for the California Public Employees System, the California State Teachers Retirement System and other mammoth funds: maximize fund values through the most prudent and profitable investments.

Because if investments are not prudent and profitable, then the lower fund values will have to be made up by either increasing the cost to taxpayers, who ultimately are on the hook for the funds’ payouts to retirees; or by cutting retiree benefits.

That’s the background for new state Senate President Pro Tem Kevin De Leon’s proposal to ban coal from retirement investment portfolios. According to the Bee, De Leon said, “Coal is a dirty fossil fuel. I think that our values should reflect, you know, who we are as the state of California.”

But if coal is the best return on CalPERS and CalSTRS investment dollars; and these funds are forced to invest in something else; then the funds’ return on investment will be lower than it could have been. Which brings up the scenario above: taxpayers will have to pay more, or retirement benefits will have to be cut — or both.

Do state employees and retirees see this?

California’s pioneering climate-change law has a long reach, but that doesn’t mean all its mandates will help stave off global warming.

To meet the requirement that it cut carbon emissions, for example, Southern California Edison recently sold its stake in one of the West’s largest coal-fired power plants, located hundreds of miles out of state.

But the Four Corners Generating Station in New Mexico still burns coal — only the power that Edison once delivered to California now goes to a different utility’s customers in Arizona.

Similar swaps are taking place at coal plants throughout the West, and they underscore the limitations California faces as it tries to confront climate change in the absence of a coherent federal plan.

Unilateral CA action never made sense for many reasons

This quandary was predicted by AB 32’s critics. California’s attempting to conquer climate change with unilateral action made little sense for one big reason — by itself it wouldn’t work, and only blindered greens would believe AB 32 would insipre the rest of the world to copy the Golden State. But there were also many other reasons to expect it would cause headaches. Such as …

Originally, California’s climate-change policies included a provision that would have demanded utility executives swear under penalty of perjury that the actions they took to reduce emissions would not result in a spike in greenhouse gases someplace else.

But federal officials warned Gov. Jerry Brown that too aggressive an effort to control emissions across state lines would risk disrupting the complex interstate electricity system.

In the end, the California Air Resources Board — which oversees the state’s 2006 climate-change law — allowed utilities a dozen “safe harbor” conditions under which electricity companies would be permitted to shift emissions to nearby states.

Critics called the conditions loopholes.

The board “was struggling with what it could do in enforcement,” said James Bushnell, a UC Davis expert in energy economics. “It was a tough issue.”

The exemptions are so broad, the board’s own advisory committee cautioned, that all the reductions in greenhouse gas emissions made by electricity companies could end up existing only on paper.

“If you use enough of those safe harbors, you can shuffle your way out of all your obligations,” said Severin Borenstein, a UC Berkeley economist who advised the board.

How California indirectly burns lots of coal

There are a lot of other AB 32-driven scams out there. Chuck DeVore has written for years about a similar assault on AB 32’s goals that state officials never talk about because they’d rather just pat themselves on the back because of the law’s symbolism and alleged glories.

California has become America’s largest electricity importer. With 37 million people producing about 13 percent of the U.S. gross domestic product, California imports about 23 percent of its electricity. This situation is compounded by the state’s environmental laws which, if a power plant can be built at all, typically consume seven years for permitting and construction vs. three years in competing Texas.

Complicating matters are a trio of California energy policy laws passed in 2006: AB 32, SB 1368, and SB 107. AB 32 mandates a 30 percent reduction in California’s greenhouse gas emissions by 2020 (BC Premier Campbell was particularly enthusiastic about this law). SB 1368 outlaws the renewal of coal-fired electricity contracts—imported coal energy powered about 16 percent of California’s grid in 2008. While SB 107 accelerated the requirement that California derive 20 percent of its electricity from renewable sources this year, renewable being defined as small hydro, geothermal, wind, solar, and biomass (we missed the target, meaning utilities, read ratepayers, get dinged). 

Enter government-owned BC Hydro and its Powerex subsidiary. With abundant hydro power potential, British Columbia is seeking to become the Saudi Arabia of “green” energy. California environmentalists don’t see the irony in British Columbia damming rivers to provide power to California, while in California, environmentalists fight to demolish dams as unsightly threats to salmon. 

The irony gets even deeper, though. British Columbia, perhaps due to Premier Campbell’s business-friendly tax and regulatory policies, is growing. That, combined with a severe drought (yes, when California gets a good water year, British Columbia often sees a drought) means that BC Hydro will be importing $220 million more electricity than it did last year. You read it correctly, hydro energy colossus British Columbia will be importing almost a quarter billion dollars more electricity this year than last. In fact, BC Hydro has imported more energy than it has exported in 10 out of 11 years. And, from where does this energy come? Washington State and Alberta Canada. And, what is the source of this electricity? Brace yourself. Coal and gas-fired plants.

DeVore: ‘Clean green’ and ‘dirty coal’ can’t be separated

That’s from Chuck’s 2010 article for Brietbart. It’s at least as juicy as the LAT’s weekend piece because it involves so much power.

I’ll give the state-assemblyman-turned-Texas-policy-wonk the last word:

Electrons in a grid, like dollars in an account, are fungible, meaning that “clean green” electrons cannot be separated from “dirty coal” electrons and both are mixed in with electrons from nuclear power plants. So, when the Premier of British Columbia comes to California to urge us to continue to make our state even more dependent on his province for electricity as we strive to make the planet better we shouldn’t fool ourselves. The fact is, BC Hydro is buying “dirty” power and then, in an act I’ll dub “electron laundering” is repackaging it for the silly, naïve, environmental-minded Californians as pristine green hydro power—with a nice mark up, of course (Canadians have to pay for their national healthcare after all). 

By Chris Reed

A visit to the California Sierra Club’s priorities page illustrates one of the funniest and most ironic public-policy developments of our time. The club’s top three priorities are getting California “Beyond Coal,” “Beyond Oil” and “Beyond Natural Gas.” All fossil fuels are evil, you see.

But it is the gigantic boom in natural gas — not the subsidized, largely failed green energy revolution — that has helped the U.S. lead the world in reduction of the emissions believed to contribute to global warming. This reduction has come almost entirely because U.S. utilities have shifted from dirty coal to relatively clean natural gas, which is newly abundant because of hydraulic fracturing, which uses underground water cannons to free up energy supplies. The process has been around nearly 70 years but has become vastly more efficient in recent times because it has been enhanced by information technology that allows for much more precision in aiming of the water cannons. (This has also made the process much cleaner.)

Green think tank makes heretical case to green movement

Now an environmental group, the Breakthrough Institute, has broken through green dogma and put out a report making the case that it’s good to have abundant natural gas, even if it is an allegedly evil fossil fuel.