Written by Max Schulz
May 8, 2008
A celebrated green economy produces pollution elsewhere, ongoing power shortages, and business-crippling costs.
Rancho Seco was once a nuclear plant generating over 900 megawatts of electricity; today, its solar panels produce just 4.
In January 2007, Governor Arnold Schwarzenegger stood before the California legislature in Sacramento and delivered his fourth State of the State address since his improbable 2003 election. It was a rhetorical tour de force that would win him widespread acclaim. “California has the ideas of Athens and the power of Sparta,” said Schwarzenegger. “Not only can we lead California into the future; we can show the nation and the world how to get there.”
Schwarzenegger especially celebrated California for its leadership on energy and the environment. Just three months earlier, he had signed the Global Warming Solutions Act, committing California to reducing greenhouse-gas emissions to 1990 levels—roughly 25 percent below today’s—by 2020, and all but eliminating them by 2050. The Governator then lambasted the Bush administration for failing to tackle global warming: “It would not act, so California did. California has taken the leadership in moving the entire country beyond debate and denial to action.” Such performances have helped establish Schwarzenegger as a national figure, even a statesman, on the environment. In April 2007, he posed for the cover of Newsweek, spinning a globe on his finger under the banner leadership & the environment, and in September, he even addressed the United Nations on climate change.
Schwarzenegger’s reputation as an environmental trailblazer is in keeping with California’s recent history and self-perception. California’s political leaders, business titans, academics, and environmental activists proudly point to the fact that the state has infused its public policy over the last four decades with an environmental consciousness unmatched in the United States, while also maintaining a dynamic economy, arguably the eighth-largest on the planet, with a gross state product of more than $1.6 trillion. The widely shared assumption is that forward-looking Athenian wisdom has nourished awesome Spartan power.
In truth, however, the Golden State’s energy leadership is a mirage. California’s environmental policies have made it heavily dependent on other states for power; generated some of the highest, business-crippling energy costs in the country; and left it vulnerable to periodic electricity shortages. Its economic growth has occurred not because of, but despite, those policies, which would be disastrous if extended to the rest of the country.
Much of California’s heightened environmental awareness dates back to January 1969, when an industrial accident on a Union Oil (now Unocal) drilling rig about five miles off the Santa Barbara coast blew out of control. Over 11 days, the rig spewed more than 3 million gallons of oil over 800 square miles of ocean and along a 35-mile stretch of coastline. The massive spill killed innumerable birds, fish, dolphins, and seals and coated beaches with a six-inch-thick film. Union Oil president Fred Utley’s ham-handed response enraged an already angry public: “I don’t like to call it a disaster,” he said, noting that there had been no loss of human life. “I am amazed at the publicity for the loss of a few birds.”
The concern over “the loss of a few birds” was even more powerful than Utley thought. It’s no exaggeration to say that much of the modern environmental movement emerged from the Santa Barbara oil spill. Wisconsin senator Gaylord Nelson said that he conceived of the first Earth Day because of the accident. A powerful movement to ban offshore drilling sprang up. Environmental advocacy groups formed. A marked hostility to oil companies took hold in the public’s mind. Voters established the California Coastal Commission in a 1972 referendum. And at the federal level, in 1970, President Richard Nixon created the Environmental Protection Agency largely as a response to the spill.
From then on, the environment would be central for California lawmakers and regulators. Unlike other states, California began to focus on efficiency and conservation, and it pioneered new efficiency standards for appliances and for the construction of new buildings. It mandated aggressive conservation programs for businesses and consumers and required a certain percentage of the state’s electricity to come from renewable sources like wind and solar. It subsidized such clean technologies, seeking to give them a foothold in the state’s energy mix. It implemented far-reaching regulations on emissions from car tailpipes and from stationary sources like factories, seeking to protect health and improve air quality. In league with influential environmental groups, California officials began attacking nuclear power and moving (with some success) to shut down the state’s nuclear facilities.
For environmentalists, this was visionary policy. “This is a state which should be commended,” says Rory Cox of Ratepayers for Affordable Clean Energy, a San Francisco–based environmental coalition. “This is a state which has a number of really good laws regarding renewable energy and a lot of incentives for things like renewable energy and energy efficiency.” The Natural Resources Defense Council, arguably the nation’s leading green activist group, expressed the same view in a 2006 cover story in its magazine OnEarth: “California Illuminates the World.”
For a time, these efforts to meet power needs by reducing energy demand and consumption seemed to work. Since the mid-seventies, California’s economy has grown while per-capita energy consumption stayed flat—an astounding fact, considering that such consumption has increased by roughly 50 percent elsewhere in the country over the same period.
To understand better how California’s environmental policies have played out, however, consider what two of them—opposition to nuclear energy and promotion of solar power—have done to Clay Station, California, 25 miles outside Sacramento, where two gigantic cooling towers rise up over rolling fields and farmland. This facility was once the Rancho Seco Nuclear Generating Station, capable of generating over 900 megawatts (MW) of electricity, enough to power upward of 900,000 homes. Rancho Seco opened in 1975, when antinuclear fervor in California was just beginning to gain momentum, and at one point, it generated more electricity than any other nuclear plant in the world.
Over the years, though, management missteps led to several shutdowns, including one that lasted 27 months. Antinuclear advocates seized on the fact that the reactor’s design was similar to Three Mile Island’s in Pennsylvania, which had suffered a partial meltdown in 1979, and demanded that it be closed. In a 1989 referendum on whether to decommission Rancho Seco, 53 percent of Sacramento voters agreed. Just 14 years after powering up, and nearly two decades before its operating license was to expire, the nuclear reactor shut down.
The facility didn’t entirely close, though. In 1984, trying to position itself as a national leader in solar power, the Sacramento Municipal Utility District (SMUD) began building photovoltaic solar panels on the site, taking advantage of the already constructed infrastructure to transmit power. At the same time, in a bid to position itself as a national leader in solar power, SMUD instituted programs subsidizing the construction of photovoltaic panels for Sacramento homes and businesses. The utility halted the installation of new panels in 2002, after it became clear that the program would cost perhaps three times more than projected and had lost millions of dollars, falling well short of its modest goal to install 2 MW of solar energy that year.
Today, Rancho Seco possesses one of the largest photovoltaic arrays in the world. Yet it provides less than 4 MW of electricity, or less than half of 1 percent of what the closed nuclear plant optimally offered. Total solar capacity for the Sacramento region is less than 50 MW, or about 6 percent of the nuclear plant’s output. In fact, after millions of dollars in subsidies and other support for solar power, the entire state of California has less than 250 MW of solar capacity.
The Rancho Seco story helps explain California’s infamous turn-of-the-millennium energy crisis. In 2000 and 2001, numerous rolling blackouts and power outages caused billions of dollars in damages in the state. The degree to which rapacious power-company executives and traders were responsible for the shortages remains open to debate. But what isn’t in question is that California had insufficient power to meet demand and that officials had let the state’s infrastructure for moving electrons become frayed and overloaded. Having adequate power supplies would have shielded consumers from any private-sector perfidy.
Republican state senator Tom McClintock underscored the real problem, which went well beyond Rancho Seco, in a speech to a Silicon Valley group in 2001. “From 1979 to 1999, generating capacity of over 45,000 megawatts was proposed to the [California Energy] Commission,” he said. “Only 4,500 megawatts was approved. Nuclear power plants were forbidden, and Rancho Seco and San Onofre Unit One,” another nuclear reactor, “were shut down prematurely. . . . For 27 years, this state has actively discouraged the construction of new power plants, and the day finally arrived when we ran out of power.” Indeed, California’s capability to generate electricity actually decreased slightly from 1990 through 1999.
Not even California’s flat per-capita energy consumption could save it from blackouts, since its population had been soaring. During the 20-year period that Senator McClintock noted, the number of California residents jumped from about 23 million people to 33 million. Today, the figure is closer to 38 million, and it could top 45 million by 2020. The cumulative demand proved too much for the aging system.
A dirty secret about California’s energy economy is that it imports lots of energy from neighboring states to make up for the shortfall caused by having too few power plants. Up to 20 percent of the state’s power comes from coal-burning plants in Nevada, New Mexico, Utah, Colorado, and Montana, and another significant portion comes from large-scale hydropower in Oregon, Washington State, and the Hoover Dam near Las Vegas. “California practices a sort of energy colonialism,” says James Lucier of Capital Alpha Partners, a Washington, D.C.–area investment group. “They rely on western states to supply them with power generation they are unwilling to build for themselves”—and leave those states to deal with the resulting pollution.
Another secret: California’s proud claim to have kept per-capita energy consumption flat while growing its economy is less impressive than it seems. The state has some of the highest energy prices in the country—nearly twice the national average, a 2002 Milken Institute study found—largely because of regulations and government mandates to use expensive renewable sources of power. As a result, heavy manufacturing and other energy-intensive industries have been fleeing the Golden State in droves for lower-cost locales. Twenty years ago or so, you could count eight automobile factories in California; today, there’s just one, and it’s the same story with other industries, from chemicals to aerospace. Yet Californians still enjoy the fruits of those manufacturing industries—driving cars built in the Midwest and the South, importing chemicals and resins and paints and plastics produced elsewhere, and flying on jumbo jets manufactured in places like Everett, Washington. California can pretend to have controlled energy consumption, but it has just displaced it.
It isn’t just the high price of power that’s compelling California businesses to shift operations to other regions. The state’s unreliable power grid has its economic costs, too. A 2003 U.S. Department of Energy report noted that “a recent rolling blackout in the greater San Francisco Bay area caused an estimated $75 million in losses in the Silicon Valley.” A 20-minute outage at a Hewlett-Packard circuit-fabrication plant, the report observed, “would result in a day’s production loss at a cost of $30 million.” As Jack Gerard, then-president of the National Mining Association, put it in a 2001 speech: “Events are proving that the most expensive kilowatt is the one that’s not there when needed.”
The shortages are starting to rattle some Silicon Valley heavyweights. Intel chief executive Craig Barrett, for instance, vowed in 2001 not to build a chip-making facility in California until power supplies became more reliable. This October, Intel opened a $3 billion factory near Phoenix for mass production of its new 45-nanometer microprocessors. Google, meanwhile, has chosen to build the massive server farms that will fuel its expansion anywhere but in California. The most celebrated is an enormous installation along the Columbia River in The Dalles, Oregon, a facility that will house tens of thousands of computers, requiring mind-boggling amounts of power. A 1.8-gigawatt hydroelectric power plant will offer Google power for a small fraction of what it would cost in the Golden State. The irony is that the Silicon Valley companies that have become the face of California’s twenty-first-century economy are increasingly building the facilities that will give them their future value in other states.
Despite California’s desperate need for more power, opposition to energy projects remains nearly as prevalent today as at any time during the previous three decades. State law explicitly prohibits the construction of new nuclear plants, and legislative efforts last summer to repeal it went nowhere, even though more and more states are looking to nuclear power as a clean energy alternative. A de facto moratorium on conventional coal-fired power plants (which generate half of America’s electricity) has been in place for decades in California; none exists anywhere in the state. Environmental groups like the Sierra Club and Environmental Defense are working to get dams torn down, even though large-scale hydropower supplies nearly one-fifth of Californians’ electricity.
Plans to construct liquefied natural gas (LNG) receiving terminals along the California coast have met with particularly fierce resistance. Natural gas accounts for nearly half of California’s electricity generation. Regulators (and even some environmentalists) favor it because it’s capable of generating large amounts of power but burns much cleaner than coal. American production of natural gas has reached a plateau, however, while demand around the country continues to rise, driving prices upward over the last five years.
To avert a long-term natural-gas supply crisis, Schwarzenegger administration officials have encouraged companies to explore the idea of building offshore terminals to accept LNG from other countries. The gas would be liquefied abroad, shipped via tanker to the terminals, reconverted to gas, and then sent to shore through long underwater pipelines. The distance from shore is critical, since the liquefied gas is extremely flammable: federal officials believe that the fire from an explosion at an LNG terminal could reach as far as seven miles.
The state has received several credible proposals to construct LNG terminals far offshore, the most promising of which called for a terminal 14 miles off the Malibu coast. But the project sparked intense resistance from environmentalists and a coterie of entertainment-industry activists (and Malibu residents), including Pierce Brosnan, Ted Danson, Martin Sheen, TÃ©a Leoni, Cindy Crawford, Halle Berry, and octogenarian Dick Van Dyke. “This is just another disaster waiting to happen,” said actress Darryl Hannah at a 2006 protest. “An LNG plant off the coast is not just an eyesore, but it’s like a bomb waiting to go off.”
A political consultant with close ties to the Schwarzenegger administration wasn’t impressed. “These softheaded celebrity protests against LNG are the same thing we saw in the 1970s with the protests against nuclear power,” he said. “I mean, Martin Sheen? I think he was actually there in the seventies.” But the celebrity activists have had the last laugh. Bowing to the activists, regulators with the California Lands Commission and the California Coastal Commission vetoed the project last spring.
Even renewable energy projects can have trouble getting off the ground, often because of Not-In-My-Backyard objections. “NIMBYism is a huge problem in our state, a whole creature unto itself,” says Joe Lyons, a lobbyist for the California Manufacturers Technology Association. “It cuts across all sectors. Even in the most remote locations, where you wouldn’t think it would be difficult to site a new project, or even on federal lands, it is still extremely difficult and there is always opposition.” For instance, attempts to build a geothermal facility on federal lands deep within the Modoc National Forest face relentless opposition from Indian tribes, which consider the site sacred. Local hostility also threatens to hold up construction of several major transmission lines designed to bring more than 5,000 MW of power from renewable energy sources to Southern California consumers.
One of these projects, a $1 billion transmission line known as the Sunrise Powerlink, would ship wind power 120 miles west from the Imperial Valley to San Diego. Here’s the head of one community activist group commenting on the initiative: “While the Sunrise Powerlink may represent the possibility of a new dawning of power . . . to me it represents a threat; a darkness, a SUNSET, of sorts, on our quiet, natural, joyful and backcountry rural way of life. For the many quiet folks who thought they had found paradise . . . or the many who may see the intrusive poles each and every day for the rest of their days here, the magnificent beautiful and natural sunrises and sunsets will never be quite the same.”
With such widespread opposition to energy projects, where will California get the power its economy needs to flourish? Since the 2000–01 electricity debacle, the state has overseen the construction of some natural-gas power plants, whose added generation has helped relieve the pressure slightly. But Californians have continued to face the threat of blackouts or brownouts almost every summer since 2001.
California’s inability to provide the energy that its economy needs hasn’t stopped its leaders from setting wildly unrealistic goals for safeguarding the environment. In 1990, for instance, the state’s Air Resources Board sought to encourage the development of an electric car, decreeing that by 1998, 2 percent of all new cars sold by the major automakers had to meet zero-emissions standards; by 2001, 5 percent; and by 2003, 10 percent. But by 1996, it was clear that there was simply no technological way for the automakers to comply with the mandate. The regulators first eliminated the 1998 and 2001 benchmarks, later announced that gasoline-battery hybrids could count toward the 2003 requirement, and then, faced with the reality that the automakers could not come close to meeting even the newly relaxed standards, relaxed the mandate once again and moved the deadline to this year. Doubtless that goal will prove impossible to meet as well.
California’s efforts to implement a renewable portfolio standard (RPS) and to become the nation’s leader in wind-energy production have hit similar stumbling blocks. In 2002, California enacted an RPS that called for 20 percent of the state’s electricity to come from clean energy sources (excluding nuclear energy and hydropower) by 2017. When Schwarzenegger became governor, he moved the target to 2010. But recent reports, including one from the state’s Public Utilities Commission, signal that California will very likely not meet the 2010 target. In September 2006, reports emerged that Pacific Gas & Electric, the Northern California utility serving San Francisco, had actually reduced the share of renewables in its portfolio between 2003 and 2005. And Texas, of all places, has outpaced California as America’s leader in wind-power generation. High costs, excessive regulation, and litigation from environmental groups on how to limit bird deaths have all hampered California’s effort; Texas has just built lots of wind turbines.
Now California is embarking on its most ambitious project yet: an attempt to combat global warming by reducing its greenhouse-gas emissions. The devil will be in the details of how the Global Warming Solutions Act (or AB32, for its legislative number) is enacted—details that state regulators don’t have to unveil until January 2009. Already there’s widespread skepticism that the state can succeed. Margo Thorning, chief economist at the American Council for Capital Formation, testified before Congress last July: “The economic burden of California’s new climate policy legislation is likely to be high, and the targets in AB32 are unlikely to be met.” Even the California Energy Commission hints that the targets might be unreachable.
It’s certainly going to cost a lot to find out. Analysis from the Electric Power Research Institute pegs AB32’s cost to the California economy at anywhere from $100 billion to $511 billion. “What will it take to achieve the benchmark? Consider that California could take every one of its 14 million passenger cars off the road, and still be less than halfway toward its goal,” observed Sacramento Bee columnist Daniel Weintraub. “Shutting down 100 state-of-the-art, natural-gas-fired power plants still wouldn’t get us there. Closing the entire cement industry, although it is a major source of greenhouse gases, wouldn’t finish the job.”
Given all its failings, what sort of leadership example does California offer the rest of the country? It’s hard to claim credibly that California illuminates the world when it has trouble illuminating itself. Further, California’s particular path makes sense only if the rest of the country refuses to follow it. The state’s lawmakers and regulators have enacted policies that for several decades have allowed Californians to feel good, even smug, about their environmental credentials. Yet California’s economic prosperity has relied on the fact that other states have built power plants and established sensible regulatory regimes that don’t force businesses to flee. The power plants scattered throughout the western United States, as well as the factories in the American Midwest and South, have consistently saved California from the folly of its own anti-energy agenda.
California isn’t content to keep its energy policy within state limits, however. Recently, it passed a law barring state utilities from entering into long-term contracts to buy electricity from out-of-state producers if coal is used in generating it. “They are clearly trying to trim down the growth of coal, not just in California, but elsewhere,” said a top official at the U.S. Department of Energy. “California is using their regulations to direct the economic development of the West. And it is arrogant and it is appalling.”
California is certainly within its rights to set policies for itself and to live with the consequences. But everyone can’t do what California does. Someone needs to build power plants and oil refineries. Someone needs to manufacture the cars, trucks, airplanes, and other pieces of heavy equipment that enrich Americans’ lives, till our fields, and grow our economy. Someone needs to produce the plastics and chemicals that undergird our prosperity. Those things require energy, and lots of it—growing amounts of it. All the wisdom of Athens and all the power of Sparta won’t change that fact.
Max Shultz is a senior fellow at the Manhattan Institute and director of its Center for Energy Policy and the Environment.
SOURCE: City Journal