09/08/2015 08:32 am ET Updated Sep 08, 2016

California Takes the Lead on Climate Policy


With nearly 40 million people, California is our largest state by population and is in many ways the embodiment of the contemporary American Dream. California has long led the nation in environmental policy. Polling data in the state reports deep and broad support for protecting the environment.

The original Clean Air Act was written to allow California to maintain more stringent regulations than the rest of the country. California's remarkable economic growth provides evidence that it is possible to regulate the environment while growing the economy. If the best proof of concept is demonstration, California has long demonstrated the importance of a clean environment to sustainable economic growth. And California may soon dramatically lead the nation, if not the world, on climate policy.

As Alejandro Lazo reported in the Wall Street Journal last week:

Democrats in California, which already has the toughest climate-change rules in the U.S., are pushing to strengthen them drastically, an effort that has spurred business groups to mount an intense opposition campaign. A proposed state law would cut petroleum-fuel use by 50 percent, require utilities to get half their power from renewable sources, and increase energy efficiency in buildings by 50 percent -- all by 2030, using 2016 levels as the starting point. A second measure would mandate an 80 percent reduction in state greenhouse-gas emissions by 2050, from 1990 levels.

The oil industry has generated the predictable onslaught of negative publicity against the proposed law, which has passed the California state senate but is facing opposition from moderate Democrats in the California assembly. The opposition lobby is arguing that the bill will lead to rationing and limits on driving automobiles. As Adam Nagourney wrote in the New York Times last week:

The legislation, Senate Bill 350, leaves it to the state's Air Resources Board to determine how the 50 percent mandate would be met; it does not mention gas rationing or a ban on minivans. It also includes no penalties in case the mandate is missed. Opponents, in defending the warnings about rationing, noted that the bill is short on specifics on how the reduction would be achieved; they said they saw no other way the mandate could be met.

The legislation has the strong support of California's visionary and experienced governor, Jerry Brown, and the financial backing of hedge fund billionaire Tom Steyer. In recent days, some members of the legislature have discussed modifications of the law to provide greater popular control of the specific measures used to implement it and providing some checks on the power of the Air Resources Board. Oil industry lobbyists are attempting to convince the public that the new law will raise the cost of energy for average Californians but, while California politics can't always be predicted, I think that some version of this bill will be enacted in the near future.

California's new climate policies are important because they have the potential to be action-forcing in California and throughout the nation. The laws are well written because they set goals for the near future but allow for flexibility in how the state reaches those goals. The state's energy goals send a clear signal to the business community of the future direction of California's climate rules. Such clarity can guide private investment decisions and increase the probability of large-scale changes in behavior. This was accomplished in California nearly a generation ago in the field of energy efficiency, and today California is the most energy efficient state in America.

Paradoxically, it is California's success in energy efficiency that increases the importance of the renewable energy mandate in the new legislation. While other states can achieve significant greenhouse gas reductions through energy efficiency alone, and California can continue to improve its energy efficiency, most of the low hanging fruit from energy efficiency has already been harvested in California. Nevertheless, the new law calls for doubling energy efficiency in California's existing buildings. Once that is achieved, significant additional reductions in greenhouse gases will require far greater use of renewable energy.

While current technology could be used to achieve the new climate policy goals, it will be far easier to meet and exceed the new standards if new technologies are developed and implemented. For California, the key will be the rapid development of the electric car. This will require advances in battery technology and widespread investment in the infrastructure of renewable energy and distributed generation of energy. Micro-grids and smart-grids will be needed to modernize the energy system and make it more receptive to renewable energy and more efficient when transmitting energy. State-wide installation and commercialization of electric auto charging stations will also be needed.

In a recent article in the Los Angeles Times, Chris Megerian reported that:

An analysis from E3, an environmental consulting firm based in San Francisco, said the state could need up to 8 million zero-emission vehicles on the road by 2030 to help slash carbon pollution as much as [Governor] Brown wants. Right now there are only 142,000 such vehicles on the road, according to the Air Resources Board.

California has over 33 million vehicles registered. In order to achieve the goal, the state has a decade and a half to transition about 25 percent of the state's motor vehicle fleet from the internal combustion engine. In my view, this is ambitious, but feasible. The state will need to provide tax incentives and use a variety of other techniques to facilitate this change.

Education, government vehicle purchases and discounts on electricity for those charging their autos in the evening will also be needed. While the oil industry will remain unhappy about this, there are a large number of other businesses that will benefit from the transition to a renewable energy economy.

California's climate policy experiment is an important and path-breaking effort. California is large enough to build a market for innovative electric grid infrastructure, new battery technology, and for lower priced electric cars. Unless electric vehicles are able to outperform and underprice those powered by internal combustion engines, California will not be able to transition 25 percent of their vehicle market. But if it can bring electric cars to market that are cheaper than traditional cars, the policy innovation they are implementing will be contagious.

I am optimistic that California is the right place and this is the right time to implement this new initiative. California's scale, education and research institutions, entrepreneurial culture, political leadership, and tradition of environmental awareness provide all of the ingredients needed for success.

Americans have long looked to California for an image of the world to come. Sometimes that future is less than reassuring, but often California embodies the social, political, economic, and cultural trends still emerging in the other 49 states. If California can reach these energy goals, environmentalists will have a living, breathing climate policy model that can be imitated throughout the United States and in the fast growing economies of China and India.

While many other sustainability challenges will remain, the tide of climate change will literally be reversed. This will free us to focus on other challenges such as biodiversity, species extinction, and the widespread use of toxic substances throughout our economy. There is a great deal riding on Jerry Brown and California's ambitious climate program.