▪ INSIGHTS FROM THE CALIFORNIA ENERGY POLICY SIMULATOR On the state’s current greenhouse gas emission trajectory and six policy opportunities for deepening emission reductions JANUARY 2020 BY CHRIS BUSCH AND ROBBIE ORVIS Acknowledgments Jeff Rissman is the chief architect of the Energy Policy Simulator. We thank him for his work developing the model structure and the California adaptation. Ginette Chapman contributed editorial review of multiple drafts. Jeffrey Greenblatt, Ph.D., of Emerging Futures, LLC, provided valuable research inputs during preliminary model specification. We are grateful for helpful feedback from numerous colleagues at Energy Innovation and seminar participants at the Institute for Transportation Studies at the University of California at Davis. Helpful input was provided by: Don Anair (Union of Concerned Scientists), Panama Bartholomy (Building Decarbonization Coalition), Derek Broekhoff (Stockholm Environmental Institute), Pierre Delforge (Natural Resources Defense Council), Jamie Fine (Environmental Defense Fund), Steven Geiger (Innova Partners), Justin Gillis (New York Times), Larry Goulder (Stanford University), Alex Jackson (Natural Resources Defense Council), Simon Mui (Natural Resources Defense Council), Amber Mahone (Energy + Environmental Economics, Inc.), Colin Murphy (University of California, Davis), Michelle Passero (The Nature Conservancy), Dan Sperling (University of California, Davis), Zach Subin (Energy + Environmental Economics, Inc.), David Weiskopf (NextGen America), and staff at the California Air Resources Board, the California Environmental Protection Agency, and the California Energy Commission. We also benefitted from feedback by reviewers who preferred to remain anonymous, including several from the business community. Those acknowledged for contributions do not necessarily agree with the report’s findings or recommendations. Remaining errors are the authors’ responsibility. This work was funded by Aspen Global Change Institute, an independent nonprofit dedicated to advancing global change science and solutions in service of society. Cover photo credit Altus via Flickr: The image shows a scene along Highway 8 in southern California, juxtaposing the progress California has made so far in renewable electricity and the immediate challenge ahead in transportation. Creative commons license for noncommercial reuse: CC BY-NC-ND 2.0. Disclaimer The California Energy Policy Simulator and this report are intended to inform public debate and policymaking. We have sought to incorporate the best available information. We offer the tool as an open-source, transparent resource. Any such modeling exercise takes place in the context of uncertainty about the future. Therefore, Energy Innovation makes no guarantees and assumes no liabilities regarding use of the tool or insights assembled herein. i CONTENTS Summary for Policymakers ................................................................................................................... v 1. Introduction .................................................................................................................................. 1 2. Motivation ..................................................................................................................................... 2 2.1. Inaugural California Climate Policy Modeling Dialogue ...................................................... 2 2.2. Modeling of Carbon Pricing in 2017 Scoping Plan ............................................................... 3 3. Methods ........................................................................................................................................ 4 3.1. Structural Overview ............................................................................................................... 5 3.1.1. Carbon Pricing ................................................................................................................ 7 3.1.2. Social Impacts ................................................................................................................. 8 3.1.3. Endogenous Innovation ................................................................................................. 9 3.2. Impact Evaluation .................................................................................................................. 9 3.2.1. Impacts Calculated as the Difference Between Policy Scenarios .............................. 10 3.2.2. Consistent Treatment of Individual Policies within a Policy Package ........................ 11 4. Adapting the Model for California ............................................................................................. 13 4.1. Data Sources ........................................................................................................................ 13 4.2. BAU Scenario Definition ...................................................................................................... 14 4.3. Carbon Pricing...................................................................................................................... 16 4.4. Leakage ................................................................................................................................ 18 4.5. Land Use ............................................................................................................................... 19 5. Current Trajectory Analysis ........................................................................................................ 19 5.1. The Current Trajectory Scenario ......................................................................................... 19 5.2. Sustainable Community Strategies ..................................................................................... 21 5.3. Carbon Pricing...................................................................................................................... 22 5.4. Upper and Lower Bounds on Current Policy Effectiveness ............................................... 24 5.5. Current Trajectory Results .................................................................................................. 24 6. Criteria for Policy Strengthening ................................................................................................ 26 ii 7. Recommended Policy Strengthening ........................................................................................ 27 7.1. Carbon Pricing...................................................................................................................... 28 7.2. Clean Electricity Standard ................................................................................................... 29 7.3. Zero Emission Heat Standard .............................................................................................. 32 7.4. Building Electrification ........................................................................................................ 33 7.5. Zero Emission Vehicle Policy ............................................................................................... 35 7.6. Performance Standard for Cement and Concrete ............................................................. 35 8. Results ......................................................................................................................................... 37 8.1. Emission Reductions by Policy ............................................................................................ 37 8.2. Economic and Social Impacts by Policy .............................................................................. 39 8.2.1. Carbon Price ................................................................................................................. 41 8.2.2. Clean Electricity Standard ............................................................................................ 43 8.2.3. Zero Emission Heat Standard ...................................................................................... 45 8.2.4. Building Electrification ................................................................................................. 46 8.2.5. Zero Emission Vehicle Policy ....................................................................................... 47 8.2.6. Performance Standard for Cement and Concrete ..................................................... 49 8.3. Package Benefits – Economic and Social Impacts ............................................................. 50 9. Sensitivity Analysis ...................................................................................................................... 54 9.1. Current Policy Effectiveness ............................................................................................... 54 9.2. Ability to Shift Peak Electricity System Demand ................................................................ 57 9.3. Industry Sector Price Elasticity ............................................................................................ 57 9.4. Rate of Innovation ............................................................................................................... 59 10. Discussion ................................................................................................................................. 61 10.1. Caveats ................................................................................................................................. 61 10.2. The Costs of Delay vs. the Benefits of Optionality