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In the absence of a national policy to stop global warming by reducing global warming pollution (GWP), should states act alone? California has already set several precedents. In 2002 assembly bill 1493 was passed, mandating reductions in GWP from cars and light trucks. This model has already been adopted or is being considered in eleven other states. In June 2005, Governor Schwarzenegger established greenhouse gas reduction targets through an executive order. This year, the California legislature will consider a bill - AB 32 (Pavley) - which would set legally binding, mandatory limits on global warming pollution. Lastly, this winter in the Northeast, seven states formally launched the Regional Greenhouse Gas Initiative (RGGI). In this article, we will look at the economic and public health advantages of California (or other states) acting unilaterally to address sources of GWP. (Note: this article will use the term "low-carbon" to refer to energy sources that produce significantly less GWP than current sources).




The California Energy Commission produced an inventory of GWP in their 2005 report: Inventory of California Greenhouse Gas Emissions


84% of California’s GWP comes from five sectors:

40.1%	Transportation
15.7%	Industrial
10.9%	Electric Generation (out of state)
9.2%	Electric Generation (in state)
8.5%	Residential and Commercial

The primary source of GWP from "Industrial" and "Residential and Commercial" categories is the burning of natural gas for heating. Another way to view the sources of GWP is about three-quarters of GWP comes from:

• 41% - Transportation fuels
• 20% - Electricity
• 15% - Natural gas

Reducing GWP will mean a combination of increased efficiency and low-carbon alternatives for electricity generation, natural gas heating and transportation fuels.

The ultimate goal is to significantly reduce worldwide concentrations of GWP in the atmosphere and stabilize the climate. California is the second largest emitter of GWP in the United States (Texas is number one) and the 12th largest in the world. California’s long-standing energy efficiency and renewable energy programs have achieved significant results. According to the California Energy Commission, "In 2001, California ranked fourth lowest in carbon emissions per capita and fifth lowest among the states in carbon dioxide emissions from fossil fuel consumption per unit of gross state product." Even so, the atmosphere needs absolute reductions in GWP and California’s emissions are increasing.

Although it will set a leadership example, California unilaterally reducing its own GWP will not, by itself, stabilize the California climate. Thus we need to show that early action by California (or any state) will be a net economic benefit to the state through the sum of four factors:

• Energy cost reductions through efficiency
• Competitive alternative power/fuel sources
• Public health benefits from cleaner air
• New competitive industries

Sometimes deemed "no regrets" strategies, efficiency refers to those investments in new or modified vehicles, motors, products, buildings, etc. that provide comparable or improved service and also result in a lower use of electricity, natural gas or fuel. The California Climate Action Team was established by Governor Schwarzenegger to develop a plan to reduce GWP. The recent economic study written by the California Climate Action Team showed that by 2020, a 25 percent reduction in global warming pollution relative to business as usual could be accomplished through efficiency strategies at an investment of $8.1 billion resulting in a savings on energy costs of $17.3 billion and thus a net benefit of $9.2 billion. Energy savings can be broken down into:

• $6.5 billion in electricity
• $2.1 billion in natural gas
• $8.7 billion in petroleum

Alternative sources of electricity that produce less carbon include solar, wind and biomass. It is likely that those sources will continue to drop in price due to technology advances and volume production. To cite one example, the Energy Foundation looked at the impacts if the cost of solar installations dropped from the current $5.50-$6.50 per installed watt of power to $2 (see PV Grid Connected Market). At the lower price, solar without subsidies would be cost-effective for most homeowners ($2 per installed watt would be below 10 cents/Kwatt-hour).

As we have documented in a previous report, Can Biofuels Replace Oil? , non-petroleum transportation fuels have the potential to be less expensive than existing fuels. In fact, ethanol (a gasoline additive and replacement) was less expensive than gasoline during 2005. It is not unreasonable to forecast that biofuels will drop further in price as we learn how to make them from a wider variety of plant matter and agricultural waste. New technologies such as "plug-in hybrids" (i.e. a hybrid car that can either run on gasoline or can be recharged at home from the electric grid), will be able to substitute gasoline for less expensive electricity for city driving.

A recent article by Fortune Magazine: How to Beat the High Cost of Gasoline. Forever! discusses how ethanol made from a variety of farm and waste products could ultimately replace gasoline.


Reducing energy consumption and shifting to cleaner, renewable energy sources will reduce the air pollution currently coming from transportation fuels and electricity generation. According to a report published by the American Lung Association of California, the South Coast and Central Valley have unhealthy air due to elevated levels of ozone one out of every three days (see Health Effect of Particulate Matter and Ozone Air Pollution). If the reduced air pollution from addressing GWP brought California into attainment of existing air quality standards, each year it would prevent:

• 6,500 premature deaths
• 390,000 cases of lower respiratory symptoms in children ages 7-14
• 350,000 asthma attacks

Three recent California economic studies all demonstrated that a 25 percent reduction in global warming pollution by 2020 can be achieved and still have a positive economic impact:

• California Climate Action Team: Economic Assessment
  (see macro economics for economic assumptions used in the report)
• UC Berkeley Climate Change Center: Managing Greenhouse Gas Emissions in California
• Center for Clean Air Policy: Cost Effective GHG Mitigation Measures for California

This is not surprising as many companies have been reducing their GWP through cost-effective efficiency programs. The Climate Group has been tracking these efforts and their 2005 report - Carbon Down, Profits Up documents a broad group of companies that have seen economic benefits from reducing their GWP.

E2 believes the real upside is the creation of a new low-carbon energy industry. Most transportation fuel dollars end up leaving the state to pay for crude oil. By increasing instate fuel production and using agriculture products and waste, more economic value will stay within the state. For example, 40 percent of fuels in Brazil come from Brazilian produced biofuels. Fortune magazine states that "not only does Brazil no longer have to import oil but an estimated $69 billion that would have gone to the Middle East or elsewhere has stayed in the country and is revitalizing once-depressed rural areas."]

A recent letter signed by E2 members in the investment community to the governor stated:

We believe that to continue to encourage and stimulate the entrepreneurial spirit that makes California a world economic leader, the state must set enforceable limits on global warming pollution.

Entrepreneurship in California is closely reflected in venture capital activity. According to the Cleantech Venture Network , $425 million, or 8.3 percent, of all North American venture capital was invested in Cleantech companies in the third quarter of 2005. More than half of that was invested into energy-related companies. For the state of California, in the 12 months ending in October 2005, venture capital investment in new Cleantech companies was $523 million. A cap on carbon would guarantee a growing low-carbon market and further spur innovation which would in turn increase the economic output for the state and further lower the costs of meeting the GWP reduction targets.


One of the models used to calculate the cost/benefit of GWP reductions, EDRAM , examines changes in purchasing behavior and models their effects. This model took the 2004 California economy with $1,317 billion in income and 16,460,000 jobs and projected its size in 2020 including the changes needed to achieve the Governor’s 25 percent GWP reductions. It projected $2,132 billion in income and 20,787,000 jobs for a slight increase over what would have happened without the climate change policy. The good news is this model predicts that you can reduce GWP and have a slight positive effect on the economy. The problem with such models is they can’t forecast innovations.

Imagine a model run in 1985 predicting the economy in 2000. It would not include the economic benefits of technologies such as the rapid advance in computers, the digital camera, wireless computing, the internet, or applications such as email, the web, iPod, eBay, Google, or Amazon.com. A cap on carbon would stimulate private investments in alternative fuels and a low-carbon economy. Given the pace of innovation and investment in Cleantech, there’s good reason to believe that the innovation in products and technologies would be as staggering as those of the last 15 years.


To address global warming, there will eventually be a U.S. and worldwide cap on GWP. There are several potential advantages of a state putting its own low-carbon strategies into effect before the rest of the U.S.:

• Opportunity for more flexibility: In 1969, California enacted clean air regulations prior to the U.S. As a result, when the U.S. finally created standards for air pollution, California was granted an exemption allowing the state the flexibility to create policies stronger than the federal policy. As a result, California is the only state with the ability to act independently. All other states either conform to the federal policy or can adopt California’s.
• Attract Business: Businesses tend to locate close to their markets. By establishing a state market for low-carbon solutions, a state will attract new companies and be in a position to benefit economically as those companies generate jobs and revenue, and eventually sell products to other states and countries.
• More favorable international position: Countries committed to the Kyoto Protocol are moving to create their own low-carbon markets. Companies in those countries are making the investment in energy efficiency and low-carbon energy sources. U.S. companies run the risk of being less efficient and therefore falling behind. If a state enacts its own market by placing a cap on carbon, it will position itself to better compete internationally.

The California Climate Action Team has demonstrated it is possible to reduce global warming pollution by 25 percent by 2020 relative to business as usual and have a small, but positive, effect on the state’s economy and job creation. In parallel, the California legislature is considering a bill, AB 32, which would make those reductions mandatory and enforceable. We believe that such a cap implemented in California or other states with high-tech industries and strong energy policies will not only pay for itself but also provide a stimulus for innovation and keep more energy dollars within the state.

Please join us in welcoming Christina Erickson as the newest Chapter Leader for Southern California. Christina is the founder and Principal of Green By Design, a company dedicated to providing strategic advisory services to businesses committed to sustainability. She has also recently helped form the Sustainable Business Council to promote sustainable business initiatives in the greater Los Angeles area. An appointee by the City of Santa Monica City Council, Christina also serves on the Sustainable City Task Force, where she advises the City on implementation of its Sustainable City Plan. Prior to founding Green By Design, Christina managed acquisitions for Cogent Communications. A graduate from Harvard Law School, Christina practiced business law at both Arnold & Porter and Patton Boggs LLP. Christina lives in Santa Monica, California with her husband Selcuk Cakir, an investment manager, and their children Benjamin and Kenan.

On January 19, E2’s Northern California members heard presentations from Sarah Chasis, director of NRDC’s Ocean Initiative, Roberta Elias, NRDC Ocean Advocate, and Karen Garrison, co-director of NRDC’s Ocean Initiative, on efforts at both the federal and state levels to improve the health and management of our nation’s oceans and fisheries. Sarah presented an overview of the history of national oceans policy and management, and described the Ocean Initiative’s goals and priorities moving forward. Roberta gave an update on the status of the Magnuson-Stevens Fisheries Conservation and Management Act (MSA) and a roster of who the key legislative targets will be as this bill is moved through Congress. She also asked members to look out for a letter urging key Senators to oppose a bill (S. 1549) that would amend the MSA to allow increased landings of Pacific whiting, an action that would put several species of overfished Pacific groundfish, species worth 12 times as much as whiting, at risk. Karen and NRDC Senior Attorney Drew Caputo discussed successful litigation on the Pacific Coast to speed up rebuilding schedules for overfished rockfish, and efforts on California’s central coast to fully implement the Marine Life Protected Act, which calls for an effective network of protected areas in California waters. Read more about E2’s efforts to create a national ocean policy.

On January 19, E2 New York members and friends attended a lively discussion on corporate environmental strategy led by Daniel Esty, from the Yale Center for Environmental Law & Policy, and NRDC’s Air and Energy Director, Ashok Gupta. Dan explained that while a growing number of the world’s major businesses are taking leadership on environmental issues, there have not been any real analyses done on how beneficial eco-initiatives are to a company’s bottom line. Dan shared with us his findings from hundreds of interviews with dozens of leading companies, and highlighted strategies that he believes will improve corporate competitiveness and provide economic gains. Dan and E2 member Andrew Winston are compiling their analysis for a book due out in the Spring. Ashok Gupta, Allen Hershkowitz and Dale Bryk shared NRDC’s longstanding collaborative work with businesses. They cited their efforts on appliance standards, biofuels, the Regional Greenhouse Gas Initiative (RGGI) and paper industry reform as some of the many examples of how NRDC is engaging businesses to better the environment and the economy.

To help real estate developers meet increasing demand for energy efficient homes and workplaces, NRDC has created a Building Green website. This is the first website that concisely outlines the business reasons for getting into green building and then provides a guide to getting started. Visitors to the site can learn how to find an environmentally savvy architect, how to streamline design and construction, which strategies deliver the biggest paybacks, how to get green building projects noticed, and what pitfalls to watch out for. The site offers fact sheets, case studies and links to LEED information.

On December 28, NRDC released comprehensive recommendations on how Gulf Coast residents with badly flooded homes from Hurricane Katrina may be able to protect themselves from dangerously high mold levels. Based on mold testing it conducted October - November 2005, the NRDC recommendations urge completely gutting the most severely flooded homes down to the studs. Experts say that anyone doing clean-up or debris removal in a moldy environment should wear nitrile gloves, a respirator, safety glasses, shoe covers, and a Tyvek (non-porous) suit over clothing. Decreasing indoor moisture is the most critical factor for controlling mold growth. All non-cleanable items - mattresses, carpeting, wallpaper, floor and ceiling tiles, etc. - that have been wet for more than two days or that have visible mold should be thrown away.

NRDC’s Advocacy Center publishes a monthly newsletter, Capitol Insights. This month’s issue offers a recap of NRDC’s end-of-year successes: the latest success in the effort to save the Arctic Refuge from perhaps the most serious broadside attack to date by Senator Stevens (R-AK), an exciting new oil savings bill, developments on important international climate negotiations, and NRDC’s ongoing effort to monitor contamination and help returning residents in New Orleans. E2 members can view this newsletter at: .

Thanks for your support. Comments, questions and introductions to possible new members are always welcome! Learn how to join E2 at how to join. To learn more about the leaders of E2 please read about the E2 co-founders. 

Bob Epstein and Nicole Lederer, Editors
bob@e2.org nicole@nicolelederer.com