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Winter 2023: The Future of the Energy Grid

Practical Policy Recommendations to Achieve Net Zero in California’s Energy Supply by 2045

Estela De Llanos and Nikki Buffa


  • Outlines policy recommendations to help California model a clean energy transition that enhances equity, ensures electric reliability, incentivizes innovation and technology adoption, and prioritizes decarbonization infrastructure.
  • Addresses how electric system must be equipped to provide increasing amounts of clean and reliable electricity as electrification is central to decarbonizing the transportation and building sectors.
Practical Policy Recommendations to Achieve Net Zero in California’s Energy Supply by 2045
2014 Marco Isler via Getty Images

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In 2018, California passed Senate Bill 100, which mandates that 100% of retail electricity sales to end-use customers come from renewable energy and zero-carbon resources by 2045. However, achieving this goal will require California to undertake a significant energy transformation, and with 2022 on track to become one of the warmest years on record, it is imperative that California remain dedicated to reaching carbon neutrality. In its 2021–2022 session, the California Legislature passed several climate bills that seek to advance this mandate by codifying the state’s 2045 carbon neutrality goal (AB 1279), setting interim clean electricity milestones for 2035 and 2040 (SB 1020), and establishing a program to evaluate carbon capture, utilization, and storage (CCUS) technologies, as well as carbon dioxide removal (CDR) technologies (SB 905). Timing for this aggressive climate action could not be more urgent as the session closed during a statewide, record-setting heat wave that strained the electrical system and heightened fire risks. As an advocate for the bills, California’s Governor Gavin Newsom signed them into law on September 16, 2022.

As California works to achieve carbon neutrality and electrify more of its economy, electric utilities across the state are working to advance the state’s goals. San Diego Gas & Electric Company (SDG&E) recently undertook a yearlong, economy-wide study on decarbonizing energy with a focus on reliability, affordability, and equity. The study, titled “The Path to Net Zero: A Decarbonization Roadmap for California” (Roadmap) is the “first publicly available analysis to use the utility industry reliability standard and industry-specific planning tools to evaluate electric reliability in modeling how to decarbonize California through 2045.” See Roadmap at 4. The Roadmap concludes that California has the capabilities and experience to build the clean energy economy of the future and has the potential to serve as a successful decarbonization model for other states and countries—but it must move at a pace that has never been seen before.

This article outlines policy recommendations to help the state model a clean energy transition that enhances equity, ensures electric reliability, incentivizes innovation and technology adoption among lower-income households, and prioritizes the deployment of decarbonization infrastructure. In particular, to support California’s rapid decarbonization goals, policy leadership is needed in the three key areas explored below: expanding the availability of renewable energy, developing carbon removal technologies and strategies, and achieving market transformation toward clean energy.

Enabling a Massive Expansion of Renewables

According to the Roadmap, for California to achieve net zero emissions and mitigate the negative impacts of climate change, the state must reduce greenhouse gas (GHG) emissions at 4.5 times the pace it has over the prior decade. Because the transportation and building sectors account for approximately 41% and 14% of California’s GHG emissions, respectively, California residents must adopt electric vehicles and appliances, such as electric stovetops and electric space and water heating. Because electrification is central to decarbonizing the transportation and building sectors, the Roadmap finds that electric consumption is projected to increase by 96%. See id. at 6.

Therefore, the electric system must be equipped to provide increasing amounts of clean and reliable electricity for these new uses. The Roadmap estimates that electric generation capacity in California will need to increase to 356 gigawatts (GW) by 2045, or approximately four times the capacity existing in 2020, to meet this heightened demand for clean electricity. Id. The Roadmap also projects that 58% of the state’s electric generation capacity in 2045 will need to come from 205 GW of in-state solar and wind capacity. The amount of renewable energy required in California to reach carbon neutrality is astounding. For example, in order to reach the 205 GW of solar and wind energy by 2045, the amount of solar installed annually across the state must increase 800% over the current pace of deployment.

But as we saw this past September, increasing the amount of renewable energy generation is not enough to assure electric reliability. During a recent multiday heatwave, which took place over Labor Day 2022, peak electricity demand broke each of the all-time records for the California Independent System Operator (CAISO), Reliability Coordinator West (RC West), and Western Electricity Coordinating Council (WECC) areas. And those peaks occurred in the evening hours when temperatures remained high as solar generation resources predictably waned. Wind and solar are excellent resources for providing low-cost clean energy, but to meet real-time customer needs when these resources are unavailable, the electric system must also develop more flexible resources, such as energy storage and dispatchable generation. Such resources are imperative because they can provide clean energy whenever needed, thereby complementing significant amounts of weather-dependent wind and solar generation. See id. at 4.

As electricity consumption increases, additional electrical infrastructure will be necessary for California to support decarbonization. However, despite being technologically and economically feasible, electric infrastructure is expensive and time-consuming to build under the current environmental permitting regime. Thus, to expedite the energy transition, federal, state, and local policy makers must remove obstacles to the siting, permitting, and approval process for clean energy infrastructure projects, while also striking the appropriate balance to preserve and restore the environment and protect communities. Policy makers should facilitate land access by pre-authorizing land use for decarbonization technologies (such as expanding the Energy Policy Act of 2005’s section 368 corridor program); increasing access to federal- and state-controlled rights-of-way (such as through policies and programs that streamline use of federal energy corridors), and simplifying the process to use or cross federal lands (such as through expansion of the Federal Permitting Improvement Steering Council). Furthermore, policy makers should enable faster infrastructure development by quickly updating planning efforts for clean electricity and fuels, developing standard planning processes for new types of infrastructure (such as the production and distribution of clean hydrogen), and simplifying and accelerating regulatory reviews.

As an example, California has made significant attempts to fast-track clean energy project siting, permitting, and approval processes within the past few years. The California Legislature has introduced and passed several bills that accelerate new electric infrastructure development. For example, Senate Bill 129, which was signed by Governor Newsom on July 12, 2021, appropriated $20 million in funding to support a grant program for California cities and counties to establish an online, automated permitting platform that verifies code compliance and issues permits in real time for solar energy systems. The funding is intended to encourage cities and counties to further enhance permitting processes and accelerate processing and turnaround time, predominantly for plan review. Furthermore, on June 30, 2022, Governor Newson signed Assembly Bill 205, which allows specified clean energy projects to seek consolidated permitting at the California Energy Commission (CEC) by June 29, 2029, if they adhere to specified labor standards and provide community benefits. Specifically, Assembly Bill 205 allows the CEC consolidated permit to replace all local, state, and federal permits (to the extent permitted by law), with exceptions for leases and permits issued by a limited number of agencies for certain utility-scale wind, solar, and energy storage projects. It also specifies that certain projects will be eligible for expedited judicial review for litigation brought under the California Environmental Quality Act.

These are positive steps toward streamlining some of the clean energy generation projects that will be needed to meet future needs. But building significant new electric generation capacity is only part of the equation. Additional action will be critical to expedite interconnecting new electric generation capacity and to mobilize investments in transmission and distribution within California and across the western United States.

In order to bring the needed renewable resources online, it is also essential that the state reduce approval times for long-lead transmission projects. Currently, it can take a decade or longer for a transmission line to complete the planning, review, approval, and construction process. With just 22 years remaining to reach net zero emissions, the development of transmission lines to increase renewable electricity capacity must accelerate significantly. Delays in adding transmission capacity stand in the way of access to reasonably priced, reliable, and clean sources of energy, while also hindering the electric grid’s resiliency.

California is currently at an inflection point. The state, and the western states in general, face energy shortages and reliability concerns given the current extreme climate conditions, such as the year-round fire season and summer heat waves. In the summer of 2020, the CAISO reported numerous fires threatened major transmission lines critical to the import and movement of electricity throughout the state. That, coupled with an extended heat wave across the West, resulted in statewide rotating outages, the systematic cutting of power to customers when electrical systems are close to collapse. With the threat of blackouts looming, California policy makers are facing significant pressure to return to fossil fuel electricity sources, hindering the state’s goal of achieving net zero emissions. To prevent this, reliable electric infrastructure must be established, along with the policy and regulatory support necessary for the siting, permitting, and approval process of this infrastructure.

Capturing and Removing Carbon

Even with a massive and effective transition to clean energy, California will need to rely on CCUS and CDR as part of its effort to combat climate change. The Roadmap predicts GHG emissions will remain in California in 2045, despite state plans for unprecedented decarbonization. Consequently, CCUS and CDR technology will play an important role in California’s journey to achieve net zero emissions.

As described by the U.S. Environmental Protection Agency (EPA), CCUS is generally a process for capturing and sequestering carbon dioxide emitted at stationary emissions sources—like industrial facilities and power plants. The carbon dioxide is captured, compressed, and transported to a location where it is buried a mile or more beneath the Earth’s surface in porous rock foundations. CDR refers to a variety of methods to remove carbon dioxide from the air. Direct air capture, reforestation, soil carbon management, and ocean-based methods to absorb carbon dioxide are a few examples provided by the U.S. Department of Energy. Capitalizing on CCUS and CDR technologies could drastically reduce California’s carbon dioxide emissions and accelerate the state’s decarbonization efforts.

Nevertheless, many environmental advocates raise concerns about CCUS, specifically that sequestered carbon dioxide storage could have harmful ecological and human health implications or negatively affect water quality in aquifers that are close to ground level. One CCUS opposition letter, circulated by the Center for International Environmental Law and signed by 500 organizations, expressed concerns that any carbon dioxide that escapes back to surface levels, potentially through improperly managed wells or geological faults, could counteract the overall effectiveness of CCUS efforts. At the same time, however, global climate scientists also emphasize the importance of CCUS and CDR, especially in sectors of the economy and parts of the world that are more challenging to decarbonize or electrify. The latest report by the Intergovernmental Panel on Climate Change (IPCC), Climate Change 2022: Impact, Adaptation and Vulnerability, published in February 2022, found that carbon dioxide removal is necessary if countries are going to meet their pledges to limit global warming to no more than 1.5°C.

According to the IPCC, achieving net zero emissions in agricultural and industrial sectors, for example, is possible but particularly difficult. Financing frequently forms a barrier to introducing decarbonization and electrification technologies in agricultural settings, which increases the attractiveness of using CDR techniques like reforestation to manage GHG emissions. In the industrial sector, research indicates that without CCUS, new climate policies could force industrial owners of coal and gas power plants, blast furnaces, cement factories, and other similar facilities to retire investments substantially before their expected lifetimes. In California, the agriculture, forestry, and land use sectors produce 22% of the state’s GHG emissions. The industrial sector produces 24%—primarily via manufacturing, petroleum refining, and waste management sources. Therefore, while CCUS has limitations, it is also essential to rapidly reducing GHG emissions, and the Roadmap supports deploying CCUS and CDR approaches to accelerate decarbonization, especially in difficult-to-transition sectors.

Some of the most effective carbon removal projects will be nature-based, and nature-based projects could remain part of California’s global climate solution well into the foreseeable future. As an example, the Roadmap reports that SDG&E has planted more than 10,000 trees since October 2020, modeling one type of a nature-based approach to removing carbon dioxide from the atmosphere. Other nature-based carbon removal options, as recommended by the IPCC, could include avoiding deforestation, improving sustainable forest management, and supporting ecosystem conservation efforts.

Additionally, investments should also be made in technology that will accelerate carbon capture and make it successful—at both the state and federal levels. The recently passed Inflation Reduction Act provides a promising starting point. The legislation dedicates a multibillion-dollar budget to developing new energy and natural resources infrastructure, which includes CCUS infrastructure alongside tax credits for investing in clean energy sources like wind, solar, and hydrogen and consumer incentives to transition to electric transportation and buildings. The proposed law expands the existing Carbon Capture Technology program at the Department of Energy, as well as establishing programs committed to creating direct air capture hubs. Implementing these proposals could substantially advance CCUS and CDR technology.

Ultimately, Californians will need to deploy nature-based conservation efforts and innovative CCUS and CDR technologies to eliminate GHG emissions and accelerate the state’s progress toward a carbon-neutral future. California is taking concrete steps toward this reality by enacting SB 905, which will establish a statewide Carbon Capture, Removal, Utilization, and Storage Program for the state. Long recognized as a global innovation powerhouse, California is now poised to develop a framework that will evaluate the efficacy, safety, and viability of CCUS and CDR technologies. Coupled with investments in research, development, and demonstration efforts, a constructive regulatory framework could unlock diverse and imaginative decarbonization solutions.

Market Transformation in the West

California will not reach carbon neutrality by 2045 with technological innovations alone. The state also needs market reform. Policy makers and regulators need to create market mechanisms that send proper price signals to consumers and that balance supply and demand across western states.

Reaching net zero emissions likely will require contributions from most, if not all, California residents. This means policy makers must ensure renewable energy is both reliable and available at reasonable and equitable costs. Adjusting how utilities price electricity—to encourage electrification of cars and appliances rather than to punish consumption of substantial amounts of electricity—will be important to achieving the state’s decarbonization goals. With electric rates among the highest in the country, California is grappling with questions around rate affordability and how to avoid disproportionately burdening low-income households. Policy makers and stakeholders are actively exploring a range of rate reform proposals, such as subscription fees and alternative funding sources for public purpose programs, as well as funding and programs to provide customer incentives to address these concerns.

But at a much higher level, policy makers need to look at the potential benefits of expanding the playing field of California’s electric transmission operations to tap into other markets in the West. Today, CAISO controls 80% of California’s electric transmission grid. As the only independent grid operator in the West, CAISO controls access by a diverse set of electric generating resources (i.e., natural gas, wind, solar, nuclear) to nearly 26,000 circuit miles of transmission lines. In addition, CAISO operates a competitive wholesale power market that is designed to meet real-time customer demand at the lowest cost available. CAISO’s Western Energy Imbalance Market (WEIM) was the first real-time electricity market of its kind in the western United States when it launched in 2014, and efforts are currently underway to extend participation in CAISO’s day-ahead market to WEIM entities without requiring full integration into the CAISO balancing area. As the demand for electricity—renewable electricity in particular—increases, expanding these transmission and market coordinating functions has the potential to unlock significant benefits to customers.

Per CAISO, the benefits of expanding the energy market across the West, also referred to as “regionalization,” include positioning California to supply residents with reliable, lower-priced electricity that is not sourced from fossil fuels, promoting efficiency and lowering costs by resolving supply and demand imbalances across a larger geographic area.

California currently imports and exports energy with other western states. In the future, however, California’s energy needs will require the state to reach further beyond its current energy trading borders to secure enough power to meet resident demand. Generating the renewable power necessary to achieve carbon neutrality through solar, wind, and hydroelectric sources could become a discontinuous and unpredictable process, unlikely to perfectly harmonize with consumer demands. Peak periods of solar power production, which occur midday, for example, do not typically correlate with consumers’ peak electricity needs, which occur in the late afternoon and early evening hours. Already, California restricts its solar power generation, gives away energy for free to neighboring states, or even pays these states to take excess energy in order to avoid overloading the state’s electric grid. Regionalization could help California efficiently obtain electricity from a variety of states, when necessary, as well as optimize local resources by providing the state with a platform to sell its surplus energy stores.

Assembly member Chris Holden’s previously proposed legislation, “Multistate regional transmission system organization membership,” last recommended for a Senate vote in 2018, would have taken steps to create a regional transmission organization (RTO) in the West. See Assemb. Bill 813, 2017–2018 Leg., Reg Sess. (Cal. 2018). The bill proposed authorizing the transformation of CAISO into a multistate regional transmission system, so long as certain requirements were met. Proponents of the bill emphasized that forming a western RTO would enhance energy reliability in California; make cheaper, cleaner electricity more available on a large scale; reduce pressures to build new fossil fuel power plants; and address concerns related to surplus renewable energy produced by the state. Creating an RTO in the West could also assure Californians that energy entering California from western neighbors meets the state’s decarbonization standards and spurs renewable energy investment throughout the region because energy producers could be assured of a market for their product. Eventual passage of the bill, or similar legislation to create an RTO, could substantially further California’s decarbonization efforts.

With good reason, California lawmakers are currently revisiting these questions, also working with CAISO to understand the impacts of regionalization and to identify key issues that will advance the state’s energy and environmental goals through Assembly member Chris Holden’s California Assembly Concurrent Resolution 188. CAISO’s report to the Legislature is expected to be released in the coming months.

Modeling Sustainable and Equitable Transitions to Clean Energy

Tackling energy affordability and the growing impacts of climate change are a priority for the United States, and the recently passed Inflation Reduction Act of 2022 (Pub. L. No. 117-169) helps the nation start its journey to reduce GHG emissions by an estimated 40% by 2030 with a focus on supporting disadvantaged communities. In line with the recommendations made in the Roadmap, the law not only provides consumer incentives for energy efficiency, rooftop solar, and electric home appliances and vehicles, but also increases investment in new innovations and existing technologies like CCUS systems and clean hydrogen that can help reduce emissions in harder-to-decarbonize sectors like manufacturing and agriculture. Additionally, the Inflation Reduction Act appropriates $2.9 billion to support transmission projects that meet certain criteria, such as supporting energy security, enabling portability of clean energy sources, and enabling interregional transmission of offshore wind projects. This injection of new money builds on funds provided by the Infrastructure Investment and Jobs Act (Pub. L. No. 117-58), which was signed into law in November 2021 and provided $62 billion for the U.S. Department of Energy to “deliver a more equitable clean energy future for the American people,” including $6.5 billion in new carbon management funding and $11.5 billion for carbon capture pilots and demonstration projects and hydrogen hubs.

There is much at stake and much to gain by reforming energy policy in California to enable more rapid deployment of clean energy projects, advance carbon capture utilization and storage, and develop a new regional transmission market. Economy-wide collaboration, coupled with regulatory and policy support, will be required to achieve these critical climate goals while also prioritizing electric grid reliability, energy affordability, and climate equity. As a leader in innovation and environmental solutions, California is a fertile testing ground for the policies and regulations that can enable a global clean energy economy and create a more sustainable and just future.