You keep using that acronym…it may not mean what you think it means

There’s a vote today/tomorrow at the California Energy Commission (CEC) that has thrust “ZNE” back into the headlines. “ZNE” in this case stands for “Zero Net Energy” – the goal for a building to have onsite (or nearby) renewable generation and building efficiency investments such that it generates as much electricity as it consumes over the course of a month or a year.  But there is a new trend occurring in California policy language that is replacing “energy” with “emissions” in the ZNE calculation.  A shift that has major implications for the energy landscape.

While energy is a broad category, in policy, zero net energy is almost exclusively used in reference to electricity. This is best illustrated by the progression of building standards from the California Energy Commission from basic efficiency increases to upcoming ZNE requirements in new residential construction.  Yet even before these new standards go into effect in 2020, there is now a new bill (AB 3232) which directs the CEC to open a new proceeding to determine how to get energy use to zero emissions.

The primary source of this language adjustment can be traced to the three major utilities (IOUs).  As California policy makers and clean energy advocates pushed to decarbonize the grid, the IOUs started countering that the overarching goal should be a decrease of emissions and therefore policy should focus more on transportation – now responsible for a greater percentage of GHG emissions than electricity – instead of continuing the push toward a 100% renewable grid. A shift in focus to transportation could also drive incentive dollars toward greater EV deployment and lead to bills like AB 1745 that seeks to eliminate the sales of internal combustion engine cars and trucks by 2040. (Originally I’d qualify 1745 as a moonshot bill this session, but with Trump and Pruitt’s recent shot across the bow on emissions standards, movement on this bill may reveal just how ornery the CA legislature is feeling this election year).

While an increase in EVs may help the IOUs electricity business, success in changing the policy language and scope of from power to emissions may end up a pyrrhic victory. Advanced energy industries in the electricity sector lose nothing by changing measurements from clean generation to decreased or avoided emissions. The recent headlines from Portugal on what can best be described as a “zero net emissions” month on their electricity grid shows why. Broadening the focus to emissions will still incentivize new clean technologies but instead of moving the electricity sector out of frame, it could put a target on the other half of the IOUs business – natural gas.

If we clean up electricity and use it to power transportation, our remaining emissions are driven by the demand for heat.  Natural gas demand in the US is relatively evenly split between heat demand for building temperature and for industrial processes.  In the residential and commercial sector, electrifying heat demand is technically possible. However, as a recent GTM article illustrated, it’s not an easy, or economic, process – revealing a lot of low-hanging fruit in this space. Policies originally designed to drive fuel switching from dirty coal electricity to cleaner natural gas 20 years ago are now disincentivizing switching from GHG-producing gas back to a now 65-75% zero-emissions* grid. In a ZE policy environment, these will be first on the block.

This risk to utilities natural gas business was clearly seen recently in Sempra’s Very Bad Week™.  In addition to new natural gas plant denials in place of DER aggregation and storage, the CPUC looks like it will deny the SDG&E petition to build a new gas pipeline through San Diego, and SoCalGas was caught out working against efficiency programs that would drive down demand. Sempra’s recent 10-k filing specifically calls out the inherent risk of zero emissions policies to its shareholder returns.

The question remains on how quickly this transition from energy-ZNE to emissions-ZE will take. There are components of emissions-oriented measurements already in effect such as California’s cap and trade mechanism – another example of a “zero net emissions” approach – or 2015’s AB 802 requiring any >50,000 sqft building to submit energy and efficiency data to the CEC for benchmarking.  But the real political signal flare will be if and when a California governor stops talking about cleaning up specific market sectors and throws down the ZE gauntlet – publicly setting the long-term goal of a zero emissions economy.

*All renewables, hydro, and nuclear

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