Climate Solutions

Case study

Background

Driven by the imperative of global warming, the University of California has committed to achieving carbon neutrality, or zero net emissions of greenhouse gasses (GHG), as soon as possible. To achieve carbon neutrality without resorting to purchasing offsets, UC must pursue aggressive energy efficiency and conservation efforts, procure massive quantities of carbon‐neutral energy, and find a way to negate emissions from its natural gas‐fueled central plants.

Goal

In 2007, then‐President Robert Dynes signed College and University Presidents Climate (ACUPCC) on behalf of all ten Chancellors. commits UC to achieving carbon neutrality possible.” The carbon neutrality commitment is in the Presidential Policy on Sustainable Practices.

Successes

In 2008, the Executive Vice President for Business Operations convened the Climate Solutions Steering Group, a team of campus and systemwide leaders that is charged with moving UC toward carbon neutrality. Recognizing that no clear path to carbon neutrality exists, the Climate Solutions Steering Group has focused on developing scalable concepts that can be refined as technologies, markets, and regulations develop. The group has identified three strategies to move UC toward carbon neutrality:

  1. Expand use of direct access to implement a cost‐neutral
    wholesale power procurement strategy that eventually provides UC with electricity that is less carbon‐intensive than utility‐supplied power. To meet its renewable power needs, UC must buy power from third‐party generators and/or develop its own large‐scale projects, either individually or in partnership with other agencies.

  2. Participate in emerging U.S. biogas market to secure large quantities of carbon‐neutral gas for use in campus cogeneration plants and boilers. Biogas is methane generated from controlled decomposition of organic matter; it is carbon‐neutral, available from a variety of feedstock, and widely used in Europe and China at scale.

  3. Large‐scale energy efficiency efforts. Energy efficiency projects reduce GHG emissions and campus operating costs, this is particularly important since several campuses are operating with multi‐million dollar purchased utility deficits. Current efficiency projects will reduce annual costs by $8.5 million, net of debt service (see case study entitled “Statewide Energy Partnership” for further information), and expanded efficiency efforts will further close the gap between state OMP funding and operating costs.

Challenges

Because it will not be technically or economically feasible to obtain 100% carbon‐neutral power in the short‐ or medium‐ term, UC will purchase a mix of “green” power from carbon‐ neutral generators and “brown” power from high‐efficiency natural gas generators and gradually transition to 100% carbon‐neutral power. By procuring low‐cost wholesale brown power from high‐efficiency sources, UC will offset the premium of wholesale green power and will eventually assemble a wholesale power portfolio that is equal in cost, albeit more carbon efficient, than utility‐supplied power.

Initial investment

As described above, UC is evaluating several strategies for procuring large quantities of biogas and renewable energy.

Fiscal results, current and anticipated

While it is too soon to precisely predict the long‐term fiscal impacts of UC’s climate neutrality efforts, avoided regulatory costs, coupled with reduced operating expenses from energy efficiency improvements, could yield significant savings in the long run. State or federal GHG regulations are likely in the next five years, probably in the form of a cap‐and‐trade program. As a large emitter of GHG, UC is likely to be regulated under a cap‐and‐trade program. In addition, utility companies will be regulated under any GHG cap‐and‐trade scenario, and future rates will reflect these costs. At a $30‐per‐ton price of carbon (a price level seen in the EU cap‐and‐trade program), UC could face direct and indirect regulatory costs of $40 million per year. Without fundamentally changing its energy generation and procurement practices, UC’s only means to achieve carbon neutrality will be by purchasing massive quantities of carbon offsets. This amounts to paying someone else to reduce emissions on the University’s behalf, which can be quite expensive; at $15 per ton, offsetting UC’s roughly 2 million ton annual GHG output would cost an additional $30 million per year. These costs could be additive to cap‐and‐ trade costs since offsetting does not necessarily reduce regulatory liability.

Current action and next steps

Before taking further action, the Executive Vice President for Business Operations and the Chief Financial Officer have retained Navigant Consulting to review the Climate Solutions Steering Group’s findings and proposed strategies.

Concluding statement

UC’s carbon neutrality goal aligns with the State’s policy priorities and demonstrates the University’s continued environmental leadership and dedication to its public service mission. The pursuit of carbon neutrality allows UC to proactively examine its business practices and analyze the risks of, and alternatives to current operations in a carbon constrained world.