224 Airport Parkway, Suite 620

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224 Airport Parkway, Suite 620

224 Airport Parkway, Suite 620 San Jose, California 95110 (408)501-7864 Fax (408)501-7861 Eileen Tutt October 31, 2005 CARL GUARDINO President & CEO Special Advisor to the Secretary AART J. DE GEUS California Environmental Protection Agency Immediate Past Chair, SVLG Climate Action Team Cap and Trade Sub-Group Synopsys Board Officers: 1001 I Street WILLIAM T. COLEMAN III Sacramento, CA 95814 Chair Cassatt Corporation

MICHAEL CANNON Vice Chair Subject: Comments on Cap and Trade policy options Solectron Corporation ROBERT SHOFFNER Secretary/Treasurer Citibank Thank you for the opportunity to comment on the process and policy options Board Members: regarding potential implementation of a cap and trade framework. JOHN ADAMS Wells Fargo Bank NED BARNHOLT As you may know, the Silicon Valley Leadership Group (SVLG), formerly known as Agilent Technologies Silicon Valley Manufacturing Group (SVMG), founded in 1978 by David Packard of CRAIG R. BARRETT Intel Corporation Hewlett-Packard, represents 200 of the Silicon Valley's most respected employers. RAY BINGHAM SVLG members collectively provide approximately 250,000 jobs, or one of every Cadence Design Systems, Inc. four private sector jobs in Silicon Valley. PETER CARTWRIGHT Calpine Corporation DENICE DENTON SVLG is a member-driven organization that has prioritized its policy efforts on University of California, Santa Cruz RAQUEL GONZALEZ education, transportation, housing, energy, economic vitality, tax policy and the Bank of America environment. SVLG members have adopted a statement of climate action principles BRIAN HALLA (attached for your reference), the core elements being voluntary conservation, National Semiconductor JEANETTE HORAN efficiency, and utilization of low-GHG generation. IBM Corporation LEONARD KWIATKOWSKI Lockheed Martin With these principles as guidance and context, SVLG offers the following PAUL LOCATELLI, S.J. observations, comments and suggestions on the proposals made at the hearing and in Santa Clara University response to comments made by some participants. JUN NARUSE Hitachi Global Storage Technologies LEN PERHAM Regarding process: SVLG would like to thank the Administration for assembling a Optimal team with the breadth of perspectives necessary to evaluate the implications of KIM POLESE SpikeSource, Inc. various proposals. We are also appreciative of the clear and open process and BYRON SCORDELIS thoughtful, open-minded approach of the Team’s leadership. Greater Bay Bancorp DAVID J. SHIMMON Celerity Group, Inc. SVLG members strongly favor voluntary actions, and the utilization of market MICHAEL SPLINTER principles. There is a keen desire to see all policy options thoroughly assessed and Applied Materials NBC 11 LINDA SULLIVAN presented (at least) as cost-benefit calculations. SVLG members are concerned that NBC 11 policies intended to reduce emissions do not create further economic and JOYCE M. TAYLOR competitiveness disparities between California and other regions. SBC BOB WAYMAN Hewlett-Packard Company Although cost/benefit analyses are only one way to determine best courses of action, KENNETH WILCOX they are a familiar decision-making tool. For example: what would it mean to Silicon Valley Bank DAVID WRIGHT businesses and residents if the power generating/direct emitter sector were subject to EMC Corporation Cap and Trade? By how much would this increase utility bills? Would this be JOANN ZIMMERMAN Kaiser Permanente significant? Could this increase be cost-effectively offset by efficiency Working Council Chair improvements or other incentives? NANCY NOE Alza Corporation Founded in 1977 by DAVID PACKARD

    ‘Cap and Trade’ as regulatory framework for achieving the Governor’s goals should be considered as only one of many possible methods or ‘tools’ available to address the issues. We would suggest that the broadest possible view be taken of what constitutes a ‘tool’ and strive to employ as many ‘tools’ as may be effective

     taking care not to presume that a strictly regulatory approach is the only or the most effective one. Others that may be of significant value in achieving desired outcomes may include: incentives for innovation, incentives for utilization of new technologies, promotion of cost effective voluntary measures, promotion of model ordinances and policies encouraging behaviors and practices which reduce direct and indirect emissions, incentives for energy-efficient operations to locate or expand in California, a portfolio of fiscal and tax policies which provide incentives for technological and economic development and others that are disincentives to profligate energy use.

    It may be useful to determine (or at least estimate) the potential energy and emissions reductions that occur as a result of present high gasoline and natural gas prices. Although high market prices are not the result of any policy action intended to encourage conservation, the results may be very illustrative of what kinds of consumption patterns occur as a result of those market forces, how long those patterns last and what other patterns occur in response (changes in purchasing behavior, changes in commute patterns, etc.).

    Or, if (as was suggested by one of the commenters at the past hearing) there were some kind of cap on ALL fossil fuels (motor fuels included) what would be the economic impact of that? Could we model the economy’s response? Could we anticipate some of the unintended consequences or details that would need

    to be answered (like how would you account for fuel in auto, bus, truck or airplane tanks that are vehicles en route?) Is it possible to model or anticipate some of the societal responses - if the cap is set too low, will it encourage criminal trafficking or a stifling of the economy and the state’s budget resources? If the cap is set too high, will there be no meaningful change?

    SVLG is concerned that any framework implemented not disadvantage or penalize organizations that have already reduced their energy demand or improved their efficiency. It is a serious concern, and inherent in any cap or allowance based on recent past performance, that organizations who have a culture and history of ‘best practices’ regarding energy management and emissions reductions, will be seriously penalized for their troubles and good works. Under any future scenario, it is imperative that past and present good performance continue to be rewarded.

    SVLG recognizes the value of the California Climate Action Registry (CCAR). However, their third-party verification of emissions serves direct emitters who may be able to bank, trade or in other ways ‘commodify’ their emissions reductions and is of less tangible value to indirect emitters, and does not apply

    to emissions from the mobile sector. The CCAR is only one of many possibilities for the verification and reporting of emissions. At the end of all analyses, the desired outcome should indicate the best tools for reporting and verification- should that be necessary, rather than picking a good tool and forming policy around its specialized utility.

    Because any climate change policy or regulatory framework would necessarily be closely tied to the energy policies of the state, it seems useful to describe desired policy outcomes in two parallel ‘tracks’, so that the needs of both are kept in mind as we move forward. We need a cost-competitive, diverse, reliable, environmentally preferable, flexible, energy portfolio that is responsive to market forces and changes and opportunities in technology at the same time we need to reduce the carbon impacts of our energy sources in a timely, cost effective, and environmentally just way that does not encourage ‘outsourcing’ of emissions –

    or jobs!

    Many of the difficulties associated with how to implement a regulatory framework occur because of jurisdictional issues that would not be so complex if a uniform, nation-wide policy were an option. Until and unless that is the case, the difficulty and complexity of state-only policies should be one of the factors considered when selecting policy options.

    With these comments, SVLG is not taking any position on Cap and Trade as a specific policy to achieve the Governor’s goals. There are too many questions of cost, impacts, scope and applicability to a few, some or all of our members to weigh in with a specific position on this particular regulatory approach. However, we look forward to continuing our involvement on the issue and hope our thoughts are useful in the process of evaluating policy options.

Thank you for considering these remarks.

    If you wish to discuss these issues, or if we can be helpful in any way, please feel free to reach me by email at or call me at 408/501-7858.


Margaret Bruce

    Director, Environmental Programs

    Silicon Valley Leadership Group

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