Oil Watchdog

Overnight, the former Mr. Universe had morphed from a gun-toting
action movie star into a leading contender to become chief executive of
the world’s eighth-largest economy.

The date was August 9 2003, the election was less than two
months away, and he was rushing to form a platform. Needing to reach
progressive Californians, he put global warming near the top of his
list.

Spending the weekend with his wife, Maria Shriver, a member of
the Kennedy clan, in Hyannis Port, Schwarzenegger discussed his ideas
with Robert Kennedy junior, an outspoken environmentalist. Kennedy put
him in touch with Terry Tamminen, an activist on water pollution in
southern California.

Tamminen was sceptical. A fund raiser for Al Gore, he was
critical of the Republican record – especially the Bush
administration’s rejection in 2001 of the UN’s Kyoto protocol to curb
greenhouse gases. Now this Hummer-driving Republican was asking him for
advice.

"The Republican Party hadn’t covered itself with environmental
glory," says Tamminen, the author of Lives Per Gallon: The True Cost of
Our Oil Addiction. "Then I thought, this man could be the next
governor, so don’t we want to make sure he has the most progressive
policies? I decided to dive in."

Three years later, the governor ushered in the Global Warming
Solutions Act, the first US legislation of its kind. The law, signed on
September 27 last year, requires California’s industries to reduce
greenhouse gas emissions to 1990 levels before 2020 — a 25 percent
cut.

Five states passed similar laws this year, while five bills in
the US senate and house of representatives are pressing for 14 percent
carbon dioxide reduction targets by 2020.

"California is the model," says Daniel Esty, the director of
the Yale Center for Environmental Law & Policy. "Governors in a
dozen states are now taking the issue seriously, and the groundwork is
being laid for a federal policy."

Hollywood script

Other leaders rang the climate alarm much earlier. Gore called
for changes when he was vice-president and heightened the debate with
his documentary, An Inconvenient Truth, while former UK prime minister
Tony Blair championed Kyoto.

Yet America’s global warming script is being written by an
actor who wowed Hollywood as an unstoppable cyborg called the
Terminator.

"I was very determined to prove you could create economic
growth and protect the environment simultaneously. I knew my strength
was being a Republican. I could win the business community over," he
says.

US policy will have huge ramifications for the rest of the
world: it is the second-biggest source of greenhouse gases after China.
If average global temperatures rise between 1.1 C and 5.5 C by 2100, as
many scientists predict, it could jeopardize the water supply for a
projected 60 million Californians.

Deteriorating air quality, coastal erosion, pest infestation
and monster wildfires could also convulse the state, the 12th-largest
emitter of greenhouse gases in the world.

Such scenarios could befall entire continents, according to
this year’s report by the UN’s Intergovernmental Panel on Climate
Change.

Big problems

"I love tackling big problems," the governor said in June. "I don’t like incremental steps. I like big things."

There are few things bigger than melting icecaps and rising
oceans. Schwarzenegger’s critics suspect his crusade is more Hollywood
razzle-dazzle than a hard-nosed policy that will succeed in cutting
carbon.

Jamie Court, the president of the Foundation for Taxpayer and
Consumer Rights, says the governor is an opportunist who seized on
global warming because going green has become a popular issue.

Unlike Gore, who has called for action since the early 1990s,
Schwarzenegger didn’t present himself as a global warming warrior until
2005.

"He deserves credit for pulling off a massive show," Court
says. "But when the public doesn’t see results, they shouldn’t be
surprised."

But environmentalists who have worked with Schwarzenegger say he has become an influential ally.

"He’s serious about getting this right, and no one else could
get the kind of media attention he can," says Fran Pavley, a former
Democrat from southern California who co-authored the global warming
law.

Bulging coffers

Venture capitalists have poured funds into his election coffers
as well as into start-ups making everything from clean coal to ethanol
derived from wood chips.

"Renewable energy is the next big growth cycle," says Vinod
Khosla, the founder of Khosla Ventures. He gave $20 000 (R136 000) to
the governor’s 2006 re-election bid. "I believe that because California
has this global warming law, you will see the next 10 Googles emerge
here."

Timothy Draper, a founder and managing director of venture firm
Draper Fisher Jurvetson, has contributed $318 000 to Schwarzenegger
since 2003. His firm is the top clean-tech investor in Silicon Valley.

Draper Fisher invests in start-ups such as Tesla Motors, which
makes zero-emission, electric-powered sports cars. Elon Musk, Tesla’s
primary investor, donated $22 300 to the governor’s 2006 campaign.
Earlier this year, Schwarzenegger in turn test-drove Tesla’s new
roadster.

But Schwarzenegger’s zeal for such green ventures has prompted
his staff to make controversial moves, according to Robert Sawyer, who
chaired the California Air Resources Board from 2005 to until he was
fired in June. The body is charged with making rules to implement the
global warming law.

In February, when Tesla was searching for a site outside
California to assemble its luxury White Star sedan, Dan Dunmoyer, the
governor’s cabinet secretary, directed Sawyer to allocate $5 million
from a fund for alternative fuels to Tesla to encourage it to build in
the state.

Public funds

Sawyer refused. He said there had been no tender and he didn’t
consider Tesla, a maker of luxury cars for the rich, to be a wise
choice for special treatment. Tesla wound up choosing a site in New
Mexico.

The governor has built close ties to corporate interests. Since
2003 his campaigns have raked in $121 million from businesses and
individual donors, making him California’s most prolific political
fundraiser.

Wall Street traders are champing at the bit to cash in on the
agenda. The governor is overseeing the establishment of a cap-and-trade
market set to open in 2012 for buying and selling carbon emission
credits.
Companies that emit carbon at a level below the cap will be able to
sell emission credits to firms that want to emit more than the cap.

"We’re looking to California to be the biggest pool of
liquidity in the US and a precursor to a national cap-and-trade
system," says Paul Ezekiel, the New York head of carbon trading for
Credit Suisse.

Citizen advocacy groups, however, worry that consumers will
bear the costs, pointing to the last time the state turned to the
financial markets for a policy fix: the deregulation of its power
industry in the late 1990s. Manipulation by Enron and the ensuing
blackouts were one reason for Gray’s recall.

On the other side, industries such as agriculture,
manufacturing and petroleum fear the global warming push could impose
burdensome costs, forcing them out of the state.

The energy industry has contributed $4.3 million to the
governor’s campaigns, and oil firms are adamant that a carbon market
play a substantial role in meeting California greenhouse gas reduction
targets under the law, says Catherine Reheis-Boyd, a lobbyist for Big
Oil.

"The governor doesn’t believe environmental regulation and
economic prosperity are mutually exclusive," she says. "Our goal is to
point out that this is a core principle, and he cannot move away from
that."

But Ezekiel says the state must impose tough cuts to make
credits valuable and the market viable.
"We’re going to want real base-line data and rigorous caps," he says.
"We want industry to make meaningful reductions." That’s one area where
Wall Street and environmentalists can agree, he says.

Shaky start

For all the attention, the law has erased not a single gram of
carbon dioxide from California’s air. The Air Resources Board is just
one year into a six-year process of converting the law’s intentions
into enforceable regulations. It got off to a shaky start when chairman
Sawyer and chief executive Catherine Witherspoon broke with
Schwarzenegger on the best way forward.

The board had to issue "early action" regulations by July 1.
The governor signed off on three, including a fuel standard requiring
petrol producers to cut the carbon content in fuel by 10 percent by
2020.

Sawyer tried to add a fourth item: a requirement that vehicles
sold in the state use cool paints, which reflect more sunlight than
usual tints, lessening the need for air conditioning and reducing fuel
consumption.

Sawyer’s move clashed with Schwarzenegger’s policy of not
dictating how companies should build their products. The governor fired
Sawyer in a June 22 letter. Witherspoon resigned in protest days after.

The board’s rough summer is a preview of the difficulties
leading to 2012, when its rules will be enforced. By then,
Schwarzenegger will be two years out of office.

In the next decades, the world will see whether the governor’s
global warming crusade turns into good policy, big profits, smart
politics — or just more Hollywood.