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Pot, Power & Pollution: The Overlooked Impacts of Marijuana Legalization on Utilities and the Environment

April 17, 2014 posted by Eric Christensen

Last month, Washington issued its first license for a legal marijuana grow operation under Initiative 502 ("I-502"), the marijuana legalization measure adopted by Washington voters in November 2012. A wave of additional operations will follow, as about 2,800 producers have applied for licenses to grow marijuana. While the implications of I-502 for the criminal justice system, land use, taxation and many other issues have been widely debated, the potentially significant changes in electricity and water use that are likely to follow from I-502's implementation have received almost no scrutiny. Nor have the important implications for environmental protection. Given the stakes, Washington utilities and environmental regulators should pay close attention to I-502 and the ongoing process of implementing the initiative. At the outset, it is important to understand that the United States already produces huge amounts of cannabis. Official estimates suggest that U.S. production was somewhere in the range of 10,000 to 24,000 metric tons in 2001, making it America's largest cash crop by value. A more recent study suggests that production may actually be far higher - 69,000 metric tons. Given that marijuana production generally remains illegal, these estimates are highly uncertain. But there is little doubt that, as marijuana production comes out of the shadows and into the realm of legitimate business, power and water utilities will need to confront a number of serious and complex issues. Implications for Electric Utilities For electric utilities, legalization is a major concern because cannabis production, which generally relies on energy-intensive indoor growing operations, uses huge amounts of electricity. One recent study estimates that marijuana production may account for as much as 1% of the nation's entire electric consumption, accounting for a total bill of approximately $6 billion. In California, the numbers are even higher. Marijuana production in that state is estimated to use 3% of all electricity consumed there, equivalent to 9% of all residential electricity use. Legalization may have significant localized effects on electricity consumption. For example, following legalization of marijuana cultivation for medical purposes in California, residential electricity consumption in Humboldt County spiked, increasing by 50% on a per capita basis compared to other parts of the state. Scientists at the University of California recently estimated that if Washington's marijuana production, currently estimated to be about 160 metric tons per year, were moved indoors, the state's electricity consumption would increase by about 0.8%. On the other hand, if legalization results in grow operations moving outside, electricity use could decline precipitously because indoor grow operations rely on energy-intensive lighting and climate control systems that would be unnecessary for outdoor operations. Whether this will occur is uncertain because there is a perception among consumers -- discounted by experts -- that indoor-grown marijuana is more potent that marijuana grown outdoors. In addition, if growers remain in Western Washington, indoor production likely will be required because the damp climate encourages mold growth. Under regulations adopted by the Washington Liquor Control Board ("LCB"), which is charged with implementing I-502, marijuana must be tested for mold and, if the crop fails, it would be illegal to sell. On the other hand, some producers are considering outdoor marijuana plantations in Eastern Washington to take advantage of the drier, sunnier climate, which reduces mold risk. Legalization also offers a number of opportunities for electric utilities. For example: • Power Theft: Theft of electricity is rampant among illegal grow operations. In 2010, BC Hydro, the electric utility serving British Columbia, estimated that as much as $100 million worth of electricity was stolen by marijuana growers in the province. As these operations move into the realm of legitimacy, utilities can treat them as ordinary commercial or industrial customers, the incentives for electricity theft should be reduced and the costs borne by ordinary ratepayers for stolen electricity should also be reduced. • Energy Conservation: As indoor grow operations are legitimized, electric utilities will be presented with some low-hanging fruit for their energy conservation programs. Such operations generally use extremely power-intensive High-Intensity Discharge or High-Pressure Sodium lights. These can be replaced with energy efficient models such as LED lights. LEDs can produce three times more light per watt of energy expended, and can also be "tuned" to emit light wavelengths important for plant production. Similarly, there are significant opportunities for energy conservation in the climate control and air filtration equipment used by grow operations. In addition, the choice of marijuana cultivars greatly affects energy intensity, with some strains requiring double the amount of energy to grow as other strains. A recent study suggests that energy intensities at indoor grow operations could be reduced by at least 75%. On this score, it is worth noting that energy costs currently account for about one-third of the production costs of indoor-grown marijuana. If, as many experts predict, legalization results in falling prices, cannabis producers will face strong economic incentives to join in utility conservation efforts. • Renewable Energy Incentives: Growers moving from the black market to the legitimate market are likely to face increased scrutiny from marijuana consumers as well as from environmental agencies. For example, the LCB's regulations require producers to disclose the types of pesticides used on their crops. There may also be a market demand for marijuana grown using renewable energy, especially if other policies discourage carbon-intensive production methods. If so, this may create a new market for renewable energy and Renewable Energy Credits. • Time-of-Use Rates: Although the effectiveness of such efforts may be limited by the specific demands of growing marijuana, It may be possible to adopt time-of-use rates that encouraging indoor grow operations to use energy-intensive light during night-time low-load hours, thus reducing peak demands. Implications for Water Use Water utilities and irrigation districts should also pay attention to the process of legalizing marijuana in Washington. In addition to being heavy energy users, indoor grow operations also use huge amounts of water, especially if the operation uses hydroponics. One recent estimate suggests that a one-room hydroponic operation may require as much as 151 liters of water per day, equivalent to application of nearly 100 inches of water per year. Often, water discharged from indoor operations carries heavy nutrient and pesticide loads, of potential concern for wastewater utilities. Illegal operations frequently steal fresh water and illegal dump wastewater, and legalization therefore represents an opportunity to curb these practices. Even when grown outdoors, marijuana is a water-intensive crop. Experts suggest that marijuana grown outdoors has water needs similar to water-intensive crops such as hops and corn. Not surprisingly, illegal growers pay little heed to legal requirements for water diversions. Illegal diversions can severely reduce water flows where marijuana cultivation is common. For example, recent reports indicate that illegal diversions for marijuana farms have dewatered northern California streams, making the bad effects of its severe drought even worse. Such practices have serious implications for legitimate water users downstream, as well as fisheries and other water-dependent resources. Legalization should reduce this form of illegality, and may reduce pressure in Washington watersheds that are already bumping up against limits on diversions, even on the relatively moist west side of the state. Implications for Environmental Protection Contrary to the stereotype of marijuana growers as genial and environmentally-conscious hippies, illegal marijuana growers are often heavily-armed and operate with little or no regard for the environmental impacts of their operations. A growing body of evidence demonstrates that illegal marijuana operations often use extremely heavy doses of pesticides and rodenticides, far above what would be allowed for legitimate agricultural enterprises. In addition, labeling, storage, use, and disposal restrictions and other regulations aimed at reducing the environmental and human health impacts of pesticide use are often ignored. Illegal operations have many other environmental impacts. For example, thousands of "trespass" operations, illegally occupying sites on National Forests and other public lands, especially in California, have cropped up in recent years. Often, these operations are associated with illegal clearing of forests and severe damage to other public resources such as streams, lakes, and soils. Illegal operations in remote locations often rely on heavily-polluting diesel generators for power. Indoor grow operations relying on diesel generators may require 70 to 140 gallons of diesel fuel to produce a single plant. Greenhouse gas emissions associated with illegal marijuana production provide a good proxy for its total environmental impacts. One recent analysis suggests that U.S. marijuana operations produce about 15 million metric tons of carbon dioxide, equivalent to the emissions of three million average automobiles. Moving these illegal operations out of the shadows should help reduce these environmental impacts. Legal growers will have to comply with environmental regulations in the same manner as operators in other legal industries. In addition, specific regulatory requirements may increase the incentives for legalized growers to reduce their environmental impacts. For example, as noted above, the LCB's draft regulations require growers to disclose information about pesticide use, creating an incentive to reduce that use. Similarly, some commentators propose a specific tax on carbon-intensive grow operations, which would create incentives to reduce energy intensity and switch to low-carbon or carbon-free energy sources. Already, the LCB, which originally proposed to allow only indoor production, has revised its regulations to allow for outdoor production in response to comments about the carbon footprint associated with indoor production, Navigating the Legal Netherworld Although marijuana production in Washington is slowly moving out of the shadows as the LCB finalizes its regulations and begins licensing growers, it remains illegal under the federal Controlled Substances Act. These differences in marijuana's legal status create a number of potentially serious pitfalls for providers of services to marijuana growers, including utilities and irrigation districts. Any involvement with the federal government presents possible problems. Of potentially greatest concern, banking transactions with marijuana growers are technically illegal under federal law. The U.S. Department of Justice has issued guidance to local prosecutors that creates some legal space for utilities to accept, for example, checks or electronic deposits from marijuana operations, but that guidance does not eliminate legal risk. For example, if the next Administration is less tolerant of Washington's legalization experiment, the guidance could be withdrawn. Marijuana's clouded legal status under federal law may create additional problems for electric and water service providers that have received little attention. For example, irrigation districts in Eastern Washington the rely on water delivered from federal projects operated by the Bureau of Reclamation are searching for guidance from the agency on whether they may legally use water from Reclamation projects to supply marijuana growers. Similar problems may arise from electric utilities who receive power from the federal Bonneville Power Administration. Local agencies that receive federal funding of any kind face the potential loss of those funds. For this reason, some Washington cities and counties hesitated to adopt zoning regulations allowing for legalized marijuana production. The breadth of this concern is demonstrated by the fact that the that the FBI only recently agreed to conduct the criminal background checks requested by the LCB on applicants for licensed marijuana production facilities. The first licenses have therefore been issued without the required criminal background checks. Conclusion To date, the debate about I-502 has focused primarily on how it will affect criminal justice system, land use, and taxation. Little attention has been paid to how legalized operations will be supplied with electricity, water, and sewage services. It is clear, however, that legalization will equip utilities with new tools to address chronic problems like power theft and illegal water diversions, as well as new opportunities to advance priorities like energy conservation. At the same time, because marijuana is illegal under federal law, with the same status as hard drugs like heroin and cocaine, legalization creates a new set of legal risks for utility service providers. If you have any questions about I-502, the Washington Liquor Control Board, or the legal risks associated with marijuana production in Washington, please contact Senior Associate Ryan Espegard. Ryan, who contributed heavily to this post, is recognized as one of Washington's leading experts on I-502. If you have any questions about water, energy, or the implications of I-502 on utilities and the environment, please contact a member of GTH's Energy, Telecommunications, and Utilities or Environment & Natural Resources practice groups. We're proud that our partner Jim Waldo was recently named 2013 Lawyer of the Year for Energy and Natural Resources Law, and practice group members Don Cohen, Bill Lynn, and Brad Jones were all named among Seattle's Best Lawyers.