March 24, 2010 – California’s overall economy will not suffer, and many parts of it will prosper under the state’s landmark global warming law, according to an analysis by the California Air Resources Board that rebuts an industry-led ballot effort to suspend the regulations.
The 103-page report, to be released Wednesday, comes after earlier projections were criticized as flimsy. It was vetted by a panel of independent academics and policy experts.
“This shows we can implement the law and that growth in the California economy will be large and unabated,” said board Chairwoman Mary D. Nichols, who acknowledged that “shifting the economy away from fossil fuels and toward more renewable energy means that some businesses, including green technology, will benefit, while others will see their costs go up.
“This won’t go down easily,” Nichols said. “It will be fought out in the political arena.”
Indeed, earlier critics of the board projections reiterated their skepticism and touted their own commissioned studies that predict more dire effects, particularly for small businesses.
A group that includes the California Chamber of Commerce, the California Manufacturers & Technology Assn. and various companies issued a report ahead of Wednesday’s release saying that implementing the climate law could cost the state 485,000 jobs by 2020, a sharp contrast to the air board’s finding that the law would yield a net increase of 10,000 jobs.
There currently are about 16 million civilian jobs in California, according to the U.S. Bureau of Labor Statistics.
The climate plan “represents perhaps the most far-reaching regulatory policy initiative ever attempted in our state’s history, imposing new costs on virtually every product and service,” the AB 32 Implementation Group said. “Yet the agency’s economic analysis finds that it won’t cost consumers a dime. We are skeptical about the rosy prediction.”
In recent weeks, the protracted battle over the 2006 Global Warming Solutions Act, known as AB 32, has flared anew as oil refiners and other industries have poured more than $950,000 into signature-gathering for a November ballot initiative to delay climate-related rules.
Under the law, the state’s emissions of carbon dioxide and other greenhouse gases, which trap heat in the atmosphere, would drop 15% by 2020.
New regulations would boost solar, wind and other renewable power, cut the carbon intensity of gasoline, promote electric cars, discourage sprawl and wedge energy-saving measures into home-building, manufacturing and other sectors of the economy.
The high stakes have spawned half a dozen economic reports over the last 18 months from the state, industrial groups, academics and environmentalists, all with conflicting numbers and contradictory conclusions.
Implementing the law is expected to raise utilities’ cost of burning coal, oil and gas — a principle source of greenhouse gas. The industry report asserts that moving a third of the state’s electricity sources to renewables would boost prices to consumers and industry by 11%, but the air board’s analysis found that new energy efficiency rules would lead to a net 4.5% drop in overall spending on fuel by 2020.
Businesses also are upset over the likely design of a cap-and-trade program that would set a ceiling on emissions and allow industries to trade permits as a way of cutting costs. Auctioning those permits, rather than giving them away, amounts to a “tax that could slow the economy,” said Dorothy Rothrock, vice president for government relations for the manufacturers group.
The air board is considering a proposal to return three-fourths of the auction income to consumers to offset higher costs.
The new report shows a slightly less positive impact on growth, per capita income and jobs than did a September 2008 report by the air board staff. Outside economists criticized the earlier document as containing flawed assumptions, such as factoring in the benefits of more fuel-efficient cars even though the auto rules were adopted under a separate law.
As a result, the board ordered a new report and appointed a 16-member group of expertschaired by Stanford economist Lawrence Goulder to vet the economic modeling and make recommendations for a cap-and-trade design.
The new report, which takes account of the current economic downturn, concludes that California’s gross state product will grow to $2.5 trillion over the next decade, only 0.2% less than it would without the climate law. Jobs will grow to 18.4 million — 0.1% more than without the law, the report concluded.
The document acknowledged that some industries, such as fossil-fuel-burning utilities, mining and energy-intensive manufacturing like cement plants, could be hard hit under new climate rules.
Others more allied with a green economy are expected to prosper, and small business, particularly in labor-intensive and service-oriented sectors, “will bear a less-than-proportional share of the direct economic costs of implementing AB 32.”
Iowa State University professor James Bushnell, a former UC Berkeley energy economist who chaired the group’s economic impacts subcommittee, called the board’s analysis “careful and competent. . . . The notion that this is going to somehow wreck the California economy is not credible.”
If the state’s climate plan survives the November ballot initiative, it may still have to contend with efforts in Congress to preempt any state legislation. National climate legislation, modeled on California’s, passed the House last June but has stalled in the Senate.
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