California Warming Law Will Cost Dearly, Nonpartisan Analysis Concludes

Published April 2, 2010

California’s far-reaching plan to curb greenhouse gas emissions will carry a considerable economic cost, according to a nonpartisan report by the state’s Legislative Analyst’s Office. The report questions the modeling used by the California Air Resources Board (CARB), which predicted the Golden State would suffer no net job losses from its global warming legislation.

Economic Claims Called Unrealistic
The “Global Warming Solutions Act of 2006,” A.B. 32, was hailed by proponents as setting an example for the rest of the nation regarding how energy costs could be reduced, and jobs created, through a finely crafted environmental statute. A.B. 32 requires California to reduce its greenhouse-gas emissions to 1990 levels by 2020.

But in a ten-page report, the Legislative Analyst’s Office concluded CARB’s assumptions do not reflect economic reality.

“It seems most likely to us that the implementation of A.B. 32 … will result in the near term in California job losses,” stated the report. “In the longer term, the employment effects in our view are unknown and will depend on a number of yet-to-be-determined factors. These include future energy prices, technological developments in the energy area, normal adoption by households and businesses of increasingly efficient energy technologies even without A.B. 32 in place, legislative actions how the cap-and-trade program is designed and the state of California’s economy.”

Job Expansion Claims Doubted
Noting CARB’s modeling projected A.B. 32 would lead to a net increase of 120,000 jobs by 2020, the report raised doubts about the validity of such calculations.

In what it calls its “scoping plan,” CARB listed measures to be taken to propel California toward the greenhouse-gas reduction targets. However, the report warns, measures in the scoping plan “directly affecting energy process, such as a cap-and-trade program, almost certainly raise the near-term price of electricity, gasoline, and certain other energy sources. These increased energy prices would, in turn, change the amount and mix of energy used, energy-related jobs, and sales and employment in industries producing goods and services using energy.”

Voters to Weigh In
Release of the Legislative Analyst’s report comes at a time of growing concern over the expected effect of A.B. 32 on California’s struggling economy. Opponents of A.B. 32 are seeking enough signatures to put a measure on this November’s ballot to put A.B. 32 on ice until California’s unemployment rate falls below 5.5 percent, a level the state is not likely to reach for years to come under the best of circumstances. As of March 2010, the state’s unemployment rate stood at 12.5 percent.

The dispute over A.B. 32 has put Gov. Arnold Schwarzenegger (R) in an awkward position. Schwarzenegger signed the bill into law in 2006 and has characterized it as it the centerpiece of his campaign against global warming, but he is feeling the heat over California’s rising unemployment and ballooning budget deficits.

A recent poll conducted by Field Research Corp. showed Schwarzenegger’s disapproval rating among California voters at 71 percent. Voters have an even lower opinion of the state legislature, giving it a 78 percent disapproval rating.

In a letter to CARB in late March, Schwarzenegger said the state’s businesses must be given “sufficient time” to reduce their carbon emissions gradually.

Economy on Chopping Block
“When A.B. 32 cuts CO2, it will also throttle the energy impact in California’s economy. The overall impact will be fewer jobs and a weaker economy,” said David Kreutzer, a research fellow in energy economic and climate change at the Heritage Foundation. “The energy cuts may lead to some jobs in one part of the economy, but at the expense of more jobs in other sectors.

“It is like trying to stimulate the agricultural economy by cutting off irrigation,” said Kreutzer. “Farmers may respond creatively, but there will be less food. It should be noted that even if the entire United States made similar cuts in CO2, the moderation in the world’s temperature would be no more than hundredths of a degree in 2050 and a few tenths of a single degree at the end of this century. The environmental impact of a California-only program would be even less.”

Bonner R. Cohen, Ph. D., ([email protected]) is a senior fellow with the National Center for Public Policy Research in Washington, DC.