Gut AB32 to save jobs?

Gut AB32 to save jobs?

Jan. 8, 2010


The global warming debate has been heating up even as Michigan, Colorado and other states shiver through record low temperatures, and Houston was blanketed by its earliest snowfall ever. Out in California, debate is rising over repealing – or severely modifying – Assembly Bill 32.

AB 32 officially is called the “Global Warming Solutions Act of 2006.” Its most drastic measure is a mandate that “statewide greenhouse gas emissions in 1990 must be achieved by 2020.” Effectively, it requires reducing such emissions by 25 percent from current levels. Vast new powers are given to the California Air Resources Board (CARB) to implement AB32.

The CARB is required to develop a “market-based compliance mechanism,” commonly called “cap and trade,” in which an overall “cap” is put on emissions in a geographic area, with each company given a specific allowance of emissions. Companies that need higher emissions can then “trade” for the higher limits by paying companies with lower emissions.

Cap and trade is scheduled to become effective in 2012

AB 32 was passed at the peak of the housing bubble, during which it seemed double-digit increases in housing prices – with the state skimming off its portion in taxes – would go on forever. In California, many thought, everything was “fantastic,” and “anything is possible.” It was a Disneyland of the mind. We could afford anything, including turning the state into a green-friendly economic showcase. Unemployment statewide in 2006 was just 4.9 percent.

Since then the housing bubble has burst, with California among the states hit the hardest. The state, along with the rest of America, is suffering through the worst economic slump since the Great Depression.

Unemployment has more than doubled to 12.5 percent in October – the worst since 12.6 percent in 1940, at the tail end of the Great Depression. If one includes those working part-time but wanting to work full-time and those who have stopped looking for work, the “underemployment” number is a staggering 22.5 percent.

Does AB32 Create Jobs?

Those opposing modifications to AB32 contend that it creates jobs, that it is preparing California’s economy to lead the world in producing green businesses and green jobs. Such is the contention of Dr. James Fine, an economist and policy scientist from the Environmental Defense Fund.

Reported Climate Crossroads:

“According to Dr. Fine, AB32 is not expected to have a big impact on California’s economy: based on projections, the net economic effect is even likely to be positive when taking into account what would happen with the worst effect of global warming.

“Dr. Fine also mentioned health benefits, such as a decrease in premature deaths, a decrease in incidences of asthma, and a decrease in the number of lost work days.

“Moreover, Dr. Fine predicts an extra 109,000 jobs in 2020 when implementing the bill compared to “business as usual.”

In responding to questions by San Diego Union editorial writer Chris Reed on Dec. 8, Gov. Schwarzenegger insisted that AB32’s regulations

“[A]re creating jobs and stimulating the economy. Thanks to California’s forward-looking climate policies, we lead the nation in clean-tech investments with more than 50 percent of the nation’s total clean-tech investment last year. We also lead the nation in venture capital investment. Given all this good news it would be unwise to stop AB 32 – sending exactly the wrong signal to investors, pulling the rug out from beneath others, putting us at uncompetitive advantage compared to other states, and setting us back in being able to compete in the global clean-tech market….

“We know jobs are being created. Just visit San Diego’s own Sapphire Energy where they recently scored $50 million from the Department of Energy to turn algae into jet fuel and diesel. In fact, thanks to California’s climate policies, San Diego is the national, and international, center for algae research as a source of clean next-generation fuels – with over $1 billion in investment over last 18 months.”

Or Does AB32 Kill Jobs?

An opposing view comes from two professors at Cal State-Sacramento, Sanjay Varshney, dean of the College of Business Administration, and Dennis H. Tootelian, professor of Marketing and the Director of the Center for Small Business.

Summarizing a study they made in July 2009 study, they wrote that small businesses, on average:

“[I]n California will pay an additional $49,691 as a result of the California Air Resources Board’s implementation of AB 32. The study, which we conducted at the request of the California Small Business Roundtable, analyzes the potential economic impacts of AB 32 on the state of California, its consumers and its small businesses.

“The study focuses on the costs to be incurred by consumers in five specific areas: housing, transportation, natural gas, electricity and food. Using three different scenarios to measure the economic costs, we find that the potential loss of output, jobs, indirect business taxes and labor income is substantial and significant.

“Our report reveals that when the plan is fully implemented, California families will be facing increased annual costs of $3,857 and that in order to cope with the increased costs generated by the Greenhouse Program, consumers will be forced to cut their discretionary spending by 26.2 percent. We conclude that when California’s climate change program, AB 32, is fully implemented, the average annual loss in gross state output from small businesses alone would be $182.6 billion, approximately a 10 percent loss in total gross state output. This will translate into nearly 1.1 million lost jobs in California. Lost labor income is estimated to be $76.8 billion, with nearly $5.8 billion lost in indirect taxes. This decline in revenues will have a severe impact on future state budgets.”

Varshney told me that he is not opposed to the “spirit” of reducing greenhouse gas emissions, “which is a great goal and we should work toward it.” But he added, “The challenge is the timing – this is the worst time given an already bleak employment outlook and California lagging the nation in economic recovery.  I am not sure if there is any golden number such as 5.5 percent, but clearly the challenge we face is the relocation of jobs elsewhere unless the same standards apply equally to the whole country, and in the same spirit, to the whole world.”

He also pointed out that, if California goes it alone in this, it creates a “moral hazard” that will be taken advantage of by other states and countries that don’t adopt similar standards.

A slightly different view comes from Robert Michaels, a professor of economics at Cal State-Fullerton, co-editor of the peer-reviewed journal Contemporary Economic Policy and an expert in energy policy.

“I don’t trust any of the job studies,” he told me. “Depending on how you set up the data, you can play it like a Steinway.”

However, he added, you can figure that AB32 will create “a staggering amount of unemployment just using the ‘free lunch’ argument.” He’s referring to the phrase, “There ain’t no such such thing as a free lunch,” which goes back at least a century, but was popularized in Robert Heinlein’s 1966 novel, The Moon is a Harsh Mistress.

Basically, it means you don’t get something for nothing. If government is going to mandate that businesses change their operations, a cost has to be paid in lost businesses and jobs.

“AB32 will be a large disaster for the state – unemployment is a small part relative to all the other bad things,” Michaels said.

He added that AB32 is but a preview of what the whole country would go through if the federal Environmental Protection Agency’s announcement on Dec. 15, 2009 of new regulations goes through. Reported the New York Times, “U.S. EPA published its finding that greenhouse gases threaten public health in the Federal Register today, setting a stage for a series of rules to begin regulating the heat-trapping emissions.”

“AB32 is the most incredibly effective psychotherapy I’ve ever seen,” Michaels said. It would reduce global greenhouse gasses less than 1 percent. That’s because California’s economy is less than 1 percent of the global economy.

Michaels thought it unrealistic that California’s action on AB32 would, as backers hoped, first inspire other U.S. states, then all of America, then India and China, to do the same. Although California often is a trendsetter, this seems to be one that won’t catch on, especially as events occur that have cast doubt on the greenhouse gases-global warming link.

Are humans causing global warming?

The debate over AB32 in December occurred as the U.N. Conference on Climate Change was taking place in Copenhagen, Denmark. Gov. Schwarzenegger again grabbed the limelight because of his standing as an international movie star. After some stale jokes about his accent, he said in a speech:

Climate change is a global problem that demands global solutions, but while national governments have been fighting over emission targets, subnational governments like California have been adopting their own targets, laws and policies.

We are proceeding on the world’s first low carbon fuel standards and limiting greenhouse gas emissions from cars which, by the way, the Obama administration has now just adopted. We are proceeding in a major way on green tech, no matter what happens in Washington or in Copenhagen. (YouTube here.)

Schwarzenegger is acting on his insistence, in a June 2005 speech at the United Nations World Environment Day conference, that, “I say the debate is over. We know the science. We see the threat. And we know the time for action is now.”

And just before the December 2009 Copenhagen summit, British Prime Minister Gordon Brown also tried to hush doubters: “With only days to go before Copenhagen we mustn’t be distracted by the behind-the-times, anti-science, flat-Earth climate skeptics. We know the science. We know what we must do.”

Unfortunately for the prime minister, the governor and the others at Copenhagen, a month earlier the Climategate scandal broke. The “debate” was over only because scientists with a vested interest in global warming cooked the numbers. According to Wikipedia (accessed Dec. 16, 2009):

“Controversy arose after various allegations were made including that climate scientists colluded to withhold scientific information, interfered with the peer-review process to prevent dissenting scientific papers from being published, deleted e-mails and raw data to prevent data being revealed under the Freedom of Information Act, and manipulated data to make the case for global warming appear stronger than it is. Climate scientists issued rebuttals and described the incident as a smear campaign, accusing the climate change skeptics of selectively quoting words and phrases out of context in an attempt to sabotage the Copenhagen global climate summit.[11]

What’s clear is that the debate is not over.

Repeal or modify AB32?

Back out here in California, Assemblyman Dan Logue, R-Linda, is advancing the California Jobs Initiative, and on Nov. 25 submitted it to the attorney general for title and summary. It would be on the November 2010 ballot. He is working with Ted Costa’s People’s Advocate, which pushed the 2003 recall of Gov. Gray Davis, and Rep. Tom McClintock, R-Rocklin, a longtime state legislator now in the U.S. Congress.

“We’re not going to eliminate or repeal AB32,” Logue told me. “The initiative would suspend AB32 unless unemployment is again under 5.5 percent for four quarters in a row. Our issue is not to argue global warming, but to create jobs. It would allow California to compete again.”

He also pointed out that, even before AB32 is fully implemented, existing state regulations cost California businesses $493 billion a year and kill 3.8 million jobs, according to a state study released in September. AB32 would add to that cost.

If the California Jobs initiative gathers enough signatures to go on the ballot, then voters will have the final say.

The ultimate choice was put well by Professor Michaels: “What kind of standard of living will people have? Will they have jobs that provide an industrial standard of living? Or will they be pulling rickshaws?”

John Seiler, an editorial writer for 19 years at The Orange County Register, currently is a freelancer who writes for PRI. His email: [email protected].

Related Articles

Contested family leave bill on governor’s desk

Since 1997 the California Chamber of Commerce has prevented more than three-quarters of bills that it calls “job killers” from

Gov Hails One Vehicle Code

Anthony Pignataro: Traffic speeders have no fear — Governor Arnold Schwarzenegger has signed SB 949 into law. This bill, authored

Bill targets ‘shakedown’ lawsuits

Proposition 65, “The Safe Drinking Water and Toxic Enforcement Act of 1986,” has morphed into “The Unsafe Doing Business in