AB32 driving higher energy costs


MAY 11, 2010


May 3 saw 807,946 signatures submitted to the California Secretary of State to qualify for the November ballot the California Jobs Initiative. If approved by voters, it would suspend AB32, the Global Warming Solutions Act of 2006, until unemployment in California dropped from its current high level, 12.6 percent in March, to 5.5 percent or lower for four consecutive quarters. AB32 supposedly would reduce global warming caused by greenhouse gases.

The campaign over the new anti-32 initiative already is hot and heavy.  Both sides claim their position would save jobs or create jobs, while their opponent’s position would kill jobs.

Opponents of the initiative are directing their campaign against two Texas companies, Tesoro and Valero Energy Corp., that are helping fund the initiative.

“The Texas Oil Companies’ Dirty Energy Proposition will allow polluters to avoid our state’s clean energy standards, kill competition and jobs from California’s emerging clean technology companies, and keep us addicted to dirty, costly oil,” reads the front page of their Web site, whose URL also describes their position: www.StopDirtyEnergyProp.com/

The URL of the site favoring the initiative also is revealing: SuspendAB32.org. Its front page argues,

We must take action or economists say AB32 will:

*Cost California up to 1.1 million jobs.

*Cost the average family $3,857 a year in greatly increased expenses for housing, transportation, food and energy.

Both sides cite economic studies to make their points.

In particular, the initiative would suspend the best-known feature of AB32, its requirement to reduce greenhouse gases statewide by 25 percent by 2020. But there also are some relatively unknown aspects of AB32 that voters need to examine.

AB32’s energy cost

Consider that AB32 required the California Air Resources Board to develop a Scoping Plan for implementing the legislation. According to that Scoping Plan, “Based on Governor Schwarzenegger’s call for a statewide 33 percent RPS [Renewables Portfolio Standard], the Plan anticipates that California will have 33 percent of its electricity provided by renewable resources by 2020, and includes the reduction of greenhouse gas emissions based on this level.” (p. 45).

This 33 percent goal is affirmed in CARB’s March 24, 2010 “Updated Economic Analysis of California’s Climate Change Scoping Plan” (pp. ES-1, 26), which generally found that AB32 would help California’s jobs growth.

So, how much would that 33 percent goal cost? Well, in June 2009 the California Public Utilities Commission issued a report, “33% Renewables Portfolio Standard Implementation Analysis Preliminary Results Report.” It found the following “Projected Energy Costs in California in 2020 (p. 22):

Total Statewide Electricity Expenditures:

2008: $36.8 billion

All-Gas Scenario in 2020: $49.2 billion

20% RPS Reference Case in 2020: $50.6 billion

33% RPS Reference Case in 2020: $54.2 billion

(RPS = Renewables Portfolio Standard.)

“All-Gas Scenario” is where almost all electricity would be generated by natural gas-powered generation, which today in 2010 also is the predominant form of generation. The rise in cost for the “All Gas Scenario,” from $36.8 billion in 2008 to $49.2 billion in 2020, takes into account projected increases in population, business use and the cost of natural gas. So, the $49.2 billion figure is the base figure to use.

They key is this: The “33% RPS Reference Case in 2020” cost is projected to be $54.2 billion – that is $5 billion above the $49.2 billion base figure.

Effect on water costs

That extra cost of “only” about 10 percent would ripple throughout the economy. Consider my specialty, water.

Reported the just-released California Water Plan Update 2009, which is produced by the California Department of Water Resources, “According to the California Energy Commission, water-related energy use in California consumes approximately 20 percent of the state’s electricity….” (p. 4-38)

Now, if overall energy costs go up 10 percent, that means the energy costs of “water-related energy use” would rise from 20 percent to 22 percent of the state’s overall water cost – a 2 percentage point increase. That might a drop in the bucket, but if you’re a business that uses a lot of water, such as a factory or farm, a $200,000 monthly water bill could go up by $4,000, meaning you would have to fire one worker – adding to already high state unemployment and putting another burden on state social services costs.

Then consider another initiative on the November ballot, the California Water Bond Proposition. If it passes, it would borrow $11.1 billion to build numerous water projects throughout the state. The bond stipulates it would build, “Water recycling and related infrastructure … . Local and regional conveyance projects that improve water supplies … . Local and regional surface water storage projects that provide emergency water supplies and water supply reliability in drought conditions,” etc.

These are projects that require concrete and construction equipment. “Implementation of AB32 will cause increases in the cost of cement anywhere from 10-50% (depending for example on cap/trade auction prices) and of course the cost of diesel to run dozers in building infrastructure,” Tom Tanton told me; he’s president of  T2 & Associates and former principal advisor to the California Energy Commission.

“Cap/Trade” refers to the “cap-and-trade” aspect of AB 32. CARB explains, “Under cap-and-trade, an overall limit on GHG [greenhouse gas] emissions from capped sectors will be established by the cap-and-trade program and facilities subject to the cap will be able to trade permits (allowances) to emit GHGs.”

Voters will decide

In these times of tight budgets, high unemployment and citizen resistance to waste and high taxes, AB32’s impact on the water bond will be a critical factor in the election. If AB32 raises construction costs, as I think the evidence shows, then it would cause fewer water projects to be built under the new bond.

However, if AB32 is effectively suspended, then those projects would cost less; meaning more money from the bond would remain to be used for other state water projects.

As the election approaches, the fate of the water bond may depend on the fate of AB32. If polls show that AB32 may effectively be repealed, then the bonds – by constructing more projects for every buck – may be more likely to pass.

Susan M. Trager has more than 30 years of experience in water law, public agency law, municipal law, environmental law and eminent domain law, including the valuation of water rights. She also edits Trager Water Report, a new site on California water. And she earlier wrote “Draconian water plan unveiled” for CalWatchDog.com.

Her email: [email protected]. The views in this article are hers, and do not represent those of her law firm, SmithTrager LLP.

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  1. Tyler
    Tyler 11 May, 2010, 12:15

    CARB’s Official Mouthpiece, “Truthsquad”, hasnt tried to argue how wonderful CARB and AB 32 are yet? I guess CARB hasnt come up with an official press release yet, arguing that CARB will save $987,696,998,768,834,287 over the next 10,000 years and prevent 1,000,000,000,000 people from dying 5 minutes early each year by maybe, possibly, hopefully attracting venture capital from Al Gore. I’m really curious to see how “Truthsquad” is going to try to spin stealing thousands of dollars from each citizen.

    I’m glad that some authors are putting the facts of AB 32’s devistation into language that people will understand. If the opposion to the Jobs Initiative is going to waste all of their time complaining about “Texas Oil Companies” (Who just happen to operate in California and have created thousands of jobs for our State) then they are going to get a very very rude awakening come November. They have no legitimate arguements against the initiative so they just keep whining about who is contributing to the campaign and telling the blatent lie that AB 32 is going to lead to job creation.

    As long as we have some honest and ethical authors who tell the truth about the devistation that AB32 has caused, and will continue to cause, and they present it in a Dollars and Cents context that people can understand, AB 32 will easily be suspended when the voters finally get a say in the matter.

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  2. TheTruthSquad
    TheTruthSquad 11 May, 2010, 15:53

    Well, let’s see. The author turns for advice from a consultant paid for by the same interests behind the Dirty Energy Proposition. Gee, what a shocker — he says AB 32 will drive up costs. Of course, he doesn’t factor in any of the benefits from renewable energy. Say, like the fact that it won’t ruin local economies and the environment like a certain oil spill that’s gushing 210,000 gallons of oil a day into the Gulf of Mexico. In his world, we shouldn’t consider the costs of this, or to the families who won’t be getting any income for the next several months.

    And the defense of the Texas oil companies is quite staggering. Valero’s CEO just got a 64 percent salary increase to $10.6 million a year. Not bad for a CEO who was called out on “Mad Money” as one of the worst in the nation.

    The “blatant lie” is that AB 32 hasn’t cost the state a single job. In fact, it’s the catalyst for billions of investment (just as the National Venture Capitalists Assn., who opposes the initiative). Or perhaps some of the state’s largest employers, who also are against this oil company-bankrolled initiative (Google, Meg Whitman’s eBay, Applied Materials, Waste Management, etc.).

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  3. Tyler
    Tyler 12 May, 2010, 09:36

    Trust me, the people who have already lost their jobs and homes because of CARB and AB 32 are not going to get their home back because some billionaire is investing money in a “Green” company that employees 10 people. You are trying to justify taking jobs away from 1,000,000+ people so that maybe 10,000 people can get new “Green” jobs and so VC speculators can try to cash in on the growth of companies that are completely dependant on government subsidies. It is a FACT (I know you may not be familiar with those) that AB 32 has already killed jobs in CA, and it will continue do demolish CA’s economy if left in place.

    How is it that it is horrible for a CEO to make money, but you are willing to kill 1,000,000+ real CA jobs in order to fatten the pockets of a VC investor? Your argument kind of defeats itself. And many of those companies that are supportive of AB 32 are expanding OUT of CA, because the business climate in this state is toxic. The only reason a company would decide to move to CA right now is because they would be getting govt subsidies.

    And if these “Dirty” companies are soooooo horrible, then how come the Green Queen, Mary Nichols, has made millions by having a stock portfolio LOADED with big oil, big coal, and railroad companies? How come her huspand is the lawyer who is DEFENDING Exxon in their Exxon-Vadeze spill? Stop trying to use alarmist tactics and point to a freak oil spill that has nothing to do with the damage AB 32 will do. The argument is really weak considering that Nichols has been funding those oil companies and her huspand will make even more money by getting them off the hook.

    Maybe you and Maviglio should get together and go out and talk to real people who have lost everything because of CARB and AB 32, instead of using CARB press releases and junk reports as your bible. I know issues like this just fatten your pockets because “political advisors” and “public relations advisors” are in high demand when the govt is going to do something so abusive, so they hire you guys to sit around and spew propoganda on comment boards, but the real tax payers in CA are being crushed by these fraudulent regulations. Remember, when all that tax money is gone, hack politicians wont have the unlimited funds available to hire you, so you will be out of a job just like the rest of the state.

    Reply this comment
  4. Tyler
    Tyler 12 May, 2010, 10:49

    Hey Truthsquad,

    Where exactly is all of that “Green” funding coming from? It wouldn’t happen to be coming from other states & countries would it?

    How are you so opposed to companies based Texas (who have been located in California for decades and who have already created jobs in California) contributing money to support ballot initiatives, but when investors from other states and countries contribute money to defeat the initiative, it is so wonderful and is justification for killing 1,000,000+ real California jobs?

    If your primary argument against the California Jobs Initiative is that “outsiders” are getting involved, why arn’t you complaining about the “outsiders” who are the primary financiers of the attempt to defeat the California Jobs Initiative?

    Those people trying to defeat the Jobs Initiative are only interested in the outcome because of the financial impacts it may have on their money, so why aren’t you calling them greedy?

    Could it be because it is those are the same people who are paying you?

    How about you try to be a little less hypocritical and transparent and actually talk about what you think is wrong with the language of the bill itself. The argument of “outsiders” getting involved is a moot point considering that both sides have received a substantial amount of funding from parties who are not based in California.

    Reply this comment
  5. john
    john 10 November, 2011, 16:31

    How does ab 32 affect the actual cost of commodity, gas, and the cost of a kilowatt hour for electricity

    Reply this comment

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