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With the passage of California’s Assembly Bill 32, the Golden State has embarked upon an experiment in energy policy that has no modern parallel. Several recent studies have shown that the consequences to the state could be dire, and that California faces a choice between continuing on its current trajectory toward a future of reduced economic growth and opportunity, or changing course and adopting less draconian climate and energy policies.
For the sake of California, and the national economy that prospers when California prospers, one can only hope lawmakers are paying attention to the possible consequences of their hasty actions.
In 2006, the California Legislature passed Assembly Bill 32, also known as the Global Warming Solutions Act. The bill was signed into law by Gov. Arnold Schwarzenegger on Sept. 27, 2006. AB 32 represents the most aggressive greenhouse gas control regime implemented by any of the states and imposes a vast array of controls on the use of energy. Its goal is nothing less than the remaking of California’s entire energy economy.
“They found that under full implementation of low-carbon fuel standards, California could lose 28,000 to 51,000 jobs – that’s a net 2,500 to 5,000 jobs created due to investments in energy efficiency.” -Kenneth P. GreenBut several recent reports suggest that AB 32 is likely to cause considerable harm to the state.
Boston Consulting Group recently conducted a sophisticated economic analysis that examined the impacts of an AB 32 future on refineries for California’s economy writ large. They found that under full implementation of low-carbon fuel standards, California could lose 28,000 to 51,000 jobs – that’s a net 2,500 to 5,000 jobs created due to investments in energy efficiency. They also found California will lose up to $4.4 billion in tax revenue per year by 2020, a majority of which will come from lost excise taxes on fuels.
BCG also found that AB 32 will transfer $4 billion from fuel refiners to the California Air Resources Board, will promote industry flight and be economically regressive, harming lower-income earners disproportionately. California’s trade balance will also be affected, as California will wind up importing diesel fuel and exporting gasoline.
Another study conducted recently for the California Manufacturers & Technology Association by consulting group Andrew Chang and Co., makes the BCG study look positively rosy. In its “optimistic case,” Chang and Co. estimate that AB 32 will cost consumers almost $140 billion cumulatively by 2020, and will lower California’s gross state product by more than $150 billion – more than 5 percent. They further estimate that California will have 262,000 fewer jobs in 2020 because of AB 32, and that by 2020, increased energy prices will increase household expenses for the average family by $2,500 per year.
But there is another way forward. As Timothy Considine and colleagues at the University of Wisconsin found in a recent study published by the American Enterprise Institute, California has a way to mitigate the pain of transitioning either to renewables or to increased natural-gas electricity production. They conclude that “pairing a transition to either natural gas or renewables with a strategy of increased oil and gas production offers significantly better outcomes.”
“Increased oil and gas production in California would increase employment and state tax revenues over the next 25 years,” the study says. “At its peak, development creates more than 43,000 jobs and generates more than $3 billion in tax revenue in 2020. This ability to increase employment and tax revenues stands in sharp contrast to the previous two scenarios. The vast majority of these revenues are property tax and royalty payments. In 2016, the total increase in revenue to the state purse is $1.4 billion, rising to $3.1 billion in 2019. By 2030, oil and gas development continues to provide more than $1 billion in annual state and local taxes.”
California faces a stark choice with regard to its energy future. It can continue down a pathway blazed by AB 32 into what is almost certain to be further fiscal degradation for the state, more expensive energy, a higher cost of living and greater unemployment for Californians. Alternately, the state can embrace a future that recognizes and embraces the new technologies that are creating a global boom in “clean-burning” natural gas, reverse its course toward more expensive, less reliable forms of energy production and start slowing its spiral into economic chaos.
Kenneth P. Green is a resident scholar at the American Enterprise Institute, and blogs for AEI and the Pacific Research Institute.
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