Proposition 23 would suspend the implementation of the California Global Warming Solutions Act of 2006 (AB 32) until the state unemployment rate, now 12.4 percent, declines to 5.5 percent for four straight quarters. A new study by the Pacific Research Institute examines the employment implications of that initiative, finding that it would increase total state employment by more than 500,000 jobs in 2012, and more than 1.3 million in 2020, when that employment effect would be about 5 percent of the working-age population.
Labor and energy are economic complements — an increase in the cost of one will reduce its use and the demand for the other. That relationship is an eternal truth that even the alchemists in Sacramento cannot change.
Correlation, of course, is not causation. The PRI study examines that historical relationship while controlling for other relevant factors, and finds that a reduction in energy use of 10 percent would yield an adverse employment effect of 8 percent.
AB 32 requires a reduction in the emissions of greenhouse gases to 1990 levels by 2020, or about 25 to 30 percent. That legislation both explicitly and implicitly is a tax on conventional energy use.
Like all geographic entities, California has certain long-term characteristics — climate, available resources, geographic location,
trading partners, ad infinitum — that determine in substantial part the long-run comparative advantages of the state in terms of economic activities and specialization. Opponents of Prop. 23 can talk all they want about “green jobs,” but the larger reality is that such employment represents less than 3 percent of state employment even under an absurdly expansive definition. More fundamentally, without a dramatic change in the state’s industrial mix there is no evidence that the central employment/energy relationship is changing. Translation: “Green” employment cannot become important without massive subsidies.
That is a hard reality discovered by the Germans, who have spent about $244,000 for each green job. That is a bargain compared with the Spanish experience, in which each green job has cost about $791,000 and has resulted in the loss of 2.2 million jobs.
AB 32 originally was justified on the grounds that “California has to be a leader,” a rationale shallow even by the standards of political sloganeering. With the state reeling under massive budget deficits, with high unemployment and one of the worst tax/regulatory environments in the U.S., it will be interesting to see if voters in this deep-blue state choose to turn away from a regulatory juggernaut promising massive costs and, literally, no benefits.
Benjamin Zycher is a senior fellow at the Pacific Research Institute.