AB 32: Cost now, benefits later … maybe

During the recent election, the spin on Proposition 23 became drearily familiar. Voters who favored it were backing “greedy oil companies,” as Gov. Arnold Schwarzenegger put it, out to protect their own financial interests. Those who opposed the measure, on the other hand, supported Clean Energy, The Environment and, of course, A Brighter Future for the Planet.

Unfortunately, things are not quite that simple.

The backers of Prop. 23, oil refiners Valero and Tesoro, got plenty of publicity as “out of state” entities, which apparently made them nefarious. That charge was not true of some Prop. 23 opponents, many also from out of state, though in their case the media spin did not hold their residency against them. The opponents of Prop. 23 spent more than three times as much than the oil refiners who supported the measure. In some cases, the opponents were supporting their own financial interests.

The largest contributor by far to No on 23 was Thomas Steyer, a hedge fund manager who has billions of dollars tied up in renewable energy ventures. He donated more than $5 million to the cause, more than either the Tesoro or Valero on the other side. An additional $2 million came from a number of venture capitalists who are betting on government subsidies to pay for their investments.

Also escaping notice during the midterm election was AB 32 itself, California’s Global Warming Solutions Act of 2006, which seeks to turn back the clock to carbon emission levels of 1990, whatever the consequences for the economy. Even California’s Legislative Analyst noted that “the scoping plan includes an inconsistent and incomplete evaluation of the costs and savings associated with its recommendations.” Prop. 23 would have delayed implementation of AB 32 until the unemployment rate dropped to 5.5 percent for four consecutive quarters, safeguarding economic productivity while also addressing California’s markedly high energy prices.

The unemployment rate in California is currently more than 12 percent and shows no sign of abating. The state budget deficit is now some $25 billion, also among the worst in the country. The Global Warming Solutions Act of 2006 is not likely to improve these dire conditions. In fact, even ardent supporters of renewable energy, who stand to gain from AB 32, understood the unintended consequences and supported Prop. 23.

T.J. Rodgers, chairman of SunPower Corporation, the second-largest U.S. producer of solar cells, explained in the Wall Street Journal that: “The basic premise of AB 32 fails a grade-school math test. Green jobs, because of the subsidies and regulations that surround them, are often economic losers. And there is no guarantee that new green jobs will even be domestic.”

Conservative estimates show that the shift in energy spending­ will result in a higher cost to California households of $3,857 per year, or a total of $52.2 billion for all households combined. Based on the principles of consumer psychology, the decline in disposable income will mean either a higher cost for the customer or a reduction in spending in “other areas” leading to overall lost profits to businesses. Conditions will be tough for small businesses, which comprise 99.2 percent of all employer firms, account for 90 percent of new job creation and contribute roughly 75 percent of gross state product.

In the usual pattern, the state likes to impose measures that bring some up-front benefits, with politicians conveniently kicking the costs and consequences down the road. AB 32 reverses that dynamic. It imposes the costs up front, and those are heavy costs indeed. The benefits come far in the future, if they happen at all.

Julie Kaszton is a policy fellow in Environmental Studies at the Pacific Research Institute (www.pacificresearch.org).

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