AB 32 and the Economic Road Ahead

87712532By 2020, California will see two million new jobs whether the state implements its climate law AB 32 or not, according to a revised analysis from the California Air Resources Board.

The report, released Wednesday, predicts modest growth in the state economy over the next 10 years, including growth of 2.4% in both personal income and gross state product with or without the law.

During a Wednesday conference call,  CARB chairman Mary Nichols told reporters that sectors where California is strong, such as renewable energy and informational technology, will benefit from AB 32.

“California is uniquely positioned to benefit because this is the direction in which our economy is going anyway,” she said.

Nichols added that industries heavily dependent on petroleum will also benefit, but that they will have to go through a transition.

“We will see economic benefits overall by 2020,” said Nichols, “but it will be easier for some than for others.”

The report was reviewed by the 16-member Economic and Allocation Advisory Committee (EAAC), an independent panel of policy, business and economic experts appointed by Nichols and California Environmental Protection Agency Secretary Linda Adams.

The report finds that AB 32 provides, “neither a huge boost nor a major negative impact on California,” said Larry Goulder, chair of the EAAC and of Stanford’s Economics Department on a call Wednesday with reporters.  “These findings are not that different from other studies that have been done.”

The Air Board’s original analysis was questioned earlier this month in a report from the non-partisan Legislative Analyst’s Office, which projected a mixed bag of pluses and minuses, with a short-term negative impact on jobs.

CARB’s first economic projections were criticized by others, including UCLA economics professor Matthew Kahn.   Kahn said he is much happier with this new report because of adjustments made to the baseline scenario and because of the independent review made by EAAC panel, which he called a “dream team” of economists.  However, the report still falls short, Kahn says, because its macroeconomic approach doesn’t identify how specific industries and businesses will fare under AB32.

“The report released today is about averages. And where I think we need more research is in how individual firms will be affected,” said Kahn. “When I was in graduate school, I had a professor who used to say ‘if your feet are in the fridge and your head is in the oven, on average, you’re ok’ and I always thought that was a funny joke, but I think it’s apropos about California today.”

Also on Wednesday, Kahn published an opinion piece in the LA Times with co-author James L. Sweeney, director of Stanford’s Precourt Energy Efficiency Center, arguing that a study frequently cited by opponents of AB 32 is seriously flawed.  The study, known as the Varshney/Tootelian analysis, estimates that the law will cost small businesses $50,000 a year and each household $3,857 a year once the new rules kick in.

Opponents of AB 32 are advocating for a ballot initiative that would suspend the law’s regulations until the state economy improves and the state unemployment rate drops to 5.5%. It’s currently pegged at 12.5%, officially.

  • http://ncwatch.typepad.com/ Russell Steele

    Ms Weber. You need to read the Appendix where the study team indicates that there are serious uncertainties surround any projection of future economic costs (or benefits). I have reviewed the Appendix at NC Media Watch: http://ncwatch.typepad.com/media/2010/03/global-warming-law-wont-hurt-california-economy-really.html

  • http://warming101.com Anna Haynes

    re Russ Steele’s
    > there are serious uncertainties surround any projection of future economic costs (or benefits).

    Indeed. So is Russ suggesting that we use the precautionary principle for our economy, but not for our life support system?

    That seems insane.

    BTW Gretchen, a suggestion – for the record (since articles often disappear behind paywalls) perhaps you could summarize Sweeney’s reasons that the Varshney/Tootelian study is so bad?

    (I know one reason is that V&T completely disregarded any benefits to AB32 (yet V considers it an “unbiased study”, according to the CSUS Hornet))

    This is all actually a fascinating exercise in CYA and distortion – since indeed, a study that only looks at 1 side of the equation can be an “unbiased study” *of that side* – yet if it’s used for a different purpose, to predict how the *full* eqn comes out, it *is* biased. So, pollution proponents are using V’s “it’s unbiased” assertion out of the context in which it could (conceivably) be true.

    So there’s some sleight-of-mouth going on here.

    p.s. also, links to the other studies would be great – or even just a link to the Suspend AB32 SourceWatch page (which has some info about the other studies, since I put it there. Not direct links to all of them, though.)

  • http://warming101.com Anna Haynes

    p.s. Russ, have you watched the full 45 min Richard Alley AGU lecture yet? As I mentioned on your blog, it should help to dispel some of your misconceptions about the role of CO2 in climate change over earth’s history.