AB 32 Is Wrong Approach

(June 16, 2006) A study issued this week by the American Council for Capital Formation (ACCF) highlights the potentially severe costs of implementing a California-only carbon-emissions cap as proposed in California Chamber of Commerce-opposed legislation pending in the Senate Environmental Quality Committee.

AB 32 (Núñez; D-Los Angeles) increases costs for California businesses, makes them less competitive and discourages economic growth with little or no proven environmental benefit by adopting an arbitrary California-only cap on carbon emissions.

Further, AB 32 makes California unattractive to business by setting up a costly, state-only mandatory reporting system.

ACCF Study Conclusions

The ACCF study, entitled “California Climate Change Policy: Is AB 32 a Cost-Effective Approach?” by Dr. Margo Thorning, senior vice president and chief economist for the ACCF, finds that “Californians could expect higher energy costs, millions of dollars in lost gross state product and widespread job loss” if AB 32 becomes law.

See press release.
See full study.

According to Dr. Thorning’s analysis, “AB 32 is likely to cause ‘leakage’ of industry to states and countries with no mandatory emission caps resulting in job losses and no net reduction in [greenhouse gases].”

Furthermore, the study concludes that implementation of AB 32’s mandates “will negatively impact California without materially slowing the growth of global emissions,” and, therefore, “policymakers in California should consider carefully whether they want to proceed down this path alone.”

Specific Study Findings

The study includes the following findings:

• The technologies simply do not exist to reduce total and per capita emissions over the next 14 years by the amounts mandated in AB 32 without severely reducing the growth in California’s gross state product (GSP) and in employment.

• Population growth compounds the difficulty of reducing emissions because more people increase energy demand for home heating, industry and transportation. Over the period from 1990-2000, per capita emissions in California fell by only 2.9 percent. Meeting the AB 32 target would require a 30 percent drop in per capita emissions between 2000 and 2020.

• If the United States adopted the Kyoto Protocol (a target of 7 percent below 1990 emission levels by 2010), rising energy prices would reduce real GSP in California by 3.0 percent in 2010, income would fall by $1,600 per family of four (in 2006 dollars) and there would be 278,000 fewer jobs. In addition, the state would lose $14.3 billion in tax revenue (in 2006 dollars).

This analysis is applicable to a scenario in which AB 32 requirements are coupled with a 2002 California law requiring that a 20 percent renewable fuels portfolio standard be implemented by 2017 and takes into account the fact the California would be “going it alone” with an emissions cap.

• Many climate strategies under consideration could have adverse economic impacts. For example, of 33 climate strategies being considered, each additional job created would reduce California’s total income by $200,000 in 2020.

• The state should not move forward with various greenhouse gas reduction strategies without a detailed, peer-reviewed economic analysis.

Dr. Thorning concludes, “Climate change is a global problem, and reducing emissions in the developed countries should not take priority over maintaining the strong economic growth necessary to keeping California one of the key engines for global economic growth.”

SEE California Concurs

Leaders of Sustainable Environment and Economy for California (SEE California), a broad coalition dedicated to ensuring that any climate change policies adopted in California protect our environment and our economy, agreed with the ACCF’s findings.

“AB 32 is a lose-lose situation for all Californians,” said Chamber President and SEE California member Allan Zaremberg. “First, by placing an arbitrary carbon emissions cap on California employers, we would be encouraging them to leave our state and take jobs to countries or states that do not impose caps. Second, when employers move to other global locations, they may produce even more carbon emissions. We must stop AB 32 before it becomes law.

“California can become a leader in reducing global carbon emissions by proposing tax incentives at the state and federal levels, by advocating for intellectual property protections in other countries for our technology and working with the Asia Pacific Partnership to encourage economic development that employs energy efficient technology,” concluded Zaremberg. “Strong economic growth will lead to newer technologies that require less energy and produce fewer emissions. AB 32 takes us in exactly the opposite direction!”

Action Needed

The Chamber strongly encourages employers to contact members of Senate Environmental Quality to oppose AB 32.

Staff Contact: Jeanne Cain