AB 32’s “Political Symbolism with Consequences” (Will California vote for recovery?)

Many Californians are concerned about the continuing economic viability of the Golden State, especially with the impending implementation of the California Global Warming Solutions Act, also known as AB (Assembly Bill) 32. The goal of the act is to reduce greenhouse gas (GHG) emissions to 1990 levels by 2020, through a program administered and enforced by the California Air Resources Board (CARB).

Almost all economic modeling of GHG emissions regulations find that the costs of such programs outweigh their benefits. The estimates have come from a wide spectrum of organizations, including the U.S. Environmental Protection Agency, U.S. Energy Information Administration, Brookings Institution, consulting-firm Charles River Associates, and others.

Contrary to the economic consensus, CARB has gone the other direction and argues that command-and-control and cap-and-trade will so increase the efficiency of energy use that Californians will benefit substantially by 2020. But CARB’s self-interested study is flawed as a new study by economist Robert Michaels explains.

CARB’s Suspect Economic Modeling

Recently, the San Francisco Chronicle exposed CARB’s overestimate of pollution from diesel trucks of 340 percent, an error that has caused independent truckers to leave the business rather than bear the costs by CARB. And now Professor Michaels of California State University, Fullerton (website here) explains the many ways in which CARB’s economic modeling of AB 32 is fatally flawed and how CARB threatens California’s economic welfare:

• There are no world climate benefits from AB 32. California’s greenhouse gas emissions are only 2 percent of global emissions, and its share is falling as those from China and the developing world rapidly rise.
• CARB’s results come from a computer model that is by its own admission unreal. In the model, it is mathematically impossible to have unemployment as high as prevails today, and the model does not allow climate policy to change the rate at which unprofitable businesses close or leave the state.
• To create benefits from costly command-and-control regulations, CARB assumes that Californians do not know best what works for their own lives, but that CARB’s choices are economically superior—a heroic and unsupportable assumption.
• CARB assumes its new automobile fuel economy regulation will help California drivers by artificially limiting automobile choices. This assumes that people do not already consider fuel economy when buying a new car—again, another heroic and unsupportable assumption.
• CARB assumes that its fuel economy regulations will cost “only” $1050 per vehicle in 2016 and $2,000 in 2020. Estimates by others are much higher.
• According to CARB, the benefits of a low carbon fuel standard that reduces GHG emissions equal its costs. CARB, however, conveniently excludes over $6 billion per year in federal ethanol and biofuel subsidies from the costs.
• Hidden in the “fine print” of CARB’s scoping plan is an admission that to meet the 2020 goals it will need to cut the number of passenger vehicles by 20 percent (while population grows by 12 percent), but the Board does not specify exactly how this will be done.
• CARB misses obvious ways to reduce the world’s GHG emissions more cheaply than its own programs can do the job. Its recently-ordered renewable electricity requirement increases will reduce GHG emissions, but at 7 times the cost per ton of simply buying European greenhouse gas permits and not using them.
• CARB’s program will intrude on both big and small decisions. It will become active in land-use planning with a goal of increasing density and reducing driving, and it has already issued detailed regulations requiring garages to offer all customers free tire pressure checks.
• A Governor’s Executive Order (not yet law) wants to extend the program beyond 2020, so that emissions in 2050 are 20 percent of their 1990 values, and CARB is already formulating plans that include a 40 percent reduction in private vehicles by 2030.

Conclusion

AB 32 started as “feel good” legislation that would set an example for other states and nations, few of which have actively followed it. But since its passage, California’s unemployment has risen to 12 percent, and CARB’s claim that its policies will improve the lives of Californians becomes less credible by the day.

Carbon dioxide is not a pollutant, and the actions of one state will not deter the rest of the United States and the world from chosing recovery and development over its opposite. Professor Michaels’s analysis is a breath of fresh air in a very politicized debate, one that has been misinformed by CARB’s computer model that cannot even give an accurate picture of today’s economy.