California’s Economy and Global Warming: Political Morphology

By Tom Tanton -- June 8, 2010

Californians are attempting to reclaim the prospects of a top ten world economy from the disastrous downside of Global Warming Solutions Act (California Assembly Bill 32, or AB 32).

Leaders of the ballot measure campaign to amend the law filed over 800,000 signatures – well over the required 435,000 – to be able to vote on a proposition to delay the implementation of cap-and-trade, as well as 70+ other progeny regulations, until unemployment falls significantly.

Signatures are currently being verified by the Secretary of State, and the measure is expected to be on the November ballot.

Then versus Now

At the time the bill was originally signed in 2006, California’s unemployment rate was under five percent. According to the Bureau of Labor Statistics, statewide unemployment in April 2010 was a record high 12.6%.

The ballot measure would put AB 32 on hold until unemployment falls below 5.5% for four consecutive quarters. In other words, until the state’s devastating economic situation improves the state will not implement regulations that will increase energy costs—already among the nation’s highest—and cause additional job loss. The Initiative would not repeal the AB 32 but merely suspend it and its already adopted regulations.

Old Rationale– “Leadership” for The Children!

Flanked by “national and international dignitaries,” Gov. Schwarzenegger signed AB 32, California’s landmark global warming law, in September 2006.  He said the law is “something we owe our children and grandchildren.”

Now, with too-numerous-to-count “gates” cracking the consensus, coupled with solid analysis, such as that of Chip Knappenberger of the lack of meaningful gain from reductions of national scale, there isn’t much discussion about global climate change even being the driver behind “the global warming solutions act.”

The debate has moved, and still moves. California was to lead the global parade, with other states and countries following. Didn’t happen. The death spiral of climate alarmism confirms that California’s mandatory CO2 emission cuts are costs without climate benefits.

New Rationale: Job Creation

Proponents of the massive regulatory scheme, on the defensive with the publicized excesses of climate alarmism, began promoting ‘facts’ that AB 32 would result in an influx of ‘green jobs’ in the market. In reality, California’s mandate is leading to an overall net job loss driving unemployment numbers even higher.

Whatever you think about ‘green jobs’, the fact is they will not be a significant economic driver in the near future. A recent study by the American University Investigative Reporting Workshop found that for all the massive investment by the American Reinvestment and Recovery Act in wind and solar energy, the bulk of dollars spent and jobs created ended up overseas in countries like Denmark, Germany, China and Japan where manufacturing of these technologies occurs. We invent, they make.

In an interview about UCLA’s Anderson Forecast on California’s economy, Jerry Nickelsburg told the Associated Press, “As we look at the hype around ‘green is going to drive the economy,’ the fact is, not really.” To that point, the Forecast found California’s unemployment rate will start to only slowly drop. It also noted the rate will not fall below double digits until at least 2012. That decline in jobs will be due to resurgence in exports of agricultural and manufacturing products; not green jobs.

The Legislative Analyst’s Office found AB 32 would result in the loss of 120,000 jobs in the near term. Even CARB’s own economic experts have recognized the fact that jobs will be lost because of AB 32.  In fact, they recommend establishing a “Worker Transition Program” to provide assistance to people who lose their jobs because of AB 32 regulations.

My own analysis estimated basic household costs would increase by $818 to more than $9,300 per year for each family. These higher costs would lead to further annual job losses between 76,000 and 1.6 million. There would be a loss of economic activity of nearly 2% of gross state product or about $250 billion to $350 billion over ten years.

How Can The Law Be Costing Jobs When Regulations Don’t Take Effect Until 2012?

A December 2009, a Fox & Hounds Daily opinion piece by David Crane, economic advisor to Governor Schwarzenegger, attempted to dismiss the contribution of AB 32 to the state’s current high unemployment rate, currently about 2½% higher than the national average.

Crane’s article, written in reaction to the initial filing of the initiative, erroneously claimed that AB 32 isn’t [yet] affecting employment rates because the implementing regulations take effect two or more years from now. This, unfortunately, is not true.

It’s no secret that the private sector is far more proactive than the government. So if AB 32’s requirements are expected to create obstacles, companies adjust their long-term business strategies accordingly. Anticipating upcoming constraints, such as required uneconomic capital stock changeover, trigger layoffs and downsizing. Business expansions are avoided.

Two specific examples demonstrate how state and local government responses to AB 32 are already disrupting much-needed growth and investment.

In one case, “speculative regulations” were imposed by the San Joaquin Valley APCD CEQA review of the Castle Gardens Air Force Base redevelopment (1). Similarly, California’s Attorney General (2) admonished the Siskiyou County Planning Department that an Environmental Impact Report dealing with a planned Nestlé bottling plant was inadequate, because it did not include the greenhouse gas emissions from plastic bottle manufacturing, even though the plant would not be making bottles—just filling them. This meant that, because of AB 32, the plan would need to be withdrawn – and the entire project revised – to better address global warming concerns. The project was abandoned.

So, job creation is already hampered by pending AB 32 regulation, and more jobs will surely be sacrificed. What’s more, other significant–and mandatory–measures are being taken statewide that burden public and private projects with adopted-but-not-yet enforced regulations. Here is the ultimate irony: even green jobs providers are leaving California.

At the same time that supporters of the law say that AB 32 can’t possibly be destroying jobs, they claim it’s already creating jobs. For example, Steve Maviglio, spokesperson for the anti-initiative campaign, notes the claim of the Environmental Defense Fund that California already boasts five of the nation’s top 10 cities for clean tech investment (San Jose, Berkeley, Pasadena, San Francisco and San Diego), as well as the Natural Resources Defense Council report that California-based companies are receiving approximately 40 percent of total U.S. clean tech venture investments.

Those cities and areas shouldn’t brag too much, as their unemployment mirrors the statewide dismal 12+ percent of people out of work–some a little higher and some a little lower, but still higher than the national level. Of interest is the near doubling of those figures when the disillusioned, and those who stopped looking, are included.

In one of those areas, San Diego, fully 1/3 of the jobs created from October to November 2009 were government jobs. Don’t get me wrong, clean tech investments are great, when they chase new technologies and markets. Not so much when they chase government subsidies and mandates.

“Green” Jobs–Illusory Gains

According to some economic modeling, large-scale technology subsidies and heavy handed clean energy and climate protection legislation stimulates economic growth by increasing consumer income and creating jobs, such wide-ranging legislation can strengthen not only the U.S. economy as a whole, but invigorate California’s economy in particular.

In reality, such theoretical economic modeling is in direct conflict with actual evidence that aggressive clean energy policies damage economies, reduce employment and harm competitive markets. Nowhere is this more evident than in Spain and Denmark, ironically the two nations most widely touted as examples of government mandated clean energy. In fact, there is no real-world example where such policies have succeeded.

For a long time, fans of renewable electricity mandates have made their case by running computer simulations. Input the right data and the right assumptions, impose a renewable portfolio requirement, carbon tax or exorbitant subsidies, compute anywhere from 10 to 30 years forward and awake in a clean, fully employed utopia.

Then reality caused a rude awakening. According to the U.S. Bureau of Labor Statistics, manufacturing productivity decreased in 2008 in almost all of the 17 economies it tracked. Productivity is a measure of the efficient use of labor and reflects higher skills, more efficient use of time and other wealth-creating factors.

Denmark experienced the second largest productivity decline in 2008, (negative 4.5 percent) as well as overall loss of production and employment.

Spain, also with a strong green economic policy, saw steep declines in all three of the above-named factors. Both countries have had poor to negative productivity records since about 1995.

The Republic of Korea and the United States led productivity growth in 2008 with slight increases of 1.2 percent each, but without the negative focus of “green.”

In fact, the U.S. has been improving its carbon intensity (a measure of production per unit of carbon emitted) annually over the past 20 years, along with labor productivity, and is doing better than those countries with strong climate change policies — we are emitting less and less as we make more and more.

While other factors are also involved in the poor productivity records of Denmark and Spain, the fact that they’re paying high prices for energy and high taxes to subsidize favored technologies cannot be ignored.

Denmark: Denmark’s 20 percent wind generation and green policy is often used as the shining example we should follow. The country actually uses less than half of that green power, but can keep the machines and the rest of the economy spinning thanks to connections with the coal-based German grid and the nuclear- and hydro-based Scandinavian grids.

For all their green policy and wind turbines, Denmark experiences the highest power costs in Europe.

Spain: But Spain is a more tragic story. The country’s bill for incredibly expensive solar- and wind-generated energy has become so high that the government is now limiting the size of its renewables handouts. Spain’s recession is magnified by its green mandates.

Their lowered productivity reduces their competitiveness, which in turn decreases exports and contributes to the current collapse of the country’s industries, including wind and solar. Luckily for Spain, one of its companies is receiving some of our stimulus dollars.

Troubled wind producer Iberdrola has thus far received $545 million from U.S. taxpayers for building wind farms here. Economics professor Gabriel Calzada Alvarez, of King Juan Carlos University, illustrated the enormous inefficiency and ineffectiveness of Spain’s green jobs policy.

Changing Rationales for a Bankrupt Public Policy

For a time, the debate transitioned to one touting “energy security” until I and others pointed out that many of the regulations, such as the Low Carbon Fuel Standard, would actually worsen our reliance on imported energy from unstable regimes, like Venezuela and Iran.

For a little while it focused on global warming’s impact on state water supplies, until it was noted that concrete for water infrastructure would skyrocket in price under AB 32. The arguments keep coming, and having been at this for five years (pre-dating adoption of the law) I’m sure there have been and will be other cataclysmic projections of what will happen if AB 32 is suspended.

Appearing to have lost on the first two or three or ten arguments against suspending AB32, advocates have taken to attacking the messengers, especially the oil companies providing much of the funding for the initiative. Maviglio wrote on the California Majority Report, a blog to which he is the main contributor:

“More dirty energy money continues to flow into the campaign by Texas oil interests to buy their way onto the California ballot,”

So the argument turns from real debate to ad-hominem and business bashing. Not mentioned by Maviglio are the hundreds of jobs IN CALIFORNIA paid for by “Texas Oil Companies, and the thousands of retail outlets they run that provide price competition for the benefit of California drivers. Also not mentioned are the numerous organizations and businesses headquartered in California (at least for the time being) that support the initiative.

The pitch of AB 32 apologists will likely shift again between now and November’s election. This is worth watching; the debate in California has a way of going national.

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(1) Castle Air Force Base Redevelopment Plan Administrative Draft Subsequent Environmental Impact Report, October 2007, p. 6-20

(2) Letter from Edmund G. Brown, Jr. Attorney General to Terry Barber, Interim Planning Director Siskiyou County Planning Department; in Re: Nestlé Waters North America Environmental Impact Report, July 28, 2008.