California's Climate Law Won't Sink Economy, Report Finds

California's Climate Law Won't Sink Economy, Report Finds

Image CC licensed by Flickr user Peter Kaminski

California's landmark climate change law will likely have a modest impact on the state's economy, a new analysis found, but will save the state billions of dollars in avoided fuel expenses.

The state's Air Resources Board (CARB) released an updated study Wednesday of the projected economic impacts from the Global Warming Solutions Act of 2006, also known as AB 32. It follows an earlier assessment panned by some as too optimistic.

The new analysis estimated 10,000 net jobs would be created in 2020 as a result of AB 32; the state is forecast to create roughly two million jobs in 2020, regardless of whether the law is implemented. AB 32 aims to reduce greenhouse gas emissions to 1990 levels by 2020. 

The state would collectively spend about $3.8 billion less on gasoline and diesel fuels due to better efficiency, or 4.9 percent. Projected gross state product is forecast to grow to nearly $2.5 trillion, 2 percent less than if AB 32 was not implemented.

A 16-member panel of outside economists reviewed the findings and offered CARB counsel during their analysis. The Economic and Allocation Advisory Committee (EAAC) concluded the findings were consistent with other credible studies determining the law would have a minor economic impact.

"We did find that to be reassuring, or at least reconfirming that the CARB study was not something that was wildly out of sync with what other modeling efforts were doing," James Bushnell, a Cargill Chair in Energy Economics at Iowa State University and chair of the EAAC's Economic Impacts Subcommittee, said during a conference call with reporters Wednesday.

The analysis determined AB 32 will probably not have a significant effect on small businesses in the state but would impact some sectors more than others, particularly those in carbon-intensive industries. CARB also concluded that failing to fully or successfully implement its Scoping Plan or restricting the use of carbon offsets would have more of a negative impact on the economy because of the missed energy savings and higher price tag for carbon allowances needed for a cap-and-trade program.

The release of the study is the latest turn in a long-running battle over how AB 32 will impact the state's economy. The state's Legislative Analysts Office (LAO) criticized CARB's first economic analysis, concluding its 2020 job estimates were unreliable and that AB 32 would likely result in near-term job losses.

Meanwhile, the California Small Business Roundtable released a report conducted by the dean of Cal State Sacramento's business school finding AB 32 would cost small businesses $50,000 a year, while also taking a $3,857 toll on each California household.

The report, often referred to as the Varshney study, has been widely criticized by environmentalists and economists because it only factored in the costs of AB 32, not the benefits. The LAO found "it contains a number of serious shortcomings that render its estimates of the economic effects of AB 32's proposed implementation through the SP (Scoping Plan) highly unreliable."

The subject remains as politically charged as ever. Gubernatorial hopeful Meg Whitman has promised to suspend the law if she's elected to office, while opponents of the law are working on a November ballot measure that would suspend the law. Hundreds of thousands of dollars have reportedly flowed into the effort from oil companies, many, such as Valero, located out of state.

Image CC licensed by Flickr user Peter Kaminski.