Economics

Red Ink and Green Jobs

Citizens of the Golden State get nervous about carbon rationing plans made in flusher times.

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When Gov. Arnold Schwarzenegger signed a law mandating a dramatic reduction in greenhouse gases, California's economy was in a very different place. It was 2006. Unemployment was 4.5 percent. Thanks to inflated home values, residents felt rich. Today 12.5 percent of Californians are out of work, the government is in a budgetary meltdown, and a movement is brewing to stop those carbon cuts from kicking in.

The Global Warming Solutions Act, a.k.a. AB 32, seeks to reduce greenhouse gas emissions through a mix of policies, including a cap-and-trade carbon market, fuel efficiency standards for appliances and buildings, a requirement that 33 percent of the state's energy be produced from renewable sources, a low-carbon fuel standard for vehicles, and zoning changes to discourage automobile travel.

AB 32's proponents say it will create a plethora of new "green jobs." Cynthia Verdugo-Peralta, founder of VPC Energy and of Strategic Energy, Environmental & Transportation Alternatives, recently declared, "When it comes to job growth, there is substantial, irrefutable evidence that growing more efficient and greener will create jobs, not kill them." That, she explained, is "why I am heartened that CARB's new economic analysis reaffirms the benefits of implementing California's Global Warming Solutions Act."

Verdugo-Peralta was referring to a March report from the California Air Resources Board, the agency that will oversee carbon rationing. Its analysis finds that implementing emission cuts will increase the price of electricity by up to 20 percent, the price of natural gas by 13 percent to 76 percent, and the price of gasoline by 6 percent to 47 percent.

Though it uses the same data, a competing analysis by the global consulting firm Charles River Associates finds the costs of carbon rationing are likely to be higher. This is primarily because measures such as the requirement that 33 percent of California's electricity come from renewable sources will boost overall costs. By 2020, Charles River Associates estimates, the 2006 law will increase California's electricity prices by 11 percent to 32 percent, while gasoline and diesel prices will rise by 14 percent to 51 percent.

The CARB best-case analysis estimates that the new mandates and carbon market will increase employment slightly by 2020 and that per capita income will rise by about $30 per person, by 2020. In its worst-case scenario, incomes would be reduced by about $300 per capita.

By contrast, the Charles River analysis finds that implementing AB 32 will reduce incomes by $200 to $500 per person by 2020. 

The cost differences between the two analyses arise largely from how they treat the mandates. The CARB report suggests that the higher energy prices will be completely offset by conservation and energy efficiency requirements embedded in the law because they will force Californians to reduce the amount of electricity and fuel they use. The Charles River study concludes that the costs of implementing those mandates more than outweigh their benefits.

With regard to "green jobs," the CARB's best-case analysis estimates that implementing AB 32 will add 10,000 jobs by 2020; its worst case projects 330,000 fewer jobs than there would otherwise have been. Just before the release of the new CARB report, the California Legislative Analyst's Office (LAO) issued an analysis of the law's net impact on jobs in California. While it did not offer firm figures, the LAO analysis took into account increases in "green jobs" and job losses in other sectors, especially fossil fuel industries, and found that "the aggregate net jobs impact in the near term is likely to be negative." It added that "in a relative sense, however, [the law's] effect on jobs in both the near term and longer term will probably be modest in comparison to the overall size of the state's economy." Even under the best of circumstances, California's carbon rationing scheme will not produce enough "green jobs" to make a significant dent in the state's very high unemployment rate.

Surprisingly, the Golden State's green-economy boosters seem to agree. Consider the report issued in December 2009 by Next 10, an environmental think tank in San Francisco. The media widely quoted this upbeat claim from the report: "California green jobs increased by 36 percent from 1995–2008 while total jobs expanded only 13 percent. As the economy slowed between 2007–2008, total employment fell 1 percent, but green jobs continued to grow by 5 percent." A 36 percent increase sounds impressive. But when you look at the actual numbers, green jobs increased from 117,000 in 1995 to 159,000 in 2008 and currently constitute about 1 percent of California's total employment. A 5 percent increase in green employment amounts to about 8,000 jobs.

These numbers are trivial in the context of California's current economic troubles. Between January 2007 and January 2008, some 182,000 Californians lost their jobs. Currently, some 2.3 million Californians are looking for work. In a December interview with the San Francisco Chronicle, Next 10 founder F. Noel Perry admitted, "Green tech is not a panacea. We believe green jobs are going to be a significant part of future jobs growth in California. But at the same time, we know they are a small proportion of the total jobs we have now."

Meanwhile, the AB 32 Implementation Group, a coalition of California businesses concerned about the law's effect on their competitiveness, commissioned a preliminary analysis of CARB's new study from the consulting group T2 and Associates. The consulting group is headed by Tom Tanton, a senior fellow at the libertarian Pacific Research Institute. The T2 analysis estimates that AB 32 will reduce California's gross state product by 2 percent (about $700 per person) and result in a net loss of about 485,000 jobs by 2020.

The AB 32 Implementation Group wants to put an initiative on California's November ballot that would delay the law's carbon rationing scheme until California's unemployment rate drops below 5.5 percent. The measure was originally called the California Jobs Initiative, but state Attorney General Jerry Brown has given it a somewhat less catchy name: the Suspends Air Pollution Control Laws Requiring Major Polluters to Report and Reduce Greenhouse Gas Emissions That Cause Global Warming Until Unemployment Drops Below Specified Level for Full Year Initiative. Supporters of carbon rationing point out that the initiative is backed by out-of-state oil companies.

The initiative probably will get on the ballot. Next 10 has released a poll that found a majority of Californians still support AB 32, especially if the funds collected through the cap-and-trade scheme are mostly rebated to state residents. Support has eroded a bit, falling from 83 percent in 2007 to 69 percent today; it remains to be seen how Californians will react once the campaign against the 2012 implementation of carbon rationing takes off. Already, the two leading Republican candidates for governor, former eBay CEO Meg Whitman and state insurance commissioner Steve Poizner, are urging a go-slow approach to implementing AB 32. If economically dispirited voters follow their lead, the prospects of Congress passing a similar national carbon rationing plan this year will be bleak. 

Ronald Bailey is Reason's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.

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