New Study Finds AB 32 Scoping Plan Imposes Staggering Costs on California’s Families and Small Businesses

Sanjay Varshney is the Dean of the College of Business Administration at the California State University, Sacramento. Dennis H. Tootelian Ph.D is a Professor of Marketing and the Director of the Center for Small Business at the California State University, Sacramento.

Our study released today finds that small businesses in California will pay an additional $49,691 as a result of the California Air Resources Board’s implementation of AB 32. The study, which we conducted at the request of the California Small Business Roundtable, analyzes the potential economic impacts of AB 32 on the state of California, its consumers and its small businesses.

The study focuses on the costs to be incurred by consumers in five specific areas: housing, transportation, natural gas, electricity and food. Using three different scenarios to measure the economic costs, we find that the potential loss of output, jobs, indirect business taxes and labor income is substantial and significant.

Our report reveals that when the plan is fully implemented, California families will be facing increased annual costs of $3,857 and that in order to cope with the increased costs generated by the Greenhouse Program, consumers will be forced to cut their discretionary spending by 26.2%. We conclude that when California’s climate change program, AB 32, is fully implemented, the average annual loss in gross state output from small businesses alone would be $182.6 billion, approximately a 10% loss in total gross state output. This will translate into nearly 1.1 million lost jobs in California. Lost labor income is estimated to be $76.8 billion, with nearly $5.8 billion lost in indirect taxes. This decline in revenues will have a severe impact on future state budgets.

Small businesses drive the economic engine in California. They comprise 99.2% of all employer firms and 99.7% of all firms. They account for over half the employment, over 90% of net new job creation, and 75% of the creation of gross state output. Costs borne by small businesses due to the implementation of AB 32 must be carefully evaluated for a full understanding of their significance and impact on the state and residents.

The study’s cost analysis was based on the California Air Resources Board’s own findings, which revealed significant cost increases. The study’s findings are consistent with the Peer Review analysis commissioned by CARB, the Legislative Analyst’s Office (LAO) review of the Scoping Plan and an analysis conducted by the Los Angeles Economic Development Corporation (LAEDC). These independent analyses concluded that the cost of the AB 32 Scoping Plan would be significant, and that CARB had significantly underestimated these costs.

An adverse impact on small business is bound to adversely impact the production of goods and services in California, the risk tolerance of entrepreneurs and investors, the productivity of labor, the quality of life, and the overall well being of the State and its citizens.

Currently California is facing one of the highest unemployment rates in the nation, an unstable real estate market with rising foreclosures, and rising numbers of families looking to move out of the state to find a more affordable living. Businesses are similarly faced with an inhospitable environment that features some of the highest taxes and utility costs in the nation, and an unfriendly regulatory climate that will likely result in more leakages of businesses elsewhere.

Legislative and regulatory mandates may result in practices and policies that raise the costs of operating for small business or provide a deterrent to small business growth, and hence provide disincentives for economic risk taking and entrepreneurship. This appears to be the case here. While the ultimate goals of AB 32 are not in question, the findings of this study suggest that the costs associated with the implementation of the AB 32 Scoping Plan will have significant adverse impacts on California’s economy, consumers, and small businesses.

UPDATE: Click Here to download a copy of the study

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