At times, even the best of us need to stand down, take a deep breath, and head back to the drawing board. That need to reassess happens in business when the market changes, in our jobs when the company downsizes, or in our lives when unexpected situations arise. We have unquestionably reached that point where the state needs to reassess the AB 32 Scoping Plan and find a solution that will balance the need to reduce greenhouse gas emissions with the ability of the state’s economic system to absorb the changes.

Perhaps the problem with the current process is that we are demanding
too much from the California’s Air Resources Board (CARB).  Rather than
asking an environmental regulatory agency to consider macro-economic
factors involving employment, industrial growth, and world trade, the
state should tap additional resources to weave together a plan that
will preserve our current jobs while we develop new technologies for
the future.

Almost every study on the CARB plan has revealed an economic impact,
but the controversy arises over two major areas.  First, there is
disagreement over the degree of impact – some studies find significant
economic ramifications while other reports show minimal effects on
consumers and business.  Second, the studies vary regarding the degree
to which costs will be offset by the benefits that may come with growth
of new technologies. 

Given this rift between the experts regarding economic impacts, the
state needs to slow down, re-evaluate and revise the plan.  At CARB’s
request Charles Rivers & Associates completed an independent
economic analysis of the Scoping Plan last month. Most notably this
review projected that total AB 32 program costs over the next decade
would be $28 to $97 billion dollars. Furthermore, the study found that
if California’s program maintains the Scoping Plan’s complementary
measures, such as the Low Carbon Fuel Standard and the Renewable Energy
Standard, in the presence of a national climate change program – these
measures will in fact do little to affect climate change while
increasing costs to Californians by 50%.

Similarly, a study performed by Thomas Tanton echoed the same warnings
about a California-only program. His study found that California may
lose nearly half a million jobs by 2020 under a California only
cap-and-trade system. He also forecasted the loss in economic activity
to be potentially $250-$350 billion. With unemployment over 12%,
businesses struggling to survive, and record budget deficits we simply
cannot afford these types of economic risks.

The electricity rate increase approved by the Mayor of Los Angeles and
the City Council provides a great case study about the reality of cost
impacts. The recently approved rate increase will result in a 5.3
percent cost increase for large businesses, a 4.7 percent rate hike for
medium-sized businesses, and a 4.3 percent hike for small business. The
amount of the rate hike was based on a report from PA Consulting that
recommended four rate increases of 6.5 % each for the next year.
For some, the 4.3% increase does not seem to be excessive, but if a
business is currently losing money, then any increase in fixed costs
will have a substantial impact.

In light of these studies and the legitimate concerns with the state’s
economy, the Governor sent a letter to CARB on March 24, 2010 that
argued the importance of implementing AB 32 in a manner that is cost
effective and compatible with a national model. The Governor said, "It
is critically important that California’s program be designed in a way
that gives businesses and industries in this state sufficient time to
reduce their emissions in a cost-effective manner without unnecessary
short-term costs."  

There is input available on how to avoid unnecessary costs in order to
create a more cost-effective state policy.  Staunch climate change
policy supporter and Harvard Professor Robert Stavins recently
highlighted the importance of linking California’s cap and trade system
with a federal system, "…climate policy limited to California would be
less environmentally effective and have greater economic impacts than
comparable efforts implemented within broad regional or national
cap-and-trade systems."

At last year’s Governor’s Conference on Small Business and
Entrepreneurship, AB 32 implementation was rated the second most
important issue facing small business out of the conference’s 37
topics. Coming into this year’s conference we have more information and
reports available than we did before, but the data indicates that we
now need to encourage CARB to go back to the drawing board. In doing
so, the state also needs to bring to the table more robust economic and
business resources that are not yet part of the AB 32 advisory
committee.  In order for small business to thrive and the recession to
end, our state’s policies must be crafted in way that protects both the
environment and the job creating small businesses that are the key to
our state’s future economic success.