Solar Project Strengthens Case about Cost involved with AB 32

Devin Lavelle
Associate Consultant, Andrew Chang& Company LLC

Something like public policy should not be sold like a product with an infomercial, but it often is. Instead of providing clear, transparent analyses and focusing on the real policy issues, many proponents would rather razzle-dazzle us with claims of hyperbolized benefits and obscured costs.

We see this constantly from AB 32’s biggest proponents. They talk about creating green jobs and spurring investment in particular sectors, both undoubtedly good things. But they ignore the fact that the California Air Resources Board’s own study shows that AB 32 will eliminate more jobs than it creates and slow the economy. And that is in the best case.

Sometimes we find out that the true costs are actively being hidden from us. One example is last week’s Los Angeles Times exposé, which shows that the solar projects under development in the Southern California desert are far more expensive than assumed.

The article estimates that new solar power developments will generate electricity at three to four times the cost of the state’s current energy mix, which is already 20% renewable. How does this happen? Solar developers are guaranteed a 17% return on investment, so they build massive solar projects that would otherwise be cost prohibitive. They are able to do so because of federal subsidies and preapproved contracts from utilities. Costs increase, but the utilities are able to fully pass them along, along with a guaranteed 11% return on investment, leaving ratepayers to foot the bill. If the LA Times exposé proves true, AB 32 may be more costly than even the most pessimistic estimates suggest.

Fortunately for those of us in the Sacramento region, SMUD is ahead of the curve, consistently maintaining some of the lowest electricity rates in the state, while achieving higher portions of renewable electricity than our friends in sunny Southern California.

Combating climate change is important. California should be aggressive in doing so. But, as every act should, AB 32 requires CARB to implement it in a cost-effective manner, leveraging the best information available in making their decisions. Combating climate change should not be about ideology. It should be about cost effective common sense.

Our state has a lot to lose from climate change. We have made massive investments in homes and businesses along the coast. We have numerous communities that are at grave risk of flooding. Others are highly susceptible to wild fires. Significant segments of our economy are reliant on rainfall in the Sierras and blue skies on the coast. Yes, we have a lot to lose from climate change. But we also have plenty to lose from implementing AB 32 inefficiently.

Our analysis of AB 32 for the California Manufacturers and Technology Association showed that, depending on policy variables and cost drivers, the cost of AB 32 could range from as low as nearly cost neutral to over 10% of lost GSP in 2020. Unfortunately CARB’s policy decisions, including its decision to auction emissions allowances, likely eliminated the low end of that range. Moreover, we included relatively optimistic assumptions about renewable power. If the LA Times is correct, reality may approach the high end of our estimates.

Clearly many people are persuaded by fast talking salesmen. How else do you explain the ShamWow or the Snuggie? But California’s economy is too important to leave to razzle-dazzle. As we proceed to implement AB 32, CARB’s obligation is to present the benefits, the costs and the risks associated with every policy option and choose the options that achieve the goals of AB 32 most cost effectively. To date, they have failed to do so.

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