“I say unquestionably [AB 32] is good for businesses. Not only large, well-established businesses, but small businesses that will harness their entrepreneurial spirit to help us achieve our climate goals.” ~Arnold Schwarzenegger, Governor, State of California
Almost a decade after the passage of California Global Warming Solutions Act of 2006 (AB 32), we can begin to answer whether Governor Schwarzenegger’s prediction has come to pass. In his recent report, David Roland-Holst makes the point that, “Given that California’s 2020 real gross state product (GSP) is expected to be more than double it’s [sic] 1990 counterpart, this will be a great achievement in delivering prosperity while reducing environmental risks.” Examining this statement further, we see that over period in question, the State of California is expected to achieve about a 2.34% real compounded annual growth rate (CAGR) — respectable but far from roaring.
If we focus on the period before AB 32’s passage, California was averaging a 3.09% CAGR, 30% higher than the period including AB 32. While some might argue this is simply a factor of the recession, the reality is that the state has averaged only a 2.20% CAGR since 2010. None of this is meant to denigrate the good work to reduce greenhouse gas emissions or the accomplishments of the Brown Administration in recent years. Rather, it simply points out that targeting an economic growth rate in the low 2% range as a significant achievement is setting an unfortunately low bar.
Instead, we should focus on Dr. Roland-Host’s findings. His study estimates the impact of potential changes to California’s climate policy after the initial period expires in 2020. He finds that in every scenario, AB 32 would lead to improved economic outcomes, including a higher GDP and more jobs than the current baseline. That is pretty remarkable, when you think about it — every policy alternative Dr. Roland-Holst thought worth considering is better than our state’s current path.
But we didn’t need a study to tell us that there are better, more cost-effective paths — electricity prices in California are generally 36% higher than the national average and climate change programs have increased fuel costs by $.10 a gallon. How do we reconcile the buoyant predictions of economic gain with the realities of the cost increases facing California families? What impact will the current climate change proposed policies (SB 32 and SB 350) have on jobs, income, business growth and the state economy. Will the lower growth estimates impact the state’s existing commitments to education, healthcare, public safety and other vital programs?
California has taken a leadership position in climate change but that positioning will be seriously jeopardized if the legislation fails to produce a plan that marries job and economic growth and greenhouse gas emission reductions.
Andrew Chang is Managing Director of Andrew Chang & Co, LLC and has over twenty years of experience developing and implementing major policy initiatives for government agencies, campaigns and non-profits and major strategy and operations initiatives for Fortune 1000 companies.