In 1973, the president of Ford testified against pollution-reducing catalytic converters on cars on the grounds that such a requirement risked “a complete shutdown of the US auto industry.”
Of course, no such shutdown occurred and pollution was greatly reduced. But 35 years later, Meg Whitman, a candidate for the Republican nomination for governor, is raising similar fears about California’s Global Warming Solutions Act, signed into law by Governor Schwarzenegger in 2006 (AB32). In doing so she betrays an apparent lack of understanding about how AB32 will be implemented, the opportunities arising from that implementation, and an indifference to the risks of suspending the law.
Ms. Whitman says that AB32’s implementation can only result in reduced economic growth, but as California demonstrated in the 1970’s when it launched its energy efficiency effort using performance standards, that does not have to be the outcome — provided we harness the power of capitalism and competition. Back then, refrigerator makers claimed performance standards would curtail consumer choice and raise prices, but instead, choices weren’t reduced, energy consumption per unit dropped 75%, and prices fell nearly 50%. In fact, relative to a 1974 model, energy savings have put $15 billion in Californians’ pockets.
When governments employ performance standards, all it takes is a single manufacturer to meet the standard and, lo and behold, other profit-seeking manufacturers find a way to meet it. That’s the way competition works, and today California’s energy efficiency standards are copied around the world.
California will implement AB32 through the use of similar performance standards, such as the Governor’s Low Carbon Fuel Standard that the Wall Street Journal has characterized as launching a “New Gold Rush” as firms compete to provide products for the vast new market created by the LCFS. Already as a result of AB32 and other policies launched by Governor Schwarzenegger, California leads the nation in every category of clean-tech investment, according to the Pew Institute. Venture capital into California clean-tech was $3.3 billion in 2008, five times greater than the second-place state, and from 2002-07 California led all states in patent registrations for green technologies, a 70 percent increase over the previous five-year period. Just a few examples of recent California clean-tech developments include Exxon-Mobil’s $600-million partnership with a Craig Venter’s La Jolla biotech company to develop fuels from algae, Bay Area company Echelon being awarded a $450 million energy efficiency contract with an east coast utility, and the federal government awarding more than $500 million to Irvine-based Fisker Automotive for electric cars.
Next let’s look at California’s economy today, for perhaps Ms. Whitman may not be aware of how it has changed. 45 years ago there wasn’t even a category for “Information Services” when reporting California’s gross state product (GSP), but in 2007, that category accounted for more than $100 billion of California’s GSP. Likewise, 45 years ago “Professional Services” provided just 4% of California’s GSP but in 2007 it was 10% of our $1.8 trillion economy, almost equal to the contribution of “Manufacturing” and many times greater than “Agriculture”, “Transportation” and even “Health Care”. Standing alone, “Computer Systems Design and other scientific and technical services” accounted for $130 billion as compared to $2 billion in 1963.
These are sectors that not only make California more competitive (we generate 68% more GSP for every unit of energy as compared to the rest of the nation) but also capitalize on demand for energy efficiency technologies and new energy products that make up a fast-growing part of the $6 trillion international energy market. When we all know the world is headed towards greater energy efficiency and new energy products, why would any leader not want to sustain California’s lead in those sectors?
Finally, while Ms. Whitman is right to be concerned about energy costs, what of her preference for the status quo, one in which the cost of oil whipsawed between $40 and $140 a barrel over the past two years and played a central role in our current recession? It’s hard to understand how anyone can reasonably claim that dependence on a single commodity under the control of unfriendly suppliers is correlated with economic security. Such security arises only when consumers have a choice, and that’s precisely what AB32 will provide.
Make no mistake about it: Ms. Whitman is right to be concerned about unemployment. But she should get her causes-and-effects right. Since the early 1990’s, California has had a structural unemployment rate exceeding that of the rest of the country, in both good and bad times. In 2006 that spread narrowed, but alongside Nevada — with an even higher unemployment rate, and no AB 32 to blame for it –and the other western states hit hardest by the housing crash, California’s rate once again exceeds the national rate. AB 32 has nothing to do with that higher rate but will have everything to do with reducing it.