Higher Energy Costs Matter More for Some

Michael Shires
Associate Professor of Public Policy, Pepperdine University

The state’s commitment to reducing its carbon footprint by producing a greater share of its energy from renewable sources and imposing a cap-and-trade market for greenhouse gas (GHG) emissions has and will drive up the state’s energy prices. The California Independent System Operator, for example, estimated that the retail price of electricity rose 15 percent in the first six months of AB 32’s cap-and-trade market. Estimates for next year point to an increase of 16 to 76 cents per gallon of gasoline as vehicle fuels are folded into the AB32 marketplace.

These costs, layered on top of rising food and water costs, will certainly eat another slice out of the shrinking household budgets of the state’s working poor and middle class. But there is another dynamic to these costs that may hit them again—the very industry sectors most impacted by these rising costs are many of those that provide the best opportunities for the working poor to climb the income ladder into the Middle Class.

One of the successes of the California Dream has been the state’s ability not just to provide opportunity to the educated and knowledge classes, but also to workers who lack high levels of education. Manufacturing, trade and transportation, and construction have long been opportunity sectors where relatively low-skilled workers can enter and, through hard work and persistence, rise to achieve a middle-class income and lifestyle.

These sectors are, however, some of the most intensive to energy prices. And they are already under tremendous economic pressure. California has long struggled to hold on to manufacturing jobs as lower-cost alternatives are just over state lines. Trade and transportation is under new pressure as the widening of the Panama Canal (and a possible new canal in Nicaragua) make it increasingly attractive for shippers to send their goods directly to the East Coast and construction growth is hampered by a listless real estate market and volatile demand.

The bottom line—indiscriminately stacking rising energy costs (including electricity, natural gas, and transportation fuels) on top of these pressures will cost us important opportunity-generating jobs at precisely the time we need to find ways to invigorate our economy. While Californians have made a bold commitment to reduce their carbon footprint, we must do it in a way that ensures that we do not sacrifice these opportunities for many of the state’s most vulnerable residents.

We must strive to craft a balance between the pace of our regulatory changes—AB 32 proposed 2020 as a goal, but there is no cataclysm pending on 1/1/21 that says if we take a few extra months or even years, all will be lost. But if we push ahead too rashly, these jobs will be lost—most likely to never return.

Regulators should aggressively engage industry—and especially those in these key sectors—to find targeted and specific measures whereby GHG emissions can be reduced while preserving opportunity. It is about balance and timing, as well as information. The state should also create a series of clear benchmarks and information dashboards to make sure everyone knows the full benefits and costs of the policies we do implement.

At the end of the day, losing jobs in these opportunity industries will mean fewer people employed, it will mean more people relying on the state’s safety nets, and it will mean more California Dreams denied.

This post is based on the report The Effects of California’s Energy Policy on Opportunity in Los Angeles County. Link: http://cloud.chambermaster.com/userfiles/UserFiles/chambers/9034/File/Sara/EnergyPolicyandOpportunityinLosAngelesv3a.pdf

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