The Council, a public policy advocacy organization representing the region’s largest employers, long has been a supporter of the Global Warming Solutions Act of 2006, and is already on record in opposition to Prop. 23, which would suspend AB 32’s implementation until the state’s unemployment rate has dropped to 5.5 percent or lower for four consecutive quarters.
Still, the council invited not only opponents of the measure, but also a consultant to the Yes on 23 campaign to address three to four dozen businesspeople at Thursday’s forum in the downtown Oakland offices of the Wendel Rosen Black & Dean law firm.
The forum was lengthy and chock full of interesting but complex information, so this’ll be a long one. Follow me after the jump for the full readout…
Bay Area Council President and CEO Jim Wunderman opened by giving a brief history of how his organization years ago worked with its members to tabulate their concerns about the state’s then-nascent climate-change bill, and then worked with lawmakers to ensure most of those concerns were addressed. “We were into sustainability before most people had a definition for that,” he said.
Professor W. Michael Hanemann, co-director of the University of California, Berkeley’s Climate and Energy Policy Institute, said greenhouse gas emissions are a burden on future generations, and controlling them plays to California’s strengths given the state’s past experience is controlling other air pollutants and encouraging energy efficiency.
There’s no evidence that California’s past air pollution reduction efforts hurt the state economically over recent decades, he said, and economic models portending economic harm from AB 32 fail to take into account many important factors. Such models are limited by their own parameters, he noted, assuming no economic benefit from reduced pollution; some ignore the jobs to be created, the energy to be saved and the economic benefits of new clean technologies. “They model AB 32 as though the money was simply thrown into the ocean.”
Hanemann said he was among 118 economists who signed onto an open letter released Monday urging that California proceed with AB 32’s implementation and not delay as Prop. 23 calls for. He said he believes the California Air Resources Board is developing a balanced, prudent approach to implementation that covers all economic sectors, and while energy prices might rise modestly as AB 32’s requirements are phased in, the state’s focus must be on changing the economic structure, developing new technology and altering its energy-using behavior, not short-term price fluctuations.
Controlling greenhouse gas emissions is a marathon, not a sprint, he said; AB 32 already lets the governor suspend certain requirements on a year-to-year basis to accommodate economic situations, but Prop. 23 would shut down the planning process entirely. The measure will kill jobs, he said, as renewable energy and energy efficiency generate far more jobs and capital investment than fossil fuels do. It would unlevel the playing field, he said, letting oil companies off the hook while local governments and other economic sectors remain responsible for changes under laws other than AB 32. And it would deprive California of the state revenue it could realize from sale of emissions allowances under a cap-and-trade system, he said – revenue that could be used to lower some state taxes, provide financial relief to specially affected companies and households, and fund new technological development.
Aaron Singer, the Pacific Carbon Exchange’s managing general partner, offered what he called a crash course in “Climanomics 101,” starting with the fact that climate change “is not a belief system” but rather “a science based on a ton of evidence from places all over the globe.”
Carbon dioxide and other emissions have costs to the economy, the climate and public health, but those costs are now borne by everyone except the emitters, he said; that means fossil fuels essentially are subsidized compared to cleaner, renewable energy sources. This doesn’t mean fossil fuels are inherently bad, he said, only that it’s not a level playing field.
A carbon tax – an environmental tax that is levied on the carbon content of fuels – might be easier to set and forget, he said, but it doesn’t incentivize capital investment, the costs are too easily passed along to consumers, it’s not directly connected to emissions reduction, and it’s too easily repealed, he said. A cap-and-trade system, on the other hand, is directly connected to emissions reductions and creates its own economic incentives, he said. “Free markets, from what I remember, are the conservative economic solution to things.”
It’s already working in the European Union and China, he said, but the precedent was set right here in California when the state set up its system to limit sulfur dioxide and nitric oxide emissions resulting in acid rain. That system reduced aicd rain particulate emissions by 50 percent in less than a decade, he noted, at a cost much less than 1 percent of the state’s GDP – costs offset by a new cottage industry in sulfur dioxide scrubbers and nitric oxide mitigation technology. Electricity costs even fell during that decade, Singer added.
Since the EU implemented its cap-and-trade system five years ago, emissions have dropped by as much as 21 percent in some nations, while Spain and Germany have seen burgeoning investments in their solar industry and Denmark and the United Kingdom have seen the same in wind power, Singer said. Elsewhere, China is now the world’s largest solar-panel manufacturer and has passed the U.S. in wind-turbine production as well, he said. “And they’re not stopping there – lithium-ion battery technology and electric cars are next on their agenda.”
Clean and green is California’s next industrial revolution, he said, reeling off a list of companies already leading the way in areas such as renewable energy, alternative fuels, electric cars, energy efficiency and building materials, and so on. These industries are expected to attract $100 billion in investment by 2020, he said, including $4 billion this year alone, even amid the recession.
Singer cited a study released by the British government projecting that climate change could reduce the global GDP by up to 20 percent over the next century, while the cost to remove most of that risk by acting now is about 1 percent of global GDP. For context, he said the cost of bailing out the global banking system in 2008 was about 5 percent of world GDP.
Proposition 23 flies in the face of that ratio, he said, costing billions in economic disruption as clean-energy and green-technology investment dries up and property losses due to severe weather events – totaling $1.8 trillion from 1980 to 2004 – continue to mount. We insure our businesses, cars, homes and lives, he said; why not insure our climate?
Fogarty acknowledged climate change is worrisome, but said AB 32 is not being implemented in a cost-effective, balanced way. California’s economy was booming when the law was passed – 4.8 percent employment, ample credit available and a hot real estate market – but since has gone into the dumps, and can no longer afford to put this law into effect.
California alone can’t reduce emissions enough to change the course of climate change worldwide, he said; no other state or nation has copied AB 32 so far, meaning California’s economy would be at unique risk by going it alone without national and international cooperation. That’s not coming any time soon, he said, noting U.S. Senate Democrats on Thursday essentially pulled the plug on their hopes for a comprehensive energy bill this year that would seek to curb greenhouse gas emissions.
Even the California Air Resource Board’s own Economic and Allocation Advisory Committee (EAAC) says AB 32 will cause California households to face higher energy prices both directly and through pass-alongs from the businesses they patronize, Fogarty said. The Southern California Public Power Authority has estimated AB 32 could lead to 30 percent to 60 percent increases in electricity costs for some ratepayers; CARB has estimated an 18 percent to 57 percent increase in natural gas costs; the National Renewable Energy Lab estimates a new home would cost $50,000 more; and businesses could pay up to $143 billion for carbon emissions market allowances, he said.
Raising business costs in California drives businesses elsewhere, he said. “Our coalition supports green jobs … any color of jobs,” he said, but the green technology sector has been growing since the mid-‘90s, well before AB 32 was signed into law. Texas already has three times California’s wind-power capacity without such a law, he said, and wind and solar jobs will go where labor costs are low and subsidies are high.
Prop. 23 won’t have any effect on California’s renewable energy and environmental protection laws other than AB 23, he said, such as car tailpipe emission standards, the Million Solar Roofs program, the renewable portfolio standard, SB 375’s regional transportation planning, zero-emissions vehicle regulations, high-speed rail and so on.
Reducing greenhouse gas emissions is a good goal, Fogarty concluded, but this is the wrong method at the wrong time; California can’t go it alone, costing itself billions, but rather must adjust to match current economic realities.
Don Simon, an attorney at Wendell Rosen Black & Dean, then took the podium and tried to bring the smacketh down upon Fogarty’s arguments.
Of course California can’t stop global warming all alone, Simon said, but the reality of environmental protection for decades has been that California leads, the United States follows California, and the world follows the United States. Congress is indeed stalled on cap-and-trade, and the Kyoto Protocol expires at the end of 2012, he said; last year’s United Nations Climate Change Conference in Copenhagen, Denmark failed mainly because other big players like China and India won’t move until the U.S. does.
But New England states set the tone by establishing a regional cap-and-trade system, Simon said, and after California enacted AB 32, the Western Climate Initiative began trying to pull together a regional carbon market here. Business hates nothing more than having different sets of rules and regulations state-by-state, making compliance complex and costly, so state and regional efforts like these are the only true impetus to get business on board with national legislation.
If California approves Prop. 23 and balks at moving forward with AB 32, there’s “zero chance of any federal bill getting passed” for years to come, Simon predicted, and if the U.S. doesn’t act, there will be no successor to the Kyoto Protocol. “That’s what’s on the line. It’s not just California and what California does – it’s the world.”
The costs Fogarty cited are based on decisions that haven’t been made yet, Simon said. For example, the electricity cost increases assume businesses will pay 100 percent of the costs for their carbon emission allowances from the get-go, even though CARB isn’t contemplating such a thing; the European Union gave the allowances away for free for the first few years and then phased in the costs to avoid shocking the economic system, he said.
The capital that investors are pouring into California’s green-tech sector depends on investors’ belief that the state has a long-term commitment to that sector, he said – those investments totaled about $500 million in 2005 but leaped to more than $2 billion in 2006 when AB 32 was signed and rose to $4 billion in 2007 before the recession brought it down to about $2.1 billion in 2008 and the same in 2009.
Prop. 23’s language could affect any law that cites itself as furthering the goals of AB 32, not just AB 32 itself, Simon said, jeopardizing a wide range of initiatives and most likely inviting years of litigation.
The panel then took questions from the audience.
Someone asked why there’d been no discussion of AB 32’s beneficial effect on the nation’s energy independence; the U.S. imported 50 percent of its oil in the late ‘70s, and now imports about 65 percent, putting itself at the mercy of unstable and sometimes unfriendly regimes. Fogarty replied nothing in Prop. 23 prevents California from moving forward with clean energy initiatives; it just removes the requirements and incentives.
Someone else noted Fogarty had noted the $50,000 added cost of a new home under AB 32, but had failed to note that such green building techniques would actually save a homeowner about $150,000 over the 30-year span of a typical mortgage. Fogarty said he didn’t have those figures with him. Singer said the $50,000 figure is inflated, based on solar photovoltaic system costs from 2005; those costs have plummeted in the past five years, making Fogarty’s estimate “absolutely a chimera.”
Hanemann jumped in at this point to criticize Fogarty’s estimate that businesses would be paying about $143 billion for carbon allowances, a figure based on an estimate of $60 per ton of carbon emissions – that’s “a figment of their imagination,” he said, “a sheer lie.” Fogarty said CARB’s EAAC had pegged it at somewhere from $8 to $200 per ton, but Singer said every estimate he has seen puts it at about $10 to $15 per ton at the cap-and-trade system’s implementation in 2012.
Another audience member noted the campaign for Prop. 23, like so many other political campaigns, will seek to play off voters’ fears, and asked how that can be fought.
“It’s very difficult to rebut fear,” Simon acknowledged, but it’s up to the measure’s opponents to offer facts reassuring voters that posing prosperity against sustainability is “a false choice.” Perhaps voters should be told of the costs of inaction on climate change, he suggested; California could face costly calamity as sea levels rise, he said, noting that building a seawall cost about $1,500 per foot as of 2006. “We know that if we don’t address climate change, no one else will.”
“From our side, we’re going to be quoting facts,” Fogarty countered, urging people to read the nonpartisan Legislative Analyst’s report on Prop. 23 which found it would lower costs to business and save money for local governments and school districts.
“There’s going to be a cost, and we think it’s going to be significant” if AB 32 moves forward, he said, with no commensurate benefit in solving the problem of climate change.
But Hanemann reiterated that the Legislature can veto whatever implementation plan CARB develops, and the governor can relax AB 32’s requirements year by year – both “safety valves” to prevent undue economic harm. He called Prop. 23 “the oil industry’s insurance if Meg Whitman doesn’t get elected,” citing the Republican gubernatorial nominee’s vow to impose at least a one-year moratorium on implementing most of AB 32’s rules.
The audience’s final question was posed to Fogarty, about who’s funding the Yes on 23 campaign; he replied it’s a coalition of oil companies, food processors, manufacturers and other businesses.