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Reason Foundation

California's Prop 23 Offers Voters Choice: Green Lobby or Economic Activity

Adam Summers
November 1, 2010, 4:29pm

California's Proposition 23, to be decided by voters in tomorrow's election, has to do with environmental regulations, but it is the state's economic climate and prospects for recovery on which the measure could end up having the greatest impact. Prop 23 would suspend AB 32, a bill passed by the legislature four years ago also known as the "California Global Warming Solutions Act of 2006," until the state's unemployment rate drops to 5.5% or less for four consecutive quarters. (As of last month, California's unemployment rate was 12.4%–significantly above the national average of 9.6%–and it has not been as low as 5.5% since September 2007.) California already had the strictest environmental regulations in the nation before AB 32 was passed, and all those regulations would remain in effect.

AB 32 requires that state greenhouse gas emissions be reduced to 1990 levels by the year 2020, effectively imposing a significant energy tax on consumers while delivering negligible effects on the environment. As the non-partisan Legislative Analyst's Office noted in its analysis included in the Official Voter Information Guide, economic studies have concluded that AB 32 will result in a sizable hit to California's economy, as "such things as more expensive energy, new investment requirements, and costs of regulatory compliance combine to increase the costs of producing materials, goods, and services that consumers and businesses buy."

The Heartland Institute, a free-market think tank based in Chicago, has put together a plethora of excellent research and commentary about Prop 23/AB 32 and climate change science. Below is a summary of some of Heartland's latest material on the issue.

Tomorrow, Californians will vote on Proposition 23, a ballot measure that would temporarily suspend costly energy regulations until the state's economy recovers.

We've sent you several emails over the past week about this important vote and sincerely appreciate the active interest you've taken in this issue.

We have more to share with you today. Below, we summarize new research on the economic effects of Prop 23 by analyst Chi Chow and colleagues at Macquarie Research; highlight recent comments by Silicon Valley's T.J. Rodgers, founder and CEO of Cypress Semiconductor; and reprint in its entirety an oped by Heartland policy advisor Wendell Cox.

For more information about Prop 23 and AB 32, visit CaliforniaProp23.com. To learn more about the science, economics, and politics of the global warming issue, visit Global Warming Facts and Environment & Climate News.

To talk to a Heartland Institute scholar about Prop 23, email Communications Director Jim Lakely at jlakely@heartland.org, or call 312/377-4000.


Macquarie Research: NO vote on Prop 23 could hurt California economy, consumers

Analyst Chi Chow and colleagues at Macquarie Research warn of potential long-term negative impacts from a NO vote on Prop 23.

"A ‘no' vote on Prop 23 ... could very well result in long-term negative impacts not only for refiners but potentially also the California economy itself," they write. "We believe a defeat of Prop 23 would result in higher refiner compliance costs to meet both emissions and low carbon fuel regulations, which would undoubtedly be passed on to consumers in the form of higher prices for gasoline and diesel. We suspect US$5.00/gal retail gasoline prices could very well become reality in California. In turn, the implicit fuels tax would hurt consumers, raise the cost of doing business in the state and potentially stall any rebound in the California economy with resulting expected job losses." (emphasis added)

Read the Macquarie Research report on Prop 23.


T.J. Rodgers: YES vote on Prop 23 would save California jobs, stimulate economy

Writing in The Wall Street Journal on October 29, Silicon Valley entrepreneur T.J. Rodgers says Californians could protect a million or so jobs by voting YES on Prop 23, thereby suspending the state's self-imposed carbon dioxide limits.

"Californians have an opportunity to vote for Proposition 23, which will prevent implementation of the California law known as AB32. AB32 is yet another tax, this one on carbon dioxide, the substance that we exhale about 50,000 times per day, that comes from our cars when we drive to work, and from our Silicon Valley plants as we use power for our computers and air-conditioning."

"By supporting Prop. 23," Rodgers writes, "Californians can prevent another job-killing tax."

Read "Prop 23 and the Green Jobs Myth" by T.J. Rodgers.


California Greenhouse Gas Emission Policy: Strutting to Nowhere
By Wendell Cox

California is in real trouble. Its governments, from the state to many local governments, have refused to deal with the rapidly deteriorating fiscal situation. California's regulatory burden is routinely rated as among the worst or even the worst in the nation.

And things are likely to get even worse. An already-weak economy could be further burdened by expanding regulations under California's climate change law (AB 32). Voters will have an opportunity on November 2 to suspend that law until the state's seriously high unemployment rate drops to 5.5 percent.

It is no wonder that businesses are leaving or avoiding expansion within California. Business relocation expert Joseph Vranich (http://thebusinessrelocationcoach.blogspot.com/) reports there have been at least 158 "disinvestment" events, in which California firms have either left the state or expanded their operations elsewhere, in 2010. After only nine months, this is more than triple the entire 2009 pace. California's leading export may well be businesses and the jobs they take with them.

People are leaving, too. Between 2000 and 2009, a net 1.5 million people moved from California to other parts of the nation. This is as many people as live in Alameda County. It nearly equals the population of Idaho, one of the states to which Californians are fleeing.

The latest IRS data indicate that from 2000 to 2008, Arizona, Nevada, and Texas attracted the most people from California. But who would have thought the day would come that more people would move to Kansas, South Dakota or West Virginia from California than moved here? Yet that is the reality. In fact, California lost domestic migrants to 39 states and the District of Columbia, while gaining domestic migrants from only 10 states.

When people leave, they take their economic activity with them. Based upon IRS data, it is estimated that annual lost economic activity (from 2000) is more than $40 billion. This is a substantial amount, representing more than 2 percent of the state's gross domestic product. It is 1.5 times the gross domestic product of the Fresno metropolitan area, with its nearly 1,000,000 people. Indeed, the entire agriculture industry in California is one-third smaller than the annual lost economic activity from outward domestic migration.

This may be just the beginning. A report by economist Benjamin Zycher, formerly senior staff economist for the president's Council of Economic Advisors, indicates the climate change law could reduce employment by 1.3 million jobs in California by 2020. With their related economic activity, this could easily result in a further loss of from $100 billion to $150 billion in California's 2020 gross domestic product compared to the growth that could occur if Proposition 23 passes. This could have the same effect as exporting the entire economy of the San Jose metropolitan area to other states and nations.

With these dismal prospects, it might be thought that the state of California would be dedicated to resolute action not only to keep, but to start attracting both jobs and people. But the contrary is true. The climate change law, defended by much of the state's political establishment, could amplify the job destruction and business disinvestments that already have been intensified by California's taxation and over-regulation.

It also might be thought the state is seeking to reduce the cost of living, which according to a U.S. Department of Commerce report was third-highest in the nation in 2006 and higher than all but one of the states attracting people from California. Again, the opposite is true. The state's climate change law will raise the price of energy. The consequences will not be seen only on household utility bills. The price increases would extend to many products and services, because their production requires energy. Households that must spend more on energy will have less to spend on other needs, and the standard of living can be expected to suffer.

Those opposed to Proposition 23 claim California will prosper from the creation of "green jobs." But what is the incentive for investors to create green jobs (or any other jobs) in the worst business climate in the world? Why would California investors gamble their own billions to create a large number of green jobs in the state, when the potential for profits is so much greater in Austin, Sioux Falls, Bangalore, or Shenzhen?

A decade from now, citizens of a much-less-competitive California could wake up to the reality that has dawned in Spain, where the government's green jobs initiative was a net job-destroyer.

It is not as though California's tough greenhouse gas emissions standards will "save the planet." Not even close. China alone can be expected to increase its greenhouse gas emissions each year by 12 times California's target reduction.

The purpose of the AB 32 job-killing initiative seems to be nothing more than to set an example. But in a free country and a globalized world, neither people nor businesses must willingly submit to being the guinea pigs of social engineering. All of this is likely to erode California's competitiveness even further and to intensify the exodus of employers, jobs, and people.

Of course, California will always have good weather, and that appeals to many. But good weather cannot nullify the effects of policies that drive away people and jobs. California's catwalk-strutting could produce an even-more stuttering economy, while contributing virtually nothing to the reduction of greenhouse gas emissions. Proposition 23 could begin to restore economic opportunity to the state, and none too soon.


Wendell Cox (wcox@heartland.org), a policy advisor to The Heartland Institute, is a native of Los Angeles and was appointed by Mayor Tom Bradley to three terms on the Los Angeles County Transportation Commission. He is principal of Demographia, a St. Louis-based international public policy consultancy, and also serves as a visiting professor at the Conservatoire National des Arts et Metiers, a national university in Paris. He has a BA in government from California State University, Los Angeles and an MBA from Pepperdine University.


Adam Summers is Senior Policy Analyst


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