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Red Ink and Green Jobs

Citizens of the Golden State get nervous about carbon rationing plans made in flusher times

Ronald Bailey
April 6, 2010

In 2006, when California Gov. Arnold Schwarzenegger signed a mandate for dramatic reduction of greenhouse gasses into law, the state's economy was in a very different place. Unemployment was 4.5 percent and residents felt rich thanks to inflated home values. Today, 12.5 percent of Californians are out of work, the state is in budgetary meltdown, and Californians are re-evaluating their priorities.

Economic distress and skepticism about the power of the state to create "green jobs" are fueling a growing movement to stop deep cuts in emissions standards—which would require Californians to consume 25 to 30 percent less energy than they otherwise would have by 2020—from kicking in.

The Global Warming Solutions Act (also known as Assembly Bill 32, or AB 32) would ration greenhouse gas emissions—forcing them back to 1990 levels by 2020—through a mix of policies including a cap-and-trade carbon market along with a set of complementary measures. Those measures include setting fuel efficiency standards for appliances and buildings, requiring that 33 percent of the state’s energy be produced from renewable sources, setting a low carbon fuel standard for vehicles, and zoning changes to discourage automobile travel, among other new regulations and mandates.

Proponents of the 2006 law assert that its implementation will create a plethora of new “green jobs.” For example, a recent press release issued by the California Business Alliance for a Green Economy quotes self-described “long time environmental activist” and current green economy venture investor Tom Soto as saying, the law “will help to drive California's economy toward a more prosperous, cleaner, more efficient future, meaning more jobs being created in one of the most difficult times in our country's history." Similarly, Cynthia Verdugo-Peralta, founder of VPC Energy and Strategic Energy, Environmental & Transportation Alternatives declared, “When it comes to job growth, there is substantial, irrefutable evidence that growing more efficient and greener will create jobs, not kill them." Verdugo-Peralta added, "That's why I am heartened that CARB's [California Air Resources Board] new economic analysis reaffirms the benefits of implementing California's Global Warming Solutions Act."

Verdugo-Peralta is referring to a new report issued last month by the California Air Resources Board (CARB), the state government agency that will largely oversee the new carbon rationing scheme. That analysis finds that implementing emissions cuts will increase the price of electricity by between 0-20 percent, the price of natural gas by between 13 and 76 percent, and the price of gasoline by 6-47 percent.

A competing analysis using the same data by the global consulting firm Charles River Associates finds the costs of carbon rationing are likely to be higher. This is primarily because the requirement that 33 percent of California’s electricity be produced using renewable fuel sources and other similar mandates will inefficiently boost overall costs. Charles River Associates estimate that the 2006 law will increase California’s electricity prices between 11 to 32 percent by 2020, and that gasoline and diesel prices will rise between 14 to 51 percent by 2020.

The CARB best case analysis estimates that the new mandates and carbon market will actually increase employment slightly by 2020, and that per capita income will rise by 0.1 percent by 2020, or about $30 per person. In its worst case scenario, incomes would be reduced by 0.6 percent, or about $300 per capita. 

By contrast, the Charles River analysis finds that implementing the carbon rationing law will cost between 0.5 and 1.1 percent per capita by 2020, reducing personal incomes by $200 to $500. The cost differences between the two analyses arise largely from how they treat the mandates. The CARB report suggests that the higher energy prices faced by Californians will be completely offset by conservation and energy efficiency mandates embedded in the law because they force Californians to reduce the amount of electricity and fuel that they will use in 2020. The Charles River analysis finds that the costs of implementing those mandates more than outweigh their benefits.

With regard to “green jobs,” the CARB’s best case analysis estimates that implementing the law will boost California’s employment by 10,000 extra jobs by 2020; its worst case projects 330,000 fewer jobs than there would otherwise have been by 2020. Just ahead of the release of the new CARB report, the California Legislative Analyst’s Office (LAO) issued an analysis of the law's net impact on jobs in California. While not offering firm figures, the LAO analysis took into account increases in “green jobs” and job losses in other sectors, especially in fossil fuel industries and found that “the aggregate net jobs impact in the near term is likely to be negative.” The LAO report did conclude, “In a relative sense, however, [AB 32’s] effect on jobs in both the near term and longer term will probably be modest in comparison to the overall size of the state's economy.” Even under the best of circumstances, California's carbon rationing scheme will not produce enough “green jobs” to make a significant dent in the state’s very high unemployment rate. Interestingly, Golden State green economy boosters seem to agree.

Take for instance, the Many Shades of Green report issued in December 2009 by the San Francisco-based green think tank, Next 10. That report looked at the growth of green jobs in California between 1995 and 2008. The media widely quoted Next 10’s upbeat claim that “California green jobs increased by 36 percent from 1995-2008 while total jobs expanded only 13 percent. As the economy slowed between 2007-2008, total employment fell 1 percent, but green jobs continued to grow by 5 percent.” A 36 percent increase sounds impressive. But when one looks at the actual numbers, green jobs increased from 117,000 in 1995 to 159,000 in 2008, and currently constitute about 1 percent of California’s total employment. And a five percent increase in green employment nets out to something like 8,000 total jobs, while between January 2007 and 2008, 182,000 Californians lost their jobs. Currently, nearly 2.3 million Californians are looking for work. Next 10 founder F. Noel Perry admitted to the San Francisco Chronicle, “Green tech is not a panacea. We believe green jobs are going to be a significant part of future jobs growth in California. But at the same time, we know they are a small proportion of the total jobs we have now.”

The CARB and green economy boosters like Next 10 have strong ideological predilections that encourage them to minimize the costs of carbon rationing while maximizing the benefits of green investments. Of course, opponents of the carbon rationing law have the opposite motives. It is nevertheless instructive to see what opponents fear the effects of implementing the Global Warming Solutions Act will be on California’s economic prospects. The AB 32 Implementation Group commissioned a preliminary analysis of the CARB’s new study from the consulting group T2 and Associates. The consulting group is headed by Tom Tanton who is also a senior fellow at the libertarian Pacific Research Institute. The T2 analysis estimates that AB 32 will reduce California’s gross state product by 2 percent at a cost about $700 per person and result in the net loss of about 485,000 jobs by 2020.

The AB 32 Implementation Group is seeking to put an initiative on California’s November ballot that would delay the adoption of AB 32’s carbon rationing scheme until California’s unemployment rate dropped below 5.5 percent. Originally entitled the “California Jobs Initiative,” it has been retitled by California State Attorney General (and soon to be Democratic gubernatorial candidate) Jerry Brown to the somewhat less catchy, “Suspends Air Pollution Control Laws Requiring Major Polluters To Report And Reduce Greenhouse Gas Emissions That Cause Global Warming Until Unemployment Drops Below Specified Level For Full Year Initiative.” Supporters of carbon rationing point out that the initiative is being backed by out-of-state oil companies.

The initiative—however colorfully titled—will likely get on the ballot. Just today, Next 10 released a poll that finds that a majority of Californians still support AB 32, especially if the funds collected through the cap-and-trade scheme are mostly rebated to state residents. Support has eroded a bit, falling from 83 percent in 2007 to 69 percent today, but it remains to be seen how Californians will react once the campaign against the 2012 implementation of carbon rationing takes off. Already, the two leading Republican candidates for governor, former eBay CEO Meg Whitman and state insurance commissioner Steve Poizner, are urging a go-slow approach on implementing AB 32. If the economically dispirited voters in the Golden State appear ready to deep six California’s ambitious climate regulations, the prospects of Congress passing a similar national carbon rationing plan this year will look bleak indeed.

Ronald Bailey is Reason's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is available from Prometheus Books. This column first appeared at Reason.com.


Ronald Bailey is Science Correspondent


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