Link to Inhofe EPW Press Blog
Flanked by "national and international dignitaries," Gov. Schwarzenegger signed
AB 32, California's landmark global warming law, in September 2006. He said the law is "something we owe our children and grandchildren." For those who "challenged whether AB 32 is good for businesses," the Governor said: "I say unquestionably it is good for businesses." And not just for "large, well-established businesses," but "small businesses that will harness their entrepreneurial spirit to help us achieve our climate goals."
When Gov. Schwarzenegger signed AB 32 four years ago, California's jobless rate was 4.9 percent. It's now 12 percent, reaching as high as 20 percent in 8 counties. The state's budget bleeds with red ink (deficit: $19.1 billion) and its economy is among the nation's worst.
And now, the California's Legislative Analyst's Office (LAO), the Golden State equivalent of the Congressional Budget Office, has issued a dire warning that AB 32 will mean more economic pain and joblessness for a state already mired in both.
According to the LAO's Mac Taylor:
California's economy at large will likely be adversely affected in the near term by implementing climate-related policies that are not adopted elsewhere. This is in large part because such policies will tend to raise the state's relative prices for energy, such as electricity. This, in turn, will adversely impact the state's economy through such avenues as causing the prices of goods and services to rise; lowering business profits; and reducing production, income, and jobs.
As Taylor explained, jobs and businesses will flee the state because of "economic leakage," that is, they will move to states that actually encourage jobs and businesses to grow and expand. That's something AB 32 won't do. As California is too painfully aware, it "directly competes with other states and nations, and economic activity can be fairly mobile over time across borders in today's modern economy." In other words, businesses will be voting with their feet.
Moreover, as is the case with Waxman-Markey, Kerry-Boxer, Kerry-Lieberman, RGGI, EPA's greenhouse gas regulations, and any such scheme attempting to address a global issue locally, AB 32 will be environmentally nugatory. That's because, as Taylor explained, greenhouse gases tied to economic activity will simply be emitted somewhere else. Somewhere else could be China, the world's largest CO2 emitter, which has no plans to submit to binding greenhouse gas controls.
California's businesses face international trade pressures from China and others that limit their ability to pass along added costs. "Such firms," Taylor wrote, "will thus have a stronger incentive to shift their activities to locations out of state where there is no need to increase prices." This means "shifting to locations where they do not face the higher energy prices and investment requirements associated" with AB 32.
Taylor believes that AB 32 "will likely result in inflationary pressure throughout the state's economy." While service-based industry represents a significant component of California's economy-a fact that mitigates the impacts of AB 32-most businesses "will nonetheless seek a means by which to compensate for their increased costs of production." Bottom line: "Since energy in some form is an input in the production of most goods and services, we would expect to see such price effects occur throughout the economy."
AB 32 was passed amid an atmosphere of expectation that lacked proper grounding in economic reality. Sadly that unreality persists today (see, for example,
the Kerry-Lieberman bill). Gov. Schwarzenegger said AB 32 marked "a bold new era of environmental protection in California" that will "change the course of history." History has indeed changed, but not in the way the Governor envisioned it.
