Legislative Analyst Predicts Short Term Job Loss from AB 32

Implementation of AB 32, California’s landmark greenhouse gas reduction law, will cause job losses in the near term, according to the state Legislative Analyst.

In a 10-page letter dated March 4 requested by Sen. Dave Cogdill, a Modesto Republican, the analyst questions the modeling used by the state Air Resources Board in its assessment of the law’s long-term impact and predicts that, at least in the short term, energy prices will rise as a result of the law.

“It seems most likely to us tha the implementation of AB 32 … will result in the near term in California job losses,” the analyst wrote.

“In the longer term, the employment effects in our view are unknown and will depend on a number of yet-to-be determined factors. These include future energy prices, technological developments in the energy area, normal adoption by households and businesses of increasingly efficient energy technologies even without AB 32 in place, legislative actions … and the state of California’s economy.”

In response to previous criticisms by a group of scientists asked to review its AB 32 implementation plan, the air board defended most of its actions as “appropriate.’

(Editor’s Note: in the document linked to above, the criticisms of the scientists follow the air board’s 13-page critique of their findings.)

The board is currently updating its economic analysis of the law’s impact.

Cogdill said the analyst’s latest review showed AB 32 to be “failed environmental policy and that it should be abandoned.

“At a time when California’s jobless rate is nearly three points higher than the national average, we should be doing everything we can to ensure any Californian who wants a job is able to get one,” Cogdill said in a statement when the letter was released.

“Moving forward with this environmental experiment, like the water crisis, will be another manmade disaster for our lagging economy.”

The Schwarzenegger adminstration said in response:

“Pursuing green policies is the solution to our economic woes, not the cause,” said David Crane, a special advisor to Schwarzenegger for jobs and economic growth. “Countless studies show California’s economy will be better off and more secure with green policies like AB 32. AB 32 will ensure we are protected against volatile energy prices by reducing our dependency on foreign fuel while generating jobs throughout the state.”

AB 32 requires California, by 2020, to reduce its greenhouse gas emissions, which include carbon dioxide, to 1990 levels.

In its scoping plan, the air board details 31 actions to accomplish that goal. One is increasing vehicle fuel efficiency to 44 miles per gallon – a law imposed prior to AB 32’s passage that has not been implemented because of court challenges.

The scoping plan counts the increased fuel efficiency as part of AB 32’s implementation even though the requirement was on the books prior to AB 32’s passage. Several of the scientists who reviewed the air board’s plan said the vehicle efficiency shouldn’t be counted.

Other emission reduction measures include increasing energy from renewables sources to 33 percent of California’s supply and greater energy efficiency.

Accounting for nearly 20 percent of the emission reductions is a cap-and-trade program in which business who wish to continue polluting at their current rate or need more time to ratchet down emissions would pay for credits from entities that have already reduced their emissions.

In the letter to Cogdill, the analyst says the program will contribute to higher energy prices.

“Measures in the (scoping plan) directly affecting energy prices, such as a cap-and-trade program, almost certainly raise the near-term prices of electricity, gasoline, and certain other energy sources,” the analyst wrote.

“These increased energy prices would, in turn, change the amount and mix of energy used, energy-related jobs, and sales and employment in industries producing goods and services using energy.”

Better vehicle fuel efficiency will increase the price of vehicles but also lower their operating costs, the analyst said.

As it did in a previous review, the analyst questioned the air board’s modeling, which concludes AB 32 will cause a net gain of 120,000 jobs by 2020 – a .7 percent increase.

The modeling used has “inherent limitations,” the analyst said. Among them is being only able to gauge responses of hypothetical ” average” households and firms rather than subgroups. Because of that, sectors in which the job impact is most severe can be obscured by the average.

The model used by the air board “attempts to approximate but does not exactly reflect California industrial economy, including how its industrial productivity differs from the rest of the nation.”

It also uses 2003 as a base year and, the analyst notes, “does not reflect underlying changes in the California economy’s structure that have occurred during the recent severe recession, ongoing housing market turbulence, and restructuring of the financial markets.”

The analyst also says the air board may have overstated the number of manufacturing jobs created by AB 32, leaves “unclear” the job impact of some of the less significant actions it proposes to reduce emissions and fails to account for job impacts during the transition to full compliance in 2020.

“The transition under the (scoping plan) will involve various labor force dislocations, including temporary job losses and unemployment for some people and permanent employment and income disruptions for others,” the analyst wrote. The (air board’s) analysis does not identify these.”

However, the analyst concludes:

“The effects that do occur (from AB 32) may not prove to be particularly large relative to the overall economy, in part reflecting the relative role played by energy costs and the (scoping plan’s) specific measures. Certain individual businesses and households, however, would be seriously affected.”

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