Read the Governor’s March 24 AB 32 Letter to the Air Board

There was a good deal of angst and tumult in the AB 32 world on March 25 resulting from a letter to the Air Resources Board form Gov. Arnold Schwarzenegger in which he appears to back several implementation strategies favored by business.

The two-page letter appears to advocate a more deliberate timetable in meeting the landmark law’s mandate of reducing greenhouse gas emissions to 1990 levels by the end of the decade.

“It is critically important that California’s program be designed in a way that gives businesses and industries in this state sufficient time to reduce their emissions in a cost-effective manner without unnecessary short-term costs,” the GOP governor says in his missive.

A discussion of the governor’s epistle was conducted at the air board’s March 25 meeting at which a 100-some page updated analysis of AB 32’s impact was presented.

The letter also engendered some heavy breathing by a Sacramento Sierra Club lobbyist who told The Sacramento Bee that adoption of the suggestions contained in the GOP governor’s letter “would result in windfall profits for utilities and oil companies.”

Take a deep breath because, to use one of Schwarzenegger’s favorite words, his letter to Air Board Chair Mary Nichols is kabuki.

Most of Schwarzenegger’s suggestions focus on creation of a cap-and-trade program, a central part of the state’s AB 32 strategy. The idea is that emissions will be capped but businesses that haven’t reached the mandated emission reduction levels could buy allowances from entities which have.

The GOP governor said auctioning off allowances to businesses, one idea under consideration by the board, “may be too abrupt a transition – posing high short-term costs to capped companies.”

It may be too abrupt a transition or maybe it won’t.

California’s cap-and-trade program should be compatible with the trading system employed by the European Union, Schwarzenegger says.

It would be surprising if it weren’t compatible.

It’s worth remembering that the ultimate authority in establishing the actions required to meet AB 32’s mandate is the air board, not the governor.

To date, in its AB 32 Scoping Plan, initial economic analysis and updated economic assessment, the air board has consistently maintained the next effect of reducing greenhouse gas emissions to the state and the economy is positive.

“The overall rate of California’s economic growth will be virtually unchanged through 2020, though shifts within th4 economy will mean a cleaner and more efficient future for the state,” according to the latest economic analysis, which shows AB 32 implementation adding 10,000 jobs, down from 120,000 in 2008 Scoping Plan.

As to small business, “the Scoping Plan is unlikely to have significant adverse or disproportionate effect on California’s small businesses,” the most recent economic analysis says.

Increased energy costs for small business are “likely to be less than estimated” in the analysis because “higher energy costs tend to stimulate investment in energy-efficient products and equipment.”

The governor shares the air board’s view that AB 32 will be a net plus for California, creating more green jobs, a point he makes in March 24 letter.

So it seems logical to conclude that whatever final package the air board creates will be a net positive for the state.

Regardless of configuration, the board will conclude, to use the governor’s words, its program is “designed in a way that gives businesses and industries in this state sufficient time to reduce their emissions in a cost-effective manner without unnecessary short-term costs.”

And, while the regulations governing the cap-and-trade program are to be completed by January 1, 2011 the program doesn’t go into effect until 2012, two years after Schwarzenegger leaves office.

The most likely purpose of the governor’s letter is to appear to be sympathetic to implementation desires of business interests in an attempt to dissuade them from contributing to an initiative that would postpone enforcement of AB 32 until the state’s unemployment rate drops to 5.5 percent. California’s unemployment rate was 12.5 percent in February.

USDA Choice kabuki.

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