AB 32 is a breath of foul air for taxpayers, businesses

AB 32 is a breath of foul air for taxpayers, businesses

California is in the midst of economic turmoil. Headlines shout daily about the plummeting dollar and home values, disappearing jobs, soaring fuel and food costs, and a growing massive state budget deficit. Apparently oblivious to the strain on California households, some state legislators are trying to rush implementation of a burdensome new program, which adds a massive burden on every household and business in the state.

Assembly Bill 32, under the guise of reducing greenhouse gas emissions, would cripple an already struggling economy and push energy costs out of reach for consumers and small businesses. What’s worse, it would place the highest burden on those families who can least afford it – all for a program which may or may not even reduce emissions, and certainly will not affect the climate.

Independent studies of the costs of implementing AB 32 show it would cost California at least 1 percent of its state economic output – equivalent to the loss of an entire year’s economic growth. Businesses, already struggling to make ends meet and provide critical jobs, will see new fees as one more reason to move across state borders or across the ocean, taking opportunities and investments with them. Less economic output, a smaller corporate tax base and fewer jobs for Californians – is this any way to solve a budget deficit?

The individual costs are just as staggering. The same independent studies show electricity prices growing as much 50 percent (and for less reliability), and gasoline prices soaring 72 percent to 151 percent. With California’s average price for a gallon of regular gasoline at $4.61, these increases would put gasoline at $7.15 to $11.57 a gallon. The average household in 2020 would lose $1,100 to $4,000 to increasing energy prices, spending up to 4 percent more of their total income on energy. And that extra expense doesn’t include the rising price of food and everything else, which will climb as energy prices drive transportation and production costs.

These new costs would disproportionately target disadvantaged and working-class households, who would pay an astronomical percentage of their income to energy costs.

According to Roy Innis, a longtime civil-rights activist, “It will cause countless families in our country in winters ahead to choose between food on the table and fuel.” Innis, chairman of the Congress for Racial Equality, said, “Energy is the master resource of modern society … with abundant, reliable, affordable energy, much is possible. Without it, hope, opportunity and progress are hobbled.”

In the end, cuts in greenhouse gases may be necessary. But such cuts must be done in a responsible fashion. Regulations should not “kill the patient to cure the disease.” More likely, it is innovation, not regulation, that will bring the breakthroughs of our energy future.

Our economic and environmental outlook requires incentives for new technologies and tax credits for research and development, not devastating burdens that drive companies out and take money away from promising projects. More importantly, the brink of recession is not the moment to impose incredibly complex, expensive and unproven new programs on businesses and households already struggling to survive.

The economic consequences would be dire, and the effectiveness of the legislation at reducing greenhouse gases is untested and largely unknown. AB 32 allows postponement of these new regulations if it would cause Californians “significant economic harm” – a provision that has so far been ignored by the legislative majority and the administration, despite studies that show just how costly rushing implementation will be. We need time to further research the costs of such a move – time for the economy to prepare or for better solutions to emerge.

If California is to succeed and remain the competitive giant it is, AB 32’s implementation should not punish consumers without a better understanding of the fundamentals of economic vitality. We must promote technological developments and entrepreneurial innovation to reduce emissions, while ensuring California’s economy continues to grow. Regulations intended to reduce greenhouse gases must be paired with a commitment to protecting consumers and jobs in California.

Now is the time for prudence and study – perhaps a better solution, which does not put our economic welfare at such risk, is just around the corner. Hasty implementation of a flawed policy will only further damage an already shaky economy.

About the writer:
Tom Tanton is a former principal policy adviser with the California Energy Commission. He is an environmental fellow at the Pacific Research Institute.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.