California’s air-quality enforcers miss an opportunity

If someone tells you that you can get something for nothing, you might ask that person if that’s a subprime mortgage security he or she is selling — or whether they work for the California Air Resources Board.

The board’s new “economic” study by two University of California at Berkeley economists makes claims that reducing carbon emissions will actually make the state money.

Under these assumptions, the state will add 100,000 more jobs, increase economic production by $27 billion more than it could expect and expand personal income by an additional $14 billion by 2020.

California’s economy certainly could use a boost. It would make homes more affordable, reducing the likelihood of more mortgage foreclosures and greater financial havoc.

But does anybody really think that is going to happen? If it would, then Europe wouldn’t have had the problems implementing its own emissions control plans.

Europeans saw the emission market collapse in 2006 when governments gave emissions permits away so as not to harm their domestic economies. Since inauguration of the emission trading scheme in 2005, emissions have gone up more than in the United States, without a plan.

And emissions would be much higher if industries didn’t trade for permits by paying for “clean development” in places such as China. Studies indicate that such clean development may be a fraud – involving a trade of permits for development that actually increases growth in nations with the highest carbon intensity. This has led to claims that Europe has cut its own emissions by increasing total global emissions. It has also led England and France to openly reconsider the need for strict emission regulations.

Only by limiting the cost of emissions reductions to $10 a ton would it be possible for California to avoid such a hard hit. But as the CARB study noted, “the $10 per ton figure does not reflect the cost of the program … (only) the maximum price at which reductions to achieve the cap are pursued.” They admit they did not take into account the impact of the cap and trade system that CARB is recommending.

A more honest assessment of the real costs of greenhouse emissions controls is that produced by the Energy Information Administration.

It shows emissions regulations like those proposed for California increasing prices by 50% and gasoline prices by up to 151%, thus forcing households to spend 4% more of their total income on energy by 2020. Economic studies by the Congressional Budget Office, the National Association of Manufacturers and the U.S. Environmental Protection Agency have addressed the economic impact of cap-and-trade proposals. Each study concluded that consumers would pay significantly more for a wide array of products and services.

Mary Nichols, Chair of the Air Resources Board said that much of the economic benefit will come from higher energy efficiency. Higher energy efficiency will result in lower bills even though prices are higher. She points to lower energy use by Californians as proof, but California’s lower per-capita energy use is a result of our weather and changes to our economy as a whole—not because we suffer higher prices and regulatory intervention.

If California mandates a rollback of greenhouse gas emissions to 1990 levels, it is likely to cost us numerous industries and weaken our tax base, not improve it.

In the end, cuts in greenhouse gases may be necessary. But cuts must be done in a responsible fashion, which requires a realistic assessment of all possible outcomes. If California is to remain a competitive giant, the implementation of greenhouse gas controls must not be based on faulty, unrealistic economic and technological assumptions about emissions controls.

Otherwise, the economic consequences for our state could be as dire as the problems that afflict the housing market and now threaten contagion of the financial system.

Now, more than ever, when somebody promises you something for nothing, you should feel obliged to take a hard look.

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.

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