Does Climate Regulation Help the Economy?

Sacramento Union, November 6, 2008

A new study, Energy Efficiency, Innovation, and Job Creation in California, claims that California’s energy-efficiency policies created nearly 1.5 million jobs from 1977 to 2007. The Oct. 20 study, which examined only household spending, comes as the regulatory regime has gained momentum. At the same time, fears have arisen over how much it will cost the ailing economy to cut emissions.

David Roland-Holst, an economist at UC Berkeley, conducted the study for the Next Ten advocacy group. Dr. Roland-Holst concluded that, while the state’s past policies lowered employee compensation (a measure of the number of jobs) in the electric power industry by an estimated $1.6 billion over that period, it improved total compensation in the state by $44.6 billion.

Energy Efficiency, Innovation, and Job Creation in California supports the claims of the California Air Resources Board that implementing additional regulations and taxes for greenhouse gas purposes will somehow be good for California’s economy. The CARB analysis, part of implementing the “Global Warming Solutions Act” (AB32), is being used to smother justified concerns about the impacts to our economy from additional regulations.

“Consumers were able to reduce energy spending,” the study said. “These savings were diverted to other demand.” When consumers shift one dollar of demand from electricity to groceries, the report said, they create jobs among retailers, wholesalers, food processors and other businesses. This conveniently ignores the reality that groceries require energy to grow, refrigerate and deliver.

Professor Roland-Holst said that he based his calculations on residential spending on electricity over the last 30 years, factoring in both the decrease in per-capita demand for electricity – now 40 percent below the national average – and the increase in California’s electrical rates, which remain about 40 percent above the national average. According to Dr. Roland-Holst, the decrease in per-capita demand for electricity outstripped the increase in rates. Much of the economic growth was driven by both efficiency standards for large appliances and for residential and commercial buildings.

“What I wanted to do to support the forward-looking vision is go back and look at the evidence we have in front of us,” Roland-Holst told the Associated Press. That’s fine, but he missed some fundamental aspects of that history that negate his case, and CARB’s, that additional regulations and taxes for climate concerns will also be good for the economy.

Since 1980, per-capita consumption in California has remained flat but increased in most other states. However, holding per-capita consumption flat is not the same as reducing overall consumption or emissions. California today consumes 65 percent more electricity than it did in 1980. Coal-based electricity imported from other states grew by 60 percent from 1983 to 2005, and is now 10 percent of California’s total generation, growing from nine percent in 1980. Moreover, California’s comparatively low per-capita electricity use is due to other factors.

First, California’s climate aids dramatically in reducing consumption for heating and cooling of homes and businesses. Second, California’s economy has undergone a structural change, away from energy intensive manufacturing to less energy intensive services. Third, California’s high residential property prices tilt the housing market towards smaller homes and apartments and encourage more people to live in the same household. Finally, Californians use natural gas for applications where others use electricity.

The key question for policymakers should be whether California’s energy policies benefit consumers. At present, the answer is no.

Tom Tanton is a senior fellow at the Pacific Research Institute. Email him at [email protected]

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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