With substantial costs coming to light, CARB should delay any action on further implementation of AB32

There is a consensus. No, not the one about the science of climate change being “settled.” There’s a consensus that the Air Resources Board has fouled up its plan to regulate greenhouse gasses. The California Air Resources Board intentionally skewed its analysis of the economic effects of its proposed climate action plan, according to a review by state-commissioned economists and by the non-partisan Legislative Analyst Office. Both echo what I’ve been saying since before last spring.

The Air Resources Board released the analysis in September, three months after it released its draft plan for implementing 2006’s Global Warming Solutions Act, AB32. ARB projected that their policies under AB 32 would increase gross state product by $4 billion in 2020, to $2.59 trillion, compared to $2.586 trillion if no emissions reductions were undertaken. It is hard to understand such precision in light of the utter lack of accuracy.

All six economists selected by the Board to peer review the analysis found it deeply flawed. Several said the state “hand-picked” data to improve the economic case for the proposed plan.

“Unfortunately, the Economic Analysis Supplement, in its current form, gives the appearance of justifying the chosen package of regulatory measures rather than evaluating it or looking at policy options,” wrote Janet Peace and Liwayway Adkins of the Pew Center on Global Climate Change, a normally left-leaning think tank.

“I have come to the inescapable conclusion that the economic analysis is terribly deficient in critical ways and should not be used by the state government or the public for the purpose of assessing the likely costs of CARB’s plans,” wrote Robert Stavins of Harvard’s Kennedy School of Government.

Because the state did not compare the chosen course of action to alternative approaches, of either varying stringency or varying proportion, “it is absolutely impossible to use the present economic analysis to determine whether CARB’s Scoping Plan represents a truly cost-effective means of reducing California’s contribution to greenhouse gas concentrations in the atmosphere,” Stavins wrote.

Furthermore, the state systematically underestimated costs and overstated benefits, Stavins alleged. While it included existing regulations like the clean cars standard in its list of AB 32-related policies, it excluded the planned increase in the renewable portfolio standard, which will cost billions of dollars. “The economic analysis selectively includes or excludes various existing non-AB 32 policies in its baseline precisely in ways that lead systematically to underestimating the cost of the Scoping Plan,” he wrote.

The economists’ findings are in line with those of the state’s non-partisan Legislative Analyst’s Office, which issued a report last month that said the existing Pavley standards provided 18 percent of the scoping plan’s emissions reductions and 70 percent of its direct economic savings to businesses and consumers. The Legislative Analyst Office concluded that the plan’s overall emissions reductions and purported net economic benefit are reliant on just that one measure (it contains hundreds) and the plan’s evaluation of the costs and savings of some recommended measures is inconsistent and incomplete. They also found modeling results showed only slight economic benefit of the plan, but failed to demonstrate analytic rigor, that such critical analysis played a limited role in development of the plan, and that the plan fails to lay out an investment pathway to reach its goals. In other words? It is not a plan.

“The plan does not reflect the costs and savings of all of the emissions reduction measures that it recommends. This is because, in some cases, ARB has intentionally excluded the costs and savings associated with certain measures, such as the ‘million solar roofs’ program,” the LAO wrote. As such, the plan does not comply with existing law that requires it to minimize cost and for the Board to evaluate total potential costs.

There are simply too many variables to conclude with any degree of certainty that the emissions-cutting policies will result in net economic growth, the economists said. Among the factors Kahn identified: Population growth in warmer, inland counties like Riverside and San Bernardino might increase the cost of transmission lines for renewable energy. So might development that increases the cost of land to site those transmission lines. With so much uncertainty, the plan really should deal with futures that may differ from what the Board simply hopes will be the case.

Kahn also pointed out that while ARB’s analysis puts the cost of implementing a 33 percent renewable portfolio standard at $3.7 billion, a recent report from the state Public Utilities Commission found it would cost $60 billion between 2012 and 2020.

In its response to the economists’ comments, the ARB did some additional analysis that subtracted the energy efficiency gains of the tailpipe emissions standards from A.B. 32’s overall effect. But the agency maintained it was correct to include the law in its analysis.

If the measures were all they are cracked up to be, the Board could simply produce a catalog of measures for the public to willingly undertake, since most like to save money.

The Plan also fails to include any strategies to deal with changing circumstances, either economic, scientific or political. The Plan is neither well thought out nor complete.

CARB votes on December 11th to adopt the AB 32 Scoping Plan. Implementing AB32 is the most far reaching and risky adventure government regulators have ever embarked on. It is much more important to get it right, than to meet an arbitrary deadline. The Board should delay adoption until a better analysis and more complete plan can be completed. Because the law requires adoption by January 2009, Legislators should provide relief to CARB.

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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