Small firms to weather Calif. climate law - study

Thu Dec 10, 2009 1:00am EST

Related Topics

* Low energy use means small cost for small business

* Study says figures based on "pessimistic" scenario

By Peter Henderson

SAN FRANCISCO, Dec 9 (Reuters) - California's global warming law, similar in scope to a measure under consideration by the U.S. Congress, will have a negligible effect on the bottom lines of small businesses, a study showed on Wednesday.

The report, prepared for the nonprofit Union of Concerned Scientists, found that small businesses generally do not use much energy, so even a spike in energy costs would have little effect on profits.

Further, most small businesses compete with local rivals, increasing the likelihood that higher costs could be passed on to consumers by all the competitors.

California law requires cuts in greenhouse gases to 1990 levels by 2020, spurring myriad studies on what would happen to the economy.

"These are based on assumptions that we think are actually very pessimistic," said Mark Sarro of the economics research firm Brattle Group, which did the study for the Union. "We're fairly comfortable that the overall economic impacts also would be manageable, but we haven't estimated them."

The study calculates that a worst case scenario would be for energy price to jump 28 percent by 2020. That would still leave small business energy costs relatively low -- the equivalent of less than 2 percent of total sales for an average firm.

Many small businesses have criticized the 2006 California climate change law, which is introducing a trading scheme for global warming gases, an increase in car mileage requirements and a hike in the prices of carbon intensive fuels, as well as new building codes and other regulation.

One estimate by a small business group said costs would rise 4.5 percent.

The latest study did note that manufacturing -- the industry many officials look to for economic growth -- was more exposed to energy prices than other industries and more open to competition from outside the state.

Big business might suffer more than small ones from higher energy prices in part because manufacturers tend to be big companies, Sarro said.

Large companies also are more likely to face out-of-state competition, he added, but they likely have time to adapt. (For more environmental news see our Environment blog at blogs.reuters.com/environment) (Reporting by Peter Henderson; Editing by Xavier Briand)

FILED UNDER: