Analysis: California vote tests U.S. climate change agenda

SAN FRANCISCO Sun Sep 19, 2010 6:02pm EDT

SAN FRANCISCO (Reuters) - California's ambitious climate change agenda could evaporate in a November vote which pits renewable energy advocates and allies against oil companies and manufacturers.

The U.S. Senate has scuttled President Barack Obama's goal of putting a price on carbon, the linchpin to cutting output of greenhouse gases, leaving state and regional efforts the key drivers trying to move the country past coal and oil.

California is the clear leader on addressing climate change in the United States -- unless voters kill a landmark 2006 law known as AB 32, which aims to cut carbon dioxide emission to 1990 levels by 2020.

On November 2 they will vote on Proposition 23, which would put on hold the state's law that sets economy wide limits on greenhouse gases. The law would be back into force when unemployment, now over 12 percent, hits 5.5 percent for four quarters, a process expected to take years.

"If it passes I think it is a setback for this clean energy future we've been talking about that is as significant as the failure to produce comprehensive energy and climate legislation in the Congress," said John Podesta, head of the Center for American Progress think tank.

But if the move to bury California's policy fails, as he expects, it could re-energize advocates. "It finally could signal, 'OK, we're ready to get on with the project,'" he said.

California is the largest U.S. manufacturing state, has more than 10 percent of the nation's population and an economy that would rank eighth in the world as a country, giving it the heft to firmly set trends.

The federal climate change bill which passed the U.S. House of Representatives but failed in the Senate was modeled after California's 2006 law.

The state's plans, championed by Republican Governor Arnold Schwarzenegger, include getting a third of its electricity from alternative energy, capping greenhouse gas emissions and creating a market for such pollutants, encouraging denser cities, and favoring "low carbon" fuels like biogas, which would cut the use of gasoline.

IT'S THE ECONOMY

The future of the swooning economy is key to the political battle. Whether voters think the environmental agenda creates jobs in alternative energy, or hurts the business climate, chiefly through higher energy prices, is the crux, and business itself is split on the issue.

Venture capitalists south of San Francisco turned fruit orchards into Silicon Valley a few decades ago, and now they are pouring investment into Cleantech, from solar power and "green fuel" algae oil companies to electric cars.

The smaller the company, the higher the risk that a delay such as Prop 23 would end it, said Brenden Millstein, whose two-person energy efficiency company is just getting going.

"Right now there are literally 150 solar start-ups within 60 miles from here," he said from Silicon Valley. Companies with hiccups in their research, a normal thing for a new company in a new field, could lose the flexibility to survive.

"They are not getting funding if Prop 23 goes through," he said.

But manufacturers say they can barely survive now and higher energy prices will only make things worse.

California is the number one state for U.S. manufacturing -- and shrinking. The state has lost a third of its manufacturing jobs in the last nine years, down to 1.3 million, and cleantech manufacturing facilities are not making up for the losses, said Gino DiCaro, spokesman for the California Manufacturers and Technology Association.

"There is no way we will make a dent in that industrial loss if AB 32 continues," he said.

A number of studies, including one by the state's budget watchdog, have concluded that current law will have a modest overall effect on the economy but that changes from the climate change could cost jobs in the short term.

HANDICAPPING THE VOTE

Californians tend to see environmental regulation and economic growth as compatible, polls show, but they are also petrified about the economy in California, which faces a $20 billion budge hole.

Voters preferred to keep the climate change policy in place by a 48 to 36 percent majority in an early July Field Poll, but most respondents were not aware of the proposition before they were asked about it.

Oil companies and allies have donated more than $8 million to back the proposition, including more than $4 million from Texas oil refiner Valero Energy Corp, and $1 million from the Koch family who has backed the Tea Party movement inside the Republican party.

Opponents of the new measure are close behind with big donors including venture capitalists and technology members of the Packard family which started tech titan Hewlett-Packard Co.

A spoiler in the battle is Republican candidate for governor Meg Whitman, who is in a dead heat with Democrat Jerry Brown and has said she opposes Prop 23 -- but would put parts of the current climate law on hold by executive order.

BEYOND CALIFORNIA

Eurasia Group calculated that gubernatorial elections in over a dozen states could change climate policy and disrupt regional efforts.

And if California pulls back, other states will as well. It is at the center of a regional effort, called the Western Climate Initiative, which plans to cap greenhouse gas emissions and allow trade in the pollutants in 2012.

"If AB 32 is suspended, then both future progress on federal climate legislation and the future of the WCI is thrown into doubt," Barclays Capital analyst Trevor Sikorski wrote recently.

In Silicon Valley, in the aftermath of the Senate's failure to pass climate change legislation, putting the law on hold looks dangerous.

"To slow it down and stop it, probably means you kill it," said Silicon Valley-based Cooley LLP lawyer Jim Fulton, who represents VCs and cleantech firms.

(Additional reporting by Timothy Gardner in Washington, DC; editing by James Jukwey)