California: climate change law won't hurt economy

SAN FRANCISCO (Reuters) - California’s economy will not be damaged by the state’s 2006 climate change law, a state agency said in a report on Wednesday that counters the business community’s arguments that the economically troubled state will lose more jobs and businesses.

The skyline of San Francisco and the Golden Gate Bridge appear above the evening fog as the suns sets on the Marin Headlands in Sausalito, California April 18, 2009. REUTERS/Robert Galbraith

The analysis by the state Air Resources Board, the chief regulator of the law, forecast higher energy prices from new regulations and a cap-and-trade system for greenhouse gases, but said greater energy efficiency would keep costs manageable in the trend-setting environmental state.

It concluded that the measure will yield modest job gains statewide, will have a negligible effect on the state’s overall economy -- the eighth largest in the world -- and could benefit some sectors like alternative energy businesses.

In sharp contrast to a 2008 report that was panned as shallow and full of faulty assumptions, the Wednesday analysis was received with cautious approval from academics at Stanford and other universities who consulted on the process.

Business groups however said the state was still making rosy assumptions.

In 2006, California’s Legislature passed and Republican Governor Arnold Schwarzenegger signed a law committing the state to developing regulations to reduce greenhouse gas emissions -- blamed for global climate change -- to 1990 levels by 2020.

“These policies can shift the driver of economic growth from polluting energy sources to clean energy and efficient technologies, with little or no economic penalty,” the report said.

Thousands of manufacturing, mining and utilities industry jobs will be lost, but service, finance, and other sectors will gain similar numbers, leaving the most populous U.S. state about the same in terms of total jobs, income and growth, the report said. Five scenarios found a maximum effect of tens of billions of dollars on state output of $2.5 trillion in 2020.


Much will depend on what happens outside California, including whether California is at the leading edge of a move away from fossil fuels.

“It might hasten the arrival of regional, national or other international policies, and I think that is what California is betting on,” said Stanford economist Larry Goulder, one of the academics on the panel advising state researchers.

California aims to reduce greenhouse gas emissions through a variety of steps such as tighter standards on car fuel efficiency, standards on energy efficiency in buildings, and a “cap and trade” market for pollution credits.

Under cap-and-trade, carbon dioxide and other greenhouse gas emissions would be capped. Companies would need permits for the pollution they send into the atmosphere and those permits could be traded on a regulated market.

Three U.S. senators -- Democrat John Kerry, Republican Senator Lindsey Graham and independent Senator Joseph Lieberman -- are working to resuscitate climate change legislation in the U.S. Senate after the House of Representatives passed its version of the measure last year.

A parallel study by consultancy Charles River Associates, which worked at the request of the Air Resources Board, put the cost of the climate law at a few hundred dollars per person in 2020 and said success would depend on the state giving itself room to respond to issues, such as high gasoline prices.

“It is clear that flexibility matters,” said Charles River consultant Paul Bernstein.

Many businesses still fear tens or hundreds of thousands of jobs could be lost, spurred by higher energy prices from the law, known locally as AB32.

“Their conclusion is that AB32, the most far-reaching regulation in history, won’t impact jobs in California,” Shelly Sullivan, spokeswoman for the AB 32 Implementation Group, which includes several chambers of commerce, said skeptically.

Goulder and the other economists called the new report “valuable information” and said it addressed key concerns by creating a better scenario if the law did not take effect and scenarios if parts of the law did not work as planned.

Mary Nichols, chair of the Air Resources Board, told reporters that the new analysis was better than 2008.

“We made all the changes and found that the results were pretty much the same as they had been the first time around, which is very modest, almost undetectable overall effect on gross state product by 2020 but some modest improvement in areas of job growth and personal income,” she said.

Reporting by Peter Henderson; Editing by Stacey Joyce