Thursday, October 07, 2010

California Prop. 23 vs. A.B. 32

Aside from the question of which party will control the House and Senate for the next two years, next month's mid-term elections also feature a number of important state contests, including California's closely-watched Proposition 23, a ballot initiative that would suspend enforcement of the state's major greenhouse gas legislation, Assembly Bill 32. Prop 23 has national implications, since California has taken a leadership position on emissions regulations at a time when national climate policy has become deadlocked. Yet as I've watched the coverage of Prop 23 in the blogosphere and mainstream media, I've been amazed by the consistent mischaracterization of precisely what is at stake in this initiative, most recently in Tom Friedman's column in yesterday's New York Times. Californians surely deserve a better assessment of the issues involved.

When the loudest objections to any candidacy or initiative are focused on vilifying its financial backers, this often indicates that its opponents' arguments on its merits are weak. The fact that several oil companies with refineries and other operations in the state are supporting Prop 23 shouldn't trump the pros and cons of the actual initiative, any more than the fact that much of the funding for the anti-Prop 23 effort apparently comes from venture capitalists and companies that stand to profit if Prop 23 is defeated. For example, the portfolio of VC firm Kleiner Perkins Caufield & Byers, one of whose prominent partners is reported to have donated $2 million to oppose Prop 23, includes investments in biofuels, wind, solar and geothermal power, along with other green technologies, many of which would benefit if A.B. 32 were upheld. From my perspective, this whole line of argument is a colossal red herring. Valero, Tesoro and the other oil company supporters of Prop 23 are part of a $50 billion-a-year California refining industry that employs thousands of Californians and fuels more than 99.9% of the state's 33.6 million registered motor vehicles. The initiative's cleantech-based opponents are part of a smaller but growing sector that has emerged as an offshoot of Silicon Valley and the state's premier research universities. All of these entities have a stake in the outcome, and an equal right to take a position. Their involvement shouldn't constitute a compelling argument for or against Prop 23.

So what is this really all about? Contrary to one of Mr. Friedman's assertions yesterday, it is most certainly not about "making the state a healthier place". The conflation of the greenhouse gas emissions (GHGs) that A.B. 32 explicitly addresses with local air quality is probably the most misleading aspect of the entire debate. Perhaps this was an inevitable consequence of the US Supreme Court decision that labeled GHGs as pollution, but it is a most unfortunate one, because it obscures the crucial differences between a law that was intended to restore California's GHG emissions to their 1990 level by 2020--thereby reducing the state's impact on global climate change--and the extensive state, federal and local laws and regs targeting the causes of the smog for which parts of California became infamous. As a long-time California resident during the period when most of the latter were implemented, I can attest to their effectiveness at cleaning up the state's air, despite the enormous growth in population and vehicles that has occurred in the meantime. However, voters should understand clearly that none of this progress, and none of those existing measures regulating the emissions of SOx, NOx, carbon monoxide, unburned hydrocarbons, and the other contributors to local air pollution is at risk on November 2nd. Simply put, both A.B. 32 and Prop 23 deal with climate change, not local pollution.

As for health effects, any connection between the emissions that A.B. 32 regulates and public health in California is tenuous, at best. Understanding why depends on the numbers involved. In 2007 California emitted just over 400 million metric tons of CO2, the primary greenhouse gas implicated in climate change. This constituted 6.7% of total US CO2 emissions, an enviable performance considering that the Golden State accounts for about 12% of US population and roughly 13% of US gross domestic product (GDP). But on a global basis--and climate change is very much a global problem--California emits just 1.4% of the world's anthropogenic CO2. The state could stop emitting CO2 altogether and the global climate would never notice the difference. That doesn't justify doing nothing about the problem or shirking responsibility for the state's contribution to climate change, but it does mean that tracing the future health impacts of the expected future warming of California to the highly attenuated effects of the state's current emissions stretches cause and effect to the breaking point.

Then there are the economics that are at the heart of Prop 23's proposal to delay implementation of A.B. 32 until the state is in better financial shape, and of the opposition's arguments concerning the current law's benefits in fostering a clean energy economy in California. It's noteworthy that when the legislature passed A.B. 32 in 2006, California's economy was booming. Nominal state GDP in 2006 grew by over 6%, on top of 7% growth in 2005 and 8% in 2004. And while Mr. Friedman notes that the state's unemployment rarely falls below the 5.5% threshold on which Prop 23 would make the implementation of A.B. 32 contingent, that's precisely where unemployment was when the law was passed, and for the following year. I don't think that's a coincidence or an arbitrary choice. Whatever its merits--and it has more than a few, in my view--A.B. 32 is the kind of thing you take on when an economy is healthy, not when it's on its knees. That's because it cannot help but increase the cost of energy and the cost of doing business.

California has been down this road before. Starting in the 1980s the state imposed some of the most restrictive specifications in the world on gasoline and other fuels sold there. It also made it much more difficult for refiners to expand operations to keep pace with the growth in fuel demand in a state with a rapidly growing human and vehicle population. This turned California into a virtual "gasoline island", which has contributed to consumers in the state paying an average of 25 cents more per gallon--or 11% more--than the national average for gasoline over the last decade. With the implementation of the Low Carbon Fuel Standard (LCFS) included in A.B. 32, it will become even costlier to make gasoline in California, and this price differential could expand significantly. Considering that the state consumes 42 million gallons of gasoline each day, this already amounts to an extra $3.8 billion per year in costs. Increasing that disadvantage is not a trivial consideration. It won't even do much for the domestic ethanol industry, since much of the ethanol produced in the US won't qualify as "low-carbon" under the LCFS's definitions. This is a matter over which the ethanol industry is currently suing California.

With regard to the "green jobs" and cleantech growth that Prop 23's opponents cite, I am skeptical that these will result in meaningful growth in overall employment and output, as the pressure on the rest of the state's economy increases with the ratcheting-down of A.B. 32's emissions cap and LCFS. The recent experience with green-energy deployment incentives at the national level suggests caution in assessing how effective these measures will be in stimulating green jobs in California or the rest of the US, as opposed to offshore, where much of the green energy hardware that is being installed is manufactured. A recent article in MIT's Technology Review also questioned whether the consequences of Prop 23's passage would be quite as severe for the state's emerging cleantech sector as opponents suggest, because other incentives would remain unaffected. Ultimately, the market that matters most for California's cleantech companies is the global one, where they must compete with manufacturers from Asia and Europe. Creating a bubble market on their home turf will do little to advance that cause, as German photovoltaic firms are currently learning to their regret.

When we dispense with all the questionable arguments concerning who is for and against this initiative, whether it will alter the quality of the air Californians breathe, and how many green jobs it might affect, the choice becomes clearer. Proposition 23 asks voters to decide whether California should proceed with the nation's most aggressive effort to curb the greenhouse gas emissions implicated in global warming now--despite high unemployment, low growth and deep deficits--or whether that effort should be postponed until the state has returned to growth of the kind that prevailed when the law was passed, before the housing collapse, financial crisis and recession. The context of this choice should be equally clear, consisting of a complex global environmental challenge that California's efforts can't solve alone, but might help to influence at the margin. Having spent so much of my life in the state, including my entire education, I can easily understand that many Californians would believe it was their responsibility to move ahead at any cost, even if no one else followed. However, I can also envision that many of the state's voters would conclude that, for the moment, the costs and risks associated with A.B. 32 look too high. This is a difficult and consequential decision, even if some choose to portray it as a one-sided no-brainer.

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