California Climate Change Policy: Is AB 32 a Cost-Effective Approach?

A new ACCF report shows that Californians could expect higher energy costs, millions of dollars in lost gross state product and widespread job loss under California’s Assembly Bill 32. The report provides a wide body of economic forecasts on the arbitrary, California-only cap proposal currently pending in the California state legislature.

Dr. Margo Thorning, Senior Vice President and Chief Economist for the American Council for Capital Formation and author of the report, said, “AB 32 is likely to cause “leakage” of industry to states and countries with no mandatory emission caps resulting in job losses and no net reduction in GHGs. Given the quality and quantity of empirical research demonstrating that near-term targets and timetables for CO2 emissions reductions will negatively impact California without materially slowing the growth of global emissions, policymakers in California should consider carefully whether they want to proceed down this path alone.” The California Chamber of Commerce (See California) released the report in Sacramento on June 15, 2006.

Introduction

Pending before the California Legislature is a bill requiring California to sharply reduce its greenhouse gas emissions (GHGs). AB 32, coauthored by Assembly Speaker Fabian Nunez and Assemblywoman Fran Pavley, requires that California reduce its statewide GHG emissions to 1990 levels by 2020. The bill requires that utilities include the carbon emissions from imported electricity which means that coal-fired electricity would tend to be replaced by electricity produced from natural gas, hydro or nuclear power. In addition, California law already requires that 20 percent of electricity be produced from renewables by 2017. Before adopting a mandatory emission reduction target, Californians may find it useful to examine the evidence on the potential impact of AB 32 on economic and job growth.  Still another key question is whether California’s “going it alone” in mandating emission reductions would make a significant contribution to slowing the growth of global GHG emissions.

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