Reverse AB 32 With Proposition 23

Capitol Weekly | Economists are famous for avoiding definitive statements by saying “on the one hand” followed immediately by “on the other hand.” In the case of California’s Proposition 23, however, the sound one would hear from economists is both hands clapping.

Voters will take up Prop. 23 in less than four weeks, but the ramifications will last decades. The bill would suspend AB 32, the Global Warming Act of 2006 by freezing all its provisions until California’s unemployment rate drops below 5.5 perecent for four consecutive quarters.

The state’s economic situation is difficult, to say the least. The latest unemployment numbers published by the Bureau of Labor Statistics for August 2010 was 12.4% and state officials are trying to negotiate a framework to cut the massive budget deficit of $19 billion.

With joblessness so high and a general lack of economic vitality, why focus on a bill about greenhouse gases? Because AB 32 is essentially a “cap and trade” scheme that would lead to further job loss and be a major impediment to an economic recovery.

A federal cap and trade proposal pushed by California’s own Rep. Henry Waxman would have been harmful for the nation and more particularly the Golden State. The American Council for Capital Formation studied the impact of the Kerry-Lieberman Senate cap and trade bill, which would reduce California’s gross state product by as much as $54 billion per year by 2030. The bottom line: For government entities, costs for services, including public transportation and vehicle fleets, such as school buses, would also have gone up.

Here’s the truly shocking piece to keep in mind: The current California plan would actually be worse for the state’s residents than the Waxman Markey  or the Kerry Lieberman bills. That’s because a federal plan would have, to a large extent, spread the pain over multiple states, while a go-it-alone law by California  means that all that misery will  have no company.

This isn’t just a guess; a March report of California’s own Air Resources Board (CARB) tested several different scenarios and found that the state would end up losing between 0.2 to 1.4 percent of its GDP in 2020 by implementing the law’s provisions. Meanwhile, job loss estimates generally ranged from 220,000 and 320,000.

As the public has had more time to reflect on the issue, AB 32 hasn’t fared well.

Last year, a poll from EMC Research found that many voters had not heard of AB 32’s details but were not happy upon being further educated. Two-thirds of voters said they would be more likely to support AB 32 if it placed more weight on market-based programs. Meanwhile, more than six in 10 said they would prefer the regulations be phased in over time to reduce costs to consumers and help the state’s businesses remain competitive.

Now, all this is not to say California cannot still lead the nation in combating global climate change. But it can do so without needlessly or excessively driving up consumer prices, impairing its economy, or endangering the environment.

Policymakers should focus their efforts on ways to improve California’s economy and its environment, including improving the tax treatment of new investment through faster depreciation and investment tax credits, which could reduce growth of greenhouse gas emissions as well as enhance productivity growth. And they should continue to support measures such as the Asia-Pacific Partnership – an agreement with developing countries to promote economic development and the spread of clean, lower-emitting energy technology.

In short, Prop. 23 would effectively (and numerically) reverse AB 32. Economically speaking, that’s a tradeoff that makes sense, and one worth applauding.