High or Low CARB Diet?

Posted by: John Carey on December 5, 2008

In 2006, California passed a landmark bill requiring the state to reduce its emissions of greenhouse gases to 1990 levels by 2020. Of course, the legislation didn’t say how to accomplish this goal, which amounts to a more than 25% reduction from today’s levels. Instead it bounced the details to the California Air Resources Board (CARB). The staff has dutifully produced a plan, dubbed the Proposed Scoping Plan.

On December 11, CARB will vote on the plan. The vote represents a major milestone in the battle against global warming. California’s actions will offer a key example for the rest of the country. Right now, the upcoming vote offers a preview of the fight that will occur when Washington moves ahead on a climate action plan itself.

The biggest question in that fight: How much will it cost to dial back greenhouse gas emissions?

The economic analysis in the 142 page Scoping Plan is remarkably optimistic. Taking action “creates more jobs and saves individual households more money than if California stood by and pursued an unacceptable course of doing nothing at all to address our unbridled reliance on fossil fuels,” the document says.

Preposterous, retort opponents such as the California Small Business Association. Critics point to a number of studies (including one from the state’s Legislative Analyst’s Office (LAO))challenging the conclusions.

Even the academics who reviewed the plan expressed doubts. “While I support the Governor’s broad AB32 goals, I am troubled by the economic modeling analysis that I have been asked to read,” observed economist Matthew E. Kahn of UCLA. “AB32 is presented as a riskless “free lunch” for Californians…. I would like to believe this claim, but after reading through the Economic Analysis and the five appendices there are too many uncertainties and open microeconomic questions for me to believe this. The net dollar cost of each of these regulations is likely to be much larger than what is reported…”

But while supporters readily admit that the economic analysis is flawed, they also say it’s a mistake to assume the costs will necessarily be higher than the Scoping Plan estimates. A new report commissioned by the Environmental Defense Fund, for instance, argues that current economic models are simply unable to include many of the anticipated benefits, such as innovative new technologies.

So who’s right? The truth is that no one really knows. The lesson from the past is that regulations usually end up costing less than first predicted, thanks to unanticipated innovations. That may happen here too. But the uncertainty itself actually offers a strong argument for CARB to vote to move ahead with the plan. California’s action would be an experiment that will help show the rest of the nation what works and what doesn’t work.

Reader Comments

Kevin Surace

December 17, 2008 1:12 PM

AB32 is a good step towards reducing fossil fuel usage by all industries. We would argue that with a cap and trade system, the “cap” should be zero for everyone. Anything you emit, from a CO2 perspective in industry, should have a penalty. Because the real cost of carbon mitigation in the future is enormous, by all accounts. So if CO2 polluters do not pay now, we all have to pay in the future by building levy’s around cities or imply abandoning cities for lack of water (from changes in rain patterns) or flooding from rising oceans. Some have estimated the real cost of mitigating the CO2 we put into the air today to be over $100/ton, from the first pound to the last. Not from a cap to some level above. Hopefully we can choose a cap of zero or close to zero for all industries. That will encourage every industry to quickly find alternatives. And that will help everyone.

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December 28, 2009 4:33 AM

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About

BusinessWeek correspondents John Carey and Mark Scott, cover the green scene, keeping on top of the business aspects of energy, the environment and climate change, as well as the technologies, policies, markets and people that are shaping how the earth's resources will be used in the century ahead.

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