He argues that california manufacturing is now much more energy efficient than it used to be. An economist would argue that expectations of higher energy prices would be the main incentive for having achieved this. At the end of his piece, he argues that cost/benefit analysis must be used to judge this policy. The challenge here would be the heroic assumptions needed to estimate the benefits of this policy. From the global point of view it would only have a small impact on reducing CO2 but from a "demonstration effect" point of view; the California guinea pigs may be valuable for overall learning.
You do know that Green Cities will be published tomorrow? Go to the brookings press webpage to learn more!
California needs to get it right on climate change policies
- Jack M. Stewart
Tuesday, August 29, 2006
California, already a leader in addressing global warming, may soon become the first state to impose mandatory limits on greenhouse gases. State lawmakers are poised to pass Assembly Bill 32 (authored by Assembly Speaker Fabian Núñez, D-Los Angeles), which calls for a California-only cap on carbon emissions. The stakes are high: Climate change mitigation won't come cheap, and the economic risks of California going it alone could impact the competitiveness of businesses for years to come.
Industries consuming large amounts of energy -- electric power, manufacturing, refining, steel and cement production, among others -- would bear the brunt of compliance costs, further disadvantaging California manufacturers whose electricity rates already are 80 percent higher than for manufacturers in other Western states. As such, it behooves us, and our elected representatives in Sacramento, to craft climate change policies that will be sustainable both near and long term, and at the least cost to the economy. That is, we better get it right.
A proper analysis of AB32 -- its merits and demerits -- should begin with an examination of California's policies. California already leads the nation when it comes to reducing greenhouse-gas emissions through energy efficiency. Our continuing investment in energy efficiency ($500 million per year on energy efficiency alone), research and development and renewable power help explain why carbon intensity (per capita energy usage) has remained steady in California while increasing by 50 percent nationwide.
Manufacturers across California have played an integral role in reducing greenhouse gases by voluntarily improving energy efficiency and by using combined heat-and-power systems. The cement industry, for example, has increased its energy efficiency by more than one-third since the 1970s. This has been a matter of necessity and economic survival. Energy is a large part of the cost of doing business for manufacturers in California. As a result, California manufacturers have had to become more efficient energy users. Climate-change policies for California should recognize that we already have lower greenhouse gas emissions than other industrialized states and nations, and that the incremental costs -- the additional costs of reducing carbon emissions -- will be substantial for manufacturers.
AB32 would establish a California-only cap on carbon emissions, significantly undermining the ability of California businesses to compete with businesses in other states and overseas, where there is no cap. It could also have the unintended consequence of reducing emissions here but increasing global emissions -- a lose-lose situation. Earlier this year, the governor's Climate Action Team conceded that if California implements a greenhouse-gas reduction program "without other states," as now appears likely, "there will be an incentive for production to shift to other states to avoid the cap," which could result in a situation in which "emissions may decline in the state, only to increase in other states."
Instead of this heavy-handed approach, we should be focusing on policies and programs that accomplish emissions-reduction goals without jeopardizing our state's economy, jobs and energy supply. The California Manufacturers & Technology Association supports addressing climate-change impacts on California in a cost-effective manner, which, for the purposes of manufacturers, means that any requirement that would add to the already high-energy costs must be avoided.
California policymakers should ensure cost-and-environmental effectiveness. A rigorous, peer-reviewed economic analysis on the costs and benefits of each program element should be conducted, with subsequent legislative approval of program elements prior to adoption. The state should also monitor and regularly report on the "leakage" of investment and emissions due to emission reduction strategies to ensure we are achieving true reductions to global emissions. It is imperative that we work also to address the areas of the world where emissions far outpace those of the United States, such as India and China. If we work to transfer our cleaner, environmentally friendly technology to these developing areas of the world, we can truly reduce this global problem.
Finally, a cautionary note about the headlong rush to "do something" on global warming before the Legislature adjourns on Aug. 31: Global-climate change is a long-term problem whose solution will require sustained effort and substantial investments far into the future. It is a 50-year problem without easy fixes. Arguably the most significant bill to be considered by the Legislature in a generation. AB32 has received very little scrutiny since it was rewritten in June. It was reviewed in a policy committee hearing that lasted little more than an hour, and it is entirely possible that it could end up on the governor's desk without any additional policy hearings. The magnitude of the problem -- and the risks of California going-it alone -- are reasons enough to take the time necessary to get it right.
AB32 is not the answer. There is a better way to lead.
Jack M. Stewart is the president of the California Manufacturers & Technology Association.
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URL: http://sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2006/08/29/EDG0SJ7NA01.DTL