Tuesday, July 01, 2008

AB32 and Outsourcing Economic Analysis

AB32 commits California to reducing its greenhouse gas emissions 80% below 1990 levels by 2050. This is ambitious but will compliance be costly for the state? "Rather than assessing the costs that will be borne by industry, Mary D. Nichols, who heads the California Air Resources Board, said the agency’s “macroeconomic analysis” had shown that the state’s gross domestic product would increase by 1 percent when the plan was fully put into place." NYT Article with quote

I wondered how Mary knows this so I did some investigative snooping --- from looking at the AB32 webpage, I found out that the The E3 Consulting Firm has been providing the heavy lifting of making forecasts of how the state's economy will evolve in this new regulatory environment. Here is what E3 says about themselves;

CPUC GHG Modeling

The California Public Utility Commission (CPUC) has selected a team led by Energy and Environmental Economics, Inc. (E3) to model the electricity sector’s compliance with AB32, California’s Global Warming Solutions Act. This law requires a reduction in statewide greenhouse gas (GHG) emissions to 1990 levels by 2020.

The modeling will provide the CPUC and California Energy Commission (CEC) with critical information on how different methods of reducing GHGs will achieve emission reduction goals for the sector and affect utility costs and consumers’ electricity bills. This information will be used by the CPUC and CEC to advise the California Air Resource Board (CARB) on setting and implementing GHG standards for the electricity sector.

Monitor this web page for notices, materials, and links related to the CPUC GHG Modeling project.

So, here is my question for you readers --- we are talking about multi-billion dollar regulation here and the state has outsourced the ex-ante evaluation efforts to a consulting firm that I have never heard of before. Who are the "researchers" at E3? Have they published in peer reviewed journals? Do they attend the annual economics meetings? If I might be a snob, where did they get their degrees from?

My counter-proposal is for the Air Resources Board to convene a set of UC economists to question this consulting firm about the real assumptions burried in their "fancy" computable general equilibrium model. I know how to read these models and I have many questions for the guys in the suits.