Saturday, March 07, 2009

AB32 and Economic Analysis

I've achieved some of my life's goals but today I can check off another one. I have published a letter in the San Diego Tribune. Below, I report letters by Rob Stavins and myself. I must admit that Eric Maskin's NY Times Letter published today is even better. Why did I write the SD Tribune? I was misquoted there a week ago and felt that I should try (in 200 words or less) to state my "true" views.

Educators respond on climate plan

Regarding “Scrutinize climate plan/Air board member Roberts should throw weight behind Senate bill” (Editorial, March 1):
The Union-Tribune indicates that in my review of the California Air Resources Board's economic analysis of its AB-32 implementation plan, I said “it was so 'terribly deficient' that it would harm efforts to deal with climate change.” You are correct that I characterized the economic analysis as “terribly deficient,” but did not imply in my commentary to CARB that “it would harm efforts to deal with climate change.” Looking toward the future, I noted in my comments that “I regret very much this inescapably negative conclusion, because of my desire to help CARB develop and execute a sound economic analysis,” and, I might add today, a sound policy going forward.


Cambridge, Mass.

The editorial stated UCLA economist Matthew Kahn said “sharply higher energy costs mandated by the new rules would take a heavy toll on California manufacturers and their 1.5 million employees.” I am shocked by this interpretation of my review of the economic analysis of the scoping plan. As of today, we simply do not know how electricity prices will be affected by AB-32 regulation. Even if electricity prices rise, some California manufacturing firms will thrive as AB-32 creates new business opportunities for firms that produce energy efficient goods. The legislation is likely to have some negative effects for energy intensive manufacturing firms. The net effect of this job creation and job destruction is hard to measure. I would be greatly surprised if AB-32 imposes a “heavy toll” on California manufacturing.
California's economy has the ability to reinvent itself in the face of opportunities and shifting incentives. For the record, I am a supporter of AB-32. This regulation offers large environmental benefits and is likely to impose only small net economic costs.


Los Angeles


Wes said...

I agree that getting the Union Tribune to print anything remotely progressive was a challenge.

I am not sure that I am so comfortable with AB 32 as you seem to be. In particular, your previous post on time consistent policy is exactly why I am not a fan of carbon trading. It offers too many chance for the behind the door deal from hypocritical politicians.

Anonymous said...

Professor Kahn is playing a game here. He has a point if he feels his views were not accurately paraphrased. But his actual comments in the scoping plan peer review are not favorable about AB 32's effects on manufacturing. See for yourself:

According to page 39 of the Scoping Plan, there are 1.5 million people employed in
manufacturing in California. Thus, a key issue is how this sector will be affected by AB 32 regulation. The results reported in Table II-8 claim that manufacturing employment will grow by .4% because of AB32 regulation. Given that electricity prices are expected to rise by 14%, this is a surprising finding. The micro-econometrics literature has concluded that increased energy prices retards manufacturing employment growth. The manufacturing results reported here contradict the findings from the micro-econometric literature on firm locational and employment choice (see Carlton 1983 and Davis and Haltiwanger 2001, see In his detailed study of the Fabricated Plastic Products Industry (SIC 3079), Communications Transmitting Equipment (SIC 3662), and Electronic Components (SIC 3679), Carlton demonstrates the importance of metropolitan area electricity prices as a factor in attracting job growth. Cities with high electricity prices lose jobs in each of these industries …

End excerpt

Chris Reed
San Diego Union-Tribune