Monday, October 19, 2009

The Fiscal Impact of California's AB 32

The Sacramento Bee is full of useful stuff. When they aren't publishing my salary, they are highlighting important policy debates taking place in California's Capital (Sacramento). This article on AB32 is a case in point. When a new "big" policy (whether it is health care reform, a war or climate mitigation) is launched, there is considerable uncertainty about the costs and benefits of the policy. This creates an opening for academics and consultants to jump in and provide their expert opinions.

In the specific case of California AB32 (which seeks to sharply reduce the state's greenhouse gas emissions), I have always supported this regulation. Over time, my support has increased because of the Air Resources Board's serious commitment to rigorous economic analysis.

Stanford's Larry Goulder now chairs the ARB's AB 32 Economic and Allocation Advisory Committee.

Here are the members. This is a Dream Team. Note that I am not a member of this Committee.

Name Organization
Larry Goulder Stanford University
Justin Adams Forward Observer
Vicki Arroyo Georgetown State and Federal Resource Center
Matthew Barger Hellman and Friedman LLC
James K. Boyce University of Massachusetts, Amherst
Dallas Burtraw Resources for the Future
James Bushnell University of California Energy Institute
Robert Fisher Gap, Inc.
Richard Frank California Center for Environmental Law & Policy
Dan Kammen University of California, Berkeley
Christopher R. Knittel University of California, Davis
Stephen Levy Center for the Continuing Study of the California Economy
Joe Nation Stanford University
Nancy E. Ryan California Public Utilities Commission
Nancy Sidhu Los Angeles County Economic Development Corporation
James L. Sweeney Stanford University

With these men and women on board advising the ARB, I am highly confident that the Air Resources Board will make prudent regulatory decisions to achieve the AB32 goals at minimum cost. The regulation also offers serious benefits that are difficult to quantify.

In ongoing work, Erin Mansur and I are measuring how responsive is energy intensive manufacturing to higher electricity prices. Given our current results, we do not believe that manufacturing is very responsive at all to higher electricity prices. If California's electricity prices rise by 15% because of AB32, we do not believe that many manufacturing jobs will go to Nevada or cheaper electricity locations. We currently do not know how electricity prices will be afffected by AB32 and I hope that the Goulder Committee is forming informed predictions about the expected future price distribution.