Gov. Jerry Brown has announced some even "greener" medium term GHG reduction goals.  No economists are cited in the NY Times article so permit me to fill the void.   Recall the facts. California is unilaterally deciding to sharply reduce its GHG emissions.  Acting alone, this will have no aggregate impact on climate change.  California is too small  a player in the world economy to make a difference but its effort represents a "green guinea pig" field experiment to signal to the rest of the world how costly it would be to reduce global emissions. Ideas are public goods. Those "good ideas" (such as the nascent cap and trade market) can be adopted elsewhere.

Point #1:  California does not have much energy intensive manufacturing so the aggregate "job loss" caused by higher electricity prices will be tiny (see Kahn and Mansur 2013 for an analysis).

Point #2:  Electricity prices will rise in California because of this regulation. Both the renewable portfolio standard and the cap and trade markets will lead to higher electricity prices.  Energy economists continue to debate how much.

Point #3:  Suburbanites create more greenhouse gas emissions than center city residents because suburbanites drive more and live in larger homes that use more electricity which is often generated using fossil fuels.   See Glaeser and Kahn 2010 and Holian and Kahn 2014.    and Holian and Kahn 2013.   Suburbanites tend to oppose carbon pricing.

Point #4;  Suburbanites tend to live in single family homes that they own. This creates the possibility that these single family home owners will choose to install solar panels and buy an electric vehicle fueled using the power from their panels. These private market choices would decarbonize the suburbs and increase their residents' propensity to vote in favor of carbon taxes. See Delmas, Kahn and Locke 2014.   Why?  If suburbanites who own solar panels and an EV create zero carbon, then they are not reducing their disposable income by voting for a carbon tax. Demand curves slope down! As the "price" of voting for carbon taxes decline, more individuals will buy this insurance against risky climate change.

Point #5;  More educated liberal areas are more likely to enact environmental regulation and this explains why California is a first mover here.  See Kahn 2002.  

While Gov Brown has good intentions here, there will be losers from his policies. Electricity prices will rise. Local gasoline prices will rise.  Those who love big muscle cars will be less able to purchase new ones with these attributes.  Industries such as cement and oil refining will have higher costs of doing business and will try to pass these costs on to final consumers.

Will California's efforts create "green jobs"?  Some for short term jobs such as installing solar panels but the panels are likely to be made in China.  No IO economist has written a good paper on local job creation caused by local low carbon regulation.

In a world where we know that we don't know the path forward, we need more policy experiments.  California is providing intellectual public goods for the rest of the world. President Obama and China would write my Governor a check to reward him for his risk taking.

Note that everything I discussed above cannot be analyzed with a computable general equilibrium model. The whole point of AB32 is to set the California economy on a path that we have never seen before. For new goods to be created and diffused. This cannot be quantified using a CGE model yet this is the standard tool for "judging" the macro consequences of the governor's policies.







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