Read Gov. Jerry Brown's piece in today's LA Times. He is an optimist about the role that carbon regulation plays in stimulating an economy. I believe that the WSJ would disagree with the following direct quote from his piece.
"Last year, our four governments — the states of California, Oregon and Washington and the Province of British Columbia — reached a landmark agreement to align climate and energy strategies for 54 million Americans and Canadians.
The Pacific Coast represents the world's fifth-largest economy, with a GDP of $2.8 trillion. By working together we are transforming our economies and influencing world markets for the better. Our regional model shows that it is possible to take serious action on climate change and simultaneously expand an economy with well-paying jobs."
Note the last sentence where the Governor and his co-authors discuss "our regional model". I have a feeling that he is talking about a computable general equilibrium (CGE) model for predicting how the California economy will evolve as AB32's measures are phased in.
After the Great Recession, does the governor still have such confidence that economists can predict the future with such accuracy? If he were to add footnotes to his OP-ED, he would need to name the actual model that he is talking about and the dozens of behavioral elasticities embedded in that model.
While I hope he is right, he is showing great faith in an untested (and unestimated calibration model). While I recognize why he likes the idea that carbon pricing and AB32's other measures could offer a free lunch for California, I have trouble believing that the measures embodied in AB32 (and I am a supporter of AB32) will deliver the economic gains that he names in this piece.
As an economist, I would like to see a more nuanced policy position that this regulation will be costly but that its benefits as a demonstration project exceed its costs. In contrast, the Governor is selling this regulation as having "negative costs". Yet, across the country as the price of gasoline declines middle class households are celebrating the rise in their purchasing power. Doesn't this suggest that there is a contradiction here? AB32 will raise gas prices in California. It will raise electricity prices in California. A key question is; "by how much?" How easy will it be for consumers of electricity and gasoline to substitute away to more efficient products in the short term and medium term? Does the regional model that the Governor mentions have predictions on these microeconomic effects? I believe that the answer is no.