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Wall Street Journal editorializes about the 'price' of California's AB 32

Posted by Gino DiCaro, VP, Communications on July 12, 2012

Would a family be willing to pay the equivalent of two additional mortgage payments per year for California's greenhouse gas (ghg) reduction program?

That's a question many will have to answer as California's AB 32 regulatory scheme slowly becomes complete and families face $2,500 in additional annual costs from higher energy bills and more expensive consumer products.

This week the Wall Street Journal editorialized on the cost and economic impacts from the California-only greenhouse gas regulations and argued that the state should stop pretending that it won't have to pay dearly to reach it's ambitious global warming goals.

To ring the alarm, the WSJ used a recent CMTA-commissioned report, conducted by Andrew Chang and Company, on the economic impacts of the complete regulatory scheme.  The editorial also focused on a seperate report by the Boston Consulting Group on the costs of the state's low carbon fuel standard -- one of the many policies being used to reach our 1990 ghg levels.

Below is the article, in case you missed it.

Following the WSJ article are charts on the eye popping costs of the program.

In 2006, the Legislature promised that AB 32 would help clean the environment and protect the economy, not raise utility and gasoline bills on hard hit families and employers.  The numbers coming to light five years after AB 32’s passage, and only months before full regulatory implementation, are likely not what the voters had in mind.  


Wall Street Journal

Review & Outlook: The Price of Green Virtue

July 7, 2012

When California’s economy was booming in 2006—remember that?—Governor Arnold Schwarzenegger and many Californians wanted to show their environmental virtue by becoming the first state to pass a comprehensive climate change law. And so they did, for which the bill is starting to come due.

Lawmakers and environmentalists predicted that the new law, called AB 32, would become a model for the rest of the nation. It never did. They also said the Golden State’s head start in developing green technologies would create thousands of new jobs. In 2008 the California Air Resources Board even estimated that the new rules and cap-and-trade tax would increase state GDP. In short, AB 32 was sold to the voters who declined to overturn it in a 2010 referendum as a green free lunch.

 Now fast forward to 2012. California’s economy is still struggling, the jobless rate is 10.8%, and AB 32’s taxes and regulations are starting to bite. Two new studies by private consulting firms add up the real- world cost to California families and businesses.

The first study—sponsored by the California Manufacturers and Technology Association, whose members employ 1.2 million residents—estimates the price tag for three major new regulations associated with the law: cap-and-trade taxes on carbon emissions, a “low carbon fuel standard,” and a stringent 33% renewable mandate for electricity production. Together these policies raise energy costs and are expected to reduce state GDP by between 3.5% and 8.9% by 2020.

Even under the “optimistic” scenario, that’s a loss of up to $447 billion in California output over eight years and represents a bigger loss in income than the 2008-09 recession. The cost per California family is estimated at $2,500 a year due to higher costs. Repeat after Milton Friedman: There is no such thing as a free lunch. 

One alarming conclusion is that “emissions reductions due to economic harm account for 26% of total reductions, more than any ARB mandated program” except cap and trade. This means that a major way Californians will reduce their greenhouse emissions is by slower growth, chasing industry out of the state, and putting more people out of work. If Californians produce less, their carbon footprint is smaller. The Sierra Club must be loving this weak recovery.

The second study by the Boston Consulting Group for the Western States Petroleum Association examined AB 32’s low carbon fuel standard. This regulation requires a 10% reduction in the carbon intensity of California transportation fuels by 2020, which can only be achieved with biofuels (but not corn ethanol because it is too carbon intensive).

This idea was devised in 2006 when the Bush Administration fantasized that cellulosic ethanol would soon become plentiful and cheap. The White House and Congress thought that by 2011 the U.S. would be producing about 240 million gallons a year. Even with lavish federal subsidies, it produced about seven million. (See “The Cellulosic Ethanol Debacle,” December 14, 2011.)

So the California government is forcing oil and gas companies to sell a fuel that barely exists. The only viable short-term compliance option is for California to import sugar-cane ethanol from Brazil. One result is that gasoline prices could rise by anywhere between 50 cents and $2.70 a gallon at the pump after 2015, says BCG. Californians could pay $6 a gallon. Maybe this is how Sacramento politicians think they can get left coasters to ride their high-speed train.

Environmentalists dismiss these studies as biased, but they echo the government’s own recent studies. The only real argument is over the extent of the economic damage. Californians may believe this price is worth it, but they shouldn’t pretend they aren’t paying it.

Article link 







Download CMTA's full slide presentation

View YouTube video on AB 32 cost impacts report

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When manufacturers leave, you won't hear a howl

Posted by Gino DiCaro, VP, Communications on May 16, 2012

The California Business Alliance for a Greener Economy recently retorted in Fox and Hounds that the California manufacturers "continue to cry wolf", after we wrote a piece on the needless employer costs being built in to the California Air Resources Board's carbon cap-and-trade auction. The group's response did not substantiate any miscalculations in our $3 billion cost estimates on refineries and food processors, they are just annoyed with our positions on AB 32.

Below is their piece with our responses in bold.

Title: CMTA Continues to Cry Wolf

The California Manufacturers & Technology Association is pulling tactics from the tobacco industry playbook, grasping at straws to spread misinformation about the state’s landmark clean energy law (AB 32) in “California’s Cap-and-Trade Auction Creates Billions in Needless Costs.”


CMTA response: We are looking forward to learning where our numbers are wrong or misinformed.

Let’s take a look back: CMTA hated AB 32 when it was first developed. They formed the so-called AB 32 Implementation Group to pushback progress each step of the way. They supported Proposition 23 to avoid the standards and kill competition. And they’re still at it, dreaming up worse case scenarios to keep California addicted to the old, dirty, dying fuels of the past.


CMTA response: You must not have been around California for very long. By 2006 California manufacturers were already the most energy efficient in the country and paid electricity rates 50 percent higher than the rest of the country. Added costs from AB 32 will cause production and emissions to “leak” to less regulated states and countries, hurting the environment. To minimize leakage, we advocate that AB 32 be implemented in a cost effective and technologically feasible manner, and any true environmentalist would agree. Still waiting for information that proves us wrong that there are billions in needless costs.


But poll [after] poll shows broad public support for AB 32 for a reason: it’s an economic engine for California, attracting $3.5 billion in private clean-tech investments. Since AB 32 was passed more than five years ago, it has propelled clean energy into the spotlight and ensured its place as a bright spot in our economy.


CMTA response: Actually, clean-tech investment was high even before AB 32 passed. Too bad clean-tech investments in California are not translating into manufacturing jobs for the middle class, and green jobs are not any higher here than Texas. Our polling shows that the public generally supports AB 32 but are not willing to pay higher energy or gasoline costs. Hoping to see something soon about where we are wrong on the billions of dollars!


Let’s face it, big business groups have a long history of claiming that any given regulation will drive them out of business and/or create an economic slowdown. These predictions of gloom are seldom realized.


CMTA response: It’s actually pretty gloomy in the manufacturing sector. Lost over 630,000 jobs in the last 10 years, more than the national average. California is among the worst in the last five years for new manufacturing facilities and expansions per capita. Starting to think there isn’t going to be any credible argument that we are wrong about the billions of dollars.


And by putting a price on carbon, AB 32 invests polluter fees into the transition to cleaner and less expensive energy sources.


CMTA response: Now we are getting somewhere! But you are confused – the “polluter fees” are not necessary to “put a price on carbon” - that is accomplished by freely distributing permits under a declining cap and allowing trading of permits. The sale of permits simply imposes a huge new tax. You seem reluctant to put a dollar figure on the “polluter fees”. Billions of dollars perhaps?


I represent thousands of California businesses and they understand that market-based solutions – like a cap and trade program – are the most effective ways to send clear signals to companies and investors. Those signals create a financial incentive for reducing pollution, and a profit motive for developing clean technologies.


CMTA response: Right! A cap and trade program will accomplish AB 32 goals. We don’t need “polluter fees” to raise extra revenue that comes from imposing a multi-billion new tax on manufacturers. We might be getting somewhere here!


But don’t take my (or California’s) word for it. Look at cap and trade in the northeast. The Regional Greenhouse Gas Initiative generated $1.6 billion in net economic benefits to the region with the average industrial consumer saving $2,500 per year.


CMTA response: Apples and oranges. RGGI is electric generation only, it doesn’t directly regulate manufacturing, natural gas and gasoline as we are doing in California. California has been doing energy efficiency in the electric sector for decades. We have lost track of the billions of dollars, could we get back to that?


AB 32 is not just one policy, and it’s about more than the proceeds of one auction. It’s a portfolio of strategies to transition California to a clean energy economy.


CMTA response: Sorry, ignoring the multi-billion dollar tax from multiple auctions and surrounding it with other policies won’t make it go away.


Yet, after being proven wrong time and again, CMTA continues to cry wolf. But I’ve never heard a howl.


CMTA response: You won’t hear a howl. Manufacturers will leave the state silently, without a word, 630,000 jobs and counting.

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California's cap-and-trade auction creates billions in needless costs

Posted by Gino DiCaro, VP, Communications on April 25, 2012

The California Air Resources Board's (CARB) cap-and-trade auction will create needless costs for employers at a time when our state must compete, scrap, wrangle, advocate and fight for every high-wage job we can get.

These costs will seriously hamstring our ability to grow.  What most people don't know is that CARB is asking employers to pay for far more emission credits than are needed to reach our goals.  California will reach it's 1990-level greenhouse gas emissions without the economy-debilitating cap-and-trade auction, but CARB continues to move forward.

In the charts below, the red zone represents the amount that two particularly critical sectors -- refiners and food processors -- will have to pay to purchase emission credits in CARB's auction over the next eight years. Those credits will be purchased even though the particular sector will already be on track for 1990 levels, with annual 2 percent reductions.

This punitive energy tax equals $2.96 billion in California-only costs on the refining industry and $163 million on the food processing sector. Remember too, while this auction raises a windfall of money, the 2006 AB 32 legislation prohibited revenue collection beyond the administration of the program.

(click images for larger pdf)

Food processors


The high price of the proposed cap-and-trade system was also highlighted in the following Sacramento Bee piece authored by CMTA President Jack M. Stewart:

ARB twisted cap-and-trade into a job killer
by Jack Stewart, placed in Sacramento Bee April 15, 2012
The line is now forming for those who want a say in how to spend billions of dollars from the Assembly Bill 32 cap-and-trade program. But first, how is this revenue "created"? For the answer, look in the mirror. Every consumer, public agency, manufacturer and small business will be paying higher prices for electricity, natural gas, gasoline and other products to fill the coffers of cap-and-trade as designed by the California Air Resources Board ... READ ON

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Moody's says climate change rules are emerging risk for California refiners

Posted by Gino DiCaro, VP, Communications on March 23, 2012

Only time will tell how much AB 32 will actually cost California.

Since our landmark global warming bill passed in 2006 there has been no shortage of guessing about the costs and benefits of mandating greenhouse gas reductions on California's economy. Now all the rules are in place and experts are sharpening their pencils and assessing the outlook. The most recent regulation, cap and trade, requires manufacturing facilities, refineries, and large public agencies to hold “allowances” for their emissions starting in 2013. California is preparing for the first auction of allowances in August.

Cap-and-Trade joins one of the earliest regulations under AB 32, the Low Carbon Fuel Standard to require more biofuels and alternative transportation fuels in the mix.  The third policy to purchase 33 percent of our electricity from renewable sources was adopted last year.

Now, instead of guessing, we can see early indicators of higher future costs. Last week the independent credit ratings company  -- Moody's Investors Service --  reported that California's rules create an emerging risk to the operating costs, competitiveness and growth of the in-state refineries.  This is information important to bankers and investors as they figure out how much risk is involved in loaning or investing dollars into a business.

And after paying almost $4.50 per gallon for gas this month (highest in the country, sans Alaska and Hawaii) every California consumer should be concerned about "emerging risks" on California refineries.

Here’s what Moody’s said:

On the overall rules

 "CA's move to implement new standards for greenhouse gas emissions will be credit negative for refiners in the state."

"Refiner's operating costs will rise."

"The new rules could discourage refiners from making big strategic investments in CA and could cause certain higher-cost refineries to close"

On greenhouse gas cap-and trade rules

"Stationary emissions will cost the refining industry from $325 million to $1.2 billion annually by 2020."

 "We also assume only limited capital investments in carbon offset projects by refiners."

 "Over the near to medium term, refiners will probably bear these costs, with no ability to pass them through to the price of the fuel."

 "Over the longer term, as the cost burden rises, producers will more effectively pass these costs through to product prices."

"We estimate the total annual cost of the emission reductions associated with transportation fuels [under the cap] by 2020 at anywhere between $3.7 billion and $13.5 billion."

"Under our base case assumptions [for the transportation fuels cap], this would indicate an increase in refined product costs of about 22 cents per gallon.

On the Low Carbon Fuel Standard

 "We would expect the prices of these blendstocks [from the low carbon fuel standard] to rise, unless CARB offers a subsidy." 

"Many industry participants believe that the targeted carbon-intensity reductions cannot be achieved after 2015 from the biofuel blendstocks now available."

On the rest of the country falling in line (therefore making California more competitive)

"Given the current political environment and the state of the U.S. economy, we do not expect to see a federal cap-and-trade program adopted nationwide over the near to medium term."

Meanwhile New Mexico abandoned its cap-and-trade program last month, one of the last remaining holdouts in the United States.  New Mexico Environmental Improvement Board Chairman Deborah Peacock said,  "the intent was that all these states would be doing this cap and trading, and everyone’s dropped (out) except for California and New Mexico. That, to me, was very significant."

New Mexico saw early indicators of high costs that we have ignored, so far.

(You can purchase the Moody's report  here)


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AB 32 was not intended to be a revenue raiser

Posted by Gino DiCaro, VP, Communications on Jan. 30, 2012

This weekend, Gov. Jerry Brown proclaimed that revenue from the cap-and-trade system under AB 32 will go toward the construction of California's High Speed Rail project.

AB 32 was not intended to be a revenue raiser for the state of California. We dug up then-Assembly Speaker Fabian Nunez' 2006 letter of legislative intent before the bill was passed, which made it unequivocally clear that revenues raised under the regulations were not to go beyond the administration of the AB 32 program. Have a look:

Click image for full pdf

While more than 500 facilities struggle to pay for a costly cap-and-trade system in just the first year of the program, the State of California is already finding other ways to spend the money they weren't supposed to collect in the first place.

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