Fiscal analysis for AB 32 ignores near-term costs

By CMTA Staff

Capitol Update, Sept. 26, 2008 Share this on FacebookTweet thisEmail this to a friend

The long-awaited economic analysis for CARB's AB 32 scoping plan released this week presented a very rosy – and very misleading – picture; that one of the most ambitious regulatory programs in California history won't cost a penny. Unfortunately, CARB's analysis is long on wishful thinking and short on economic reality.
The analysis provides no estimate of real-time costs that California businesses and consumers will have to pay up front, and freely acknowledges that many costs won't even be considered until after the scoping plan is adopted, during the rule-making process for each measure. Moreover, the models used by CARB were the same ones criticized by a Brookings Institute study which found that these models consistently overestimate benefits and underestimate costs by billions of dollars a year.

The kinds of programs considered in the scoping plan will actually cost billions of dollars in the near-term for increased electricity, natural gas, gasoline and fuel prices; billions in new carbon fees and water fees; higher building costs, rents and mortgages; and other new taxes and fees.

Neither does the analysis factor in costs that will arise from local and regional government’s global warming reduction plans, as well as existing or future state climate change programs that are likely to duplicate or conflict with AB 32 policies. 
"These figures don’t take into account existing or pending programs such as the Bay Area’s Greenhouse Gas fee, proposed state sales and gasoline tax increases and vehicle registration fees, pay-at-the-pump auto insurance and other expensive initiatives that will cost consumers billions on top of AB 32 policies," commented Dorothy Rothrock, CMTA V.P., Government Relations.  "And all this is on top of the cost of other environmental regulations that are the most stringent in the country."

The plan relies on fees, taxes and technology mandates rather than market-based policies such as cap-and-trade that would provide flexibility for businesses in meeting AB 32’s emission reductions goals.  CARB acknowledges the money-saving features of market mechanisms but doesn’t use them to the fullest extent possible.

"Market-based policies account for only 20 percent of the plan," said Rothrock.  "Fully 80 percent is comprised of traditional, rigid regulations, virtually guaranteeing Californians will pay too much for every ounce of carbon reduction."
Rothrock observed that since other states and countries will not be immediately burdened with global warming reduction expenses like the billions that AB 32 will impose on California, the most likely result is that jobs will leave the state as businesses choose more affordable locations in order to survive in the competitive global economy.

"It’s ironic," Rothrock said.  "California manufacturing and industry is already the cleanest in the world because of our strict environmental regulations.  Yet an expensive AB 32 plan could cause a net global increase in greenhouse gas emissions due to business being driven out of California and growing in states or countries with more reasonable climate change laws."

CARB staff is scheduled to release a final version of the scoping plan on October 3, for adoption by the Board later this year.  Copies of the scoping plan and economic analysis are available at
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