A quarterly magazine of urban affairs, published by the Manhattan Institute, edited by Brian C. Anderson.
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Arnolds Worst Idea
A draconian global-warming law will harm Californias economic recovery.
9 February 2010
Arnold Schwarzeneggers waning months as California governor seem likely to end with a whimper. The wildly unpopular chief executive faces another bruising budget fight, with a $20 billion deficit to close. After entering office six years ago on a pledge to end autopilot spending, hes proposing a ballot initiative guaranteeing that the states colleges and universities automatically receive more funding than state penitentiaries. At the same time, Schwarzenegger is floating a pie-in-the-sky scheme to build prisons in Mexico that might be used to house some of the 20,000 illegal immigrants now incarcerated in the Golden State.
But never mind all that. At least Schwarzenegger can leave office next January secure in the knowledge that his crowning policy achievement will outlive the states present economic woes. The Global Warming Solutions Act of 2006, better known as Assembly Bill 32, is the most far-reaching climate law in America. It takes full effect in 2012 and mandates that Californians cut greenhouse-gas emissions to 1990 levels by 2020, and another 80 percent by 2050. Those are wildly ambitious goals. And nothingnot a sluggish economy, a 12.4 percent state unemployment rate, the bills multibillion-dollar price tag (conservatively speaking), or even an escape hatch built into the laws structurecan persuade Schwarzenegger that moving ahead with AB 32 is his worst idea ever.
Nothing, perhaps, but Californias voters. Schwarzenegger insists that theres no reason to believe the cap-and-trade program and expansive new regulatory regime at the heart of AB 32 will hamper Californias economic recovery. Yet not so long ago, the governor threatened to veto AB 32 unless Democratic legislators inserted language empowering the governor to suspend implementation of new rules in the event of extraordinary circumstances, catastrophic events, or threat of significant economic harm. The Democrats complied. Though the law says the governor may only suspend its provisions for one year, he can extend the suspension upon finding that those extraordinary circumstances persist.
Today, it seems as if that hard-fought concession was only for show. In December, the San Diego Union-Tribune asked why Schwarzenegger wouldnt invoke the laws suspension clause, given the states economic woes. The governors office replied: Your question is premised on an unproven assertion that implementation of AB 32 would be harmful to the economy when all the evidence points in the opposite direction.
On the contrary, evidence from the California Air Resources Board (CARB) firmly supports the assertion. The board, which is responsible for implementing and enforcing the law, last month released a report estimating that the state could collect as much as $143 billion in carbon allowances under cap-and-trade over the next decade. In a January 11 press release, the board touted the prospective benefits from this revenue, such as tax cuts and subsidies (dividends) to low-income families and investments in a low-carbon economy, including mass-transit projects. But CARB wisely chose to downplay a section of its report that casually admits: AB 32 is likely to raise fuel and energy prices, and these price increases will be reflected in higher prices of consumer goods. Nor did the board wish to call attention to its conclusion that climate policy also can negatively impact businesses, particularly businesses whose products are highly energy intensive and that have difficulty passing cost increases on to customersthat is, the states embattled manufacturing sector. Savvy readers could only infer from the boards P.R.-speak what the reports text makes explicit: While climate policy yields new types of jobs and new opportunities for employment, it may cause distress by displacing some workers. Even CARB wont hazard a guess as to how many Californians AB 32 will throw out of work. But its January report actually softened language from an earlier draft, which suggested that some portion of the carbon allowance revenues be used to assist workers most severely impacted by AB 32.
Republican state legislators, armed with these facts but outnumbered nearly two to one by Democrats, have tried in vain to delay the laws implementation. The same day that CARB released its report, the State Assemblys natural-resources committee killed a bill (AB 118) that would have suspended the emissions law until the states unemployment rate fell below 5.5 percent for four consecutive quarters. The bills backers sensibly argued that the legislature had passed, and Schwarzenegger had signed, AB 32 under much healthier economic circumstances. Though the states budget was already a mess in 2006, the economy was growing, the housing bubble hadnt burst yet, and unemployment was around 4.8 percent. Today, the states nonpartisan Legislative Analysts Office forecasts that Californias unemployment rate will remain above 10 percent through 2012 and above 6 percent through at least 2015.
With the legislature a dead end, AB 118s author, GOP assemblyman Dan Logue, is going the direct-democracy route. Logue is awaiting certification from the attorney generals office to begin circulating petitions to place an initiative identical to AB 118 on the November ballot. Congressman Tom McClintock, the conservative former state senator who has been one of Schwarzeneggers most vocal critics, and Ted Costa, the protégé of tax reformer Paul Gann and the driving force behind the 2003 recall election that elevated Schwarzenegger to power, are lending support to the petition drive. The group would need more than 433,000 signatures to get the initiative on the ballot.
Would Californians support it? The states residents tend to be more sanctimoniously green than the majority of Americans, but they arent completely insane. The left-leaning Public Policy Institute of California polled likely voters about AB 32 last summer. The poll found that an overwhelming 71 percent supported the intent of the law and believed that government should regulate greenhouse-gas emissions from power plants, cars, and factories. But PPICs pollsters received answers to a few other questions that should give the laws supporters pause. Just 43 percent of likely voters thought California should proceed with implementing AB 32s provisions; 53 percent said that CARB should wait until the economy turns around. Considering that Californias employment picture has only worsened since the poll was taken, its easy to imagine more voters thinking twice about AB 32 once they realize how much their monthly utility bills will rise.
Schwarzeneggers refusal to delay the Global Warming Solutions Act may be a safe political playat least for him. After all, he hardly could be less popular, and he doesnt have to worry about running for office again. But Californians shouldnt bet on Schwarzeneggers successor doing the right thing, either. Republican Meg Whitman, the former CEO of eBay, is currently leading state insurance commissioner Steve Poizner in the polls for the GOP nomination in June. Whitman has pledged to suspend AB 32 on her first day in office. Trouble is, shes lagging well behind presumed Democratic gubernatorial nominee Jerry Brown, who has made battling climate change his top priority as state attorney general.
No matter who wins the governors race in November, he or she will take the oath of office at a time of sustained economic sluggishness, with unemployment at a 70-year high. An expansive cap-and-trade systemthe product of lawmakers hubris and Schwarzeneggers feckless bid for a legacythreatens the Golden States economic recovery. Californians dont have to sacrifice their livelihoods for a political fantasy. If Arnold wont act, the voters should.
Ben Boychuk is a fellow of the Claremont Institutes Golden State Center for State and Local Government and a syndicated political columnist with Scripps-Howard News Service.