Tag Archive for: california global warming act

Will California’s Voters Reject their Global Warming Act?

A citizen’s initiative that looks likely to make it onto the November ballot this year is the aptly named “California Jobs Act,” which would suspend implementation of AB32, California’s Global Warming Act, until unemployment in the Golden State drops down to 4.8%. Passed in 2006, AB32 calls for California’s Air Resources Board (CARB) to write new regulations designed to lower, by 2020, California’s greenhouse gas emissions to 1990 levels. According to CARB’s report “California 1990 Greenhouse Gas Emissions Level and 2020 Emissions Limit,” in 1990, Californian’s emitted 433 million metric tons of “CO2 equivalents” in 1990, and by 2004 these greenhouse gasses had increased to an estimated 484 million metric tons.

Back in 2006, when AB32 was passed by California’s State legislature, and signed by Governor Schwarzenegger, California’s economy was at the crest of the debt-fueled housing-bubble boom. Now that California’s unemployment rate is nearly 13%, the highest in the nation, it is dawning on California’s voters that schemes to go it alone and adopt the bleeding edge of climate mitigation policies may not be the best prescription for economic recovery. Notwithstanding promises of abundant “green jobs,” and visions of a prospering “green economy,” what is most likely to be the economic outcome if California fully implements AB32 by 2012 as planned?

There are several examples surfacing that suggest CARB’s original economic assessment was overly optimistic. An analysis on the net impact of AB32 on jobs in California prepared in March 2010 by California’s non-partisan Legislative Analyst’s Office refuted CARB’s conclusions, and claimed implementation of AB32 would cause net job losses, not net gains. One of the first of studies of the actual economic impact of publicly subsidized renewables, entitled “Study of the effects on employment of public aid to renewable energy sources” was released by economists at the University of Rey Juan Carlos in March 2009.  It documented how the Spanish “green jobs” policies in fact destroyed jobs, detailing this in terms of jobs destroyed per job created and the net destruction per installed mega-watt.

Proponents of AB32 will continue to argue that implementing AB32 will accelerate transition to a prosperous “green” economy, but ultimately their economic argument has to rest on the premise that green policies and green products are cost-competitive with conventional technologies and existing policies. And in most cases, this position is dramatically false. It is one thing to subsidize strategic research into energy technologies that will eventually yield breakthroughs in price and performance, but quite another to require substantially more expensive current renewable energy technology to be deployed at scale today. Solar energy and wind energy are still 2-3x more expensive than conventional energy solutions, and with recent developments in shale gas extraction as well as ongoing progress in safe nuclear technologies, that cost gap is not shrinking. Proponents of solar and wind energy also frequently fail to account not only for the installation cost of these intermittent energy generators, but also the cost of maintaining back-up conventional generators that have to be activated when the sun sets or the wind dies down. They also often fail to assess the costs of constructing additional high-voltage transmission lines to transport electricity from decentralized wind and solar farms to urban areas, as well as the costs to buffer the power grid to accommodate massive fluctuations in generating output from these intermittent sources of energy. Ironically, proponents also fail to assess the costs of lawsuits and permit processes which add, especially in California, massive additional cost to any new energy project, conventional or alternative.

Evidence that renewable energy costs significantly more than conventional energy is not hard to find. An article in the Los Angeles Times, dated March 15th, 2010, entitled “DWP plans 37% rate hike over four years to cover cost increases,” states the primary reason for this is to pay for renewable energy. Other utilities across the state are planning similar increases – not just power utilities, but all utilities who consume power, such as the water, sewage and sanitation districts. All of these utility rate increases cascade into the cost of doing business as a private sector company. And it doesn’t end there – to implement AB32 and realize the ambitious goals for greenhouse gas reduction, CARB intends to rewrite regulations on land-use and land management, vehicle efficiency, building energy efficiency, transportation policies – in general, they intend to regulate virtually every industrial process that results in greenhouse gas emissions. There is a cost for all of this.

California may have a liberal electorate, but Californian’s also have a very well documented aversion to higher taxes. And “mitigation” in the name of global warming is an indirect tax. By raising prices for energy and other resources required by California’s industries, many will leave California. Those who remain will have to defer investment in job creating activity, such as plant expansion or research and development, in order to absorb higher utility expenses and invest in new equipment for mitigation. The “green” jobs created by construction of subsidized, non-competitive energy and utility infrastructure are vastly outnumbered by the jobs lost because the business community has to allocate more of their financial resources to paying energy and utility bills, and consequently have less financial resources to create new products and new jobs.

On the demand side of the economy the same consequences apply. Consumers will have to pay more for energy and other utilities, as well as for products produced in California – including transportation and housing. This will reduce their discretionary consumption, further shrinking the economy. These mandated increases to the cost of doing business and the cost of living in California thanks to AB32 are not explicitly called taxes, but that is what they are.

California has a well-earned reputation as a political trend-setter. Californians were the first electorate to enact term limits. Their property tax revolt in 1978 stunned the nation. California’s voters have the potential – if they vote to suspend AB32 this November – to begin to reestablish their State as a leader of responsible political action. The impact of Californians suspending AB32 will not only be to save themselves from punitive new hidden taxes, but to reignite a constructive discussion regarding what green technologies are really ready for prime-time, and what a realistic balance should be between environmental stewardship and economic growth.

No Profits, No Pensions

California Gubernatorial candidate Jerry Brown knows he’s in a fight. His presumptive Republican opponent, Meg Whitman, not only is doing a good job presenting herself as a socially moderate, fiscally conservative candidate, but she has abundant personal wealth she can tap in order to finance her campaign. So Jerry Brown has to turn to the only reliable source of campaign cash out there, the public employee unions.

In Joel Fox’s report of March 22nd entitled “Brown Embraces the Public Unions,” Fox quotes Brown as saying “California’s fiscal problems are not the unions’ fault but that of Wall Street and corporations.” Get ready for a campaign season filled with more bashing of corporations. And here are some reasons why this rhetoric is absurd, nihilistic, corrosive, deceptive, utterly bankrupt, and at least to-date, tragically effective:

Public sector unions are by far the most powerful source of campaign cash in California. They can pretty much spend as much as they want to make sure their candidates get elected, and their opponents are defeated. Without these unions, Jerry Brown wouldn’t have a chance against Meg Whitman. But is Brown only singing the union song in order to get their financial support? After all, in late February 2010, in a closed meeting with a group of California business leaders, Brown admitted the single greatest mistake he made as Governor back in the 1970’s was his decision to sign legislation allowing public sector workers to unionize.

Public sector unions have successfully convinced Californians that Wall Street and corporations are basically to blame for all the problems in our society – from deficits to poverty, from bad public policies to social injustice. But public sector unions are in bed with Wall Street. In the United States, there is no source of new investment capital bigger than public employee pension funds – most of it flowing through Wall Street brokerages. The public sector unions, through their pension funds and through the state and municipal governments – which they control – worked with Wall Street and enabled Wall Street. It was Wall Street who packaged the investments that public pension funds purchased – and it was Wall Street and the public sector unions who, more than anyone, wanted to believe they could earn 8.0% annual returns forever.

That’s not all. In 2006, California’s legislature, controlled by public employees, enacted AB32, California’s “Global Warming Act.” Already, agencies and utilities throughout California are tacking “global warming mitigation” fees into their billings. And in less than two years, when AB32 takes full effect and California starts auctioning tradeable CO2 emission allowances, it is Wall Street firms who will broker these CO2 allowances, and it is Wall Street who will package all the CO2 “offset” prospectuses. Read the “scoping plan” from CARB, which lays out how AB32 will be implemented. You will learn how CO2 “offset projects” – which will receive the proceeds of the CO2 emission allowance auctions – will earn reimbursements by how much they reduce CO2 emissions. For example, by mandating even more draconian high-density than we already endure here in California, municipalities will be able to calculate the emissions they have saved relative to “sprawl,” and collect annual reimbursements. Pet projects that create jobs at taxpayers expense for union workers, such as light rail, will go in regardless of practicality, and also receive carbon offset funds calculated on the basis of their potential to reduce CO2 emissions. California’s global warming act, which will do nothing to address alleged global warming, is a scheme, hatched by public sector bureaucrats to transfer more money from taxpayers into the government. And Wall Street will stage-manage the entire process – making billions in fees.

When Jerry Brown, on behalf of public sector unions, demonizes Wall Street, he’s being a blatant hypocrite, but at least he has a point. In the case of industrial corporations who want to employ people and build actual products, however, Brown and the public sector unions have no point. According to Brown and the unions, if only corporations would behave themselves and pay their “fair share,” all of our problems would disappear. Where is the logical end-point of this nonsense? The last politician to tell the truth about taxes and corporations probably was Ronald Reagan, who correctly pointed out “corporations don’t pay taxes, because they pass the taxes through to the consumer as a cost – ultimately it is individuals who pay taxes.” The public sector union’s answer to this truth, observed by Reagan and confirmed by history, is for government to simply reduce corporate “profits.” If the corporations were forced to make less in profit, supposedly they could afford to pay higher taxes AND charge a fair price to consumers for their products. But profits are the life-blood of economic growth and wealth creation. Without profits, there is no reinvestment in equipment and upgrades, no research and new product development, no new job creation, no dividends to shareholders, and no stock appreciation which provides the return to public employee pension funds. No profits, no pensions. And in any event, corporations in California are beat down, intimidated by public sector unions and environmentalist attorneys, reeling from the effects of recession and the impact of excessive, punitive regulations. California’s business community has been practicing appeasement with the public sector unions and environmentalist attorneys for years – they cower like Théoden, King of Rohan, wasting away, corrupted by fear, waiting for Gandalf and Aragorn to awaken him before all is lost. But we live in California, not Middle Earth.

What public sector unions ought to know, and cannot admit, is that tax revenues they collect and allocate, especially through public pension fund investments, are the engine that fuels Wall Street, and they are as responsible as anyone else in this economy for the excesses and abuse of the financial sector in America. What they also should know, as they watch their pension funds crumble, is the fiscal policies they have forced onto compliant politicians are unsustainable and are cannibalizing the wealth of the country. To distract voters from this financial fact: that California’s public sector bureaucrats, on average, now make 50% more in base pay, 100% more in current benefits, and 200% more in retirement security – compared to the taxpayers who now serve them and pay for this hideous inequity – public sector unions and the candidates they control must preach the politics of resentment and envy, hatred of wealth and environmental panic, corporate demonizing and phony Wall Street bashing. They must brainwash our children in their union-dominated public schools, and bamboozle our electorate through their massive campaign advertising, so they can continue to feed for a few more years on the ailing carcass of what was once the greatest free-market economy in the history of the world.

For more on public sector unions and government solvency in California, read:

The Razor’s Edge – Inflation vs. Deflation, March 15th , 2010

Pension Rhetoric vs. Pension Reality, February 24th, 2010

California’s Union Ballot Initiatives, February 18th, 2010

Sustainable Pension Fund Returns, February 2nd, 2010

California’s Personnel Costs, January 24th, 2010

Maintaining Pensions Solvency, January 9th, 2010

Real Rates of Return, June 26th, 2009