« Back to Home Page

Sign up for the 3p daily dispatch:

AB32’s Job Economics

Bill Roth | Thursday May 6th, 2010 | 9 Comments

I served as a corporate sponsor of AB32, California’s pioneering legislation that was passed in 2006 setting a 2020 goal for reducing greenhouse gas (GHG) emissions by 20%. One reason for doing so was my analysis as a professional economist that renewable energy is a path for America’s prosperity, including job growth.

A ballot initiative to repeal AB32, titled The California Jobs Initiative, achieved 800,000 signatures–nearly twice the number it needed to make it onto the November ballot. In addition, the likely Republican candidate for Governor is campaigning to repeal AB32 on the basis that it will produce job loss by making California’s businesses uncompetitive.

The current California economy is the obvious first place to begin exploring for an answer on whether AB32 will cost California jobs. The State has 12+% unemployment. AB32 has nothing to do with this high level of unemployment. The rulemaking for implementing AB32 has just begin. The cause for California’s job pain is the collapse in housing (construction levels and individual home values) and the unavailability of bank lending in support of small to mid-sized businesses. AB32 is not the cause of California’s current unemployment.

The next question is whether job loss will occur when the rulemaking tied to AB32 takes effect? The path to answering this question lies in assessing how AB32 impacts the state’s largest greenhouse gas (GHG) emitters. The three industries accounting for 40% of the State’s GHG emissions are electric utilities, refineries and cement manufacturers. According to the California Air Resources Board the largest single source of in-state greenhouse emissions is a Chevron refinery. The top ten individual sources of in-state GHG emissions are either oil refineries or power plants. The largest source of greenhouse emissions is actually a Wyoming coal-fired power plant that imports electricity into California.

Here’s the reality of gasoline prices: AB32 will not cause the price of gasoline to raise to levels that will create job loss. The price of gasoline will continue to rise because the price of gasoline is tied to the increasing price for oil. High oil prices are the result of global oil demand growing faster than the global supply. The U.S. imports approximately 4.7 billion barrels of oil annually. The key to reducing our pain at the pump is to reduce our dependence upon foreign oil that now costs approximately $800+ billion annually. We would need to harvest FOUR billion-barrel oil fields (these are called “whales” in the oil industry) every year to eliminate our dependency on non-North American oil supplies. This is not geologically possible, our land and offshore sites do not have this potential. The solution is more efficient cars, public transportation, shortening the American commute and the displacement of foreign oil with renewable energy that we own.

AB32’s impact upon the price of gasoline is at “the margins” and will be similar to what happened when we eliminated lead as a fuel addictive. This did marginally raise the price of gasoline but this was minuscule compared to the price increase tied to oil’s escalating cost. The price of unleaded gasoline rose from $1 to $3 per gallon based upon oil prices, not the cost of finding an additive-alternative to lead.

The next issue is electricity prices. Again, the primary reason for higher electricity prices are increasing fossil fuel prices and the need for utility infrastructure upgrades. Approximately half the price of electricity is fuel cost. The world price for coal has grown from $20-30 per ton to over $100 per ton as China emerged this year as a net importer of coal. The price of natural gas is about twice 1990’s levels trading at around $4-5 per MMBTU. A Gulf of Mexico hurricane holds the potential of driving the spot price up to $10-15 per MMBTU.

In California the bids for supplying wind and solar power are compared to a calculation by the California Public Utility Commission called the Market Price Reference (MPR) that estimates the cost of electricity produced from a natural gas fired power plant. Today’s approved wind and solar power supply bids are price competitive with the MPR.

I work with smaller and mid-sized companies. They are not so focused upon the price of electricity as much as the size of their bill. They are investing in energy efficient equipment, more efficient business systems and non-grid energy like a roof top solar system to achieve attractive returns on investment. Their investments create local jobs and align with AB32’s goals for lowering GHG emissions.

This leaves cement. Cement is not a product that is cost effectively imported. It is typically a product tied to local construction. More local construction typically means higher cement sales. Less local construction, lower cement sales. Ironically, this is one of the industries achieving real results in the development of clean technologies that cost effectively comply with AB32’s goal for reducing GHG emissions.

Globalization is a major exception to my analysis. I have first hand experience watching this occur to the South’s textile industry. The EPA enacted regulations to protect work associates from inhaling lint that causes respiratory illness (the workers in this industry referred to themselves as “lint-heads”). The result was the closure of the South’s textile plants with their machinery sold to Asian manufacturers. The issue of exporting emissions and jobs has been surfaced in AB32’s rulemaking and is also addressed in the potential Federal Climate Change legislation.

So the job economics of AB32 is to create employment. Actual companies manufacturing fabric, cement, roofing tiles, counter tops and solar panels are demonstrating that clean tech is both price competitive and sustainable. Enabled by legislation like AB32 our future sustainable economy will create job opportunities with companies supplying goods and services that cost less and mean more, compared to a continued reliance upon 20th Century solutions that increasing cost more at the pump, cash register and meter while also creating ecological damage.

***

Bill Roth is the founder of Earth 2017 and author of The Secret Green Sauce that profiles best practices of actual companies growing green revenues.


▼▼▼      9 Comments     ▼▼▼

Newsletter Signup
  • stevedl

    It is amazing that he can completly disregard the economic studies done by those in the California higher education system that aren't profiting from biased results (my guess is he makes his living from “green” consulting). Al Gore also became very rich this way…. At least he is a little more honest and not trying to scare us with the horrors of a warming planet (I am so afraid of those extra big plants).
    Look at the findings in Spain and the loss of jobs and poor paying jobs only replacing a small % of the lost jobs. This State is the most poorly run in America and just recieved a ranking as the 51st worst state for business climate (including DC) and we have embarked on a crusade built upon crumbling science regarding global warming by ourselves. This will add cost to everyting we buy and yes, we will all be giving up our cars and quality of life because we will have no jobs or money. I hope at least Mr. Roth is staying employed so someone can pay the high taxes and subsidies to go “green”.

  • http://greenconomist.com Greenconomist

    I think the two main issues that have not been addressed sufficiently are: 1) reliance on foreign equipment suppliers for wind and solar systems (i.e. money and jobs going overseas) and on the other hand, 2) the need for greater demand visibility in order to attract the investment necessary to keep green manufacturing jobs here.

    I did some brief digging on this:

    http://greenconomist.com/2010/05/05/news-analys

    My conclusion was that there has thus far not been stable enough demand coupled with stable enough economic environment for true investment in SME or larger scale renewable energy manufacturing facilities in the U.S. Without that, it's inevitable that more jobs will go overseas. AB32 needs to stay in place to create significant enough of an incentive for entrepreneurs and investors alike to open new facilities and expand green manufacturing capacity. This is an area where we can be ahead of the rest of the world, especially Asia and especially in terms of technology.

  • CharliePeters

    Governor, DCA/BAR & CARB using AB 2289 Eng to cut CA green collar jobs?

    http://www.indybay.org/newsitems/2010/04/18/18645036.php

  • Mark McLeod

    Bill, This is one of the best pieces I have seen supporting full implementation of AB 32 and opposing the efforts of Meg Whitman, the California Chamber, etc., to put the AB 32 horse back in the barn.

  • http://www.earth2017.com Bill Roth

    Thank you all for your comments, pro or con.

    While this is surely an emotional issue I believe a focus upon actual data rather than studies will best serve our common goal of enhancing American job opportunities. That was the purpose of my article.

    Have there been any closures of oil refineries in California due to AB32, NO. Is the high price of gasoline a byproduct of environmental regulation or the fact the price of oil now trades at $80+ per barrel?

    We have had only one bankruptcy of an investor owned utility in California. The cause of this bankruptcy was definitely not AB32 or any environmental regulation.

    For our cement companies to grow jobs they will need a rebound in the construction industry. At the same time, this industry is doing some very pioneering work in new technologies with lower carbon footprints.

    I like the question of “Where are the green jobs?” The Business Roundtable just released their 2010 report on sustainability. 97 of America's largest companies were reviewed in this report, from ABB to Xerox. Each of these 97 companies pointed to tangible examples of how their business's profits and revenues are now growing based upon their adoption of sustainable business practices.

    The financial analysis of R. Paul Herman and other financial analysts are now confirming that the stocks of companies hat are more sustainable in their business practices outperform the stocks of companies that are less sustainable in their business practices.

    I stand by my article's analysis that the numbers refute claims that AB32 or other actions of sustainability are creating job loss. Rather, the numbers support that sustainability is a path for business growth in revenues, profitability and jobs.

  • http://www.sustainametrics.com Kristin York

    This is a great, concise article pointing to the facts as they are – our economy is not in the tank because of AB32, its suffering from a systemic breakdown of our financial, construction and banking industries.

    I find it interesting that in a testament to Adam Smith's wisdom, the State's single largest emitter, Chevron, just posted another record breaking profit for the first quarter of 2010. No doubt AB32 foe Valero is smarting from their not so lustrous financial results blamed on weak demand and mechanical issues. If these Oil Companies would re-define themselves as energy companies and invest in alternative solutions (kudos to Chevron btw for trying) rather than low carbon legislation bashing, they may find a way to help solve the problem while profitably weaning our culture from fossil fuel dependence.

    Business as usual has changed forever, we can't continue to stick our head in the same sand we are grousing around in for oil – totally, unsustainable and eventually, unprofitable. AB32 is a small but necessary step in the right direction, its up to us adopt it, bring economies of scale for renewable energy manufacturing to California and create jobs for a low carbon economy… Adam Smith would be proud.

  • http://www.earth2017.com Bill Roth

    Today we hit a 15 month high trade deficit fueled by a 25% increase in imported oil. Sustainability is a triple bottom line and our future is in finding competitively priced alternatives to 20th Century solutions that work for our economy and our environment. Kristin, thanks for making this point in your thoughtful comments.

  • Hilary

    Competition and efficiency cannot be the end-all be-all of human existence.

  • Hilary

    Competition and efficiency cannot be the end-all be-all of human existence.