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.