JUICE: AB 32’s Parental Dilemma

By Published On: March 20, 2014

As California’s climate change law approaches eight years of age, state officials still view it with the fondness grownups have for cute elementary school boys and girls. In 2020, the law will be the age of a gangly teenager—one whose personality is largely formed and whose path in life is becoming established. That’s why the intervening years will be some of the most crucial in establishing what the law becomes when it reaches full adulthood, then middle age, by 2050. On its still innocent face, it’s difficult to see how the law, known as AB 32, won’t turn out well. Its parents and guardians have had all the right intentions—to reduce carbon emissions to protect against climate cataclysm. They’ve given their unswerving support. Just like a teenager who suddenly moves beyond the confines of home, school, and neighborhood, bigger forces will influence the law. Some will be beneficial; others inevitably destructive. That’s why now, to their credit, AB 32 policy guardians are beginning to grapple with the prospect they will soon lose control. Before it reaches a stage where it’s moved by forces beyond their control—like the vicissitudes of international economics and interstate commerce—the law’s kinfolk have a few short years to adjust their nurturing style to make sure AB 32 is prepared for the rigors of the larger world into which it’s about to enter. In implementing the climate change law, California has sheltered its residents and businesses. It’s done that under well-established legal precedents that have long allowed states to regulate public utilities and California to set its own automotive emissions standards. All the state’s had to do is replicate what’s been done before to attempt solving its smog problem. It’s within the familiar confines of air pollution control law. Who can object? And, just like the basic goals of reading, writing, arithmetic, and eating your broccoli, AB 32’s 2020 goal of returning emissions to their 1990 level was modest and age-appropriate for the law. That’s why, when it comes to emissions from burning fossil fuel, California already has surpassed the goal, according to the Energy Information Agency. To be effective at controlling global warming, AB 32 must matriculate. For policy makers this creates a dilemma. It means they must loosen the reins of control. In terms of AB 32, it spells the inevitable end of sheltering consumers, farmers, manufacturers, oil refiners, truckers, and others from the rigors of what it really takes to stabilize the climate by cutting greenhouse gases. So far, state officials have protected virtually all except the power industry. They’ve given free emissions allowances to manufacturers who face out-of-state or international competitors who don’t have to worry about carbon emissions. They are returning money collected for emissions rights needed to make electricity to consumers and are calling it a climate dividend. It can’t continue. Next year, natural gas for crucial home heating and gasoline most Californians need to get to work and conduct business both become subject to the law. Their price will go up. Later this decade, free emissions allowances for manufacturers and others will cease, adding to the cost of doing business and inevitably the price of the goods they produce. Meanwhile, it’s unlikely their competitors outside California will face similar carbon control costs. Beyond that, to meet an 80 percent reduction in greenhouse gas emissions under an executive order issued in conjunction with the law, it means putting coal miners out of work in Utah and Arizona, folding oil refineries, downsizing utilities, and likely unleashing distributed energy technologies not subject to the same regulatory regime that governs today’s utility industry. The green industries that fill the gap may wind up replacing high-wage utility and fossil fuel industry jobs with low-pay work installing distributed generation, demand-response, and energy efficiency equipment that’s made in low-cost manufacturing plants abroad. These are some of the forces lurking as California goes down the path toward decarbonization under AB 32. Will the law as written today and the executive order stand and lead to the greater good for the state, while effectively heading off climate change? That’s about to become clear as the law crosses the threshold into the bigger world of interstate commerce and international competition and answers the question of whether “green” economics can provide the same wealth as old economics. Then, the effectiveness of the parents will become evident. Time will tell whether they’ve given the law and its programs the durable foundation needed to function beyond the bubble of the child’s world, or failed to prepare it for the world into which we are inevitably moving.

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