Report Concludes AB 32 Costs for Small Businesses Manageable

By Published On: December 11, 2009

California’s climate change law, AB 32, may raise energy prices, but not enough to significantly hurt small businesses, according to a report the Union of Concerned Scientists and the Brattle Group released December 10. The typical small business spends less than 1.5 percent of its revenue on energy. So even if the price of carbon dioxide emissions rights under a state cap-and-trade program rose to $60 a ton--driving up the price of both electricity and gasoline 12 percent and natural gas 24 percent--small businesses would feel “only a very small economic impact,” the report noted. Other costs would remain much more significant to small businesses, the report concluded. “The AB 32 cost impact pales in comparison to the effect of inflation over ten years,” said Jurgen Weiss, Brattle Group consultant. He added that the cost of AB 32 is likely to fall “well within the range of historic cost variation most small businesses face every day.” The study comes as many taxpayer groups, teabag organizations, and local chambers of commerce continue to seek delay or fundamental rethinking of AB 32 based on cost concerns in the midst of the recession. Howard Jarvis Taxpayers Association president Jon Coupal told the California Air Resources Board December 4 that auctioning emissions rights under the law would constitute a “tax on California’s already struggling companies” and “would destroy thousands of jobs.” The report acknowledges that some comparatively energy intense small businesses, such as restaurants, could feel more impact. Yet, restaurants spend an average of just 2.8 percent of their revenue on energy, it notes. In a case study of the popular Los Angeles restaurant, The Border Grill, the researchers found that the higher price of energy caused by $60/ton carbon emissions’ rights would raise the average cost of dinner less than three cents in 2020. That increase could be avoided, the report suggested, if the restaurant reduced its energy bills by investing in more efficient appliances and equipment. “Such a miniscule increase, even if noticed, would not cause our customers any heartburn,” stated Border Grill owner Mary Sue Milliken. However, the report suggested that even a three cent increase in the cost of dinner due to AB 32 is pessimistic. That’s because the researchers believe the cost of carbon is unlikely to exceed $40/ton in 2020. At $40/ton, the report projected that electricity prices would rise just 5 percent, natural gas 12 percent, and gasoline 8 percent. Currently, carbon dioxide emission rights are selling in the $3 a ton range in the Northeast’s Regional Greenhouse Gas Initiative market. There would be an additional increase though, according to the report. California’s renewable energy standard could raise the cost of electricity by an additional 7 percent. Meanwhile, energy efficiency and the state’s low-carbon fuel standard are likely to either pay for themselves or not raise energy prices, it said. The authors said their report, The Economic Impact of AB 32 on California Small Businesses, is meant to serve as a counterpoint to other reports predicting “dire” economic impacts from AB 32.

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