What economics tells us about AB32

This week I received an email seeking signatures for an "open letter from economists to the people of California in support of the state's efforts to reduce global warming emissions." The letter comes from Jasmin Ansar, of the Union of Concerned Scientists, and already bears the signatures of several people from my department, including a member of my research committee, Max Auffhammer. The letter itself is fairly mundane (I have pasted the full contents at the end of this post), but two sentences cry out for some commentary.

First, there is this:

In fact, being an early mover to reduce emissions could yield economic (as well as climate) benefits for California.

This is the green jobs argument that has been articulated by backers of AB32 ad nauseum.  But as I have begun to argue in an op-ed that will likely never be published anywhere except in this space, the green jobs that will be produced in order to feed demand for green products in California need not be located in California. In fact, one might expect green goods to be produced outside California because even the production of green products causes greenhouse gas emissions, which will be priced in California but not elsewhere. As the Wall Street Journal noted in an op-ed against AB32 this week, the Air Board's own analysis concedes our dirty firms are especially mobile and therefore likely to leave. So Californians will be compelled to invest in green products from Nevada and Texas in order to avoid energy costs increases induced by AB32. The claim of economic benefits to California is dubious.

Equally dubious is the suggestion that AB32 will yield climate benefits to California. Greenhouse gases are a global public bad, which means emissions anywhere affects people everywhere. So reducing emissions in California affects California's climate only in so far as it causes a (very) marginal reduction in global emissions and that marginal reduction in emissions causes a reduction in climate change. Roughly, California emits 6% of all U.S. emissions and the U.S. emits 20% of worldwide emissions. So California is responsible for about 1% of worldwide emissions. If we reduce our emissions by 25% as per the intent of AB32, then we will reduce annual world emissions by one-fourth of one percent by 2020. If we extrapolate from the IPCCs A2 scenario, this means AB32 will reduce temperatures by 0.002 degrees Celsius per year. I am guessing no one will notice of California is 0.002 degrees cooler than it otherwise would have been in 2020. By 2100, it will be 0.16 degrees cooler than without AB32--and this only if we assume there is no leakage and AB32 succeeds. Some climate benefit! I find it stunning that such respected people in my profession would sign onto a statement that is just so objectively wrong.

There is one context in which AB32 will provide real benefits to California, and it is included in the letter's list of AB32 merits:

Furthermore, policies that reduce global warming pollution are likely to provide immediate benefits to the health and welfare of residents by reducing local pollutants.

 This is true. Carbon, itself, is not a pollutant (in spite of what the U.S. EPA may say as it tries to regulate carbon under the Clean Air Act). It is naturally occurring chemical that is harmless to humans. Still, carbon emissions are correlated with emissions of chemicals that are pollutants and are hazardous to people, plants and animals. To the extent we send our carbon-intensive industries away, we also send our pollutants away. OK. Fine. But that is about the only sliver of truth in this letter, which has already been signed by a nobel-laureate. Is the consensus among climate scientists also based on this kind of empty rhetoric?

Here is the rest of the letter (and below it, the email that brought the letter to my attention):

The Most Expensive Thing We Can Do is Nothing
An Open Letter on Clean Energy and Global Warming from Economists


We believe that the state of California should proceed to control global warming gases and not delay as some are advocating.

In a 2006 letter, many of us stated that "Global warming gases will be best managed through a combination of policy approaches. Emissions caps combined with a range of regulatory and market-based implementation mechanisms offer a particularly potent strategy because they provide clear incentives for changes in business practices and the development of new technologies." We continue to believe this.

While global climate change poses significant risks to the California economy, we believe that well-designed and judiciously phased-in strategies to limit global warming pollution can reduce emissions substantially in the long run at modest cost to the state. In fact, being an early mover to reduce emissions could yield economic (as well as climate) benefits for California. Well-designed strategies can stimulate innovation and efficiency, which could help the state become a technological leader in the global marketplace.

We continue to support the efforts of the California Air Resources Board to implement the 2006 state law, the Global Warming Solutions Act.

The current recession and the very high unemployment rate in California present daunting challenges. Some have argued that these economic conditions warrant suspending the implementation of emission reduction policies. We disagree. Delaying action now and waiting for the future before initiating accelerated action to reduce global warming gases will be more costly than initiating action now. Acting now is more likely to limit further environmental degradation, lower the cost of mitigation, and spur innovation in renewable energy and conservation technologies. Furthermore, policies that reduce global warming pollution are likely to provide immediate benefits to the health and welfare of residents by reducing local pollutants.

For these reasons we urge continued support for policies that reduce greenhouse gas emissions. These policies can improve our energy security, create new business opportunities and more jobs, and provide incentives for innovation.

Signed by,

Kenneth J. Arrow
Stanford University
Nobel Laureate, Economics

Maxmillian Auffhammer
Professor of Agricultural and Resource Economics
University of California, Berkeley

Anthony C. Fisher
Professor of Agricultural and Resource Economics
University of California, Berkeley

W. Michael Hanemann
Chancellor's Professor
Department of Agricultural & Resource Economics
University of California, Berkeley

Charles Kolstad
Professor of Economics
Department of Economics & Bren School of Environmental Science and Management
University of California, Santa Barbara

Jasmin Ansar
Western States Climate Economist
Union of Concerned Scientists

The email I got forwarded:

 -------- Original Message --------
Subject:    Economist letter in support of CA global warming policies
Date:    Thu, 08 Apr 2010 14:06:48 -0700
From:    Larry Karp
To:    are-faculty@lists.berkeley.edu

Colleagues,
I am forwarding an email that solicits signatures for a petition in
support of California's climate change policies.  (Some of  you have
already signed, I know.)

cheers
>
>
>
>         
>
> ACTION ALERT
> Sign on: Economist Letter in Support of CA Global Warming Policies
>
> Dear Economist Colleagues,
> 
> I'm writing to ask you to add your name to an *open letter from
> economists
> to the
> people of California in support of the state's efforts to reduce
> global warming emissions *as required by the landmark 2006 Global
> Warming Solutions Act (also known as AB 32).
>
> Join the leaders in this effort, including Nobel Laureate Kenneth J.
> Arrow, Stanford University; Maxmillian Auffhammer, UC Berkeley;
> Anthony C. Fisher, UC Berkeley; Michael Hanemann, UC Berkeley; Charles
> Kolstad, UC Santa Barbara; and myself.
>
> In a 2006 letter, many of us urged California decision makers to take
> action to reduce global warming emissions. Our support helped lead to
> passage of AB 32. This year, state agencies and legislators are
> expected to authorize several critical components of the AB 32 policy
> package.
>
>         
> Support California's landmark climate programs today.
> Please read the economists letter supporting California's global
> warming law and sign it today! We will be accepting signatures until
> May 12, 2010.
> click here to take action
>
> Related Links
> 2006 Economists Letter (pdf)
>
> Threats to California's climate law
>
> Tell A Colleague
> Please encourage your colleagues to sign up
> and help
> increase our effectiveness in creating a healthy environment and a
> safer world. CLICK HERE
> .
>
>
>   
>
> Now, *some who oppose action—including two Texas oil companies— are
> doing all they can to turn back the clock.* They are bankrolling a
> ballot initiative that would prevent California from moving forward,
> arguing that the economic downturn demands delay. We disagree.
>
> Delaying action now and waiting for the future before initiating
> action to reduce global warming emissions will be more costly than
> acting now. Taking action now is more likely to limit further
> environmental degradation, lower the cost of mitigation and
> adaptation, and spur innovation in renewable energy and conservation
> technologies.
>
> *A letter from economics experts, like you, can make a big difference
> in public debates and with state decision makers, as it provides the
> courage to act despite some of the fear-mongering tactics from the
> opposition.*
>
> We will use the letter to engage California decision makers to shore
> up support for the state's forward-thinking policies. For example, we
> will deliver copies to members of the California Air Resources Board,
> state legislators, and other key stakeholders.
>
> The letter is open to economists with a Ph.D. who live or work in
> California, or who have done research or analysis on California
> issues. Please read the letter and sign it today! We will be accepting
> signatures until May 12, 2010.
>
> Please read the letter and sign it today!
> We will
> be accepting signatures until May 12, 2010.
>
> Thank you for joining this important effort. If you have any
> questions, please contact Jasmin Ansar at jansar@ucsusa.org
> or (510) 809-1570 or Chris Carney at
> ccarney@ucsusa.org or (510) 809-1577.
>
> Take Action Today
>
>
>
> Sincerely,
> Jasmin Ansar
> Jasmin Ansar
> Western States Climate Economist
> UCS Climate & Energy Program
>
> P.S. UCS Climate Scientist, Dr. Brenda Ekwurzel will appear on The
> Colbert Report on Comedy Central tonight, Tuesday, April 6 at 11:30
> p.m. EDT. It should be funny and informative. We hope you tune in!
>
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>
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--
Professor Larry Karp, Chair
Dept. Agricultural and Resource Economics
University of California at Berkeley
207 Giannini Hall #3310
Berkeley, California 94720-3310
Phone: (510) 642-7199
Fax: (510) 643-8911
e-mail: karp@berkeley.edu

http://www.are.berkeley.edu/~karp