California: “Going for broke” on climate policies? Or too broke to take them on?


California, the quintessential trailblazer and laboratory for national environmental policy, was the first state to enact a comprehensive climate change bill.  California’s grand emissions reduction agenda, however, will require funding, and right now California faces billions of dollars in budget shortfall in a crunch that’s not expected to turn around anytime soon.  Political pressure to delay the ambitious measures called for in “AB 32” is mounting, but, California can’t afford to put off at least one major component of its climate plan: weaning itself from fossil fuels, says a new report.  Doing so will cost money, as will dealing with severe water shortages and other climate impacts going forward.  We wonder, what will be the federal role, if any, in helping California (and other states in a similar boat) get over this hump?

post by Anne Polansky

California could easily be a nation all by itself:  it’s home to 38 million people, and its $1.8 trillion income total accounts for 13% of the US gross domestic product. It has the 7th largest economy in the world.  It uses the most energy of any state, but has the lowest per capita energy usage as a result of aggressive energy efficiency efforts and a milder climate than many other states. 

Still, it has a long way to go before it can even begin to meet the terms of AB 32, the Global Warming Solutions Act, that requires a reduction in the state’s CO2 emissions to 1990 levels by the year 2020.  The state will need to invest heavily in additional energy efficiency and low carbon energy sources and undertake myriad other measures to meet the terms of the Act. 

But money is tight.  California legislators were recently successful in eliminating $60 billion in budget deficits for 2009 and 2010, but the state will face a $7.4 billion gap by the end of the fiscal year that begins July 1, and $15 billion in each of the following two fiscal periods (ref).  The state has been paying its bills with IOUs and one credit-rating agency downgraded its bonds to near “‘junk” according to a July article in the Economist.  California already has $67 billion in outstanding bond debt, a number that’s expected to grow by $44 billion over the next four years, according to an Oct. 1 report released by the state treasurer’s office.

So it’s understandable that some are advocating pushing back the ambitious schedule laid out in AB 32, anticipating that the interim milestones will be more budget-breakers amongst more pressing priorities.  On the other hand, others are challenging any delay asking whether California can afford not to proceed as planned under AB 32, and transition quickly to a low carbon energy economy.

According to a new report, Energy Prices and California’s Economic Security, if California remains primarily dependent upon fossil fuels, private electricity costs could escalate as much as 33 percent.

Quoting one press item, New UC Report Assesses Business-As-Usual vs. Aggressive Clean Energy Policy

Using price forecasts from the U.S. Department of Energy’s Annual Energy Outlook (AEO), the study estimates that without diversifying California’s energy portfolio toward more renewable fuels and energy efficiency, the state risks a loss of over $80 billion in Gross State Product (GSP) and more than a half million jobs by 2020.  Implementing 33 percent renewable energy, combined with 1 percent annual improvement in energy efficiency, on the other hand, shields the economy from higher energy prices and yields a growth dividend, increasing GSP by $20 billion and generating 112,000 jobs.

The report’s author, University of California – Berkeley professor David Roland-Holst, has this to say about the findings:

The global financial crisis has hit hard in California, where unemployment, mortgage foreclosures and an unprecedented state budget deficit are among the highest in the nation. But the current decline in demand in global energy markets is temporary and risks lulling policymakers and the public into a state of denial about long-term fossil fuel price trends.  Even using conservative official estimates, we find that California risks far greater economic peril by remaining heavily dependent upon fossil fuels. Energy efficiency and renewables offer a valuable hedge against the risks of higher energy prices.

Highlights of report findings include:

  * Without changing the state energy mix, under official fossil fuel energy price trends as projected in the U.S. Department of Energy’s AEO, private electricity costs in California would be up to $100 per person higher in 2020 (already $100 above today’s prices), making electricity up to 33 percent more expensive.
  * If fossil fuels follow the AEO trend, and the state does not implement its climate policies, California’s economy will shrink by $84 billion, over a half million jobs in 2020.
  * Diversifying California’s energy portfolio to include 33 percent renewable energy and 1 percent annual improvement in energy efficiency significantly shields California’s economy from higher energy prices, resulting in lower consumer costs, increasing GSP by $20 billion and boosting jobs by 112,000 by 2020.

The sponsor of the report is a nonprofit called Next 10 —its founder, F. Noel Perry, commented:

There has been considerable public debate over the projected economic impacts of California’s first-in-the-nation climate policies.  To date, no one has modeled the economic impact of doing nothing to change our energy mix. Today’s report clearly reveals the economic risk inherent in over-reliance on fossil fuels.

So if the report’s findings are accurate, then California needs to find a way to set budget priorities to make the terms of AB 32 a reality.  Other states will also need to change their spending portfolios to reflect new budget priorities.  California is not the only state with budget woes.  According to the Center on Budget and Policy Priorities, 48 states have significant budget shortfalls – only two, Montana and North Dakota, are flush.

So what will be the federal role here?  States may not be able to continue to make it on their own and deal with the climate change threat.  It’s time for national climate change preparedness framework and strategy, and commitment from the White House to shepherd states through the many challenges they face.


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