Redefining Progress

A Golden Opportunity: Strengthening California`s Economy through Climate Policy

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Courtesy of Redefining Progress

Governor Schwarzenegger’s proposed emissions reduction targets, and similar initiatives being explored in the legislature, provide an extraordinary opportunity to rewire California’s energy system, incorporating cutting-edge technology into a world-class system that better positions us to continue our history of rapid innovation, economic growth, and global leadership. The draft report of the Climate Action Team (CAT) is an excellent first step toward a well-designed climate policy that would accomplish this end. We appreciate the leadership and vision that the Governor has shown in setting these bold goals; commend and thank the CAT and the staff team that labored so long and hard to assemble the elements of this plan on a very tight time horizon; and look forward to working with the legislature and the Agencies to further strengthen the plan as it moves toward implementation.

 

A well-designed climate policy:

  • strengthens the economy and creates jobs;
  • improves the competitiveness of CA industries, even the most energy-intensive;
  • secures us from global price shocks and domestic market manipulation;
  • reduces the energy bills for California consumers, and
  • improves the economic well-being of ordinary working families, and of the most vulnerable among us.

 

This is good news. In fact, our preliminary analysis suggests that a greenhouse reduction program on order of the Governor’s can create upwards of 150,000 jobs and gross state product by a quarter to a half a percent, while at the same time reducing household energy expenditures by $500 to 1,000. The lower increase in GSP and employment forecast by the CEPA staff are a consequence of the failure to properly integrate market mechanisms with the suite of technology policies proposed there. We note that the CAT’s own report, as well as analysis by the veritable “Who’s Who” of climate economists assembled by the U.C. Berkley/LBL team, support our contention that such integration would find lower costs and increased benefits in both the short and the long term.

 

So what is a good climate policy? Based on a comprehensive review of the economics analysis and concrete field experience with climate policies and market mechanisms in the U.S and Europe, there are basically five simple lessons:

  1. cap and trade systems and technology policies work best together;
  2. auction permits, don’t grandfather them;
  3. implement a cap immediately, and phase it down gradually;
  4. permits should focus on California consumption, not CA production;
  5. a comprehensive system yields the highest rewards; and
  6. Don’t omit major benefits from the economic calculus.

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