The New Year is signaling new economic troubles for Californians, from a source many may not have expected.
After the failure of Proposition 23 last November, the Global Warming Solutions Act of 2006 (Assembly Bill 32) is scheduled to take effect this year. Its implementation is sure to make matters worse for a state economy already brought to its knees by overzealous government.
Championed as a “green jobs” creator, AB 32 requires a 30-percent cut in carbon emissions by 2020. The Air Resources Board, the government agency charged with implementing AB 32, has unveiled a vast array of new taxes and regulations on cars, buildings, appliances, and industry in an effort to reach their reduction targets. Even more alarming to California businesses: the board has proposed a host of renewable energy mandates and a state-based cap-and-trade system to “incentivize” greener behavior. These new rules are the epitome of government micromanagement of our daily lives. They dictate everything from methane gas emission levels at landfills to how much air should be in your car tires.
Combined with other onerous government strictures, the plethora of new measures will significantly slow California’s recovery as it struggles to climb out of a deep recession. The Pacific Research Institute, a San Francisco-based think tank, predicts almost 150,000 lost jobs by 2012 and another 1.3 million by 2020. Additionally, a study by Sacramento State University shows that AB 32 will actually increase a family’s cost of living by more than $3,800 and boost the regulatory burden on an average small business by close to $50,000.
These figures are not idle speculation. Gabriel Calzada, an economist and lead author of a study detailing the impact of Spain’s green experiment, found that his country’s economy lost a net 2.2 jobs for every green job the mandates created. And most of the green jobs (9 out of 10) resulting from renewable energy mandates were temporary because they involved installation tasks. Due in large part to these mandates, Spanish companies like Acerinox, a steel maker, exported manufacturing jobs to South Africa and Kentucky. California companies will likely have to make similar decisions.
As a matter of fact, current taxes and regulations have pushed green jobs out of California. When Cypress Semiconductor acquired SunPower Corp. in 2003, one element deemed necessary to make the company viable was shutting down its high-cost California solar cell factory and moving its manufacturing operation (with its 4,000 jobs) to the Philippines. This trend is likely to accelerate in 2011.
California simply cannot afford this. The American Legislative Exchange Council already ranks California 46th out of 50 on its Economic Outlook index. The state groans under one of the highest marginal income tax rates on high-income earners (at 10.55 percent), one of the highest corporate income tax rates in the West (at 8.84 percent) and a huge government employee workforce. All of this translates into weaker economic output.
Sadly, it could get worse. Gov. Jerry Brown has proposed a ballot measure to extend higher vehicle, sales, and income tax rates set to expire next year. In 2009, Californians resoundingly rejected a similar attempt to continue these rate hikes.
Overall, proponents of AB 32 assume that businesses and individuals are behaving irrationally when they fail to invest in energy-efficient technologies, and therefore all-wise, environmentally friendly bureaucrats should compel them to adopt green technologies. Rather than embrace this dogma, California needs to create an environment where green companies like SunPower are not forced to export their growth to more business-friendly states or countries. If green jobs and technology make sense, the market will create them.Private entrepreneurs and venture capitalists will invest their own money in them because they’re eager to profit from investments that really work.
Even under the best economic conditions, the impacts of AB 32 on the state would be terribly harmful. At a time when its unemployment rate is in excess of 12 percent and its government in the red by well over $20 billion, further implementation of AB 32 makes California’s prospects for a Happy New Year slim to none.