Last Wednesday, California’s Air Resources Board released a new economic analysis showing that California can grow its economy and reap immediate benefits from cleaner air while meeting air pollution reduction goals of its Global Warming Solutions Act of 2006 (AB 32).
EDF will be producing a series of blog posts that summarize what CARB learned about how AB 32 will impact California’s economy. After starting with today's post on CARB’s methods and findings about gross state product, we’ll cover topics about how the law will influence:
- jobs
- household income
- energy price "shock risk" reduction
- …and look at CARB's work compared to other analyses
1. How CARB came up with the numbers
For the past two years, economists at California’s Air Resources Board (ARB) have been linking two models—Energy2020 and EDRAM—to simulate how California’s economy will fare under its climate action plan.
This cyber marriage allows the agency to study how carbon pricing policy ripples through the economy first in energy-related investments (Energy2020), then in terms of capital and labor investments in all sectors (EDRAM) and then back again into energy-related responses (Energy2020).This iterative approach zeros in on statewide changes in output, income, employment and emissions as a result of climate policy.
Despite the convoluted modeling methods that make this computer jockey wish for the simpler days of Atari, the ARB has produced what its blue-ribbon advisory panel has called a “careful and competent analysis” that “makes a very important and well-founded contribution to our understanding of the potential economic impacts of AB 32.”
2. What the numbers show
The advisory panel succinctly placed ARB’s most recent findings in context by stating, “a general result emerging from the ARB’s analysis is that the impact of AB 32 on the California economy will be modest relative to the overall California economy.”
In terms of total output, California’s economy in 2020 is forecasted to be dramatically larger than it is now. The agency finds that climate policy will not have a significant influence on output (see first figure below), which concurs with a growing body of research indicating that climate policy will have a small and likely positive affect on the economy.
Gross State Economic Productivity in 2020 with and without AB32 Implementation
There will, however, be significant and important changes that greatly reduce our dependence on foreign oil and improve the health of our communities. We'll cover those in future blog posts.
The figure below shows changes to the gross state product by sector, with and without AB 32.
Economic Productivity by Sector with and without AB 32 Implementation
3. How reliable are CARB’s numbers?
All modeling studies, especially those forecasting far into the future, have limitations. Indeed, ARB’s findings about the economic and jobs implications of climate policy depend highly on what the program actually entails after it’s gone into effect, and what emissions and economic activity would be in comparison to “business-as-usual” if no climate policy action were taken.
The advisory panel wrote that ARB has, “done a commendable job recognizing these uncertainties by assessing the economic costs of AB 32 under a range of scenarios.”
The panel noted that “these policies can shift the driver of economic growth from polluting energy sources to clean energy and efficient technologies, with little or no economic penalty”, thus leaving us with cleaner air, better public health and an economy that is more secure and less dependent on foreign fuel.