The Economic Impact of AB 32 on California

New study suggests that the economic impact of cutting carbon is modest.

What is the economic impact of California’s climate change regulations? Will they reduce actual emissions or just shift them out-of-state?

A new study by Resources for the Future addresses an important part of the puzzle. Reasearchers at RFF modeled the effect of compliance costs of $10/ton or $22/ton of CO2 on highly energy-intensive industries such as glass bottle manufacturing, poultry processing, paperboard mills, and steel manufacturing. The models assume that other states do not have any carbon regulations in place. Thus, if the Clean Power Plan goes into effect, these estimates may become irrelevant

In the absence of something like the Clean Power Plan, the immediate impact of California regulations on these industries is significant, running between 10-15%. Note that manufacturing as a whole is only about 10% of the California economy, and some sectors are not as energy intensive, so we’re talking about an overall economic impact on the state that’s probably under 1%. In the longer run, however, even these impacts seem to largely disappear. According to the researchers, the “largest long-run output losses are less than 1 percent, and most industries have impacts very close to zero.” As they explain, this “suggests that plants can adapt to an energy price shock. For example, they may adopt energy-efficient technology.”

On the whole, this is encouraging news. Perhaps California may want to give these highly affected industries a couple of years of transition relief to give them time to adjust. But overall, the economic impact seems small. That’s also important because it means that carbon leakage from production shifting is also probably small. Of course, the usual caveats are in order: this is only one study, and economic modeling is in any event an imperfect science.





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Reader Comments

9 Replies to “The Economic Impact of AB 32 on California”

  1. Earth’s Climate May Not Warm As Quickly As Expected, Suggest New Cloud Studies:

    “……If ancient cloud cover was closer to today’s levels, the increase in the cloud-cooling effect due to human pollution could also be smaller—which means that Earth was not warming up so much in response to increased greenhouse gases alone. In other words, Earth is less sensitive to greenhouse gases than previously thought, and it may warm up less in response to future carbon emissions……”

  2. A Major Malaise of Climatology is Pervasive in Science:

    Scientists lost the scientific script somewhere in the 20th century. The major loss involved the fact that correlation is not cause and effect. It was lost for several reasons:

    1) Failure to know or consistently apply scientific methods;
    2) Lack of ethics as the end justifies the means;
    3) Methods and process are not taught or emphasized;
    4) People are more willing to bypass or ignore everything for funding;
    5) Too many are willing to subjugate or exploit research for a political agenda;
    6) Achieving results to advance a career is more important;
    7) A person gets caught up in Groupthink as they go along to get along; and scientists are unwilling to look to themselves to stop the rot.

    All of these reasons were on display in the leaked emails from the Climatic Research Unit (CRU).

    1. The author of the article that you copy-pasted is Timothy Ball, one of the most extreme climate deniers out there. In fact he is so extreme that he believes that CO2 is not even a greenhouse gas! That’s right, this guy disagrees with basic physics:

      The blog you linked to, Watts Up With That, is famous for using cherry-picked information in order to tell deniers on the right what they want to hear.

      1. BBQ PLANET, the evolving tragedy is that deniers (like Trump) are far greater communicators than environmental scientists and academics. It’s far too easy to fool far too many in this age of tabloid TV news that brings in the most advertising revenue.

        Scientists and academics have no spokesperson/group today that is respected enough to overcome the overwhelming propaganda funded by The Power of Special Interests with far more money, special interests that even control some scientists and academics.

        Our environmental scientists can’t even explain the Keeling Curve and increasing climate changes we are actually experiencing to the public in a way to give them a frame of reference to relate to.

        This age of worldwide communications has failed to educate us when we need it the most to save our quality of life, but it has been overwhelming successful at producing mendacious propaganda, like Trump is doing, to the point where the RNC and the republican politicians are going on their knees to gain his favor.


        1. I am skeptical about carbon dioxide causing climate change because I am a Chemical Engineer and have a basic understanding of thermodynamics, energy and material balances. CO2 is a trace gas in the atmosphere and it does not possess the heat capacity and other thermal properties that are anywhere near comparable to H2O which causes the Earth’s greenhouse effect, water vapor is the major greenhouse gas that drives global weather and climate (not CO2).

          Hysteria over climate change stems from failure to apply credible scientific methods, lack of ethics, funding pressure, political agendas, groupthink and simple ignorance. Thankfully, the honorable Mr. Trump offers America the opportunity to do more than merely argue about climate, we shall vote on it. Meditate on that.

          1. The confusion about the ways in which water functions as a greenhouse gas in relation to CO2 is common among deniers. The short answer is:

            a) The amount of water in the atmosphere is a function of temperature whereas temperature is a function of the amount of CO2. Also known as the difference between a feedback and a forcing mechanism, a concept that I’ve seen you casually dismiss elsewhere on these forums. This is necessary tactic among deniers: deny any concept that does not fit into your preferred narrative.

            b) Residence time. Water lasts days in the atmosphere (due to precipitation), whereas CO2 can last centuries. So while a single water molecule might have a greater greenhouse gas coefficient, the fact that its lifetime in the atmosphere is minuscule compared to that of CO2 should put this issue to rest for any engineer.

            The longer answer can be found at Skeptical Science, a great resource for debunking climate denial myths:

            “When skeptics use this argument, they are trying to imply that an increase in CO2 isn’t a major problem. If CO2 isn’t as powerful as water vapor, which there’s already a lot of, adding a little more CO2 couldn’t be that bad, right? What this argument misses is the fact that water vapor creates what scientists call a ‘positive feedback loop’ in the atmosphere — making any temperature changes larger than they would be otherwise.

            How does this work? The amount of water vapor in the atmosphere exists in direct relation to the temperature. If you increase the temperature, more water evaporates and becomes vapor, and vice versa. So when something else causes a temperature increase (such as extra CO2 from fossil fuels), more water evaporates. Then, since water vapor is a greenhouse gas, this additional water vapor causes the temperature to go up even further—a positive feedback.

            How much does water vapor amplify CO2 warming? Studies show that water vapor feedback roughly doubles the amount of warming caused by CO2. So if there is a 1°C change caused by CO2, the water vapor will cause the temperature to go up another 1°C. When other feedback loops are included, the total warming from a potential 1°C change caused by CO2 is, in reality, as much as 3°C.

            The other factor to consider is that water is evaporated from the land and sea and falls as rain or snow all the time. Thus the amount held in the atmosphere as water vapour varies greatly in just hours and days as result of the prevailing weather in any location. So even though water vapour is the greatest greenhouse gas, it is relatively short-lived. On the other hand, CO2 is removed from the air by natural geological-scale processes and these take a long time to work. Consequently CO2 stays in our atmosphere for years and even centuries. A small additional amount has a much more long-term effect.

            So skeptics are right in saying that water vapor is the dominant greenhouse gas. What they don’t mention is that the water vapor feedback loop actually makes temperature changes caused by CO2 even bigger.

            Basic rebuttal written by James Frank”


            The original text contained in the link above contains links to other resources, so please look there for a more in-depth analysis (especially the tab labeled “Intermediate” near the top).

          2. BQRQ, these are your most interesting comments to date, especially an election where we shall vote on whether the United States shall continue to be a Democracy, and the future of the human race. That shall most certainly require a lot more than meditation.

  3. What do you think ?

    Will we have an analysis by Legal Planet on why this happened ?

    California, Quebec sell just over 10% of allowances offered in latest auction, CarbonP 25mai16 (
    California and Quebec sold 8.2 million, or just over 10% of the total 77.75 million allowances put up for sale in the pair’s recent carbon auction, held on May 18.

    It seems there would be more profond reasons than just short term conjuncture. What do you think from a California perpective ?

    Merci à l’avance !

  4. A state or regional Cap and Trade program doesn’t and can’t address global greenhouse gas emissions in a just and equitable way. However, NRDC, EDF, Nature Conservancy… have advocated Cap and Trade, which would turn the Global Atmospheric Commons over to Wall Street as market-maker, even after the 2008 Wall Street-driven financial meltdown.

    James Hansen: How can cap-and-trade be good, if it is certain to be check-mated before it is global? Even in checkers you must think a few moves ahead. What is the “cap” on India? Cumulative fossil fuel emissions of the average American are now 25 times greater than those of an Indian. Why would India accept a small cap? They have declared that they will not, and they mean it. The planet is cooked with that [Cap and Trade] approach. (Hansen’s blog Columbia Univ May 16 2016)

    Steven Chu: Cap-and-trade allocations start from existing levels of emissions. It is prima facie UNFAIR to allow developed countries to pollute more because they were historically the biggest polluters. A global carbon fee avoids the INTRACTABLE problem of how to allocate carbon caps and emissions credits between developed and developing countries, and levies the highest taxes on the biggest emitters….important aspect of a carbon fee that rises inexorably is that it will unleash scientific ingenuity, innovation, and market investments that are still needed to combat climate change….A meaningful, and timely, global fee on carbon is essential to get us to where we have to be in the coming decades. (Boston Globe Jan 2016)

    {James Hansen is retired as Director of Goddard Space Studies at NASA. Steven Chu is Nobel laureate in physics, former US secretary of energy, professor of physics and molecular and cellular biology at Stanford}

    A 2009 research report by Friends of the Earth, “A Dangerous Obsession–The Evidence Against Carbon Trading”
    The executive summary:
    Full report:

    Naomi Oreskes
    “The reality is that the U.S. HAS BEEN THE THE SINGLE BIGGEST OBSTACLE TO DEALING WITH CLIMATE CHANGE. It goes back to Kyoto, where we insisted on emissions trading as the appropriate mechanism, convinced Europeans to go along with that [it failed in Europe], then we scuttled the accord at home. And again [in Paris], we’re playing an obstructive role, saying we will only agree to something that’s voluntary. So even though we in the U.S. like to act like we’re a great international leader on this issue, not only have we not led, we’ve been an obstacle. That’s sad and depressing as an American who loves my country.”-Naomi Oreskes, Professor of Earth and Planetary Sciences at Harvard, co-author of ‘Merchants of Doubt’ (2010), made into documentary movie in 2014.

    Paris was the opportunity to get a tax/fee on carbon. Going into Paris, it was endorsed by a number of global heavyweights, including the International Monetary Fund, the World Bank, Angela Merkel–developed-world leader on climate change and Time’s 2015 Person of the Year-“Chancellor of the Free World,” Gov. Jerry Brown of Ca–which ranks as the 8th largest economy in the world and has the most efficient and climate-friendly electricity sector in the US, Philippines President Aquino–a developing-world leader, the ‘Paul Revere of Climate Change’ Dr. James Hansen, four of the largest banks–JPMorgan Chase, Citi, Goldman Sachs, Bank of America, and even a few big oil companies, including Exxon. BUT Big Green environmental groups and the U.S. government were missing, still supporting failed Cap-and-Trade. It is too bad that Merkel, Aquino, Christine Lagarde of IMF, and Dr. Jim Yong Kim of WB didn’t do a peaceful coup bringing in China and India and forgetting about the U.S. and Big Green. If we have to wait another 5, 10, … 20 years, it will be “too late.”
    [I’ve been advocating carbon fee and dividend since 2000, using the Initiative process available in ~20 states, to catalyze a movement and constituency for U.S. and International action.]

    The Nation: ‘What Exxon Knew’ by Mark Hertsgaard, May 23/30 2016
    Exxon is now in favor of a carbon fee. Can’t say the same about Big Green and U.S. politicians. Roland James Tucson Az

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About Dan

Dan Farber has written and taught on environmental and constitutional law as well as about contracts, jurisprudence and legislation. Currently at Berkeley Law, he has al…

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About Dan

Dan Farber has written and taught on environmental and constitutional law as well as about contracts, jurisprudence and legislation. Currently at Berkeley Law, he has al…

READ more