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In 2006 the California legislature passed AB32, which required greenhouse pollution to return to 1990 levels by 2020. They left it up to state regulatory agencies to come up with the details.

Governor Schwarzenegger followed with an executive order that requires an 80% reduction from 1990 levels in greenhouse pollution by 2050 (at which time California’s is expected to be twice the 1990 population, so this represents a factor of ten per capita reduction in greenhouse pollution.)

The California Air Resources Board (CARB) has been working to meet various statutory deadlines for the reduction plan. Its proposed plan will be released next month (October). As part of the process, it has made estimates of the economic costs and benefits of its plans, and it released those estimates last week:

These estimates indicated that the overall savings from improved efficiency and developing alternatives to petroleum will, on the whole, outweigh the costs. This balance is largely driven by current high energy costs and the degree to which measures increase energy efficiency throughout the economy and move California toward ultimately cheaper alternatives to fossil fuels.

The measures pay for themselves — not even counting the benefit of helping to avoid catastrophic climate impacts. The executive summary lists the key elements of CARB’s preliminary recommendation for the 2020 target:

• Expansion and strengthening of existing energy efficiency programs and building and appliance standards;
• Expansion of the Renewables Portfolio Standard to 33 percent;
• Development of a California cap-and-trade program that links with other WCI Partner programs to create a regional market system;
• Implementation of existing State laws and policies, including California’s clean car standards, goods movement measures, and the Low Carbon Fuel Standard;
• Targeted fees to fund the State’s long-term commitment to AB 32 administration.

There were two economic estimates prepared, one using CARB’s Environmental Dynamic Revenue Assessment Model (E-DRAM), and another done by U.C. Berkeley: Berkeley Energy and Resources (BEAR) model. The results were broadly similar. Both started with a Business As Usual (BAU) forecast, and then analyzed how that forecast would change in response to individual recommendations.

To calculate the economic benefits, the models need projections of future energy prices. They relied on a September 2007 report from the California Energy Commission, which, for example, forecast $3.67 for a gallon of gasoline in 2020. Keep in mind that if 2020 energy should cost more — which it surely will – the savings will be greater.

In the BEAR model, Real Output, Gross State Product, and Employment all rose under the proposed changes, compared to BAU. Carbon Emissions fell significantly, while Personal Income fell 0.2%. The E-DRAM results were similar, except that Personal Income rose by 2.8% in that model.

From CARB’s E-DRAM, here is Table I-2 from Appendix I, giving the costs and savings for individual recommendations (MMTCO₂E is Million Metric Tons of CO₂ Equivalent):

For the footnotes, please see Appendix I (pdf).
Please note in the above table how many of the rows represent net savings.

– Earl Killian

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• McKinsey: Fighting climate change is affordable
• Absolute MUST Read IPCC Report: Debate over, further delay fatal, action not costly

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This entry was posted by Earl Killian on Tuesday, September 23rd, 2008 at 5:16 pm and is filed under Economics. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.