California's Green Economy Failure

In order to satisfy the admonition that “California has to be a leader" -- a rationale shallow even by the standards of political sloganeering -- the Golden State enacted in 2006 the Global Warming Solutions Act (“AB32”), mandating a reduction in purported greenhouse gas emissions to 1990 levels by 2020. This obviously was a large prospective tax on conventional energy use. But even in the land of Hollywood fantasies and San Francisco nuttiness, people have to work to live, suggesting strongly that the employment effects of this law would not prove salutary. Not to worry, said the proponents, prominent among them Governor Arnold Schwarzenegger: California will be transformed as if by magic into a green economy, with green jobs replacing those lost with the decline in conventional energy use.

Suffice it to say that this green jobs gambit is a con job. “Clean” energy is massively expensive and unreliable even apart from its own considerable environmental problems. In short, it has to be subsidized heavily, a policy that is unsustainable beyond the near term, particularly for a state with budget deficits so huge that the governor and other public officials now engage in an annual panhandling exercise in Washington.

The basic problem is twofold. Green energy -- solar, wind, etc. -- is too diffuse to replace the conventional energy no longer used because of the implicit taxes imposed by greenhouse gas policies. Moreover, labor and energy are economic complements, an eternal truth that even the alchemists in Sacramento cannot change. For the period 1976-2008, during periods of energy prices and/or economic growth low and high, changes in total California energy consumption have driven changes in employment significantly, even after controlling for other central factors. Indeed, the labor intensity of California energy use -- in effect, the employment supported by each increment of total energy consumption -- has increased virtually every year during that period.

So, AB32, now being implemented, is a job killer in a state with an unemployment rate of 12.4 percent. Accordingly, there is an initiative on the ballot next month -- Proposition 23 -- that would suspend the implementation of AB32 until the state unemployment rate declines to 5.5 percent for four quarters. A new econometric study published by the Pacific Research Institute (author: yours truly) examines the employment implications of that initiative, finding that it would increase total state employment by over 500,000 in 2012, and over 1.3 million in 2020, or about 5 percent of the working-age population.

In response, the opponents of Prop. 23 have their story and are sticking with it: “AB32 is the next job bank,” and the only question is whether “all our communities and entrepreneurs [are] ready to take advantage of this opportunity.” That was the overriding question at a recent conference at the Public Utilities Commission, attended by the usual green suspects, an echo chamber at which not a single dissenting voice was to be heard.