Sunday, July 26, 2009

Quick Lesson on why We Shouldn't Follow California

Nice bit from Reason magazine on the Climate Change bill that will slowly strangle California's economy.

The study projects that Californians will offset higher electricity and gasoline bills by driving more fuel efficient cars, by adjusting their thermostats to 68 degrees in winter and 78 degrees in summer, and by using energy efficient appliances at home. The idea is that while electricity will cost more, Californians will do things like switching from incandescent bulbs to energy thrifty compact fluorescent bulbs to reduce their energy usage.

But are these projections accurate? The study's economic peer reviewers don't think so. For example, UCLA economist Matthew Kahn warned that the cap "is presented as a riskless 'free lunch' for Californians." He noted that California's electricity prices are projected to increase by 14 percent, yet manufacturing employment is also supposed to increase by 0.4 percent. "This is a surprising finding," writes Kahn. "The micro-econometrics literature has concluded that increased energy prices retards manufacturing employment growth." He cites studies showing that cities with high electricity prices lose manufacturing jobs. Another peer reviewer, Harvard University economist Robert Stavins, bluntly states that the study's analysis is "systematically biased (and remarkably, internally inconsistent) in ways which lead to potentially severe underestimates of costs."

No one denies that energy prices will go up. Successful implementation of the Global Warming Solutions Act requires that 33 percent of the state's energy come from renewable sources by the 2020 deadline. Recent research finds that when states establish renewable portfolio standards for electricity, they pay on average 2 cents more per kilowatt-hour more than states that do not have such standards. That might not sound like much, but it's an 8 percent increase. California already ranks seventh in the nation based on how much California businesses, on average, spend for electricity. Only businesses in three very hot southern states and three very cold northern states spend more.

California gasoline taxes amount to 63.9 cents per gallon, the highest in the nation. Gasoline costs more in the Golden State than anywhere else in the lower 48 states. It is true that California is the fourth lowest state in per capita energy consumption. While some of the lower energy usage can be attributed to higher residential energy efficiency standards, substantially higher than average residential and commercial electricity rates also depress demand. The new mandates would add to the heavy regulatory burdens under which California businesses already groan. The Small Business Survival Index ranks California 49th among all states for business friendliness, just beating out New Jersey as the least business friendly state in the Small Business and Entrepreneurship Council's annual rankings.

Imagine this in states that don't have the wealth basis that California already has. They'd dry up and blow away in a very short period.

Time to stop following California's lead since they have yet again proven they don't know what they are doing.

1 comment:

BobG said...

I always felt that if California says something is a good idea, then you could almost bet it was a disaster.

"There is science, logic, reason; there is thought verified by experience. And then there is California."
-Edward Abbey