A quality cost-benefit analysis looks at real costs and real benefits, using recognized economic models that have been peer-reviewed.
The recent analysis commissioned by the California Manufacturers & Technology Association to look at Assembly Bill 32, our state's landmark clean energy law, misfires on both sides of the cost/benefit equation. And its underlying model takes serious departures from accepted economic modeling.
For all these reasons, we believe the report misleads Californians about what AB 32 is doing for our state's economy.
The analysis commissioned by the CMTA, which opposes AB 32, claims that families and businesses will pay dearly. But those conclusions fly in the face of what existing research has found: Market-oriented environmental policy, such as AB 32, gives business strong incentives to invest in clean energy jobs and technologies. AB 32 will help California build and strengthen its leadership in alternative energy, high technology and clean-tech venture capital investment.
Last year, California attracted more than half of all clean tech investments, with $3.69 billion, according to market researchers at Cleantech Group. And that trend continues, according to a recent report by the National Venture Capital Association, which found that California-based companies have received 58 percent of venture investments this quarter more money than all other states combined.
In study after study, respected economists have concluded that clean energy solutions of the kind promoted by AB 32 are affordable and dovetail with economic growth.
But groups with a vested interest in preserving the dirty, entrenched energy sources of the past do not like those conclusions.
The CMTA paper, which was not peer-reviewed nor performed by a credentialed economist, is based on a model developed by Andrew Chang and Co. The author says he wove together 24 models that simulate the entire economy in a way that allows him to measure the combined impacts of AB 32. Unlike most research in this field, the paper offers no discussion of range or uncertainty. We are asked to simply trust the findings something economists like us never do on face value.
It's even tougher to accept these findings when prior peer-reviewed studies have shown dramatically different results. Most credible studies find quite small job impacts from environmental regulation for a simple reason: Environmental regulation, particularly with market-based approaches, mainly serves to move spending from polluting to clean goods and services.
The assumptions underlying the homemade model used to generate the report commissioned by CMTA seem to us to be intentionally pessimistic about the market's ability to innovate. It's reminiscent of a recent report funded by the oil industry that similarly low-balled the benefits and hyped the costs of AB 32, based on the assumption that technological growth won't happen.
AB 32's opponents tend to ignore the well-established evidence that market incentives drive innovation and attract investment. Thanks to California entrepreneurs the state's economy if it were a nation ranks ninth in the world behind Italy and ahead of Russia, according to the Los Angeles County Economic Development Corp. AB 32's design will let California's most innovative, best-managed firms reap benefits from clean tech investment. Perhaps the dirty energy firms behind the CMTA study are simply afraid to compete?
We recognize that there are uncertainties, but the long-term financial benefits will most certainly exceed the short-run implementation costs. We are optimistic that California's households and firms will step up as the "rules of the game" change. Our state's history has borne this out. From 1972 to 2006, our state pioneered a series of smart energy policies. Those innovations saved Californians $56 billion on household energy costs.
That's reality. The sky-is-falling take on clean energy policies perpetuated by CMTA and other opponents of forward-looking energy policies is a fairy tale.