California: The green guinea pig
California has a chance to show the world how to balance greenhouse gas reduction with economic prosperity – if they can get it to work.
Now that the Republicans control the House of Representatives and Prop 23 has died, the California Air Resources Board (ARB) takes center stage with its rollout of AB32. Without being overly dramatic, California now stands as the world’s best laboratory for figuring out how to balance greenhouse gas reduction policies while encouraging economic prosperity for all. There will be no one “action hero” here who saves the day for us all. In a state with over 35 million people, each of us will face the new rules of the game embedded in AB32. How we adapt to this new regulatory environment will yield crucial information concerning the true costs of decarbonizing our economy.Skip to next paragraph
Mathew is an economics professor at UCLA and has written three books: Green Cities (Brookings Institution Press); Heroes and Cowards (Princeton University Press, jointly with Dora L. Costa); and in fall 2010, Climatopolis: How Our Cities Will Thrive in the Hotter World (Basic Books).
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Given today’s fossil fuel using economy, we face a nasty tradeoff between economic growth, and exacerbating natural resource depletion and the threat of climate change. China has recently engaged in a green big push of investment as its powerful state government offers cheap land and low interest loans to green businesses. AB32 will help to level this competitive playing field. It sends a clear credible signal to California’s venture capitalists that those companies that can develop a new generation of low carbon products ranging from solar panels to electric vehicles will enjoy soaring sales. This green tech competition between China and California will only spur on the decoupling of greenhouse gas production from world GNP.
While specific firms such as a Tesla may win or lose this competition, the world economy can only gain. As China and California both invest more in the green economy, the probability of a fundamental breakthrough in “green tech” increases. Once a new idea is developed it is a public good that can be replicated around the world. Yes, California produces just a fraction of the world’s greenhouse gas emissions but if AB32 stimulates “green” innovation then this could be a global game changer. Economists have long noted that human ingenuity can substitute for natural capital. Up until now, investment in the “green economy” has lagged. AB32 will address this funding gap.
While the innovation induced benefits from AB32 could be quite large, the Air Resources Board needs to be vigilant about keeping its regulatory costs low. Today, Republicans tend to oppose climate change regulation. They will be more favorably inclined as the reality of climate change starts to be apparent and if the ARB can credibly demonstrate the low regulatory costs and “green job” creation of complying with this regulation.