At times, even the best of us need to stand down, take a deep breath, and head back to the drawing board. That need to reassess happens in business when the market changes, in our jobs when the company downsizes, or in our lives when unexpected situations arise. We have unquestionably reached that point where the state needs to reassess the AB 32 Scoping Plan and find a solution that will balance the need to reduce greenhouse gas emissions with the ability of the state’s economic system to absorb the changes.

Perhaps the problem with the current process is that we are demanding too much from the California's Air Resources Board (CARB).  Rather than asking an environmental regulatory agency to consider macro-economic factors involving employment, industrial growth, and world trade, the state should tap additional resources to weave together a plan that will preserve our current jobs while we develop new technologies for the future.

Almost every study on the CARB plan has revealed an economic impact, but the controversy arises over two major areas.  First, there is disagreement over the degree of impact - some studies find significant economic ramifications while other reports show minimal effects on consumers and business.  Second, the studies vary regarding the degree to which costs will be offset by the benefits that may come with growth of new technologies. 

Given this rift between the experts regarding economic impacts, the state needs to slow down, re-evaluate and revise the plan.  At CARB's request Charles Rivers & Associates completed an independent economic analysis of the Scoping Plan last month. Most notably this review projected that total AB 32 program costs over the next decade would be $28 to $97 billion dollars. Furthermore, the study found that if California's program maintains the Scoping Plan's complementary measures, such as the Low Carbon Fuel Standard and the Renewable Energy Standard, in the presence of a national climate change program - these measures will in fact do little to affect climate change while increasing costs to Californians by 50%.

Similarly, a study performed by Thomas Tanton echoed the same warnings about a California-only program. His study found that California may lose nearly half a million jobs by 2020 under a California only cap-and-trade system. He also forecasted the loss in economic activity to be potentially $250-$350 billion. With unemployment over 12%, businesses struggling to survive, and record budget deficits we simply cannot afford these types of economic risks.

The electricity rate increase approved by the Mayor of Los Angeles and the City Council provides a great case study about the reality of cost impacts. The recently approved rate increase will result in a 5.3 percent cost increase for large businesses, a 4.7 percent rate hike for medium-sized businesses, and a 4.3 percent hike for small business. The amount of the rate hike was based on a report from PA Consulting that recommended four rate increases of 6.5 % each for the next year. For some, the 4.3% increase does not seem to be excessive, but if a business is currently losing money, then any increase in fixed costs will have a substantial impact.

In light of these studies and the legitimate concerns with the state's economy, the Governor sent a letter to CARB on March 24, 2010 that argued the importance of implementing AB 32 in a manner that is cost effective and compatible with a national model. The Governor said, "It is critically important that California's program be designed in a way that gives businesses and industries in this state sufficient time to reduce their emissions in a cost-effective manner without unnecessary short-term costs."  

There is input available on how to avoid unnecessary costs in order to create a more cost-effective state policy.  Staunch climate change policy supporter and Harvard Professor Robert Stavins recently highlighted the importance of linking California's cap and trade system with a federal system, "...climate policy limited to California would be less environmentally effective and have greater economic impacts than comparable efforts implemented within broad regional or national cap-and-trade systems."

At last year's Governor's Conference on Small Business and Entrepreneurship, AB 32 implementation was rated the second most important issue facing small business out of the conference's 37 topics. Coming into this year's conference we have more information and reports available than we did before, but the data indicates that we now need to encourage CARB to go back to the drawing board. In doing so, the state also needs to bring to the table more robust economic and business resources that are not yet part of the AB 32 advisory committee.  In order for small business to thrive and the recession to end, our state's policies must be crafted in way that protects both the environment and the job creating small businesses that are the key to our state's future economic success.