Energy & Environment

Help reduce fossil fuel addiction by blocking Proposition 23

David Zilberman

On November 2, 2010 Californians will vote on Proposition 23. If passed it will delay the implementation of Assembly Bill 32 (AB32), which introduced a coherent climate change policy to California, until the return of “Good Times” 5.5% unemployment for three quarters (which is very unlikely in the foreseeable future). Proposition 23 has some reasonable arguments to support it, but I strongly believe that it should be defeated.

The first argument in favor of Proposition 23 (and against implementation of AB32) is that climate change is a global problem and actions of a state such as California won’t have much impact on the final outcome and thus the cost entailed by AB32 may be a luxury during hard economic times, which is consistent with the perception that California’s climate change choices are more “feel good” than “do good”. While California has been a trendsetter in many areas, California’s climate change actions haven’t changed the climate change policies of major greenhouse gas emitters like the US, India, or China. Yet while the impacts of California’s actions are limited, they have been influential. The passage of Proposition 23 will be a setback to efforts to address climate change globally.

However, while AB32 is a climate change policy its more significant and tangible impact is that it will shift California on to a less fossil fuel intensive path. With AB32 Californians will have the incentives for energy conservation and investments in renewable energy, and energy efficient equipment and industries. This transition will increase energy security, reduce the cost of importing fuel, and improve the balance of trade situation of the state and of the nation.

The higher cost of fuel implied by AB32 though is also a major source of concern. I have no doubt that high-energy prices are hurting people. The cost of rising energy prices is much higher than people actually perceive. Preliminary results of a study that I conducted with Steve Sexton and JunJie Wu suggest that the drastic increase in energy prices around 2007 and 2008 were major contributors to the widespread home foreclosures in California and the financial crisis. The logic is very simple. Higher energy prices tend to increase transportation costs, which tend to reduce the value of homes farther away from the city. When everything else is equal, people with lower incomes tend to live farther from the city and travel more than people with higher incomes. Thus, many relatively low income people took advantage of favorable mortgage conditions in the period after the millennium and given the low energy prices at the time bought better and nicer houses, but farther away from the city. But, as energy prices increased the high cost of transportation made it difficult for them to make ends meet. In many cases their home values become lower than their home mortgages (in professional terms, their mortgages went “under water”), which reduced the incentive to hang on to these properties. Indeed Californian cities that house low income individuals who commute long distances to major employment centers are among the leaders in foreclosure and negative equity rates (namely, percentage of homes where the outstanding mortgage is larger than the value of the house). For example, in 2009 America Core Logic reported that Merced has the second highest negative equity rate in the nation where 67% of the homes have negative equity. Stockton is 3rd (66%), Modesto 4th (65%), and Vallejo-Fairfield 5th (64%). California has seven of the top 10 cities with the highest negative equity shares. This suggests that high-energy prices already have inflicted significant pain on Californians.

One immediate but ultimately flawed response is to delay further policies that will increase energy prices and cause further suffering. However, shortsighted policies like this are the wrong way forward. We are in the current situation because in failing to recognize that the fundamentals were leading towards increases in energy costs, we developed incentives and policies that encouraged urban spread of people all over California and an addiction to a high-energy lifestyle. The low energy costs throughout the United States left us with an infrastructure vulnerable to energy price increases across the board and have contributed to an accumulating large balance of trade deficit that won’t go away (namely, for a long time we paid more for our imports than we gained from our exports and, de facto, became indebted to China and oil producing countries). Our automobile sector emphasized build up of SUVs, which for a long time were exempt from fuel efficiency (CAFE) standards, and as energy prices increased the “Big 3” are not as big as they used to be and one of them is controlled by Fiat. The problem is not so much the SUV, which for a while generated much income, but the fact that there wasn’t much incentive to apply American ingenuity and increase their fuel efficiency. As we expect future energy prices to increase, policies that will lead to withdrawal from energy addictions are needed rather than policies that will continue this addiction. Thus, Proposition 23 that aims to delay AB32 is counterproductive.

I have been working on water and natural resource issues in California for many years and have found consistently that incentive matters. In regions where water was expensive, for example San Diego or part of the Central Valley, farmers adopted water conservation technologies, like drip irrigation, and residents adopted precise irrigation schemes and dropped growing “thirsty” crops. Periods of high rises in the price of water, like in droughts, have triggered adoption of conservation technologies, more efficient irrigation technologies and pumps. Furthermore, the high price of water also triggered developments of a “green” irrigation industry that introduced “tape irrigation” used in strawberries and various types of irrigation software that are extremely effective in saving water. When California introduced pesticide application requirements farmers were complaining about the cost and feasibility of implementation. But in several years new software that took advantage of wireless telephony was introduced and allowed cheap and efficient reporting. Now this software is widely used in other applications for example farm labor management, tracing shipments, etc. The idea of induced innovation and that constraints and higher prices lead to emergence of new industry has empirical support. However, innovation takes time and it is unrealistic to expect that projects to develop green technologies are “shovel ready”. But, with the right incentive innovations that increase energy efficiency throughout the global economy are quite likely to emerge.

One objection raised against AB32 and the high cost it entails is that it makes California less competitive and we lose the manufacturing sector. California’s high labor costs and strict regulations are significant causes for not attracting manufacturing. California also has a lot of costly and excessive regulations and I will support assessment of the regulatory environment. California’s relative advantage is in its science based innovation, in being the state where new products are introduced first, providing creative solutions to emerging problems, and while a lot of the labor intensive (and probably more polluting) components of the green industry will be produced elsewhere, providing signals and demand for energy conservation in California is likely to build up a large alternative energy sector. Already we have seen significant investment in such sectors in California and a retreat from commitment for improved energy efficiency is likely to hurt this emerging sector.

AB32 is far from perfect, but it is a bill and can be changed in the future. It suggests cap and trade, for example, while I would love to see a fuel tax or carbon tax and actually have energy tax as part of California’s tax reform that may reduce other forms of taxation like sales and income tax and may even provide a “double dividend” of reduced pollution and improved productivity. Propositions are much less refined tools than bills and a proposition that will de facto kill AB32 will be devastating for the future of energy efficiency in California. In 1978 the fate of California changed, not for the better, with the passage of Proposition 13. Proposition 23 may have a similar impact. It should be defeated and then the challenge will be legislation that will improve on AB32.

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Comments to "Help reduce fossil fuel addiction by blocking Proposition 23":
    • NewportMac

      Very few voters have taken the time to read AB 32.

      AB 32 was enacted before the facts were known. It simply needs to strip out the Cap and Trade provision and reliance on flawed Green House Gas assumptions and its potentially a piece of leadership legislation. Sustainability, Clean Energy, and Stewardship are great goals but not at the expense of Common Sense.

      AB 32 needs to eliminate the Cap and Trade provisions 70% of America Opposes, eliminate the unnecessary oversight Fees, eliminate the reliance on flawed Green House Gas assumptions, correct the vague language that will introduce Environmental Red Tape that will do more damage than good, ensure AB 32 doesn’t undermine the Rule of Law, and make non-governmental agencies like CARB accountable to the taxpayer for their mistakes.

      Voting YES on Prop 23 makes the most sense until AB 32 is fixed and we can afford it.

      Also please note, since 1987 we have had 21 instances of 4 consecutive quarters with unemployment at or less than 5.5%. 7 instances occurred in each of the three 2.5 year periods.

      Suspending AB32 until existing regulations are brought into check is a must for employment and the last thing we want to see happen is the mass destruction of California Agriculture due to EPA nonsense like Farm Dust regulation and Environmental Red Tape.

      The Rule of Law can not be allowed to be undermined by Rule by Bureaucrats using loosely defined legislation or we are all doomed.

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    • Greg Yuhas

      We are all driven by self-interest. If you don’t have a job and you believe Prop. 23 will give you a better chance of getting a job, you could be expected to vote in favor of the proposition. If you’re middle class and are struggling to pay your mortgage, car payments and fuel bills and you believe a carbon tax will break your financial back; you might vote for 23. If you’re doing well and your success and quality of life are linked to the automobile, you too may be in favor of stopping AB34 so you might vote yes on 23. So why vote No? Do you really believe the California Legislature can make unpopular decisions that are in your best interest? Do you think a governor can make a difference? No, you probably don’t, but, you can make a difference buy understanding the big picture, participating in the democratic process, making your decision based on the facts not the fiction of political rhetoric. You cannot be expected to learn the details of every issue but you should expect that those you elect to office will. Your responsibility is not to fall for the camera ready, ruggedly handsome or exceptionally beautiful people you see on the tube or the glossy fliers in your mail box. You should vote No for one reason, you elected people to understand the issues and make a decision in the best interest of most Californians. If you can’t live with their decision you can elect someone else. Can you vote out those special interest groups that sponsor these propositions? When in doubt, Vote NO; you’ll feel better in the morning.

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    • Carl Williams

      John:
      I most heartily agree with your assessment of Whitman&Fiorina,and the GOP in General.Their rallying call the last thirty years has been remove regulations,lower the minimum wage,and were did that bring us.Oligarchy,Aristocracy,I blame my MOM and DAD the winners of WWII for not paying attention.I blame my generation for instant gratification,and greed and avrace,I apologies for being self centered,for turning my back on the Greatest participating Democrasy,because i was to busy with my meaningless
      pursuit of taking advantage of the Golden age of America.This country could have been the model for fledgling democracies.The CIA was to busy destabilizing anything that even looked like it were not on our side.
      Revolt!

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    • Anthony St. John '63

      Indeed Carl, everyone in every generation has something to apologize for, but we also did a lot of things right. However we failed first and foremost to keep control over our corrupt political leaders from selling out Democracy and Civilization.

      Don’t forget that after the Greatest Generation saved the world in WWII, our generations followed up in the 50s and later decades by protecting America from communism only to have political leaders like Whitman and Fiorina sell out millions of American jobs, manufacturing and the American way of life to Communist China.

      Never forget that we demanded and achieved civil rights for all in the 60s, only to have political leaders actually attack their own right to vote by refusing to vote themselves for decades.

      And now Professors like Zilberman are continuously trying to warn us about politicians selling out humanity to maximize profits from their fossil fuel burning special interests until earth becomes uninhabitable.

      It will be interesting to see how many people will sell out quality of life for future generations by voting for Prop 23, but we must do everything we can to block Prop 23 in spite of the fact that the California Republican Party supports Prop 23 to protect profits that accelerate Global Warming and threaten humanity more every day.

      That’s why students at Cal and all other colleges throughout California, and America must make demands like students of the 60s who fought back to achieve civil rights. They’ll hate to be thought of as the No One Really Cared generation if they fail to fight for their own future.

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    • Evan Sorem

      With each issue that presents, I find it helpful to ask a simple question: What decision will lead us into the future?

      In the future, we will emit less carbon into the air. In the future, we will move toward more energy efficiency. In the furture, cleaner energy will carry the day. Since the federal government can’t seem to pass appropriate legislation to deal with these issues, California must continue to take the lead.

      No to big oil. No on Prop 23.

      Thank you again Professor Zilberman!

      Evan Sorem – Political Economy of Natural Resources ’93

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    • Anthony St. John '63

      Emanuelle, you totally failed to comprehend that the California Republican Party supports Prop 23 and Global Warming that is actually occurring and is the greatest threat to humanity in history.

      Whitman and Fiorina are leaders of the CAGOP and must end this republican attack against an acceptable quality of life future for humanity as well as Cal students.

      It’s time for Cal students and students in all colleges throughout America to fight back against Republican Party destruction of our entire way of life.

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    • Anthony St. John '63

      It’s not just Prop 23 that must be Blocked, it’s the republican party that must be blocked in this election, especially by students like those at Cal today.

      The future for Gen Y depends on stopping continuous Republican party efforts to overthrow American Democracy and their destruction of American jobs and manufacturing like they did during the Bush Autocracy.

      Two worst-case scenario Republican party leaders that must be stopped in California along with Prop 23 are republican candidates Whitman and Fiorina.

      Whitman’s and Fiorina’s histories of refusing to vote were attacks against American Democracy and unforgivable insults to the women who risked their lives in the women’s suffrage movement to gain women’s the right to vote in the first place.

      Just as unforgivable are the continuous republican attacks against American jobs and industry, using anti-American job republicans like Whitman and Fiorina who participated in GOP programs to export millions of American jobs to Communist China and other countries to date.

      If republican leaders like Fiorina and Whitman hadn’t been so successful at selling out American manufacturing and jobs, and at selling out America to special interests, the unemployment rate today would be less than half what it is today, and the recession we are experiencing today would not have even happened.

      Prop 23 is just one of the republican attacks against Californians and Americans that must be blocked in this and all future elections to protect and improve the future for Gen Y.

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