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A simple choice for U.S. with clean energy technology: Do we want to import or export it?

David Roland-Holst, Adjunct Professor, Agricultural and Resource Economics | May 11, 2010

I recently joined a number of economic experts to testify before the California Air Resources Board (CARB) about the economic impacts of the state’s landmark global warming pollution bill (AB 32). The majority opinion was that California’s economy will continue to grow at a healthy rate, with relatively little impact from the clean-energy policies in this bill, but I must differ with this view.

While mainstream economic projections estimate AB 32 impacts that fall within a range of negligible positive or negative economic growth rates, only one study considers innovation potential.

I cannot imagine our state, the birthplace of revolutions in information technology and biotechnology, responding to any policy of this importance by turning off its innovation engine.

Just look at California’s response to energy-efficiency standards. Over the last 35 years, California established first-in-the-nation building and appliance standards, and energy-efficiency innovations sparked by those standards saved households $56 billion in energy costs, which they in turn spent mainly on local goods and services, generating 1.5 million additional jobs and $45 billion in payrolls.

Why wouldn’t the same ingenuity be ignited by these new energy policies? And if it is, then what would be the economic impacts?

I decided to find out. Using the Berkeley Energy and Resources (BEAR) model, a state-of-the-art, economywide forecasting tool, my study analyzed the comprehensive set of policies in CARB’s scoping plan, and tracked complex market interactions across key elements of the state’s economy. To capture the financial impact of innovation, I simply assumed that California will continue to improve energy efficiency at its historical rate of 1.5 percent per year. The state’s official modeling work assumes technology characteristics remain static and includes a flat rate of energy efficiency for the time period considered (2008-2020).

The results? California’s clean-energy policies could be a very potent source of economic stimulus. If we assume only our historical rate of efficiency improvement — not far-fetched in the face of every ascending energy prices — California will grow faster and farther under these policies than it would otherwise. My analysis shows that in 2020, California will experience 3 percent higher GSP and 2.2 percent more employment because of innovation responses to AB 32. For California households, this means about $1,500 more income in that year alone, while the economy creates 73,000 additional jobs.

AB 32 has not even been implemented yet, but there has already been significant innovative response. Since the passage of this law, capital investment in clean-energy technology has skyrocketed. Even as the rest of the economy slowed down, showing negative job growth between 2005 and 2007, jobs in the clean-energy sector grew at a healthy pace of 5 percent. New businesses are being born, new jobs created.

Energy by revenue is the largest industry in the world. Clean energy represents the next breakout technology sector, and like IT and biotech before it, with the potential to earn billions of dollars for early innovators. China recognizes this opportunity and wants to own the next generation of technology the world will have to use. That’s why it is investing $12.6 million in this sector every hour. In the long run, we won’t have a choice about needing the technology, our choice is whether we want to import or export it.

California’s landmark climate and energy policies have already put us in the forefront of technology and energy innovation. If we sustain this leadership, energy and emissions technologies will assume their rightful place among the knowledge-intensive sectors, IT and biotech, that have delivered so much prosperity to our state.

The Contra Costa Times published a prior version of this commentary.