Under the Hood: AB32

In order for California business to retro-fit per AB 32, the cost will be a minimum of $7.9 billion--and that is a tax increase...when you mandate business to spend money on non-productive items, just to be allowed to stay in business, that is a tax. The dollar amount comes from the report of the Governors Climate Action Team. I wrote about it on December 9, 2005--but misnamed it at the time the "Governors Action Team."

On January 24, 2006, I gave more information about the proposed costs:

"In a few days the California Climate Action Team, appointed by Governor Schwarzenegger, is going to announce the "fix" for so called Global Warming. According to Table 8.1 of the working document, by 2020 the costs will be $7.9 billion, with "savings", not described, of over $9 billion per year.

In reality, if the "savings" were so great, creating new, more productive technologies, businesses would implement them without government action. Does anyone really believe that businesses want to waste $9 billion and use old technologies? Only a government report could imply such a silly thought. The report also says we could create 19,000 new jobs by 2010 because of these new policies and 83,000 new jobs by 2020. But, the report does not note the number of jobs (lost) and economic growth stunted by these new policies."

On Thursday, the Federal government awarded a multi-billion dollar contract to Lockheed-Martin to build equipment to be used for space use. California companies bid on the project, but a Georgia firm received the bid. Did Lockheed get the contract because labor costs are less in Georgia, because regulations are higher in California, were the California firms disadvantaged because of the reckless financial spending and impending service cuts or tax increases because of out of control deficit (The Legislative Analyst sees continued deficits for several years) or the massive bonded indebtedness California political leaders are promoting?

This, even before the passage of, and soon to be signed, AB 32. What are the real costs of this measure? The Governors office is proud to say that if we have an economic emergency due to this bill, the Governor can stop the effectiveness of the bill. True, but the governor can only postpone it for one year. After the year is up, the Guv no longer has a say in the matter.

Here are a couple of articles on the subject:

Global Warming Plan Could Be Costly

California's ambitious plan to curb global warming will be costly to businesses and consumers, experts said Thursday, and its effect on the climate could be negligible unless other states and nations follow. Although it is too early to know what will happen over the next two decades, the state's basic industries, including utilities, oil refineries and steel mills, can expect to make major changes in how they do business. And consumers may face higher bills for electricity, gasoline and other goods that use energy.

Is Green Good Or Bad For States Economy?

Take your pick: Will California's drive to cut greenhouse gases reshape the state's industries, weaning businesses away from fossil fuels and setting the stage for the state's next golden age? Or will it drive away businesses, ship jobs to Nevada and kill the California economy? With Gov. Arnold Schwarzenegger poised to sign into law a hard-fought agreement over global warming, economists and business groups remain sharply divided over the legislation's likely effects.

The Chronicle article shows the problem of the unknown, "Part of the disagreement about effects comes from simple uncertainty. The legislation's language is purposely vague, stating a broad goal but leaving most details undecided. The exact limits on carbon dioxide, methane and other greenhouse gases have not been set. Nor have the businesses, factories or facilities that would be covered."

It will not be the legislature, but unelected commissions and the courts that will decide the fate of businesses in California..and it will take years. If you were a major, or minor corporation, would you invest in such an uncertain environment? If you were [and you did], don't be surprised if your Board of Directors fired you.

But the Sacramento Bee, in a September 1, 2006 editorial Cool move, California leads on fighting global warming, told the whole story about who the winner is in this battle.

Democratic lawmakers and Gov. Arnold Schwarzenegger have taken a monumental step in the fight against global warming with the passage of Assembly Bill 32. Once again, California is leading, and much of the world is cheering.

Of course much of the world is cheering! California, the world's seventh largest economy just made it's future uncertain and costly.

From the Bill:

PART 7. Miscellaneous Provisions

38590.

If the regulations adopted pursuant to Section 43018.5 do not remain in effect, the state board shall implement alternative regulations to control mobile sources of greenhouse gas emissions to achieve equivalent or greater reductions.
(In real people's language that means an eleven member, unelected, board can restrict the number of "bad" vehicles sold in the State)

Who will advise them? You will love this, also from Part 7 of the Bill:

38591.

(a) The state board, by July 1, 2007, shall convene an environmental justice advisory committee, of at least three members, to advise it in developing the scoping plan pursuant to Section 38561 and any other pertinent matter in implementing this division. The advisory committee shall be comprised of representatives from communities in the state with the most significant exposure to air pollution, including, but not limited to, communities with minority populations or low-income populations, or both.

(b) The state board shall appoint the advisory committee members from nominations received from environmental justice organizations and community groups.

Can anyone reading this define for me an "environmental justice organization"?

You might ask, how much is this going to cost? To start with, as noted above, $7.9 billion. Then, besides that, answer is simple--whatever the eleven member unelected Air Resource Board (ARB) wants to charge! Here is the language from the Bill:

38597.

"The state board may adopt by regulation, after a public workshop, a schedule of fees to be paid by the sources of greenhouse gas emissions regulated pursuant to this division, consistent with Section 57001. The revenues collected pursuant to this section, shall be deposited into the Air Pollution Control Fund and are available upon appropriation, by the Legislature, for purposes of carrying out this division."

Remember, cars are an alleged source of greenhouse gases. That means the ARB could put a fee on your 2005 Honda if it doesn't use the "correct" fuel" How large will that fee be, anything they want. Again, section 38597 can be used to close down any business, just put a high enough fee on it. It can be used to force you into a bus, by raising the fee on your car so high you can't afford it. Don't believe me, think of all the other "I can't believe government can get away with it" laws". Even if they can't, that is an "interpretation" of the law, who will sue to save your car?

On February 20, 2006 I wrote about the Governors Climate Action Team. They were recommending the same basic ideas as AB 32. and in their report the cost of retro-fitting California business was $7.9 billion. The Governor came out against that, at the time. Yet, there is no reason to believe that the current cost of retrofitting will be any less today, seven months later, for California business. Now, he favors that tax on California business.

So, when the Governor signs AB 32, he will have signed a tax increase, the minimum increase being $7.9 billion. Since business only passes on mandated costs to the consumer, businesses will either leave the state, raise the cost of goods and services or cut the number of employees. None of these are good for California families or businesses (unless you own a U-Haul franchise or Moving company).

When Social Security was debated they decided not to put a limit on the tax in the law. The reasoning was because no one would be stupid enough to try to go beyond the 1%--so when they say they won't do that, remember all the times government created silly and harmful regulations, taxes and fees!

Now, after reading just this minor analysis of the bill, would any responsible business person want to do business in California. Would they trust the investment of tens of millions of dollars to the vagaries of a "ENVIRONMENTAL JUSTICE ORGANIZATION"? Would you?

What do you think Dr. Milton Friedman thinks of this?

What do you think of it?

Would you invest in California?

If so, why?

Write your thoughts directly on the blog site and let others see what you believe. -- Steve Frank