California Climate Battle Reveals Lack of Accounting for All Costs

Opponents Say AB 32 Will Add Costs; Supporters Say Those Costs Already Exist

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Economists, particularly economists at conservative think tanks, have been busy this month telling California voters that the state climate law, AB 32, is bad for the economy. We’re in a recession, the thinking goes, and we don’t want to add any more financial burden to businesses that are already cash-strapped.

The problem with that thinking is that it doesn’t take into account the true cost of dealing with unchecked pollution, a point that expert after expert made at the recent Turning the Tide conference on environment and public health.

“The current fight over AB 32 is setting up a false choice between economic stability and environmental stability,” said Peter Calthorpe, principal of Calthorpe Associates and an advisor to the California Air Resources Board on the implementation of the climate law.

“Adam Smith said: ‘Perfect markets are dependent on perfect information,’ and right now the markets do not have perfect information."

AB 32, passed in 2006 and due to be implemented next year, would set up a statewide carbon cap-and-trade program. Opponents of the legislation have proposed a November ballot initiative to stop its implementation.

The opposition is playing on the idea that legislating greenhouse gas emissions will cost California businesses money, and thus result in more job losses in the state. A recent study by the Union of Concerned Scientists, however, found that AB 32 would have little effect on small- or medium-sized businesses. Instead, it found that the legislation would predominantly affect large industrial polluters, such as utilities and oil companies, which may explain why some Texas oil companies are throwing so much money at stalling the law’s implementation.

Given the billions of dollars being spent on it, the anti-AB 32 measure is likely to get enough signatures to make it onto the November ballot. It started out dubbed the “California Jobs Initiative,” but Attorney General Jerry Brown has since it renamed for clarity. It’s now called “Suspends Air Pollution Control Laws Requiring Major Polluters to Report and Reduce Greenhouse Gas Emissions That Cause Global Warming Until Unemployment Drops Below Specified Level for Full Year.”

That name, at least, helps voters to understand what the initiative is really proposing, but the “false choice” Calthorpe mentioned is still there.

Calthorpe emphasizes that legislating emissions now sets California up for a better economy in the future and that whether businesses pay for polluting or not, there are costs associated with pollution. If the businesses that create it don’t pay for it, the rest of us soon will, as evidenced by the EPA’s Climate Change Indicators report, released Tuesday.

“Capitalism and sustainability aren’t at war,” Stephen Schneider, a climatologist and Nobel laureate told the Turning the Tide crowd in California last week.

“The particular system doesn’t matter, it’s about accountability within that system. After all, the Soviet Union was one of the worst polluters in the world. Right now the government essentially pays for corporate progress; you need to input all of the costs associated with any given product or service in order to get the price right."

Beyond California

This idea of accounting for all of the externalities of a product, including its effect on human and environmental health, ties in neatly to the talk of climate accounting at the macro scale at last week’s World People’s Conference on Climate Change in Cochabamba, Bolivia.

If climate change eventually leads to the melting of glaciers and contributes to various natural disasters, and if pollution reduces air quality and water quality to the point where the health of the general public is being affected, who should pay for those effects but the companies that are producing them?

Unfortunately, it’s not as simple as just regulating emissions and charging the most-polluting companies.

There will be short-term economic effects as countries shift to systems that account for the cost of pollution. And while that means charging companies that have been getting a free pass on such costs, those companies will adjust their business models, and chances are, it will be average workers, not corporate titans, who pay the price. Unfortunately, those are the same people who are likely paying the price either way, whether it’s calculated in terms of dollars or in terms of other impacts.

With or without legislation, the financial markets are beginning to see pollution as an unacceptable risk. While socially responsible investors have been looking at companies’ environmental and human impacts for years, the Securities and Exchange Commission voted in late January to require companies to provide all investors with information about the risks associated with climate change.

But relying on the markets to correct themselves is not a solution. As Calthorpe points out, the current markets are imperfect, and while more information is trickling into them, they are still far from reflecting the whole picture.

Governments need to step in to ensure that public costs are not padding the profits of corporations. As Schneider points out, what is needed is a major shift in the way the markets operate. He talks about the shift in terms of the food system, but what he says is applicable to every other aspect of life that is affected both by climate change and by economics:

“Everything is based on return on investment, and until that is adjusted to reflect the real price and thus the real return, it’s hard to change the system. We also have to be realistic about the fact that we have eight billion people to take care of, so we need to have a plan for transition, a sort of mixed system that allows us to improve without having any part of the system fail.”

So far, that transition system is still being worked out, and increasingly it’s looking like as California goes, so will go the rest of the country.


See also:

Study: Minority Communities Suffer Most If California Suspends AB 32

California’s Landmark Greenhouse Gas Law Comes Under Attack 

Oil & Industry: Connecting the Dots in the War Over California’s Greenhouse Gas Law 

Venture Capitalists: Move to Repeal California Climate Law Endangers a Job Creator