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Despite daily headlines and increasing pessimistic economic outlooks the CA Air Resources Board (CARB) continues to relentlessly pursue the implementation of California’s Global Warming Solutions Act of 2006 (AB 32). As a result of this single-minded obsession, AB 32 and its related components (the renewable energy portfolio standards, low-carbon fuel standards), are poised to become one of the main obstacles to any California economic recovery.

Say what you will about the Legislature’s inability to identify a path out of this fiscal mess. It is nothing in comparison to AB 32’s breathtaking potential to lock California, and specifically the valley regions, in a continuing recession through 2017 and possibly beyond. The impacts of AB 32 will be unavoidable. It will increase costs across the board for all Californians: residential, small business and industrial; food, fuel, dry goods; nothing will escape.

The rub is that there appears to be no reason to impose AB 32 on industrial emitters and even less reason to burden food processors. For one, California has already achieved substantial reductions in carbon emissions as a direct result of the recession. So much so in fact, that CARB had to readjust its estimates in order to accommodate the reduced emissions in the state. These adjustments served to lower the targeted amount of emission reductions required to the state to 1990 emission levels by 2020 from an original target of 174MMTCO2e to a revised target of 80MMTCO2e. Emissions from California’s industrial facilities fell, on average, by 12% between 2008 and 2010.

As a result, CARB also reduced the role of cap-and-trade to fill the gap between the total target and the emission reductions expected from traditional command and control measures. The cap-and-trade program was to provide 34.4MMTCO2e of reductions (2008 Scoping Plan) but an updated 2010 analysis reduces that total to 18MMTCO2e.

According to a Legislative Analyst’s Office (LAO) report (June 29, 2011), CARB may still be overstating the emission reductions required by cap-and-trade. The LAO points to "complementary measures" that would further reduce the totals necessary under cap-and-trade, such as increased combined heat and power use. Seeing as food processing emissions account for less than .05% of the overall industrial emissions, any ratcheting down of the cap-and-trade requirement could benefit the industrials immensely.

While that loss of production may make environmentalist happy, it comes with a price – unemployment.
As is known, much of the California unemployment stems from the collapse of California’s construction industry, but that doesn’t account for all the job losses.

California’s unemployment rate has been stuck at a steady 12% on average for at least the past three years. According to Industrial Energy Consumers of America (IECA), California lost 613,000 (about 33%) of its manufacturing jobs alone between 2000 and 2010.

In the valley regions, where the majority of food processors operate, the unemployment rate varies from 14% to 24% or more depending on the area. As these are not large urban populations, most ag-reliant communities average between 1,500 to 15,000 residents, so these unemployment rates are derived from other factors. More importantly, these figures suggest that imposing more burdens on valley employers will further damage an already debilitated economy.

Even if there were some recovery, a recent UCLA study, while asserting that California is unlikely to slip back into a recession assuming certain events don’t occur, predicts that inland California, i.e. the valley areas, will lag behind the rest of the state by two to three years or more.

But if you’re talking food processing, one must not discount the China factor.

In an Economic Policy Institute (EPI) study, California ranks first among 10 states in jobs lost to China (CARB has heard a lot about China from CLFP, not that it’s made much difference). The study cited cheap labor and possible currency manipulation in support of its findings. CLFP brought up other Chinese trade pressure factors such as abundant cheap energy (coal) and a substantially reduced regulatory burden in their food processing industry.

The U.S. Census Bureau reports what we already know having lived in the Golden State the past five years, that while U.S. median incomes have dropped 5% since 2008, Californians suffered nearly twice the drop to 9% starting in 2007.

As you can see, the general news is just not good and not getting any better. Now figure in AB 32.

According to a 2009 CSU Sacramento study on the impact of AB 32 on just small businesses alone, enforcement of AB 32 could eliminate up to one million jobs in California. All due to decreased production resulting from rising costs and reduced demand.

Depending upon which study one relies on, AB 32 will increase energy costs by 30% to 60%. According to an IECA study, California electricity rates alone are already 60% higher than the rest of the nation based on 2010 data.

Yet onward we go. Our leaders and state bureaucrats keeping their fingers crossed for some kind of recovery all the while touting green job creation, innovation and venture capital as proof of the righteousness of their convictions.

Article written by John Larrea, CLFP Government Affairs Director


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