Saturday, May 8, 2010

California Voters to Decide AB 32 Fate

After years of build-up, with government and pro-AB 32 factions crowing about how the Global Warming Solutions Act of 2006 will create jobs for Californians that will usher the state into the post-petroleum age, while the anti-AB 32 factions saying its draconian measures will cause businesses to fail, manufacturing to close and leave the state, and unemployment to skyrocket, it appears the issue will be on the November 2010 ballot as a California Proposition. There were far more than sufficient signatures gathered (approximately 800,000 gathered compared to 433,000 required) to place the issue on the ballot.

First, the pro-AB 32 factions' arguments, then the anti-AB 32.

Pro-AB 32

Pro-AB 32 factions say that all its measures are worth doing because cutting CO2 emissions will stop global warming, and global warming in California causes the sea levels to rise and flood low-lying areas, the Sierra snowpack to melt or disappear, state-wide heat waves that cause deaths and illness, and many others. They also say that AB 32 will increase jobs and the economy. The way that AB 32 will increase jobs, they say, is by the net effect of all the requirements allowing each person to have an additional $5 per week for spending, or approximately $250 per year. The additional spending will go to purchases such as coffee at coffee shops, and retail sales. The increased demand for coffee shop baristas, and retail sales clerks will result in a surge in employment.

Pro-AB 32 factions say that private investors have pumped billions into California companies who will make revolutionary new products so that emissions of evil Carbon Dioxide, CO2, will no longer be necessary in beautiful California. The products will include smart-grid systems, home-generation of electrical power via solar panels, renewable power plants to supply one-third of utility grid power, advanced cars and trucks that consume about one-third less petroleum-derived fuel, and gasoline and diesel fuels that contain renewable components such as ethanol (for gasoline) and bio-diesel (for diesel, naturally).

There are many, many other aspects of AB 32, with 73 different line items in the Scoping Plan. Changes in the way people make choices are also part of the AB 32 Scoping Plan, with a significant change being scrapping the older and less-efficient home appliances for new and highly-efficient models. These include air conditioners. Proponents say that a home's electricity usage will decline 40 percent by installing new appliances, while the price for electricity will increase only by about 13 percent. The net effect, they say, is the consumer will have more disposable cash each month. Presumably, that extra cash will be used to pay the installment payments on all the new appliances. Similarly for the advanced cars and trucks, which will use less fuel. The reduced fuel consumed (35 mpg compared to 25) will more than offset the increased fuel cost.

Proponents developed a nifty plan to allow a homeowner to be able to afford to install solar panels on the roof. The plan involves increasing the property tax bill, with the annual increase paid to a bank or other financier who puts up all the money for the solar panels and installation. If the homeowner sells the home, the new buyer takes on the payment obligation as part of his tax bill. Presumably, the payments last for 15 to 20 years. Also, proponents argue, the solar panels add to the home's resale value.

Proponents also say that the cap and trade portion of AB 32 will not hurt businesses and industry, because they can actually make money if they just cooperate. Proponents maintain that a carbon credit will be worth $30, $50, even $100 per ton of CO2, so that if the business owners simply cut their CO2 emissions to a point below their government-mandated cap, they can sell the credits to others, thus enjoying a new revenue stream that will allow their business to grow and prosper. The idea is that one can either be a seller of these credits and prosper, or a buyer of these credits and not prosper.

There are many other pro-AB 32 arguments, such as more jobs created for solar panel installers, more construction jobs for renewable power plants, and the long-distance transmission lines to bring the power to the people, and factory jobs to fabricate solar panels and the smart grid components.

Anti-AB 32

Implementing AB 32 will kill California by eliminating millions of jobs, causing massive bankruptcies, closing millions of small businesses and major corporations, and will do nothing to change the Earth's climate.

As more and more scrutiny is applied to the world-wide climate scientists' data, methods, peer-review system, and agenda, it is apparent that there is no cause for alarm over CO2 emissions, or any other so-called greenhouse gas emissions. The entire basis for CO2 causing the Earth to warm catastrophically is false. There are cities in California that show a pronounced cooling even while CO2 continues to rise - Eureka, Los Angeles, San Diego, and Sacramento. San Francisco shows a gradual increase in temperature that corresponds to population growth, but not to CO2 in the atmosphere. see this.

None of the dire predictions for California climate catastrophe have occurred since 1975, the period that climate scientists insist has shown an increase in Earth's average temperature due to increasing CO2. In fact, sea levels are decreasing off the coast. Also, the past 40 years have seen much more rainfall than occurred in the first 40 years of the 20th century, with a state-wide average of approximately 23 inches since 1970, but only 19 inches from 1900 to 1940. Presently, the state's lakes are full due to the recent rains and snow that is now beginning to melt. Heat waves have a long way to go to match, let alone exceed, the heat waves of the period 1920 to 1960.

On a more widespread or global basis, polar ice caps are not melting, but are growing. Sea level increases world-wide are at the same pace as far back as satellite records extend, even though CO2 continues to increase in the atmosphere. Hurricanes and tropical cyclones have not increased in intensity or frequency. In fact, ocean temperatures are decreasing, and hurricanes are decreasing too.

It is true that investors are pumping billions into California start-up companies, but as I wrote earlier, this is due to the increased price of oil. Such alternative energy, or renewable energy systems, ultimately must compete with oil. At the moment, these industries are incentivized with government subsidies, which can be removed at any time. Also, exchange traded funds (ETFs) that specialize in stocks worldwide that stand to benefit from global warming laws are under-performing the market, and by a wide margin. Investors know that global warming due to CO2 is on shaky grounds, and do not see any advantage in putting their money into such companies. see this and this.

The idea that the average homeowner in California will decrease his electric bill by 40 percent by installing new appliances and a new air conditioner is highly debatable, if not outright false. The largest consumers of electricity in a home are the refrigerator, electric stove and oven, clothes dryer, clothes washer, and automatic dishwasher. Of these, the electric stove and oven cannot be made much more efficient, if any. Homes built in the last 10 years (the 2000's) have high-efficiency appliances due to construction laws. Homes built in the decade prior (the 1990s) likely have had their appliances wear out and either replaced already, or will be replaced soon. My estimate is that, at best, appliance replacement will decrease electric power consumption per home by 10 percent. This will be overwhelmed by the increase in electric power prices, which will be 30 to 50 percent. The reality of high-priced renewable electricity, with its required back-up power plants that burn natural gas, is a large increase in electric power prices. Where Californians currently pay approximately 14 cents per kWh for the lowest-tier of residential power, by 2020 the price will be at least 20 cents, almost a 50 percent increase.

Similarly, the idea that the consumer will save money at the gas pump by purchasing a high-efficiency car just does not make sense. The additional cost for a hybrid car is approximately $3,000, or if one wants to buy a VW Jetta with the high-mileage diesel engine, the cost is more than $10,000 additional. Meanwhile, all drivers in California must pay the increased price of gasoline, but not all drivers will purchase a new car. Those drivers who never purchase a new car, but must by economic necessity buy a used car, must not only wait years before a more-efficient car hits the used car lots, but must pay the higher price of gasoline while they wait. They will not have more spending cash in their pocket.

The idea of putting solar panels on homes in California to reduce grid demand has been around for decades. The economics have never been favorable until recently, with the three-tiered pricing for domestic electricity use in California. As to having the solar panels financed 100 percent by a bank, but having the home's value increased, I'm not quite sure about that. It appears a homeowner could apply for the loan, have the bank pay for installing the solar panels, then sell the home at its enhanced value and walk away with an additional $20,000 or even $50,000 in his pocket, depending on the size of the solar panel system. The buyer would be obligated to pay the annual payments via his increased property tax bill. Hmmm....maybe I'll go into the home-flipping business - but only if I purchase a home without solar panels.

Also, it appears that only the wasteful are in a position to benefit from solar panels on their home. Many of my friends, and my own modest lifestyle, do not have utility bills that soar into the higher echelons of pricing due to excessive use (as determined solely by the price-setting entity, the PUC). Thus, we and similarly situated people will not likely ever install a solar PV system - it just makes zero sense when power price is at 13 cents per kWh. On the other hand, maybe we can simply install the system using the bank's money, then flip the house to a new owner.

The idea that Californians will be the ones manufacturing solar panels is highly suspect, given the manifold advantages of manufacturing overseas. Why would solar panels be manufactured here, when so many other products are made overseas where labor costs, and regulatory costs, are much lower? What is true is that solar panels will be installed using local labor. But after they are installed, what will those installers do? These are not sustainable jobs for the long run.

Cap and trade will dramatically increase the cost of doing business in California, to the detriment of in-state businesses. Arizona has already withdrawn from the regional cap and trade system, thus inviting California businesses to relocate to Arizona, hire people in Arizona, then ship their goods to California. The same is true of many, many other states where business conditions are much more favorable than are California's. We have already seen every automobile assembly plant close in California, due to burdensome regulations, high taxes, high labor costs, high power prices, and now AB 32 wants to impose additional burdens on remaining businesses. It will not take much for businesses, say for example oil refineries, to shut down their refining processes and simply import gasoline, jet fuel, and diesel from other states or from overseas. Most California refineries are on the coast, except for the handful around Bakersfield. A shutdown refinery does not employ as many people, as it takes only a few to run the tank farm. Out of work refinery employees will have a follow-on impact on local businesses, especially those who provided parts and services to the refineries. The same is true for other industries, especially cement manufacturers, and other heavy industry.

The choice seems abundantly clear: vote to keep AB 32 in place and hope that the government knows what they are doing and will keep their word (and has that ever been the case in the USA, and especially California?), and that each person will indeed get that precious $5 extra in their pocket every week, and electric power prices will only increase 13 percent, and every homeowner will rush out to replace all the appliances and install solar panels, and every driver will immediately purchase a new car that achieves 35 miles per gallon, and every business will find some way to reduce their CO2 emissions below their cap level and sell carbon credits.

Or, recognize what business schools around the world (including the prestigious Harvard Business School) have taught for years (because it is a fundamental truth), that reducing one's costs of doing business is the way to grow and prosper a business. Increasing the cost of utilities, and transportation for goods received and for goods shipped, when one's competitors are not burdened with similar costs, is not the way to grow and prosper. Instead, it is a recipe for bankruptcy. Recognize that few homeowners have the ready cash, or credit, to purchase new appliances, and then recognize that many residences in California are rentals such as apartments. Rental apartments will not usually allow the renter to install new appliances, indeed, the only appliance the renter can replace is his own refrigerator. Not the washer, the dryer, the dishwasher, and certainly not the stove or oven. If the landlord replaces these, then rents will go up to pay for them. That will certainly wipe out that $5 per week that California promises will appear in every person's pocket.

The issue will most likely be on the ballot in November, but it will be a tricky ballot. A Yes vote means AB 32 will be halted until the statewide unemployment reaches 5.5 percent for four consecutive quarters. Presently, California's unemployment rate is at 12.6 percent (for March, 2010).

Roger E. Sowell, Esq.
Marina del Rey, California

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