Showdown over Prop 23 and AB 32 in California

The vote is two days away, Tuesday, November 2, 2010. Most of the words about Proposition 23, the popular referendum that would suspend (more likely, end forever) California's Assembly Bill 32, (AB 32), have already been written or in some cases, spoken. My views on the matter are on public display via this blog, also in speeches I have made, and in comments on other internet sites.

The latest verbal barrages seem to me to belong in one of three or four categories: Defeating Prop 23 will save California's economy, or, Defeating Prop 23 will doom California's economy (my view), or, Passing Prop 23 will only temporarily slow down the transition into a fully green and low-carbon economy, or, Prop 23 will have no effect either way, pass or fail, as California is doomed for other reasons (there is an excellent case for this one). Over-riding all the fuss is the accusation from the Anti-Prop 23 group that Prop 23 is the evil plot of, and funded by, dirty, polluting Texas oil companies who desperately want to stop the necessary march toward electric cars, clean air, and healthy citizens in California. Countering this accusation is the reality that cars in California have the cleanest-burning gasoline in the nation (known as CARB gasoline), all cars have catalytic converters to virtually eliminate all pollution from the car's exhaust pipes, California cars are required to be tested for emissions regularly and repaired if found wanting, the air quality in California has improved dramatically over the past 30 years even with vastly more cars running down the roads, and most of all, no electric cars exist that will do the job of a gasoline-powered car. More on the car situation later in this post.

Proposition 23 is a landmark ballot initiative, as this is the first time (or so I'm told) that any state's voters will decide if an environmental regulation will remain as-is on the books, or be placed on hold for an indefinite period until the state's unemployment predicament improves. California's recession is worse than most states, with unemployment at 12.7 percent and stubbornly holding. With a labor market of roughly 16 million, and unemployment in good times of approximately 5 percent, there are 7.7 percent of 16 million people out of work due to the recession. If my math is correct, that is 1.2 million people out of work. The reality is that far more people are out of work, as the US Labor department does not count all the people out of work. There are very likely more than 2 million people in California alone who are out of work.

Poll numbers, which are not a very good indicator of election results in my view, have Prop 23 as too close to call. The wording on the ballots is very skewed, misleading, and will likely favor failure of the proposition. The wording says, and I'm paraphrasing here, that passing Prop 23 will allow pollution to increase in California by having polluting industries place more pollutants in the air. For the un-informed, or poorly-informed voter, that sounds like a proposition to vote against. We have Attorney General Jerry Brown to thank for the wording. This is the same Jerry Brown who is running for Governor.

For a bit more discussion on each of the four categories from above, first, Defeating Prop 23 will save California's economy. This position has the effect of leaving AB 32 in place, with its implementation starting in 2012 and phasing in fully by 2020. It should be noted that many of AB 32 requirements are already in place and in force. As I have written elsewhere on SLB, and others have written extensively also, AB 32 has many requirements, including a Low Carbon Fuels Standard (mostly concerning ethanol for gasoline or bio-diesel), Renewable Portfolio Standard (renewable electric power generation of 33 percent by 2020, and 20 percent by Dec 31, 2010), increased gasoline mileage standards for cars and trucks, solar panel installations, combined heat and power systems, and most ominously and importantly, cap and trade for greenhouse gases. There are many, many other requirements. Those who want to defeat Prop 23 maintain that each of these requirements will stimulate California's flagging economy, creating wealth and jobs, and driving the economy into a post-petroleum or fossil-fuel age.

The basic belief (and crucial mistake) of those who insist that this is the time, and Californians are the ones who should do this, is that science and engineers now have the technology to forever provide cheap, clean, reliable energy instead of dirty, expensive, imported foreign oil. Apparently, those with this belief did not take any courses in physics, engineering, or economics. They also do not appreciate the geography and geology of California. This requires some explanation.

Their dream is, and has been for many decades, to have a society that obtains its electricity from the wind, or from the sun, or perhaps from the ocean's waves or tides, or perhaps from geothermal wells. Such electricity would power all homes, cooling them in the hot summer and warming them in the cold winter, provide power for all industries, and of course all means of transportation would use electric motors powered by efficient, light-weight batteries. This would include of course, cars, motorized scooters, trains, trucks, buses, subways, airplanes, and boats and ships. The dream includes abundant, reliable electric power, with little to no inconvenience in recharging the various batteries that are necessary.

Barriers to achieving the dream are, of course, that there just isn't enough renewable power in California. One of the most reliable and zero-carbon emitting powers, geothermal power, is available in California but is woefully inadequate to provide all the power needs. There also are not a sufficient number of elevated lakes to provide pumped storage hydroelectric power, even though California has many mountains. It is unfortunate, but true, that the sun only shines for part of each day - and that portion is rather short during the winter months. Even when the sun shines, there are many interruptions due to clouds, rain, even dust storms in the desert areas. The other unfortunate aspect of solar power is that the clearest areas are in the desert, but the population centers are near the coast where clouds persist. This requires long transmission lines to bring the power to the people. It is also unfortunate that the wind is erratic, both in when it blows, and how strong it blows, and how quickly the wind can change. The geography of California allows the wind to blow fairly steadily in three areas where a range of hills or mountains has a pass - these are located in Northern California at Altamont Pass, in Southern California at Tehachapi, and also near Palm Springs at Banning Pass. But, there are only those three and no more. It is also unfortunate that the tides offshore California are fairly weak, with a maximum tidal change of only about 6 or 7 feet (approximately 2 meters for the metrically-inclined readers). The waves offshore California are sometimes rather large, but the waters are deep, and the waves are not reliable. So, the availability of renewable power is lacking, even though California is probably the best-endowed state for renewable energy with sunny deserts, wind in three mountain passes, mountainous areas, at least some geothermal, plus a long coastline.

Even if the renewable power were available in sufficient quantities, which as we have seen above it is not, the intermittency problems present a very great cost issue. The dreamers do have a point, when they claim that we have the technology to smooth out the energy surges and declines, and provide reliable power. Yes, indeed we do. There are a number of energy storage and release systems, all well-known for decades. To list a few, there are batteries, capacitors, pumped storage hydroelectric, compressed air storage, high-speed flywheels, high-pressure hydraulic storage, and electrolysis of water to produce hydrogen. There are others, but this list will do for now. Each technology has at least one thing in common: they all yield less energy out than what is input into the storage system. This is a fundamental requirement of physics. Some have less loss than others. Each technology (save one, pumped storage hydroelectric) also has a critical flaw: the energy produced is very, very expensive compared to electric power from a gas-fired power plant.

Thus, the dream of a renewable-energy society could be achieved, today, if anyone was willing to pay an exorbitant price for their electricity. The three basics of the dreamers' renewable electric power, cheap, clean, and reliable, are lacking one element: cheap.

Saving California's economy with AB 32 and the defeat of Prop 23 is supposed to ride on developing and installing the means to provide renewable electricity, more efficient vehicles, and (someday, somehow but nobody knows when or how, exactly), solving that pesky storage problem to make energy cheap. There are those who talk about investments in smart grids, and white roofs, and reflective asphalts, and cool cars (in the hot temperature sense), and recycling all our organic wastes into bio-gas or cellulosic ethanol, and that these cutting-edge technologies will forever make oil and natural gas a thing of the past.

Maybe so. But, California has to exist in the real world, where there are other states, and other countries where low-cost energy powers the factories, homes, vehicles, and businesses. Goods and services provided by the lowest-cost methods are available in the market. It is true that Californians are afforded the opportunity to help unfortunate producers in remote areas of the world, and pay a premium price for the privilege of purchasing their products, it is not entirely clear that anyone else in the world will return the favor and buy high-priced California products or services as a charitable gesture to encourage the noble use of renewable energy.

Next, Defeating Prop 23 will doom California's economy (my view). In this scenario, to which I adhere, a defeat of Prop 23 will allow AB 32 to continue unchecked. The many requirements as listed above will play out each in its time, and Californians will face higher and higher costs of doing business, running their homes, driving to and from anywhere, higher costs of purchasing every product in every store, purchasing ever-smaller and more dangerous cars, and obtaining no visible or measurable improvement in air quality. It is very, very likely that oil refineries will simply shut down rather than pay the exorbitant costs of cap and trade. The shutdowns may not occur right away, but almost certainly will occur by 2020. It will be quite interesting to observe how cars will run in California, also how trucks will run, and especially how jet airplanes will be refueled. It should be noted that, as electric power prices escalate, the economics for installing solar panels will improve. This will be a self-fulfilling prophecy, then: if the power price is 35 cents or higher per kilo-watt-hour, a solar panel is probably justified. In the same fashion, when gasoline is scarce, it will become expensive, perhaps very, very expensive. Barring government action (which has happened in the past, when a refinery was to be shut down in Bakersfield), shutting down refineries will create a shortage. At that point, it may very well be less costly to buy an electric car or some sort of electric-gasoline hybrid. The car makers who provide such electric-gasoline hybrids will likely be quite profitable, and hire many people to work in their factories. I wonder, however, how many of such factories will be located in California? My guess is zero.

Then, Passing Prop 23 will only temporarily slow down the transition into a fully green and low-carbon economy. This argument is based on the fact that the economy has, in the past, had several periods of unemployment at or below the Prop 23 threshold of 5.5 percent. Also, there is a belief by some that the US economy is slowly recovering, and that California will also recover. Within a few years, unemployment will be (so they say) back to 5.5 percent, and the provisions of AB 32 can then be implemented. I do not favor this argument, as it is clear that the Obama administration has no desire to enact the necessary measures to restore the US economy to a healthy state. The stimulus with federal money was ill-conceived, and wrongly implemented - it did nothing to improve the economy. Increasing taxes is also not the way to go. However, administrations do change every four years when an unpopular President is in the White House, so there should be a change in 2012. Yet, by 2013 or 2014, when a new President is in office, with viable plans to cut taxes, and stimulate the economy and make businesses competitive in the world, the unemployment rate should begin to decrease. California, though, will likely not participate much, if any, in that improvement, for the reasons listed in the next section.

Finally, Prop 23 will have no effect either way, pass or fail, as California is doomed for other reasons (there is an excellent case for this one). California has managed to place itself in the worst of all positions among the 50 states: business-unfriendly, combative state regulators, high real estate costs, high labor costs, high cost of electricity (especially for the last increment of power purchased), high employee turnover resulting in costly hiring and training of replacement employees, burdensome regulations, out-of-control budget deficits at the state and local levels, and high cost of gasoline and diesel fuel. These factors combined make an excellent argument that the ship of state is sinking no matter what, and Prop 23 will only make a small impact on the date the ship slips forever beneath the waves.

Finally, the vote is nearly upon us. Sometime late on Tuesday night, or perhaps Wednesday if the vote is close and the absentee ballots will make the difference, we will know.

Roger E. Sowell, Esq.

Marina del Rey, California