Prop. 23 creates legal turmoil, cuts state revenue, reduces job growth

September 9, 2010
By: Susan Gluss, Berkeley School of Law

An independent analysis of Proposition 23 says the initiative would create legal uncertainty, reduce California state revenue, and jeopardize new and existing clean energy jobs. The white paper, released today by UC Berkeley School of Law's Center for Law, Energy & the Environment, reports Prop. 23 would also slow California's efforts to reduce climate change and could have a domino effect on other states.

The report, California at the Crossroads: Proposition 23, AB 32, and Climate Change, details the legal and regulatory impact of the ballot initiative if passed by voters in November. Prop. 23 calls for the suspension of AB 32, the state's Global Warming Solutions Act, until state unemployment remains at or below 5.5 percent for 4 consecutive quarters-a rate that's been reached just thrice in nearly 35 years.

The Global Warming Act requires California to reduce its greenhouse gas emissions to 1990 levels by 2020. But under Prop. 23, the state would not be able to "propose, promulgate, or adopt any regulation implementing" AB 32. Regulations adopted prior to Prop. 23 would be made "void and unenforceable."

Supporters of Prop. 23 say the suspension is just a hiatus. But law professor Daniel Farber, co-author of the white paper, says it raises legal, policy, and environmental concerns.

"Regulations initiated under AB 32 over the past four years to slow climate change would be suspended by Prop 23, and so would plans to reduce future greenhouse gas emissions," said Farber. "Since most significant climate policy efforts in California are linked to AB 32, its suspension could lead to legal and regulatory confusion."

Some of the significant measures that Prop. 23 would suspend include:

  • a cap-and-trade program;
  • California's low-carbon fuel standard;
  • an executive order requiring utilities to provide 33% of electricity from renewables by 2020; and
  • AB 32's early implementation programs that improve auto efficiency and limit industrial greenhouse gas emissions.

The initiative would have an uneven impact on the state's business sectors, according to the report. It would suspend regulations that affect oil and gas producers, for example, while leaving in place climate change programs that impact automakers. Farber said this gives the oil industry a "Get Out of Jail Free Card."

Proponents of the initiative contend that suspending AB 32 will benefit the state's economy. But environmental economist and professor Michael Hanemann says the evidence tells a different story. "The idea that Prop. 23 would benefit California's economy is incorrect. Prop. 23 would lead to a significant loss of new investments and clean energy jobs in the state," he said.

Hanemann attributes some of the job losses to the initiative's suspension of the Renewable Portfolio Standard, which requires that 33 percent of retail electricity come from renewable sources by 2020. Daniel Kammen, professor of energy and report co-author, reached the same conclusion by creating a job projection model.

"No connection exists between California's current unemployment rate and AB 32," said Kammen. "In fact, the clean tech sector in California is one of the few areas of sustained growth during the current recession."

Co-author Steven Weissman said Prop. 23 would flummox regulated industries and officials trying to follow the law.

"Prop. 23 creates uncertainty across the board. First, it ties the end of the suspension of the global warming law to unemployment rates, a highly unpredictable metric. Second, although it suspends AB 32, it doesn't change the 2020 deadline for industries to lower their carbon footprint. No one can plan properly for implementation of the law if no one knows when it'll happen."

In sum, the paper finds that Prop. 23 would:

  • Limit investment in clean energy technologies. In 2008 alone, the state received $3.3 billion in venture capital for clean technology, but Prop. 23 would weaken the incentive to invest in a low-carbon economy.
  • Curtail short-term job growth. Prop. 23 would result directly in job losses in California's clean energy sector. Economists disagree on the indirect effects on employment over time.
  • Create uncertainty for regulated businesses and officials charged with implementing the law. Potential litigation over Prop. 23 could further delay implementation of AB 32 and complicate long-term planning.
  • Place heavier burdens on some industries to reduce greenhouse gas emissions while exempting others. A suspension of AB 32 would increase the compliance burden on real estate developers and automakers, while suspending requirements on the state's oil and gas industry and electric utilities.
  • Reduce state revenue. Proposition 23 would delay collection of fees charged to the largest emitters of greenhouse gas pollutants. It would also mean the loss of revenues from a cap-and-trade program-an estimated $220 to $550 million or more.
  • Slow or reverse momentum for climate change policies. AB 32 reinforces the state's role as a national leader on environmental policy. Suspending the law could reverse this progress, halt the implementation of multi-state climate programs, and jeopardize national climate and clean energy policies.
  • Suspend AB 32 regulations already in effect. Prop 23 would suspend the low-carbon fuel standard, among others, which could impede growth of the biofuel industry.

If voters approve Proposition 23, California could still move forward on climate change policies, as measures independent of AB 32 would presumably remain in effect. These include efforts to reduce auto emissions, stimulate demand for solar energy, and mitigate environmental harm from real estate development. But Crossroads co-authors say the ability to coordinate these measures and fill gaps between them would be undermined by the suspension of AB 32.

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