March 23, 2010
Contacts: Roxanna Smith, (323) 939-5015
Craig Noble (415) 601-8235

California Air Board to Release New AB 32 Economic Analysis

Mainstream Peer-Reviewed Studies Project Similar Results

This week the California Air Resources Board (CARB) is expected to release the most up-to-date projections of the economic impact of California’s Global Warming Solutions Act (AB 32). Multiple mainstream independent economic analyses project robust economic growth of California’s economy between now and the year 2020.  The projected impacts of AB 32, according to these analyses, which include the industry-funded Charles River Associates study, fall within the same range showing minimal net overall impact on the state’s economy.

Industry funded studies, including the Charles River Associates study, do not include the benefits of energy savings but do include the costs of becoming more energy efficient.  For instance, they charge California consumers for the cost of buying a more fuel-efficient car without giving them the fuel savings that car would generate.

Throughout the process of completing the upcoming CARB economic analysis, the Economic and Allocation Advisory Committee (EAAC), an independent group of economic, financial, and policy experts appointed by the Governor, has guided and offered independent critiques of CARB’s work product.  More information on the EAAC and its members can be found here:

Meanwhile, the findings of a single, discredited industry-funded report (by Prof. Sanjay Varshney), which falls outside of the range of all other economic analyses of AB 32, is facing yet another round of criticism.  The latest critique of the Varshney study comes from the bipartisan Legislative Analysts Office (LAO).  The LAO found that Varshney’s analysis contains “major problems involving… data, methodology and analysis.”  The LAO further found that the study findings were “unreliable” because the study failed to account for the measureable savings associated with energy efficiency.  Read more about the LAO critique here:

Additional critique of the Varshney report from top economists and academics can be found here:


Climate Policy and Economic Growth in California:
A Comparative Analysis of Different Economic Impact Projections

By Dr. Chris Busch, Center for Resource Solutions

December 2009

Summary: A comprehensive review of the peer-reviewed economic analyses of AB 32.

Key Findings:

  • The results of CARB’s macroeconomic modeling efforts to date fall within the mainstream of results of macroeconomic analyses, which yield a broad consensus that climate solutions are affordable and economic growth will be robust at the same time that pollution reductions of the magnitude called for by AB 32 are achieved.
  • It is notable that all macroeconomic modeling shows continued strong economic growth even as most of the benefits of climate solutions are typically left out of the models.
  • The Varshney study results are so exaggerated in part because the author ignores the value of energy saved.

Energy Efficiency, Innovation, and Job Creation in California

By David Roland-Holst, UC Berkeley, produced for Next 10

October 2008
Summary: This study examines the economic effects of the state’s landmark efficiency policies since the 1970s, and forecasts the economic effects of significantly more ambitious policies proposed to reduce emissions to 1990 levels by 2020.

Key Facts:

  • Since the 1970s, California’s building and appliance standards saved California consumers over $56 billion in energy costs, while creating 1.5 million jobs with a total payroll of over $45 billion.
  • Accounting for the potential for innovation, the proposed package of AB 32 policies could increase the Gross State Product (GSP) by about $76 billion, increasing real household incomes by up to $48 billion and creating as many as 403,000 new efficiency and climate action driven jobs.

Program on Technology Innovation:
Economic Analysis of California Climate Initiatives: An Integrated Approach

By Charles River Associates

December 2007

Summary: California’s climate policy goals would create minimal overall costs to the state’s economy and a cap-and-trade program would lessen those costs.

The Economic Impact of AB 32 on California Small Businesses

By The Brattle Group, produced for the Union of Concerned Scientists

December 2009

Summary: AB 32’s economic impact on small businesses will be small and manageable.

Key Facts:

  • The average small business in California spends only 1.4 percent of its revenues on energy-related costs, like electricity, natural gas, and transportation fuel.  Since most small businesses will not be directly regulated by California’s global warming policies, these policies will only impact them indirectly to the extent that they cause energy prices to change.
  • California’s global warming policies will only increase the percent of revenue that small businesses spend on energy by 0.3 percentage points—increasing the share of revenues dedicated to energy costs from 1.4 percent to 1.7 percent in 2020.
  • To put these costs into perspective, a typical dinner at The Border Grill (the restaurant used as a case study in this analysis) would see a less than 3-cent increase on a $20 dinner tab in the year 2020.


Energy Prices & California’s Economic Security

By Professor David Roland-Holst, UC Berkeley, produced for Next 10

October 2009

Summary: University of California researchers examine the economic impacts of putting the state’s climate program on hold. If California remains primarily dependent upon fossil fuels, electricity costs could escalate by as much as 33 percent.

Key Facts:

  • The state risks losing over $80 billion in Gross State Product (GSP) and more than a half million jobs by 2020 if it fails to implement AB 32.
  • Implementing a 33 percent renewable energy standard, combined with 1 percent annual improvement in energy efficiency increases GSP by $20 billion and generates 112,000 jobs.

LAO’s analysis of proposed initiative to suspend AB 32

By the Legislative Analyst’s Office

January 2010

Summary: Suspending AB 32 would have various economic impacts. Generally speaking, the suspension of regulatory activity under the measure means that business might avoid some costs. However, suspending AB 32 could also have some negative impacts. For example, it would delay investments in energy technologies and green jobs, thereby resulting in less economic activity than otherwise would be the case.

Key Facts:

  • Suspending AB 32 would preempt the ARB’s authority to collect an administrative fee to fund the law.  Funds that could amount to tens of millions of dollars would instead need to be found elsewhere, potentially from the General Fund.
  • Suspending AB 32 could cause an economic downturn due to delayed investments in energy technologies and green jobs.


Discredited Varshney/Tootelian Study

Costs of AB 32 on California Small Businesses

By Sanjay Varshney, produced for The California Small Business Roundtable

July 2009

Summary of Discredited Report: Consultants Sanjay Varshney and Dennis Tootelian released a report evaluating the costs of AB 32. The report, “Costs of AB 32 on California Small Businesses,” was commissioned by the California Small Business Roundtable, a group of 40 California business owners. This discredited report concluded that AB 32 would impose high costs on businesses. The authors estimated that the total cost of AB 32 will be $49,691 per small business in California, and the annual cost per household will be $3,857.

The Critiques:

  • “…these consultants’ cost estimates are fatally flawed and vastly over-state the expected costs of AB 32.” “The [VT] report does not include ANY of the potential savings from implementing AB 32.” Dr. Matthew E. Kahn, Professor Of Economics & Public Policy, UCLA
  • “Examination of the Varshney/Tootelian analysis leads to the conclusions that their estimates are highly biased, are based on poor logic and unsound economic analysis, and are likely to be too large by a factor of at least 10.” Dr. James  Sweeney, Professor of Management Science and Engineering and Director of The Precourt Energy Efficiency Center, Stanford University
  • “Both studies are unsound and unreliable economic analysis. The losses they project would be serious economic impacts – if they were real. They are, however, entirely unreal; they should be viewed merely as daydreams of disaster.”  Dr. Frank Ackerman, Stockholm Environmental Institute & Tufts University “The results of Varshney and Tootelian are inconsistent with [other economic analyses of AB 32] as well as with the bulk of the economic literature, which suggests that the overall macroeconomic effects of climate policy will be relatively modest.”  Dr. Chris Busch, Economist, Center for Resource Solutions
  • The Varshney/Tootelian studies “contain a number of serious shortcomings that render its estimates of the annual economic costs of state regulations essentially useless.” Legislative Analyst’s Office.

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