College of Natural Resources, UC Berkeley

Not facing warming is costly

August 21, 2006

From a letter to the Sacramento Bee by Prof. Michael Hanemann:

I disagree with Margo Thorning's dire prediction of economic doom from the Assembly Bill 32 legislation requiring statewide reductions in greenhouse gases by 2020.

Thorning relies on a 1998 study, sponsored by industry, estimating the impact of a deeper reduction in emissions over a shorter time frame than required by AB 32. The economic model understates opportunities for inter-sectoral trading and input substitution, thus overstating the economic cost. It also makes no provision for energy-saving policies such as those being proposed for AB 32.

A recent analysis by colleagues at Berkeley corrects these flaws, and finds that AB 32 actually leads to a modest gain in economic growth and employment in California. An important factor is the contribution of energy-efficiency measures that save money for industries and households, and grow the economy. AB 32 also helps cushion the California economy over time against higher costs caused by our dependence on imported fossil fuels.

Doing nothing now is the most expensive path California could choose. The longer we wait, the greater the ultimate cost of climate change impacts on California, and the more we pass up on the opportunity to make money by becoming a leader in the global market that will emerge for clean technology.

- Michael Hanemann
Chancellor's Professor of Environmental Economics Policy &
Director, California Climate Change Center

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