CALIFORNIA SEES BIG JOBS, SMALL COST IN NEW ENERGY ECONOMY & EMISSIONS CUTS

New Report: California Cap on Carbon Has a Negligible Impact on Small Business; First of its kind economic analysis shows significant cuts in global warming pollution will cost small businesses only pennies
December 10, 2009 (PRNewswire)
and
California Green Jobs Grow Faster Than Other Jobs – Study
Cassandra Sweet, December 9, 2009 (Dow Jones Newswires via Wall Street Journal)

SUMMARY
The fight over the New Energy economy in the U.S. centers on 1 question: Is it going to speed or slow growth?

There is no longer any need to speculate. California has the answer. Even as the state's economy flounders, efforts to turn the workforce to New Energy with legislation sharply cutting greenhouse gas emissions (GhGs) is growing jobs at relatively little cost. The forecast is for more of the same.

Many Shades of Green, from Next 10, describes the growing benefits California is deriving from pioneering the New Energy economy. The Economic Impact of AB 32 on California Small Businesses, from the Brattle Group, authoritatively documents the expectation of negligible impediment to the state's small business engine as its New Energy economy expands.

New Energy economy jobs (“green” jobs) in California grew 36% from 1995 to 2008 at the same time that jobs in general grew 13% in the state. As the economy slowed in 2007 and 2008, California’s total employment fell 1% but New Energy economy jobs grew 5%.

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Much of the impetus behind the emergence of California’s New Energy economy is its emissions-cutting ambitions. Assembly Bill 32 (AB 32), the Global Warming Solutions Act of 2006, targets a reduction to 1990 levels by 2020 of California’s GhGs. That will require a 12.5% reduction from the present level of emissions and a 40% cut from where emissions would be in 2020 if the state continued doing business-as-usual.

A rigorous economic analysis shows AB 32 and its associated emissions-cutting, New Energy economy-building policies (a cap&trade system, a 33% renewable energy standard (RES), rigorous Energy Efficiency requirements and a low-emissions vehicle fuel standard) will increase small business costs only 0.3% (from 1.4% of their revenue to 1.7% in 2020.

In the concrete, real world example of Border Grill restaurant, the analysis estimates that such policies will add no more than 3 cents to a $20 meal in 2020. That is less than increases in small business energy costs caused by business-as-usual factors completely unrelated to energy or climate issues.

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COMMENTARY
In 2008, California had 18 million jobs. Less than 1%, 159,000, were green jobs. But while the state’s overall jobs grew 13% from 1995 to 2008, green jobs grew a whopping 36% and while the economy was slowing in 2007 and 2008 and California unemployment grew 1%, New Energy economy jobs grew 5%.

Much of the growth of California’s New Energy economy must be attributed to the state’s Renewable Electricity Standard (RES). It was instituted in 2006 as part of AB32 and requires the state’s utilities to obtain 20% of their power from New Energy sources by the end of 2010. In addition, the Governor and the legislature have competing RESs requiring the utilities to obtain 1/3 of their power from New Energy sources by 2020 and one of the proposals is highly likely to prevail.

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The resultant California New Energy economy is impacting all parts of the state, all levels of its business community and incorporates the full spectrum of skills levels and earnings potential.

The New Energy economy largely generates new demand for jobs that already exist, often with a requirement to learn new applications (examples: Electricians doing wind turbine and solar installation, Operations & Building Managers focusing on efficiency). Entirely new occupations are also emerging (examples: Fuel Cell Technicians, Energy Auditors).

The 15 sectors (with sub-sectors) of California’s New Energy economy (entitled “Core Green Economy jobs” in the Next 10 report):

(1) Energy Generation
(a) Renewable energy generation (all forms of solar, wind,
geothermal, biomass, hydro, marine & tidal, hydrogen, co-generation); (b) Associated equipment, controls, and other management software and services; (c) Renewable energy consulting services; (d) Research & testing in renewable energy

(2) Energy Efficiency
(a) Energy conservation consulting and engineering services; (b) Building efficiency products and services; (c) Alternative energy appliances (solar heating, lighting, etc.); (d) Energy efficiency research; (e) Energy efficiency meters & measuring devices


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(3) Transportation
(a) Alternative fuels (biodiesel, hydrogen, algae and biowaste-based ethanol and feedstock-neutral infrastructure); (b) Motor vehicles & equipment (electric, hybrid, and natural gas vehicles, diesel technology)

(4) Energy Storage
(a) Advanced batteries (Li-Ion, NiMH); (b) Battery components & accessories; (c) Fuel cells

(5) Air & Environment
(a) Emissions monitoring & control; (b) Environmental consulting (environmental engineering, sustainable business consulting); (c) Environmental remediation

(6) Recycling & Waste
(a) Consulting services; (b) Recycling (paper, metal, plastics, rubber, bottles, automotive, electronic waste and scrap); (c) Recycling machinery manufacturing; (d) Waste treatment

(7) Water & Wastewater
(a)Water conservation (control systems, meters & measuring devices); (b) Development and manufacturing of pump technology; (c) Research and testing; (d) Consulting services; (e) Water treatment and purification products and services

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(8) Agriculture
(a) Sustainable land management and business consulting services; (b) Sustainable supplies and materials; (c) Sustainable aquaculture

(9) Research & Advocacy
(a) Organizations and research institutes focused on advancing science and public education in the areas of: New Energy, Energy Efficiency and alternative fuels and transportation.

(10) Business Services
(a) Environmental law legal services; (b) Green business portals; (c) Green staffing services; (d) Green marketing and public relations

(11) Finance & Investment
(a)Emission trading and offsets; (b) Venture capital and private equity investment; (c) Project financing (e.g. solar installations, biomass facilities, etc.)

(12) Advanced Materials
(a) Bioplastics and others; (b) New materials for improving energy efficiency

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(13) Green Building
(a) Design & construction; (b) Building materials; (c) Site management; (d) Green real estate & development

(14) Manufacturing & Industrial
(a) Advanced packaging; (b) Process management; (c) Industrial surface cleaning

(15) Energy Infrastructure
(a) Consulting and management services; (b) Cable & equipment

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The core of California’s “green” economy is in high-value services and manufacturing and research and development across a range of sectors: Air & Environment, Energy Generation, Recycling & Waste and Energy Efficiency.

Services make up 45% of the core jobs. The biggest part of the service jobs is Environmental Consulting.

Manufacturing is 21% of New Energy economy work. Of that, more than half is in Energy Efficiency (44%) and Energy Generation (30%). Jobs in New Energy manufacturing grew 19% between 1995 and 2008.

In private sector Research & Development (R&D), the most jobs are in Green Transportation, Energy Generation and Air & Environment. The Advanced Materials sub-sector provides very few total jobs but 42% of all Advanced Materials jobs are in private sector R&D.

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Advanced Materials is also the sub-sector that has grown jobs the fastest (455% from 1995 to 2008!). Energy Infrastructure jobs grew 328% (!) in the same period.

The diversity allows for regions to develop New Energy opportunities built on existing strengths.

Urban areas with top green job growth: (1) Sacramento, 87% growth; (2) San Diego, 57%; (3) San Francisco Bay Area, 51%; (4) Orange County/Inland Empire, 50%.

Green jobs are also growing faster than jobs in general in California’s rural regions. Agricultural regions with top green job growth: (1) San Joaquin Valley, 48% growth; (2) Sacramento Valley, 41%.

On the cost of climate legislation: Much work has been done on the economic impacts of AB 32. The new study by the Brattle Group, a respected economic consultancy, is a peer reviewed first-of-its-kind analysis made at the request of the Union of Concerned Scientists (UCS). It uses empirical data on small businesses to estimate the potential impacts of climate legislation on that specific sector because small businesses are widely considered to be a driving force in the economy.

The study used 2 scenarios. The Conservative Case is realistic, but toward the pessimistic side. The Extreme Case used an unrealistically high estimate of cost increases that overstated AB 32 cost impacts.

The study focused on the direct costs of implementing AB 32 and omitted potentially favorable indirect market and behavioral changes. Examples of indirect potential benefits omitted: (a) The price-lowering effect on the costs of fossil fuels and electricity likely from adding New Energy and increasing the overall energy supply; (b) The economic benefits of implementing energy efficiencies that could represent significant savings for small businesses and create a further oversupply of energy.

The study makes 4 key observations:
(1) Most small businesses will not be directly regulated, not required to make
emissions cuts or to buy allowances or pay fees and affected only indirectly, through increases in energy costs. The vast majority of small businesses in California are not energy-intensive. The average California small business energy-related costs (electricity, natural gas, and transportation fuels) are less than 1.5% of its revenues. Increased small business costs due to the increased cost of intermediate products also will be modest.

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(2) Increases in electricity, gas, and transportation fuel costs by 2020, even in the Extreme Case, are lower than recent increases by business-as-usual factors unrelated to environmental regulations that small businesses routinely deal with.

(3) The estimated cost increases ignore the benefits of incentives to increase Energy Efficiency that will at least partially offset higher energy costs. Some will be profitable improvements.

(4) The moderate cost increases will be passed through to consumers because the products and services sold by the vast majority of small businesses in California are subject to limited competition from businesses outside the state. In competitive industries, increases in economy-wide production costs are regularly passed through. Costs incurred upstream (at the level of electricity producers, electricity suppliers, natural gas suppliers, oil refineries, etc.) will be passed on 100%. but a very small price adjustment would completely compensate for any cost increases associated with the energy and climate policies in AB 32.

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In brief, there will be little impact of AB 32 on small business because:

(1) Energy accounts for 7% of the total income for California state-wide and it is less than 1.4% of the total revenue for the average California small business.

(2) Even in the Extreme Case, in which energy prices rise by about 28% overall, and small businesses do nothing to conserve energy, there would be only a 0.4% increase in energy costs for the average small business and they are expected to be passed through without significant financial impact.

Therefore, over a 10-year period, the impact of AB 32 on the average price level in the California economy would be no more than 0.1% in the Conservative Case and 2% in the Extreme Case.

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A case study of Border Grill, a Los Angeles-based Mexican restaurant and a business more energy intensive than the average small business, found that by 2020 the cost of a typical dinner would rise less than 0.1%, less than three cents for every $20. In 2020, Border Grill is expected to be spending 2% of its revenue on energy. With a focused investment in efficient appliances, vehicles, and other equipment, Border Grill can cut its energy consumption and costs, improve its productivity and become more competitive.

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Specific assumptions/results in the Brattle study:

2020 carbon prices will be approximately $40 per ton in the Conservative Case and $60 per ton in the Extreme Case.

Cap&Trade under AB 32 will increase prices in 2020 by < 0.7 cents per kWh (5%) (Conservative Case) or by 1.9 cents per kWh (12%) (Extreme Case) for electricity; < 15 cents per therm (12%) (Conservative Case) or by 30 cents per therm (25%) (Conservative Case) for natural gas; < 35 cents per gallon (8%) (Conservative Case) or by 53 cents per gallon (12%) (Extreme Case) for transportation fuel.

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At the same carbon prices, (1) the Renewable Electricity Standard (RES) under AB 32 will increase electricity prices in 2020 by 1.1 cents per kWh (or 7%) (Conservative Case) or by 2.3 cents per kWh (or 15%) (Extreme Case); (2) Energy efficiency measures under AB 32 will pay for themselves (Conservative Case) or will increase electricity prices in 2020 by 0.4 cents per kWh (2%) (Extreme Case); and (3) The Low-Carbon Fuel Standard (LCFS) under AB 32 will not increase the 2020 price of transportation fuel (Conservative Case) or will increase it by 95 cents per gallon (21%) (Extreme Case).

The bottom line: The average impact of AB 32 on small businesses in California will be relatively small and entirely manageable. The cost burden will be well within the range of the expense variations most small businesses already deal with regularly and, therefore, easily absorbed into normal and ongoing business practices.

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QUOTES
- F. Noel Perry, Next 10: "While green jobs clearly cannot solve the state's current unemployment challenges, over time these jobs could become a growing portion of total jobs in California…"
- Jurgen Weiss, report co-author, The Brattle Group: "…The AB 32 cost impact pales in comparison to the effect of inflation over ten years, and falls well within the range of historic cost variation most small businesses face everyday regardless of climate policy."
- Jasmin Ansar, climate economist, UCS: "Energy efficiency is one of the key ways businesses can save money on energy costs…This report does not fully reflect the potential cost savings to small businesses from energy efficiency, so even the modest increases forecast by the study overstate the likely cost of AB 32 to small businesses."

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- Mary Sue Milliken and Susan Feniger, head chefs, Border Grill: "Such a miniscule increase, even if noticed, would not cause our customers any heartburn…We're known as the "Too Hot Tamales," and we're worried about a Too Hot Future. Our customers are just as worried as we are, and would be more than willing to pay an extra 3 cents to help avoid the most catastrophic impacts of global warming."
- From the conclusion of the report on AB 32: “…the average impact of AB 32 on small businesses in California will be modest. We recognize that its impact will vary across small businesses. Some businesses and sectors will be more affected than others. However, new business opportunities also will emerge as a direct result of climate change regulations such as AB 32, and many of those opportunities will benefit small businesses.

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- From the conclusion of the report on AB 32: "...Even if businesses do nothing to decrease their energy use through energy efficiency or other means over the next ten years, our results show California’s policies to reduce global warming pollution will have only a very small economic impact on small businesses. In exchange, such policies will help California to avoid the environmental, social, and economic impacts projected to result from unabated climate change and estimated at tens of billions of dollars annually. From an economic perspective, that tradeoff presents benefits to California’s small businesses and to the state as a whole in a future that is carbon-constrained.”