China and Keeping California’s Air Clean

China and Keeping California’s Air Clean

By Bill Watkins, Ph.D, December 20, 2013

Editor’s Note – Our colleague at the Center for Economic Research Forecasting at California Lutheran University in Thousand Oaks, is one of the leading proponents of working with China to help China and America reduce the air pollution that we actually share.  It is recognized that California in particular has made great strides in cleaning up the air that we breathe.  As Dr. Watkins notes, however, we cannot further clean and maintain cleaner air if the world’s largest polluter, China does not do its part.  China utilizes coal as one of its main sources of energy, and coal pollutes as it generates CO2 gas.  America, with vast coal reserves of our own is slowing weaning itself away from its use in favor of natural gas, regrettably at the expense of the two largest coal producing states, Wyoming and West Virginia.

Gary Wartik

Michael Peevey, President of the California Public Utilities Commission, is sincere and concerned about CO2 emissions. At a presentation at California State University, Channel Islands early in 2013, he spoke about California’s efforts to limit emissions. He mentioned green jobs, but, to his credit, he did not repeat the debunked claim that restricting CO2 emissions will be a net job creator. He also acknowledged that it doesn’t much matter what California does, if China doesn’t change its behavior. It turns out that if California were to reduce its carbon emissions to zero, in about a year and a half global CO2 would be higher anyway, just because of the growth in China’s emissions.

Mr. Peevey talked about California’s increasingly ambitious plans for carbon reduction in the future. The goals include returning to 1990-level CO2 emissions by 2020, and then an 80 percent reduction by 2050, regardless of California’s population changes.  This is going to be expensive. And the price of some of the potential technology — such as capturing atmospheric CO2 and pumping it underground — will include a lot more than the direct cost. The ultimate costs will, unfortunately, include increased global CO2 emissions.

Some readers will remember the first time Larry Summers, the former US Treasury Secretary (under President Clinton) put his public career at risk because of his bluntness. In 1991, while Chief Economist at the World Bank, Summers gained international notoriety by saying in a memo, “I’ve always thought that under-populated countries in Africa are vastly under polluted.”

That was the first of many times that lots of people demanded his head. He’s since claimed that it was sarcasm, but I don’t believe it. I believe he meant that environmental quality is a luxury good; that poor people need things like food and shelter, and they don’t care much if they trash the environment in the process.

So, if pollution were localized, the poor would gain jobs and the wealthy would have an improved environment.  Presumably, each would be happier.

Of course Dr. Summers comments sound terrible to most people. But that’s precisely what we are doing here in California, only we’re doing it worse.  California, by making manufacturing production so very expensive (AB 32 legislation is a good example of good intent with unintended consequences), is chasing producers to places with low pollution controls. It’s worse than the situation Dr. Summers describes, because carbon dioxide emissions do not remain local. They spread throughout the atmosphere. Perversely, California is causing a global increase in CO2 emissions by its regulations limiting CO2 emissions in California, as polluters move to areas outside California.

The problem is the result of acting on the concept of Think Globally and Act Locally (TGAL). TGAL works when pollution is local. But when air pollution is free to float around the world, you have to have a different strategy, and get the most reduction for your investment.

In California, we don’t get the most for our investment. In terms of carbon efficiency — the ability to generate output while emitting less CO2, California is one of the world’s most efficient economies. Each new reduction in CO2 becomes increasingly expensive. That is, reducing emissions is subject to increasing marginal costs. Reducing carbon emission in California is really expensive because we are so carbon efficient already. Reaching the 2050 goal will be incredibly expensive. Worse, it won’t do any good.

It’s not as if California can really afford it. During 2013 I participated in the South Coast Association of Governments (SCAG) Third Annual Economic Summit. This great event provided lots of information about the economic challenges facing Southern California. For example, we learned that Los Angeles County’s economy will probably not reach its pre-recession level of jobs until at least 2018 and perhaps not until 2020.  That’s a sobering thought.

State Sen. Roderick Wright (D-Los Angeles), a powerful speaker, documented California’s industrial decline, and made an emotional appeal for polices that produce jobs. The audience gave Wright a rousing ovation, something quite rare at economic conferences. The problem is that the audience was comprised of economic development people. Too bad no one else was listening. It was poorly attended by policy makers. There were only a handful of elected officials present to hear the presentations.

California’s economy is struggling with very modest job growth rates and GDP, even if many refuse to acknowledge that fact. Because of that, our investments need to be wise. The correct strategy for California is global. We need to go looking for the low hanging fruit.

The low hanging fruit is mostly in developing countries like China, India and Brazil. We’ve tried to get them to cut their emissions at Kyoto Conference and the like, but they refused, pointing out that they are much poorer than the West, and that we were able to develop with lower-cost polluting industries. They have a point.

We should help them cut their carbon emissions. Reducing a ton of CO2 emissions is far cheaper in China than in California. So, let’s reduce it there. There are political problems with this proposal. California’s carbon regulations were sold to the people on the absurd claim that the regulations would be profitable: better than low cost, better than a free lunch.

The bigger problem would be convincing California voters to tax themselves to clean up Chinese factories. That seems to me to be an information dissemination problem. If Californians knew the true cost of the existing program, and how little reduction in global CO2 concentrations it brings, they might logically be willing to look at other approaches. If they knew how much more effective a dollar spent on Chinese emissions was than a dollar spent on California emissions, they might seriously consider the proposal. The proposal could always be sweetened by requiring that all the work be done by California companies.

It would be good for Californians. It would be a big step towards restoring California’s economic vigor. It would make a serious dent in global CO2 concentration. It would be less costly than our current plan.  Let’s do it.

For further information on this subject, please contact Gary Wartik at Vision Economics at 805-987-7322, or Dr. Watkins at the Center for Economic Research and Forecasting office at 805-705-5568.

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