Guest author Jasmin Ansar, Ph.D., Union of Concerned Scientists
By Jasmin Ansar, Ph.D., Union of Concerned Scientists – There has been a lot of rumor and speculation circulating lately about the economic impact of California’s global warming policies—in particular their impact on small businesses. As an economist who worked in academia and the private sector for more than two decades before joining the staff at the Union of Concerned Scientists last year, I wanted to get to the bottom line, so to speak. Exactly how would AB 32 affect businesses in our state?
To answer this question, the Union of Concerned Scientists commissioned a robust empirical assessment from economists at The Brattle Group, which was then peer-reviewed by independent economists. The results of this first-of-its-kind study show that small business will barely be affected by state policies that bring global warming pollution back down to 1990 levels by 2020.
Why? The answer is not surprising once you look at the data. Most small businesses are not very energy intensive, so even though AB 32 causes some increase in the cost of electricity, natural gas, and transportation fuel, the overall impact for small businesses is small and very manageable. On average, the energy intensity of California small businesses is only 1.4% (energy cost as a percentage of sales revenues). The energy cost increases expected from AB 32, will cause this percentage to increase 0.3 percentage points—from 1.4% to 1.7%.
Even this minuscule impact should be considered an outcome that lies toward the “worst-case” end of the spectrum because the authors of the report made several very conservative assumptions in their calculations, with the result that costs are overstated. For instance, they assumed that businesses do not change behavior and try to save energy–by buying energy efficient lighting or appliances, for example. If these adaptive behaviors had been included in the analysis, businesses could actually cut energy costs—resulting in increased productivity and competitiveness. As they say, green is the new black.
The report also includes a real-world case study estimating the impact of the projected AB 32 energy cost increases on the financial cash flows of a restaurant in Los Angeles—Border Grill. Restaurants have above-average energy intensity and employ the largest share of people of all small businesses (10% of the total state employment). So how will AB 32 impact Border Grill? The restaurant’s energy intensity will increase by only 0.1%. This tiny increase in costs could be covered by increasing the price of a $20 meal by three cents in 2020.
What is clear from this study is that the costs of AB 32 are very manageable for small businesses in California and these small businesses routinely deal with price increases of similar and much larger order of magnitudes.
Furthermore the costs of AB 32, which implements policies to mitigate emissions of greenhouse gases, pale in comparison to the cost of not acting to slow the rate at which our planet is warming. The legacy of the costs of inaction will be a financial and environmental burden which will be crippling and potentially irreversible for generations to come.
