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Global-warming cap can stimulate state economy, report says

| 30 August 2006

A report delivered to state legislators earlier this month finds that returning California's greenhouse-gas emissions to 1990 levels by 2020, as envisioned by pending global- warming legislation, can boost the annual Gross State Product (GSP) by $60 billion and create 17,000 new jobs.

The report, "Economic Growth and Greenhouse Gas Mitigation in California," offers an independent assessment of the economic benefits of Assembly Bill 32 (AB 32), the Global Warming Solutions Act, sponsored by Assemblymembers Fabian Nuņez (D-Los Angeles) and Fran Pavley (D-Agoura Hills).

The study finds that the gains could be even larger - $74 billion in annual GSP and 89,000 new jobs by 2020 - if climate policies are designed to create direct incentives for California companies to invest in new technology.

"Our study demonstrates that meeting the 2020 limits under debate in Sacramento can stimulate the state economy," said David Roland-Holst, an adjunct professor of agricultural and resource economics and author of the report. "Climate action can be profitable."

The new analysis follows up on a January study that concluded that achieving half of the 2020 targets would promote economic growth in California. The new study extends its scope to meet the 2020 targets and reinforces the earlier conclusion about economic benefits. Furthermore, it identifies new benefits that can result when innovation goals are coordinated with climate-policy action.

Both studies use the Berkeley Energy and Resources (BEAR) model, a state-of-the-art, economy-wide forecasting tool, to trace the complex market interactions of a greenhouse-gas-emissions cap across key elements of the California economy. The most sophisticated energy model of the California economy in use today, BEAR predicts economic benefits, largely because innovation and efficiency improvements - driven by climate policy - save money. As a result, consumers can to re-direct their spending from imported energy to in-state goods and services, providing new stimulus to the California economy.

Separately, UC economists have organized a letter to the legislature and Gov. Arnold Schwarzenegger urging state leaders to accelerate climate action. It calls emissions caps a "particularly potent strategy" and warns that "the most expensive thing we can do is nothing." The Aug. 16 letter, updated from an earlier version sent to state officials on June 26, has now been signed by 60 Ph.D. economists from across California - including three Nobel laureates.

"California's economy is vulnerable to climate impacts, but it can benefit from climate action," said Michael Hanemann, professor of agricultural and resource economics and a lead signer of the economists' statement. "The economic evidence supports a cap on global-warming emissions."
The full report and the economists' letter are both online at calclimate.berkeley.edu.