Governments Keep Making Ambitious Climate Pledges. Comparing Texas And California Show How Pledges Impact Economic Growth.
- September 13, 2018
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By Chris Busch, Energy Innovation's Director of Research and lead analyst on EI's California climate work.
Delegates from around the world are in San Francisco for this week’s Global Climate Summit, aiming to provide “confidence to governments to ‘step up’ and trigger [the] next level of ambition” in cutting carbon emissions. And their efforts were jump-started by Governor Jerry Brown's executive order pledging California to economy-wide carbon neutrality by 2045.
But governments considering ambitious climate pledges must inevitably ask: How do these stronger emissions reduction commitments impact economic growth?
Compared to other places, like Texas – known for its oil and gas production – California’s economy is performing better on most measures, showing that it is entirely possible to pair steep emission reductions with vibrant growth.
California has established some of the world’s most ambitious carbon emission reduction targets, and is achieving them faster and at lower cost than expected. The state hit its 2020 target four years early, while its economy grew much faster any other state and the U.S. economy as a whole – California’s economy climbed from 10th largest in the world in 2012 to 5th largest today.
This economic growth stands in stark contrast to some of the inflammatory predictions lobbed at the state’s policymakers when the state was considering Assembly Bill 32 (AB 32), California’s first statewide commitment to reducing emissions. Adopted on a bipartisan basis with leadership from Republican Governor Arnold Schwarzenegger, the law requires emissions to fall back to 1990 levels by 2020.
One commentator opined gasoline prices that reaching those emission reductions would cause the price of gasoline to reach “$7.15 to $11.57 a gallon” but prices are less than half that level today. Professors at California State University forecast employment losses of at least 1.1 million jobs by 2020, representing six percent of the current workforce, but California is enjoying an unprecedented jobs boom. Unemployment was at a record low 4.2% in July for the fourth straight month in the most recent data released August 17th.
An economic boom amidst ambitious climate action
From 2011-2017, California’s economy grew almost twice as fast as the rest of the nation, expanding 24% compared to 13% on average for the 49 other states, and statewide job growth increased 16% compared to 10% for the rest of the nation, over the same period.
California’s climate policy leadership attracted more than $22 billion in venture capital funding alone over the last decade – more than any other state or country besides the U.S. as a whole and China. These investments have spawned a range of growing California-based companies: Proterra (electric buses), Charge Point (EV charging), SunPower and SunRun (solar), and Picarro (pollution detection). These and other clean tech companies are major employers, supporting more than 500,000 jobs.
Tesla makes electric vehicles California's 7th-largest export
Tesla is the most well-known of California’s emerging clean tech companies, and is emblematic of the state’s clean energy economic upside. While Tesla is only just beginning to ramp up production, it is driving a surge of vehicle exports. Federal data show vehicle exports from California increasing fivefold, from $600 million in 2013 to almost $3 billion in 2017, making electric vehicles California’s 7th largest export.
Meanwhile China, the world’s largest car market, and the rest of the world are rapidly moving toward an all-electric vehicle future. Global electric vehicle sales hit 4 million at the end of August, and Bloomberg New Energy Finance projects that adding the next million EVs will take just six months.
A study in contrasts: Comparing California and Texas
Tesla embodies California’s surprising strength in the manufacturing sector, which is often viewed as providing higher quality jobs while also being particularly sensitive to international or interstate competition.
California is often underestimated when it comes to the industrial sector and manufacturing, but since the state’s climate policies started ratcheting up in 2012, it has outperformed Texas and the rest of the U.S., growing in real terms by 26%
Texas’s manufacturing performance suffers over this time period because of its dependence on oil and the drop in oil prices. The state’s manufacturing output shrank by 1% in 2017 compared to 2011, in part because of oil price volatility in the world market.
These results highlight the economic risks introduced by Texas’ dependence on an extractive industry subject to global prices. However, even when leaving out petroleum-related manufacturing, California’s stronger growth persists. Texas’ non-petroleum related manufacturing grew by 10% compared to a 30% increase for California on the comparable metric.
A $26 trillion global economic opportunity
California reached its 2020 goal four years early, in 2016, while building one of the world’s strongest economies, proving that climate action and vibrant economic development can coexist - Yet this remarkable achievement created barely a media ripple.
Any statistician will warn that correlation is not causation, and further econometric work is needed to identify the cause-effect relationship between the implementation of AB 32 and California’s economic performance. But while further research on this topic is called for, the evidence suggests California’s implementation of AB 32 has not impaired economic growth. The first phase of decarbonization has proven remarkably doable, thanks to entrepreneurship and innovation.
It is quite obvious that California’s climate action has not crippled its economy, that climate action is entirely consistent with economic development, and that predictions of economic catastrophe from the early days of AB 32 implementation proved inaccurate.
Though California is known for innovation, these policy implications apply broadly to other governments. Wind and solar have become the lowest-cost electricity generation option in many places, spreading clean energy to previously underserved communities, and other clean technologies are following the same pattern. If fully embraced, low carbon investments present an opportunity to boost global growth by $26 trillion through 2030.
As officials and leaders from around the globe gather for the Global Climate Summit, it is important for this evidence to be widely understood. Strengthened emissions reductions in every country and city will be needed to tamp down global warming and prevent dangerous climate change.
California’s experience thus far has shown climate action to be very affordable. As other leaders contemplate action, they should draw confidence from California’s example and strengthen climate action.