Block’s Indicator of Sustainable Growth

by Ray Block

Being a movie actor must have something about it to qualify as a politician. Ronald Reagan, the one time movie actor changed overnight from liberal to conservative, and having become the darling of the Right, became the successful 40th President of the US.

Arnold Schwarzenegger, another movie actor and one time bodybuilder, who enjoyed his roles as a super hero, but whose most endearing movie was Kindergarten Kid, retires from his two terms as governor of California in January 2011. He can’t stand again, a requirement of the state constitution, as amended in 1990. This could give concern that a future governor might want to slow down the march to renewable energy. For example, is front running Republican, Meg Whitman, the highly successful ex-CEO of eBay as committed to renewable energy as the Terminator?

California’s fiscal position is dysfunctional with a large structural debt, unemployment is at a record 12.5 per cent, and massive savings have to be made in budget programs. Schwarzenegger has been a crusader of renewable energy and the low-carbon fuel standard in the seven western states. With these states and four western Canadian provinces, he has been the leader in the Western Climate Initiative to set up a cap and trade scheme for the region.

The state has been a long time pioneer in tighter environmental laws, establishing its own air pollution standards as early as 1966. Under Schwarzenegger in 2006, landmark legislation AB 32, the Global Warming Solutions Act gave the California Air Resources Board (CARB), the lead agency role in implementing the act. The law requires that by 2020, the state’s greenhouse gas emissions be reduced to 1990 levels by 2020. This is about a 25 per cent reduction under “business as usual” conditions, and to  a 80 per cent reduction by 2050.

At the same time, California’s renewable portfolio standard (RPS), which the Governor signed into law in September 2006 imposed mandatory obligations on the state’s three major electricity suppliers to produce at least 20 per cent of their electricity using renewable sources by 2010.

The Terminator went even further in September 2009 by Executive Order directing CARB to adopt regulations increasing the state’s RPS to 33 per cent by 2020. The executive order allows renewable energy imported from the other western states through the western interconnection to count towards the 33 per cent goal.

The RPS will apply to all load serving entities, including investor owned utilities, publicly owned utilities, direct access providers and community choice aggregators. The ARB is directed to adopt these regulations by July 31 2010. Even with the allowance to include other western states’ renewable energy sources, this is an exceptional target for the largest state in the nation.

With the shock loss of Ted Kennedy’s Senate seat to a Republican and the tide turning strongly back to the conservatives, liberal Republicans like Arnold Schwarzenegger are a dying breed. There are already calls for AB 32 to be repealed. An economic analysis prepared for the California Small Business Roundtable in June 2009 concluded that small business, the dominant employment force in the state would be “likely to result in loss of more than $182.6 billion to gross state output.”

In the meantime, there is a record level of new development proposals in renewable energy projects in the state, which will make 2010 an extremely interesting year. I will write on these projects shortly.