Block’s Indicator of Sustainable Growth

by Ray Block

There is a political campaign in California to begin the unwinding of the far reaching reforms, which liberal Republican governor Arnold Schwarzenegger inspired and campaigned for to transform the state to a low carbon economy.

In the process of starting the transformation under Schwarzenegger, the state legislature passed trailblazing measures, never attempted before in the US. These included the Global Warming Solutions Act of 2006 to achieve a reduction of greenhouse gas emissions in the state by 20 per cent from 1990 levels by 2020. This act has not yet come into force.

Another positive step was the Governor’s executive order in 2007 to create the world’s first Low Carbon Fuel Standard (LCFS). This requires fuel producers reduce the carbon intensity of transportation fuels sold in the state by 10 per cent to 2020. The effect of this is to reduce greenhouse gas emissions by more than 13 million metric tons a year, equivalent to taking three million cars off the road.

The third positive was establishing California’s Renewable Portfolio Standard (RPS) by executive order to provide clear and permanent direction for the creation, delivery and servicing of the state’s renewable energy programs, while increasing the renewable energy use. The California Air Resources Board (CARB) will adopt regulations to increase the state’s RPS to 33 per cent by 2020.

The state’s leadership on energy conservation and the environment led to the first step to national Green Building Standards, which will serve as a foundation for commercial buildings worldwide. Another initiative was California’s encouragement to other western states in launching the Western Climate Initiative in February 2007. The other states taking part were the governors of Arizona, New Mexico, Oregon and Washington to develop a regional strategy aiming for a uniform approach to cutting greenhouse gas.

The states of Montana and Utah, and the Canadian provinces of British Columbia, Manitoba, Ontario and Quebec also saw the advantages of joining. The partners resolved to reduce greenhouse gas by 15 per cent below 2005 levels by 2020, and to build compatible systems to ensure that programs could be linked for maximum environmental benefits and at the lowest cost.

All these advantages are now at threat. Schwarzenegger retires as Californian governor in January 2010, having been elected in the November 2003 state wide Recall election, after the Democrat Grey Davis was removed from office of governor by a vote of 55.4 per cent. In a second ballot, Schwarzenegger was elected by 48.6 per cent of the vote.

The most likely successor as governor is expected to be conservative Republican Meg Whitman, the one time very successful chief executive of eBay. At immediate threat is to the Global Warming Solutions Act (this is AB 32, which mandates the reduction of about 30 per cent in the state’s greenhouse gas in 2020 from 1990 levels).

Although AB 32 is unlikely to come into force before 2012, conservative Republicans want to see a 12 month moratorium on its implementation. A separate call for a legislated stay on AB32 is a movement led by two ethanol producers based in Texas, who are spending freely to get sufficient signatures to require a special state election. This bar would remain in place, until the state unemployment fell to 5 per cent. They need to get 433,000 signatures for this special election, and hopefully they may miss out.

The fact that the not so “golden state”, with a jobless rate of 12.5 per cent in January 2010, compared to the national average of 9.7 per cent makes it a daunting task for any governor to deal with, however well experienced to restore balance to the economy.

Coupled with a potential state budget deficit of $20 billion, largely due to an undue reliance on state income taxes, with property tax reserved mainly for local government, it becomes a herculean task.

In May 2009, Schwarzenegger tried to get a raft of ballot measures carried by the state’s special election process to restore some balance to the budget process. The key proposition was to place a spending cap on the budget forcing the state to more than double the amount of funds it puts away in reserves for spending during times of economic difficulties. These ballot measures failed.

California’s chief justice, Ronald George (San Francisco Chronicle Feb 20 2010) trenchantly criticise the state’s legislative process saying “unrestrained ballot lawmaking is paralysing government.”

The state and its lawmakers “have been placed in a virtual straitjacket” by a requirement of a two thirds legislative vote to raise taxes, imposed by Proposition 13 in 1978. Ronald George said other ballot measures further tied legislators’ hands by reserving specified portions of state funding for public transportation and education.

This is where the threat to unravel Schwarzenegger’s renewable energy program comes in. If AB 32 is cancelled or rescinded, who is to prevent the unravelling of the rest of Schwarzenegger’s dream of a low carbon economy.