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The economic impact of California's AB32 law for fighting climate change

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Reed Saxon/AP Photo

(Read caption) Installers Arin Gharibian (l.) and Hayk Mkrtchayan (c.), and team leader Edward Boghosian (r.), all employees of California Green Design, assemble solar electrical panels on the roof of a home in Glendale, Calif., Tuesday.

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Yesterday was a big day in California environmental politics. The Air Resources Board has released its new economic report providing details of its best predictions concerning the likely impact of this important regulation. Details are posted here:

http://www.arb.ca.gov/cc/scopingplan/economics-sp/economics-sp.htm

Jim Sweeney and I published an editorial today in the Los Angeles Times. You can find a draft of that piece at

http://www.today.ucla.edu/portal/ut/analysis-of-cost-of-greener-california-155823.aspx. We argue that AB32 offers some benefits and that we need careful economic analysis of its true micro economic effects.

I was also happy to see this US News and World Report article discussing my work on the impact of natural disasters. http://news.yahoo.com/s/usnews/20100324/ts_usnews/whynaturaldisastersaremoreexpensivebutlessdeadly

Returning to AB32, I spoke to many different reporters today and I always said the same thing;

1. I don't love "macro models"

2. I do believe that this regulation is beneficial because of how it will change firms and households incentives and this MICROECONOMIC incentive change will spur green innovation and help the California economy in the medium term.

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A smart writer from the San Diego Union Tribune pushed me asking about free riding. He asked why California must be the Guinea Pig? Why can't we free ride like everyone else (given that the rest of the world failed at Copenhagen to sign a global deal). I pushed back that California, Oregon and Washington are large enough together to form a home market effect to push the green economy regardless of what the rest of the nation is doing. But, upon reflection -- I do think he is right that President Obama should think about offering a "green carrot" to California for taking this costly first move for the social good of the "big green economy". I will return to this point in a future post.

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