Will environmental regualtion hurt California job growth?

Joel Fox has written an interesting piece about his hope that California will roll back some environmental regulations. He quotes a piece I wrote several years ago when I was asked to give my prospective views on the likely impacts of AB32. He is correct that I assumed that while California would be an environmental leader with respect to enacting carbon dioxide mitigation legislation that I thought that the rest of the country would be ramping up its regulations.

But, now we sit in 2011 and California continues to gear up for AB32 while the rest of the nation has not stepped up. Is California putting itself at a strategic disadvantage during a time when we all want "more jobs"?

The good news here is that the California Air Resources Board understands the political realities that it faces. I would say that the ARB is being very cautious in rolling out AB32. It has delayed introducing the cap and trade piece of AB32 and it is being quite generous to industry in terms of "tip toeing" into the water. Industry will only slowly face serious carbon prices and has plenty of time to adjust.

A liberal state such as California has both environmental regulation and labor regulation. We also do not have strong public schools. A serious researcher would seek to disentangle these 3 effects in understanding why firms might leave California to go to other places. Exactly what types of "small business" jobs is California likely to lose due to AB32? What is the mechanism? How much will this well meaning regulation raise their costs of doing business? Why can't they pass these costs on to consumers? Why can't these firms adapt by changing their production processes? Why are these firms so "high carbon"? I'd like to see answers to these questions and then I would be more sympathetic to Mr. Fox's key arguments.