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Proposition 23: Would it worsen gas-price shocks?

September 13, 2010 | 12:01 am

Gas prices

California’s 2006 global-warming law would save the state’s consumers as much as $670 per household in 2020, in the event of a global surge in the price of crude oil, according to a report released Monday by economists for alternative-energy advocacy groups.

The U.S. economy has experienced five price shocks over the last three decades in which crude oil prices rose an average of 179% in one year.

Titled “Shock Proofing Society: How California’s Global Warming Solutions Act (AB 32) Reduces the Economic Pain of Energy Price Shocks,” the study is aimed at countering a November ballot initiative, Proposition 23, which would delay implementation of the global-warming law. Its analysis is based on projections for 2020 and conservatively assumes only a doubling of crude-oil and natural-gas prices.

The 55-page report was written by economists from three organizations: Energy Independence Now, the Center for Resource Solutions and the Environmental Defense Fund.

Proponents of Prop. 23, however, say the global-warming law, which promotes solar, wind and alternative fuels to replace oil, gas and coal, will increase the price of energy. They project up to a 60% rise in electricity rates, up to 57% higher natural-gas rates, and a $3.7-billion annual increase in the cost of gasoline and diesel fuel.

Prop. 23 is primarily funded by oil refiners, including Valero Energy Corp., Tesoro Corp. and Koch Industries, and is backed by the California Manufacturers and Technology Assn. and the trucking industry. It would delay the implementation of the global-warming law, also known as AB 32, until unemployment in the state, now over 12%, drops to 5.5% for at least a year.

Controversy over the economic effect of Prop. 23 has been raging for months. An open letter on July 19 signed by 118 economists with expertise in California energy and climate issues, warned that any delay in implementing AB 32 would “be more costly than initiating action now.” The letter was signed by Stanford University Nobel laureate Kenneth Arrow, as well as prominent economists from UC Berkeley, UCLA, USC, UC San Diego, UC Santa Barbara and UC Riverside.

The “Shock Proofing Society” report is the first attempt to analyze the effects of AB 32 in the event of sudden increases in gasoline prices, according to Environmental Defense Fund economist James Fine. And, according to Chris Busch, an economist with the Center for Resource Solutions, "This is the first report that quantifies how AB 32 would affect California's dependence on crude oil and natural gas."

The law aims to reduce the state’s emissions of carbon dioxide from fossil fuels and other greenhouse gases to 1990 levels by the end of the decade. Scientists say that gases from industry and transportation are heating the planet and already have begun to affect California, with melting snow packs and rising sea levels.

Previous calculations by economists with the California Air Resources Board assumed steady energy prices and figured that, overall, AB 32 would save Californians $7.5 billion in 2020, assuming gasoline prices remained close to today’s levels. Today's prices are significantly lower than in 2008, when prices spiked 45% to $4.59 per gallon.

Factoring in potential price hikes based on past history, however, the report calculates an additional $4.8 billion in savings to consumers in the event of a moderate price hike and $9.6 billion in savings in the event of a large oil shock. This would translate into household savings of $337 to $670.

The calculations were made with the input of the Air Resources Board and the California Energy Commission, using the U.S. Department of Energy’s price forecasts.

-- Margot Roosevelt

Photo: Gasoline prices, shown at a San Mateo, Calif., Shell station, tipped higher than $5 per gallon in 2008. Credit: Justin Sullivan / Getty Images

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