California’s Achilles Heel: The High Cost to Do Business

The High Cost of Doing Business also Kills Green Jobs

Did you read the op-ed by TJ Rogers in the WSJ today?  He describes the real choice we have here in California and elsewhere between growth and the environment.  It’s not a throw the baby out so we can keep the bath water lesson.  That is improving environmental quality does not have to destroy jobs.  But that is often the unintended consequence of the cumulative impact of rules and regulations that seem reasonable at the moment but haunt us over time.

California is an example of both extremes at work.  Some of the early environmental policy decisions made in California involved establishing energy efficiency standards on a wide range of products sold in the state.  Yes manufacturers opposed such unilateral actions, but California lived into it best traditions as laboratory and trendsetter in focusing on reducing wasteful energy use.  Today the energy intensity in California of about 50% of the national average and the size of the California consumer market meant that manufacturers could do well by doing good by adopting the California efficiency standards for the products sold across the United States.

Similarly, setting renewable energy portfolio standards requiring utilities to get 20% of energy consumed from clean, renewable sources indeed jump started the market for wind and solar energy and a range of other technologies and California utilities are closing in on the 20% targets.

But TJ Rogers talks about his company’s acquisition of money losing Sun Power and how the decision needed to save the company from bankruptcy and return it to profitability meant moving the solar panel production from increasingly high cost California to lower cost Malaysia while growing its sales and customer service functions in the California market.  Eventually, he said 4000 jobs went to Malaysia while 800 new jobs were created in California.

Over time the cost of doing business in California is having impacts that even threaten our environmental goals.  While we still generate ideas and our venture capital in Silicon Valley builds new companies and new products they can’t afford to build them here and thus our high cost status deprives us of the job creating benefits of that cleantech investment as R&D turns into manufacturing.

Proposition 23 on next week’s ballot would suspend AB32 the California Global Warming Solutions Act until unemployment in the state is below 5.5% for four consecutive quarters.  As I write this the polls suggest that California voters are likely to vote the proposition down.  Doing so will not improve the odds that California will achieve its greenhouse gas emission reduction targets but it may cost the state as many as 1.1 million jobs as business shifts its manufacturing and other operations out of state.  Even if California held its GHG emissions steady at it 0.36 gigaton 1990 levels (the target for 202 under AB32) TJ Rogers described the impact as reducing the total US GHG emissions of 5.98 gigatons in 2007 to 5.94 gigatons. NONE of those emissions would actually go away they are just exported to other markets along with California jobs.

And that’s the lesson, when California policy makers stick to environmental strategies that encourage real changes in energy intensity and use that is lasting we can have a profoundly positive environmental impact within the state and well beyond our borders.  But when those policies are a zero-sum game that induces business to go elsewhere California forfeits both its environmental leadership and its economic growth and standard of living.

So pay attention to how California voters decide three propositions on the ballot:  Prop 23 on suspends the Global Warming carbon tax, Proposition 24 adds $1.3 billion in new taxes on business by eliminating investment tax credits on new plant and equipment for business growth and Proposition 25 reduces the legislative votes required to pass a budget from 2/3 to a simple majority.

The Tax Foundation called California the second worst business tax climate of the 50 states after New York but it will displace New York as the worst depending upon how voters act.

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