The coming year brings ever-stricter environmental laws to California. January 1 launches the world’s second largest carbon trading market, costing over $1B a year to the state’s largest industrial polluters. A year later California’s Title 24 energy code – already one of the country’s tightest – becomes 30% stricter, raising construction costs substantially. And California’s crucial role in the Obama fuel economy standards of 2012 underscores its status as a powerhouse policy exporter. Similar examples affect nearly every industry in the state’s $2TN economy.
Many see these policies as economic suicide. Keep it up and we will tax ourselves into the poorhouse, while the rest of the world happily spews ever more greenhouse gases. Indeed, California consistently ranks as The Very Least business friendly state, by just about every group that makes such lists. Industry proponents lob lawsuits often – as in the case of the Chamber of Commerce filing suit last month, calling the new carbon market unconstitutional.
Despite all this, California boasts enviable economic stats. Despite a recent blip, the most populous state it is projected in the long term to be the fastest growing in absolute terms. California is the home to Silicon Valley and the center of venture capital; Google, Apple, Facebook, Intel and Disney call the state home. Analysts have feared for years that these top tech companies – and citizens at large – will massively relocate to lower-cost states like Texas, but they haven’t.
Why aren’t they leaving?
In a word: Nature. California’s natural beauty, valuable coast, and ideal climate have been reeling people in for centuries. California accounted for 12% of all national park visits this year, not counting the wildly popular state beaches. It is one of those rare places one can both ski and surf within hours. And the climate is as prized for sunbathing as it is for wine grapes. These natural wonders drew in early explorers like Cortes, later naturalists like John Muir, and eventually the vast millions that now populate the state.
And yet those resources are threatened. California has the five most polluted cities in the union, its mountain ranges trapping the emissions from its multitudinous cars. Quickly melting snowpack in the Sierra Nevada mountains is causing grave concern about water supply. And then there is the trillion-or-so dollars worth of oceanfront real estate, which retained value well in recent years but is menaced by persistently rising sea levels. These problems have launched a call to action that has been accelerating in recent years.
California CAN enact strict policies because Nature brought people here to stay. But it MUST enact those policies since these very same people impact it so. Thus, California represents the ideal testbed for environmental policies. Penalties can be harsher because people won’t simply leave, as they might elsewhere. Lawmakers can test policies here and sometimes even export – as we have seen with some parts of its energy code. And the stakes are higher with the new carbon trading scheme, since Europe’s massive trading system has yet to achieve the results hoped for. Pundits on all sides will be watching this new experiment closely, since it may impact the ongoing UN climate change talks.
If ever there was a place where environmental policies could be perfected, California is it. It’s already one of the major clean tech centers of the world. Despite events like the dramatic meltdown of solar cell manufacturer Solyndra, the industry is humming. California holds nearly double the clean-tech patents of any other, and venture capital investment exceeded $3.5B in clean-tech alone. Many of the best companies have grown due to, not in spite of, these tough policies.
This is not to condone needless regulation. Indeed, California’s legislative bodies are bloated by most any standards, and could stand to improve dramatically. There are some good oversight bodies though; notably, the Little Hoover Commission recently published a great report on optimizing energy reform.
In the end, these policies save us from ourselves. Minor home improvements like insulation upgrades often pay for themselves in a year, but we resist. The new energy code drives up homes costs by $2300 but saves us $6200 in the long term. The same energy code has kept California’s energy use per capita flat since 1970, while the nationwide statistic has risen 50%. And if anything is to be done about dangerously rising sea levels, California is the place to start it. After all, we have much to lose.