Proposition 23: Be careful what you wish for, you might get it!

Climate change continues to appear on the electoral agenda globally, but this November in California it will be front and centre for the state’s voters. AB 32, the landmark emissions reduction legislation of the Schwarzenegger administration is under threat. Specifically, a proposition is now on the November ballot to suspend AB 32 until the economy improves.

Proposition 23: Suspends State laws requiring reduced greenhouse gas emissions that cause global warming, until California’s unemployment rate drops to 5.5 percent or less for four consecutive quarters. Requires State to abandon implementation of comprehensive greenhouse-gas-reduction program that includes increased renewable energy and cleaner fuel requirements, and mandatory emission reporting and fee requirements for major polluters such as power plants and oil refineries, until suspension is lifted.

AB 32 has led the California Air Resources Board (ARB) to develop a consistent statewide master plan to reach the goal of reducing emissions to 1990 levels by 2020 and has given it the authority to implement the necessary regulations to achieve the goal. The proponents of the Proposition seem to believe that the suspension of AB 32 will bring to an end the need for business to respond to such regulation. In fact, suspension may do more harm to business than the perceived benefit of the Proposition. Nature abhors a vacuum and so it seems do California air regulators. In place of AB 32 we may well see numerous state and local agencies, cities and counties turning their individualized attention to greenhouse gas emissions under existing authority.  Rather than  working in coordination with ARB to reach the AB 32 statewide reduction goal as many of these agencies have been, individual agency actions may result in a fragmented array of inconsistent regulations with no defined goal. Business could well find itself in a much more costly command and control environment rather than the more flexible market driven approach being developed by ARB. Local air districts could behave very differently with, say, a facility in Los Angeles facing very different regulations to one in the San Francisco area.

Many businesses are either in the process or on the cusp of new investment to meet the provisions of AB32, particularly the Low Carbon Fuel Standard (LCFS) which has its first compliance period starting only weeks after the November election. Compliance with the LCFS will likely mean changes to the Californian crude oil diet, new bio-fuel production plants and purchase contracts and investment in blending facilities, distribution terminals and gas stations. It also provides direct stimulus for growth in the nascent electric car industry which is now just attempting to gain a foothold in the market. Suspension of AB 32 could financially strand these investments and damage the prospects of new Californian industries based on electric mobility.

The Proposition also introduces a great deal of regulatory uncertainty. It does not provide for a smooth transition between the current situation and suspension or when the suspension is lifted.  The reintroduction of AB 32 then becomes a complete unknown, but with immediate impact, particularly if the 2020 goal remains intact.

Now is not the time to prevent the rollout of AB 32. Now is the time to work together to develop key AB 32 regulations, such as a cap and trade system.  We need regulations that help us transition to a low carbon future in a cost effective manner but balanced against economic needs.  Much can be accomplished by including adequate transition periods to prevent unnecessary economic disruption or short term costs and to address potential interactions with US Federal requirements.  Compliance related preparation and investment is already underway or in the pipeline and the design of AB 32 regulation may well serve as a useful template for the nation as a whole. The passage of Proposition 23 could result in a new and expensive regulatory pathway for business, with the loss of opportunity that the market based approach taken by ARB offers.