Checking up on the California comeback
First off, I want to apologize for skipping Cliffnotes last week. I’m sure no one noticed, but just in case you did, I’m sorry! It’s that pesky human need to occasionally sleep; it trips me up every time.
While I’ve been slacking, the rest of the world has apparently been furiously writing articles and reports about California’s economy. July seems to be national rank-your-state month, with new studies out from a variety of sources; reading through all these at once makes the Golden State seem downright schizophrenic. It turns out, for instance, that if you’re a clean tech business, California is the place to be: Clean Edge ranks the state as the second best in the nation for starting a clean energy company. As Greentech Media’s Stephen Lacey points out, the state has the perfect combination of factors to attract these businesses: “access to capital, a local pool of young talent, a strong incubation network and vision from policymakers.” On the other hand, in a new Thumbtack/Kauffman study ranking states by how friendly they are to small business, California received an F – mostly because of permitting and licensing challenges, and not, interestingly, because of taxes.
Of the various ranking studies out this month, I was particularly struck by this one from Wallet Hub, which ranks the most and least energy expensive states. These researchers took a comprehensive approach, not only looking at costs per kilowatt-hour or gallon of gas, but at average energy usage as well. And guess what? California is the 13th least energy expensive state, because while our per-kWh costs are relatively high, we are extremely efficient in our energy use. In fact, electricity use has remained just about flat in this state for the past four decades.
All this sounds like good news, right? In fact, everyone from Paul Krugman, who wrote this week about California’s strong job growth and solid state budget, to the U.S. Chamber of Commerce, which just decided to locate an office in San Francisco to capitalize on our fast-growing tech sector, seems to feel good about this state’s economic direction.
That’s why a new study from the Valley Industry & Commerce Association (funded by the oil industry front group, Californians for Affordable and Reliable Energy), “The Effects of California’s Energy Policy on Opportunity in Los Angeles County,” strikes such a false note. The study rails against California’s energy and climate policies, specifically those included in AB 32, saying that they will lead to higher energy costs and therefore will have the effect of hollowing out middle-skill jobs in manufacturing and construction – thus threatening the entire Los Angeles metro area, where these jobs are concentrated.
There are, frankly, so many problems with this report that it’s hard to know where to start. But here’s a roundup:
- As we just learned from the Wallet Hub study cited above, our energy costs per unit are relatively high, but our energy use is relatively low. That goes for the industrial sector as well: California manufacturers have used the past seven years under AB32 as an opportunity to become leaders in energy efficiency.
- Moreover, it turns out that most manufacturing is not massively energy intensive. In their recent book Fueling Up: The Economic Implications of America’s Oil and Gas Boom, Trevor Houser and Shashank Mohan examine the widely-held belief that lower natural gas prices will lead to a boom in American manufacturing – the corollary argument to VICA’s claim that higher energy prices will cripple manufacturing. They find that in fact only a small percent of American manufacturers experience a direct correlation between energy prices and production costs: these companies account for just 5.7 percent of American manufacturing output, and a mere 1.8 percent of manufacturing employment.
- What does affect manufacturing employment? Many things: automation, outsourcing to states and countries with low labor costs and lax labor standards, and a lack of an overall state industrial policy, to name a few. This combination of factors has led Los Angeles to lose over half its manufacturing jobs since 1991 – long before AB 32 became a factor.
- In fact, probably the best approach to growing California’s manufacturing and construction sectors is to invest more heavily in transitioning the state to a low-carbon energy economy. As my former CAP colleagues and workforce experts Louis Soares and Stephen Steigleder and I pointed out in a 2012 paper, jobs in clean energy industries “are relatively more labor intensive than fossil fuel industries; rely more often on economic activities taking place within the United States rather than overseas (for example, retrofitting houses); and produce more types of jobs at more pay levels, including far more entry-level and middle-skill jobs.” In fact about two-thirds of California’s clean energy job growth in 2012 came from manufacturing and installation, both solidly middle-income, middle-skill occupations.
What can we take away from all this? I’ll tell you what: California businesses across the board, from small start-ups to major manufacturers, have everything to gain and very little to lose from the state’s clear, consistent, and comprehensive energy and climate policies. And that’s without even considering the enormous economic risks those companies could take by not addressing climate change. As Risky Business leader Bob Rubin just wrote for the Washington Post, “We do not face a choice between protecting our environment or protecting our economy. We face a choice between protecting our economy by protecting our environment – or allowing environmental havoc to create economic havoc.”