EDF Tells California That It’s Okay to Live in the Land of Economic Make Believe

California’s Air Resources Board (ARB) is voting today on their plan to reduce California’s greenhouse gas emissions to 1990 levels by 2020 (about a 25% reduction). Sadly, ARB is ignoring the glaring flaws in its economic analysis.

One thing that is obvious about California’s plan is that it will be very expensive. The only way to reduce greenhouse gas emissions is either to use less coal, oil, and natural gas, or to switch to more expensive and less reliable technologies. Any plan to reduce emissions will be very expensive.

But in their zeal to push this plan, ARB released an “economic analysis” that argued that their plan to reduce carbon dioxide emissions will actually save California’s money. As soon as people outside of the ARB looked at the analysis the flaws were obvious.

First, the California’s non-partisan Legislative Analyst’s Office looked at the report. Unsurprisingly they found that ARB “failed to demonstrate the analytical rigor of its findings” and that “economic analysis played a limited role in development of the scoping plan.”

Then a peer review group of respected economists examined ARB’s economic analysis. Their report also found ARB’s report to be severely lacking. For example, Robert Stavins, the Director of Harvard’s Environmental Economics Program wrote, “I have come to the inescapable conclusion that the economic analysis is terribly deficient in critical ways and should not be used by the state government or the public for the purpose of assessing the likely costs of CARB’s plans.”

Further adding evidence of the large net costs of California’s plan is a recent report commissioned by the Electric Power Research Institute. They estimate that California’s greenhouse gas regulations will cost between 0.2 and 1.2% gross state product.

It is beyond doubt that California’s plan is costly and ARB’s economic analysis is severely flawed. But ARB has a few backers. One is the Environmental Defense Fund. EDF argues that economic analyses do not matter. This is amazing given that EDF, unlike most environmental groups, promote economic incentives to achieve conservation. But in this case, EDF merely tells us that “it’s the right thing to do” and cap and trade takes on a near religious quality because it transcends economic analysis. According to Climate Wire:

EDF’s report concedes that the state’s analysis was flawed, but makes the case that it shouldn’t have been expected to be accurate. Carbon cap-and-trade programs are so overarching that they transcend economic analyses, economist Jamie Fine said in an interview.”

"What ARB [the state Air Resources Board] has done with their economic analysis has been appropriate, to get some sense of the magnitude," Fine said. "We’re confident it’s not going to be a big effect on the economy."

"We don’t have to keep returning to these models to see whether we should be going forward with A.B. 32, because we should," Fine added. "It was a rigorous analysis that got us beyond analysis paralysis."

According to EDF, who cares that people will lose their jobs? Who cares that California’s scheme will make life more difficult in California? EDF takes it as an article of faith, without evidence, that the regulations will not “have a big effect on the economy.”

Professor Stavins of Harvard is perplexed by EDF’s analysis. He writes, “The EDF analysis seems to be saying the state’s economic analysis is limited and flawed, and hence that the state ought to go forward with its proposed policies and simply ignore its flawed analysis.”

Economic analysis matters because jobs matter. People’s livelihoods matter. But the economic livelihood of Californians does not matter to California’s Air Resources Board or the Environmental Defense Fund. If the economic livelihood of Californians matter, ARB and EDF would support real economic analyses instead of living in the land of make believe.