Shockproofing society: New report finds Proposition 23 poses more economic pain from price shocks

A new report concludes that California’s climate change law, known as AB32, will reduce dependence on imported oil and natural gas and will protect consumers from oil price spikes.

The study, “ShockProofing Society: How California’s Global Warming Solutions Act (AB 32) Reduces the Economic Pain of Energy Price Shocks,” concludes that implementation of the law will provide additional savings to energy consumers in addition to the roughly $7.5 billion in 2020 estimated by the California Air Resources Board (CARB). Authors of the report are the Environmental Defense Fund, Center for Resource Solutions, and Energy Independence Now.

Whereas CARB assumes that prices remain static, this report considers the economic benefit of reducing exposure to price shocks. The report points out that oil prices increased by an average of 179% during five major price shocks since the 1970s. As we’ve written, Americans are vulnerable to rising oil and gasoline prices as supply runs out and demand grows (See The Do-Nothing Energy Tax: $3 Gasoline Dead Ahead and Quenching Our Thirst for Oil).

The new report determines that in the event of an oil price shock, consumers will save an additional $4.8 billion to $9.6 billion in avoided fuel costs in a moderate to high price shock scenario respectively. In the moderate scenario, the US Department of Energy’s Annual Energy Outlook (AEO) 2020 reference crude oil and natural gas price forecasts are doubled for the duration of one year. In the large shock case, the AEO’s high price forecasts are doubled.

The report examined an alternative measure of the effects of reducing fossil fuels through AB32 called an importation effect wherein reduced expenditures on oil and natural gas imports into California would be $18.8 billion in the moderate price shock scenario and $29.6 in the large price shock scenario. The authors argue that their conclusions are conservative because they assume that the price shock lasts for 12 months when three out of the five major shocks lasted for more than two years. In addition, indirect economic impacts associated with events leading price spikes, such as an oil disaster or outbreak of war, are not examined.

CAP has examined the impacts of price volatility in a report, Signals on the Fritz, which found that energy price volatility hurts investment by families and businesses while bringing profits to oil companies. And it’s no secret that oil companies are doing everything in their power to protect these profits by spending to prevent limitations on the use of fossil fuels. At the federal level, Big Oil is using their huge profits to kill clean energy legislation and other measures that would protect public health and the environment. They’re even lobbying to influence our foreign policy thereby risking our national security. At the state level, Texas-based oil companies Valero and Tesoro and Kansas-based Koch Industries are funding the Yes on 23 campaign to repeal AB32.

In addition to the 118 economists who agree that AB32 will boost growth in California, this study is yet another confirmation that proposition 23 threatens the economic security of Californians by placing AB32 danger.

Guest blogger Rebecca Lefton is a Researcher with CAPAF’s Progressive Media.