Can California Save the World's Climate?

What is the object of scorn? AB 32, signed into law with much fanfare by Schwarzenegger in a ceremony on Treasure Island late last month, is a new state law addressing the conundrum of global climate change.

Despite the nay saying, this legislation could actually spur an industrial renaissance here in the Golden State. A cadre of entrepreneurs, academics and venture capitalists all say AB 32 will boost our state economy at the precise perfect moment in time, and I happen to think they are right on.

AB 32 requires California to reduce emissions of carbon dioxide (CO2) back to 1990 levels by 2025. That equates to 174 metric tons of CO2, the amount of carbon spewing from 43 coal-fired power plant stacks.

Largely because of coal and inefficiency, the United States is the world's No. 1 climate change culprit. With just 5 percent of the world's population, we pump out 24 percent of the world's CO2. Even California, with its aggressive renewable energy targets on paper (20 percent of total electricity supply by 2010), today imports twice as much coal-fired power as it generates from renewable energy facilities that began to come on-line in the '80s.

"California is exporting nearly $30 billion every year - that's $2,500 from every Californian household - to buy imported fossil fuels. AB 32 will bring that money back to California," commented Bob Epstein, co-founder of Sybase, GetActive Software and Environmental Entrepreneurs. A study released by UC Berkeley in August projected that reducing so-called greenhouse gas emissions in California would create 17,000 jobs and add $60 billion to the state GDP by 2020.

"Sustainable technologies are the next big thing...the mother of all markets," proclaimed John Doerr, the billionaire who launched Google and who recently doubled the size of his investments in green technologies.

Digging into why Epstein and Doerr are so supportive of AB 32 underscores why it might be the best thing to happen to California's economy this year. Consider the following trends:

-- Fifty-seven California start-up firms that fall under the broad umbrella of "cleantech" (i.e. clean power, clean cars and energy and water efficiency) received $484 million in venture capital last year, a 36% increase over 2004. All told, cleantech investments rose 43 percent nationally to reach $1.6 billion in 2005.

-- While California remains the cleantech leader of the US, California is losing ground to the Northeast, where firms enjoyed increases in both share of venture capital and consummated deals. California companies endured small declines in both categories. This was the second year in a row that California lost ground on finalizing new cleantech deals.

-- The most troubling statistics, however, comes in the category of "early-stage financings." California percentage of start-ups launched (37%) was considerably less than the nation as a whole (43%). Without new start-ups, and the thousands of new jobs they create, California will ultimately lose its leadership position on the clean technologies birthed here.

Beyond these parochial concerns about California's share of the coming green business boom, there are broader business benefits that will surely impact large and small enterprises all throughout the nation.

"It is only a matter of time before carbon caps come into effect in this country," commented Alex Rau, a principal with ClimateWedge, a London-based firm that develops voluntary corporate carbon reduction programs. "With California taking the lead, we can try to design the best set of rules and create a model that can be replicated in other states and, ultimately, at the federal level."

He went on to note that even if California goes it "alone," the state climate change targets would impact other states and countries. Because carbon is a global pollutant, one could plant trees in Mexico to offset carbon emissions from a new shopping mall built in southern California, he suggested.

Andrew Hoffman, a professor at the University of Michigan, just completed a study on corporate volunteer carbon reduction programs for the Pew Center on Global Climate Change. According to Hoffman, the key to an industrial renaissance in California -- and then the rest of the country -- is energy efficiency.

"There is such a close link between carbon reductions and increased energy efficiency, the logical first step for any business [to address climate change]. Right now, US companies use twice the energy per GDP as European Union member countries. Where is the world going? Energy efficiency is the future, and if nothing changes, the US industrial sector will be left behind," said Hoffman.

"Climate change is going to change the way consumers think about energy and demand for certain products will shift," added Joel Levin, vice president for business development of the Climate Registry, an organization tracking California corporate emissions of carbon for the past five years. Member companies have been promised credits for their early responses to climate change as an incentive to participate.

Levin pointed to Toyota's Prius hybrid as the perfect example of how shifting views on energy have rewarded those who offer greener products noting, "Ford and General Motors got their clock cleaned because all of their profits were pegged to the SUV, while Toyota invested in the more fuel efficient hybrid technology and is enjoying considerable success as gasoline prices have gone up."

Interestingly enough, AB 32 may be the most radical climate change policy in the world, but not because it represents a 25 percent reduction in CO2 over the next two decades. Unlike Europe's approach to cooling climate change, AB 32 promises to reduce emissions across all sectors of the economy, which ultimately could include your motor vehicles and home.

The European approach focuses strictly on large centralized sources of pollution, like power plants and industrial facilities. Of course, the devil is in the details, and a set of related legislative measures will help shape how California translates vision into reality.

California can save the world's climate. But in order to do so, state regulators need to abandon perfection and get back to the radical embrace of new technologies that was the hallmark of Democrat Jerry Brown's Administration over two decades ago. Texas just surpassed California in terms of total wind power capacity and it is clear the state is falling short on its current ambitious renewable energy targets. If the current dysfunctional state regulatory apparatus is not infused with a sense of profound purpose, the state's economy, and the world's environment, will suffer.

With the passage of AB 32, it is clearly time to translate our cool California visions about business in the 21st century into viable, visible solutions that go beyond politics and that helps transform America from in-denial villain to conscious climate crusader.

About the author...

Peter Asmus is author of the forthcoming An Introduction to Energy for the University of California Press. His most recent energy book is Reaping The Wind (Island Press, 2001).