California Air Resources Board Passes Costly Plan During Economic Crisis

State can utilize pay-as-you-drive and pay-as-you-save programs for inexpensive environmental improvements

In one room in Sacramento last week, state lawmakers were staring into a $40 billion budget hole stretching sometime into 2010. There’s talk of the cash-strapped state government handing out IOUs when bills come due in February. Not far away, in another room in Sacramento, the California Air Resources Board was unanimously adopting what The New York Times described as the “country’s first comprehensive plan for curbing emissions of heat-trapping gases.” What about the economic implications of the emissions plan during this huge budget crisis and national recession? The nonpartisan Legislative Analyst’s Office said the plan was not “directly influenced by cost-effectiveness considerations or macroeconomic analysis.”

The disconnect is startling. Gov. Arnold Schwarzenegger’s words of warning about California’s impending “financial Armageddon” were still hanging over the Capitol, but environmentalists didn’t seem to notice.

Mainstream environmental groups have been slow to acknowledge that, realistically, progress on climate change will need to take backseat to stabilizing the economy right now. In September, while new bank failures were in the headlines on a daily basis, the Sierra Club was asking its members to “turn up the heat” on American Funds, Vanguard, Fidelity, Ameriprise, Morgan Stanley and other mutual funds that the organization believes don’t take climate change seriously enough. It was not the most opportune moment to discuss the global distribution of permafrost, to say the least.

On the other hand, reducing greenhouse gas emissions need not wait for climate change policy to be enacted-the economic downturn is also an emissions downturn. For example, the most recent state figures showed gasoline consumption this August was down 8 percent and diesel consumption declined 14 percent compared to the same month last year. The decrease in gasoline and diesel transportation emissions in August alone was 40 percent larger than a year’s worth of greenhouse gas savings associated with building the high-speed rail system, as estimated in California’s adopted climate change plan for 2020. That’s right, a large emissions reduction achieved without any mandate passed down from Washington or Sacramento.

U.S. Transportation Secretary Mary E. Peters’ recent announcement that Americans drove 3.5 percent less in October 2008 than last October (the sharpest decline since 1971), and November’s 37 percent drop in national auto sales are two signs indicating that the sour economy will continue to keep fuel consumption low, even though gas prices are no longer near this summer’s historic highs. So this is a perfect time to implement the radically moderate principle at the heart of both fiscal conservatism and environmental conservation: living within our means.

There are several ways to help taxpayers save money and reduce emissions simultaneously. Pay-as-you-drive car insurance will be available to California drivers next year, giving people an incentive to drive less. Groups like the Brookings Institution, Environmental Defense Fund and others, suggest if 30 percent of California drivers switch to the new usage-based insurance coverage, most will pay less in premiums, while reducing their time on the road enough to save 5.5 billion gallons of gasoline by 2020 (on an annual basis, this is more than four times the savings of the proposed high-speed rail project which is being pushed in California as a way to reduce emissions).

Similarly, pay-as-you-save programs for everything from major appliances to building retrofits can help individuals overcome the initial price hurdle of energy-efficiency upgrades in homes and businesses. These types of programs allow people to pay off the initial cost of such upgrades in installments, with the money they save on their utility bills. (And amidst the fiscal backdrop, the small loans entailed in such programs are as secure as they come.) Combined with the smarter metering and pricing currently being implemented by utility companies, consumers will soon have the means and the incentives to make more efficient energy decisions. Based on the results of pilot programs using smart meters, being able to see electricity prices at the time of use could prompt consumers to cut peak energy demand by 5 percent. Much more significant reductions are observed when these metering and pricing systems are used in conjunction with smarter thermostats and appliances.

The California Energy Commission has modeled scenarios that reduce greenhouse gas emissions from electricity use to 1990 levels by the year 2020 using these types of efficiency measures alone. These measures would save more than $100 per metric ton of avoided greenhouse gases. The adopted climate change plan would implement roughly equivalent measures, but it also calls for increased renewable energy generation that, by air board estimates, would cost about $84 per metric ton.

Innovative pay-as-you-go approaches can work to cut unnecessary waste and increase efficiency at the same time that they help balance the environmental accounts, making sure we keep a safe margin of natural resources in the bank. Lawmakers working to curb greenhouse gas emissions and those looking to cushion the blow of the recession should focus on measures that cut costs first.

A previous round of major make-work projects in the Western states, the massive New Deal water projects-like California’s Central Valley Project and the damming of the Colorado River-were carried out with virtually no regard for expense or environmental disruption. Today, those projects still represent some of the greatest examples of corporate welfare in history, with a costly and complex legacy that has yet to be paid off. Right now, more than ever, California can’t afford bad policies.