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Energy Efficiency, Innovation, and Job Creation in California - REPORT

This study examines the economy-wide employment effects of California's efficiency policies over the last thirty-five years, and forecasts the economic effects of more aggressive policies proposed to reduce emissions to 1990 levels by 2020 in AB 32.

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California Global Climate Change Legislative Timeline

June 1, 2005 - Governor Schwarzenegger signed Executive Order #S-3-05 which called for a 30 percent reduction below business-as-usual of greenhouse gas emissions by 2020 and 80 percent below 1990 levels by 2050.

June 2006, the California Air Resources Board (CARB) released a "Draft Scoping Plan" – the policy roadmap to meet the emissions reduction target of 169 Million Metric Tons of Carbon (MMTCO2) equivalent by 2020 to stabilize at 427 MMTCO2 overall. The CARB board will take up final adoption of this plan in December 2008.

September 2006, the California legislature passed and Governor Schwarzenegger signed AB 32 (PDF download) into law, which mandates a first-in-the-nation limit on emissions that cause global warming.

Impact Study of California's Climate Change Legislation

Energy Efficiency, Innovation, and Job Creation in California (by David Roland-Holst, UC Berkeley, Oct. 2008) analyses the economic impact of CARB’s past and future policies to reduce fossil fuel generated energy demand. California’s achievements in energy efficiency over the last generation are well known, but evidence about their deeper economic implications remains weak. This study examines the economy-wide employment effects of the state’s landmark efficiency policies over the last thirty-five years, and forecasts the economic effects of significantly more aggressive policies proposed to reduce emissions to 1990 levels by 2020.

Core Findings

  • Energy efficiency measures have enabled California households to redirect their expenditure toward other goods and services, creating about 1.5 million FTE jobs with a total payroll of over $45 billion, driven by well-documented household energy savings of $56 billion from 1972-2006.

  • As a result of energy efficiency, California reduced its energy import dependence, and directed a greater percentage of its consumption to in-state, employment-intensive goods and services, whose supply chains also largely reside within the state, creating a “multiplier” effect of job generation.

  • The same efficiency measures resulted in slower growth in energy supply chains, including oil, gas, and electric power. For every new job foregone in these sectors, however, more than 50 new jobs have been created across the state’s diverse economy.

  • Sectoral examination of these results indicates that job creation is in less energy intensive services and other categories, further compounding California’s aggregate efficiency improvements and facilitating the economy’s transition to a low carbon future.

Future Economic Impacts of Proposed Policies

Because of California's pioneering role in climate policy, we face a significant degree of uncertainty about direct and indirect effects of the many possible approaches to its stated goals for emissions reduction.

Impact of Technological Change and Innovation in California's Economy

An important limitation of most prior California economic modeling of climate policies is innovation or technological neutrality. In this analysis, productivity, energy use intensities, and other innovation characteristics were held constant across policy scenarios. Energy use and pollution levels might change, but the prospect of innovation to reduce energy intensity was not considered.

Most observers credit past technological progress to California’s energy/climate policy combinations of mandates and incentives.

California has reduced its aggregate energy intensity steadily over this period, attaining levels that today are 40 percent below the national average. Reductions in energy use were not flat across the last thirty-five years; instead energy efficiency grew at exponential rates.

To capture this innovation, we assume that, subject to the implementation of the recommended measures, California is able to increase its energy efficiency by one additional percent per year, on an average basis, across the economy.

Upcoming policy innovations such as "Cap and Trade", which is included in the state’s Draft Scoping Plan, will put a price on carbon externalities that did not exist before.

When firms are faced with new costs from emissions and energy use, they can be expected to make investments in technology that reduces these costs. Thus, continuing innovation for energy efficiency will contribute to future economic stability and vitality.

By including the potential for innovation, the study finds that the proposed package of policies in California ARB's Draft Scoping Plan achieves 100 percent of the greenhouse gas emissions reduction targets as mandated by AB 32 while increasing the Gross State Product (GSP) by about $76 billion, increasing real household incomes by up to $48 billion and creating as many as 403,000 new efficiency and climate action driven jobs.


Looking ahead, California’s ambitious plan to reduce greenhouse gas emissions as mandated by the California Global Warming Solutions Act (AB 32) puts the state on a more stable economic path by encouraging even greater investment in energy saving innovation.

The current financial crisis reminds us of the importance of responsible risk management. The results of this study remind us that, in addition to energy price vulnerability and climate damage, the risks of excessive energy dependence include lower long-term economic growth. A lower carbon future for California is a more prosperous and sustainable future.

The Green Innovation Index

The Green Innovation Index is another report by Next 10 that analyzes key economic and environmental indicators that affect green innovation's role in reducing greenhouse gas emissions that cause global warming while growing our economy.

Next 10
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Edited by Carolyn Allen, owner/editor of California Green Solutions
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