Balancing fiscal, energy and environmental concerns: Policy options for California's energy and economic future

NIOSH/Elaine Cullen

Article Highlights

  • California's renewable energy strategy may harm the economy.

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  • Pairing a transition to natural gas or renewables with increased oil and gas production offers much better outcomes for California.

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Balancing fiscal, energy and environmental concerns: Policy options for California's energy and economic future

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In this paper, authors Timothy Considine and Edward Manderson look at the energy, economic and environmental effects of three different alternative energy scenarios on the state of California. Among their findings:

  • California faces important energy policy choices: to move ahead with its planned renewable energy targets and accept negative economic impacts that come with higher-cost electricity or to reduce the damage by switching focus to domestic electricity generation fueled by natural gas. California also has the option to develop its own production of natural gas and oil reserves.
  • Meeting renewable generation targets will increase electricity rates and reduce consumption below baseline forecasts. We project that in 2015, consumers will pay $3.2 billion more for electric power than under the baseline scenario. These expenditures rise to over $4.6 billion during 2020 and then fall slightly, averaging $3.7 billion per year thereafter. Although some jobs will be added initially, after 2014 the net gains in employment and value added turn negative as the drag on economic growth from higher energy prices offsets any employment and output gains from building and operating the renewable energy facilities.
  • Switching to natural gas also raises costs and cuts jobs, but less significantly. For instance, in the low-growth scenario, more than 4,400 annual jobs are created on average during the plant construction phase from 2012 to 2014. Under the high-growth scenario, the capacity requirements are greater and the employment gains are commensurately larger. After the construction phase, however, higher electricity rates needed to pay the costs of constructing and operating these facilities cause a decline in economic activity.
  • Pairing a transition to either natural gas or renewables with a strategy of increased oil and gas production offers significantly better outcomes. Increased oil and gas production in California would increase employment and state tax revenues over the next twenty-five years. At its peak, development creates over 43,000 jobs and generates more than $3 billion in tax revenue in 2020. This ability to increase employment and tax revenues stands in sharp contrast to the previous two scenarios. The vast majority of these revenues are property tax and royalty payments. In 2016, the total increase in revenue to the state purse is $1.4 billion, rising to $3.1 billion in 2019. By 2030, oil and gas development continues to provide over $1 billion in annual state and local taxes.
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