Viewpoints : Big Green: a Big Debate Over the Cost of Clean

One of the most controversial initiatives on the California ballot next week--Proposition 128, or Big Green--will have a huge impact on business if passed. The initiative would phase out some commonly used pesticides, require a 40% reduction in carbon dioxide emissions from autos, factories and others who use fossil fuels, and impose strict new water quality regulations requiring costly changes at most sewage treatment facilities.

While most business leaders contend that the initiative will cost the state billions, supporters say Californians will actually make money through decreased energy usage, improved efficiency and the development of new, ecologically safe technologies.

For a debate on the economic impact of Big Green, Sharon Bernstein interviewed Kirk West, president of the California Chamber of Commerce, and Carl Pope, conservation director for the Sierra Club, who has been tracking the proposition’s economic issues for the “Yes on 128” committee.

Is there any way Big Green would help business?

West: There are some businesses, such as pollution control firms, that would prosper under the initiative. But a great majority, including farmers and aerospace companies, would suffer.

We’re not talking about catastrophe here. The initiative would raise consumer prices for food, water and energy, and make it difficult to do business in the state. But in the long run--10 to 20 years--California firms are remarkably resilient and they’ll find a way to bounce back.

Pope: I believe Big Green will help California business by getting it focused on the need to rapidly transform the production of goods and services. The technologies of the next century will be technologies that are more efficient and less environmentally damaging, such as photovoltaics, fuel cells and high-efficiency building materials like R-15 glass, which virtually seals up buildings that otherwise would leak heat and air conditioning out through the windows. The Japanese and Germans have been making huge investments in those technologies to make their economies more competitive. Big Green will give California industries the incentive to compete with the Germans and Japanese.

Big Green opponents say it will cost the California economy at least $10 billion a year. Is this true? How would it happen?

West: Should Proposition 128 be implemented, the California economy would suffer billions of dollars in higher public and private sector costs and reduced economic growth. The initial estimate made by state legislative analysts, for example, estimated overall costs to California taxpayers--not including higher consumer prices--at almost $3 billion to implement the initiative’s programs.

The Los Angeles Department of Water and Power has estimated that one section of the initiative alone--involving stringent water and sewage treatment requirements--would cost over $5 billion overall. Spectrum Economics, an independent economic consulting firm based in San Francisco, has estimated that the initiative could cost state and local governments $8 billion to $12 billion a year by the turn of the century in sewage facilities and the cost of implementing pesticide and carbon dioxide requirements.

Pope: It’s absolutely not true. Our opponents’ analyses are based on the same flaw that has always plagued business analysis of what environmental cleanup will cost: they don’t take into account that there will be technological substitutions. Companies that make money off the technologies that are being phased out will lose money, and companies that develop the new technologies will gain.

The carbon dioxide section alone will generate $87 billion in benefits for the California economy over the next 20 years (discounted to present value). It will save $27 billion on the state’s energy bills through more efficient automobiles and trucks, increased use of mass transit, reduced energy consumption in the commercial and industrial sector and installation of more efficient power plants by the state’s public utilities. The state will gain $60 billion in reduced health care costs and crop-loss costs from air pollution.

How would the required 40% reduction in carbon dioxide emissions affect business?

Pope: We’re going to save $27.2 billion over the next 20 years (discounted to present value) in just straight out fuel bills, because we’re all going to be using less fuels. Residential utility users will see their bills go down by about $11 billion due to better insulation and more efficient heating and cooling technologies. Motorists will save about $10.5 billion net on gasoline with more efficient cars. Business will save $5.7 billion on utility bills. That’s just from the fuel savings.

And we are going to see a number of new industries--such as the makers of microchips that can make a car run with several times the efficiency--encouraged by our phasing out of fossil fuels. The kind of industries that will be increasing will be the basis of the economy in the next century.

West: This initiative provision is potentially the most costly to California businesses and consumers. Analysts from the Congressional Budget Office and the U.S. Environmental Protection Agency have estimated that achieving only a 20% reduction in carbon dioxide emissions would necessitate higher gasoline prices of 35 to 70 cents per gallon. These same analysts have likewise estimated that electricity rates could increase by as much as 60%.

How many pesticides will be phased out by Big Green?

West: Because of the way the initiative is drafted, it’s difficult to determine the precise number of chemicals that would ultimately be banned. According to the state legislative analyst, 350 pesticide products would be banned. Farmer groups have likewise identified hundreds of pesticides that may be banned. Scientists at UC Davis believe that at least 40 chemicals would be prohibited. If these chemicals are prohibited, farmers would not be able to adequately control pests on their crops, and the makers of these pesticides might have to go out of business.

Pope: There are 23 pesticides that currently meet the criteria in Big Green for being phased out. The opposition has prepared an analysis based on the notion that copper, sulfur, and oilsthree very common nontoxic pesticides that Big Green will not phase out--will be banned as well. They have read the statute in a very perverted way. They use a figure of 350 pesticides, but that’s 350 different consumer products, not 350 compounds.

What would be the impact of the pesticide regulations?

West: Depending on the crop and seasonal fluctuations, crop yields could be reduced by as much as 40%, and consumer prices could increase up to 30%.

In addition, without the availability of many fungicides, California growers would no longer be able to successfully harvest some crops--particularly lettuce and tomatoes--year-round. Consumers, in turn, would lose their ability to buy some fresh fruits and vegetables during winter and other harsh weather periods.

Pope: Those statements are based on a misreading of which pesticides would be phased out by Big Green. They are also based on an assumption that it is impossible to develop substitutes for the relatively small number of carcinogenic or birth defect-causing pesticides that Big Green will phase out.

Is there a way for business to recoup potential losses?

Pope: For the companies that make these pesticides, that’s up to them. If they are willing to invest and do the necessary research to develop safer substitutes for these pesticides, then of course they can stop selling the others.

West: Businesses in Japan, Mexico, and elsewhere, perhaps, would profit by taking away some of our markets for everything from fruits and vegetables to factory goods, which could not be produced competitively enough under the initiative’s regulations.

What would be the economic impact of improved sewage treatment facilities?

West: Proposition 128 would raise water prices and reduce supply. The initiative requires two fundamental changes in water quality requirements. Both of these are totally unrelated to the quality of water we drink.

First, all communities would be required to treat all sewage before releasing it, regardless of the costs or benefits of doing so. Small communities would have to invest millions of dollars, and it would cost larger communities hundreds of millions.

By requiring specific discharge limits on pollution from runoff from farms, streets and parking lots, the initiative may also force coastal counties to invest in hundreds of millions of dollars in expanded facilities to treat storm water runoff.

Pope: Economically, we think the trade off here is between the state’s tourism and fishing industries, which are dependent on the ability to use the beaches and eat the fish that are caught, versus the additional costs for cities that are not properly treating their sewage. The cities will probably have to pay a couple of billion dollars to comply, but they’re probably going to have to do that anyway under the federal Clean Water Act.