Buzz, Science

California Proves That Environmental Regulations Don’t Kill Profits

To anyone who believes environmental regulation is poison for profits, California must be infuriating. The state’s pollution policies rarely wilt its perennially blooming economy. For the past nine years, a Golden State-centric think tank Next 10 has been releasing its California Green Innovation Index. The results this year show a continuing trend: For two and a half decades, California’s GDP and population have continued to rise, while per capita carbon dioxide emissions have stayed flat.

But California isn’t done yet. It has two major upcoming goals: reducing emission to to 1990 levels by 2020, and 40 percent below that a decade later. So while California has continued to grow during phase one of its environmental overhaul, it’s still a question whether its long-term green ambitions will turn its economy as chilly as a San Francisco summer.

California has a long been on the leading edge of environmental policy. It all started because Los Angeles had such filthy air that, in 1947, after a lot of public outcry, the city formed its Air Pollution District—the first air quality agency in the US. (The US Clean Air Act didn’t pass for another 15 years!) Over the next several decades, California rolled out green building codes, efficient appliance standards, and cap and trade policies—all aimed at curbing pollution. All the while, the state made it easier for entrepreneurs to do business. This included actions like decoupling electricity sales from revenues, which forced more efficiency into the system. California also has healthy net metering caps, which allow rooftop solar panel owners sell more of their overstock electricity back into the grid.

The result of all this legislative tinkering: “California is the most energy efficient economy in the world, and least carbon intensive,” says Adam Fowler, a research manager at Beacon Economics, the firm that produced the Green Innovation Index at Next 10’s behest. And it pays. Fowler says that every $10,000 spent in California results in 55 percent less carbon dioxide than it would in the rest of the US. “We have a very clear time series showing that the decoupling of fossil fuel use from GDP is possible,” he says.

But is this just a case of California exceptionalism? After all, not every state’s economy is buoyed by abundant natural resources, coastal access to trans-Pacific trade, and the global meccas for both entertainment and technology. Forcing fossil fuels out of a less robust economy might cause a catastrophic recession. In fact, even some Californians aren’t so sure this state can stay on track towards its goal of cutting emissions more than 40 percent by 2030.

One big concern is whether electric vehicle output can keep pace. If regulations put undue pressure on oil and gas providers, fuel prices could spike, putting California’s green ambitions at odds with its automotive infatuation. And in fact, a rise in vehicle emissions—2.7 percent between 2014 and 2015—is probably the report’s biggest surprise.

Most of that came from passenger vehicles, and the cause was a glut in global gasoline. In 2014, prices dipped, and Californians drove an additional 2.7 billion collective miles in 2015. But Fowler says that trends in the automotive industry are changing, oil glut or no. “Hyundai is placing EVs at center of product strategy, and Volvo is phasing out conventional engines,” he says. Tesla’s Model 3 and GM’s Volt are beginning to trickle into the mass consumer market. “These advances aren’t coming from some do-gooder, long-haired hippy with a pipe dream,” says Fowler. “This is the business community, working in free markets, using innovation to step in and solve problems.”

Ah, capitalism. Here to save the world from … capitalism. After all, western civilization’s drive to grow and grow and grow is what got it into its current fossil-fueled mess. But unlike internal combustion engines, capitalism can run on any type of energy—so long as there’s a lot of it. “Civilization has shifted fuel sources throughout history, and we tend to think of only this recent snapshot of time where intense fossil fuel use was the only way to grow an economy,” says Neol Perry, founder of Next 10. If clean energy can power the economy without bankrupting the world, that would be truly exceptional.

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