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California’s Global Warming Law Minimally Impacts Small Businesses

capandtradeelectricitypriceNew analysis shows that California’s global warming law, Assembly Bill (AB) 32, will have a minimal impact on small businesses with small increases in the price of electricity, natural gas and transportation fuels. AB 32 requires California to reduce its global warming pollution by 12 percent below current levels by 2020.

The Brattle Group report, “The Economic Impact of AB 32 on California Small Business“, finds that the financial impact of these price increases on small businesses will depend on the ratio of a business’ energy expenditures to its total revenues. In addition, the ratio can be impacted by their strategies to conserve energy, invest in energy-saving equipment or raising prices, according to the report.

The report finds that most small business will primarily be impacted indirectly through increased energy prices. They will not be required to make emissions cuts, buy allowances or pay fees to offset their emissions.

One key finding shows that if AB 32 policies are implemented the percent of revenues spent on energy by small businesses would increase to 1.7 percent by 2020, up from 1.4 percent currently. This estimation assumes that small businesses do not pursue incentives, rebates or other programs that would help them lower their use of electricity, gas and transportation fuel.

With the assumption that 2020 carbon prices will be $40 per ton in a conservative scenario and $60 per ton in an extreme case, The Brattle Group estimates that a cap-and-trade scheme under AB 32 will increase prices in 2020 by 0.7 cents per KWh (5 percent) and 1.9 cents (12 percent) for electricity; 15 cents per therm (12 percent) and 30 cents per therm (25 percent) for natural gas and 35 cents per gallon (8 percent) and 53 cents (12 percent) for transportation fuel, based on conservative and extreme cases, respectively.

At the same carbon prices, the Renewable Portfolio Standard under AB 32 will increase electricity prices in 2020 by 1.1 cents per KWh (7 percent) and 2.3 cents (15 percent) based on conservative and extreme cases, respectively.

The report also projects that energy-efficiency measures will pay for themselves under the conservative scenario and increase electricity in 2020 by 0.4 cents per KWh (2 percent) in the extreme case. The Low-Carbon Fuel Standard will not increase prices for transportation fuels in 2020 but will increase it by 95 cents per gallon in the extreme case.

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