Tuesday, 20 July 2010

The Cost of AB 32 vs Delta Levee Failure

Quiz: Choose the smaller amount of money?
A.  $4 billion to $34 billion
B.  $0 to $1.6 billion

If you answered that A is a smaller number, Congratulations!  You can get a job analyzing environmental policy for the state of California.   If you answered B is lower, you might be pretty upset since A is clearly 20 times larger.  But in California environmental policy, the amount of costs don’t matter, it is the issue.

If we are talking about global warming, any cost to reduce greenhouse gases is modest and small.
If we are talking about water supply, any disruption has catastrophic costs.

An open letter from economists released yesterday calls the cost of AB 32 on California “modest."  The Air Resources Board has also called the cost small.  So what is small?  According to the ARBs latest analysis that most economists think is the best standard, the annual cost in 2020 will range between $4 billion and $34 billion.

What about the scenario of the Delta earthquake that floods 30 islands, etc?  We are always told that this would be catastrophic for the California economy, a ”$40 billion disaster.“  According to the analysis from URS corporation done for the Department of Water Resources (look at figure 6a if you want 1 picture), the range of expected 25 year cumulative costs is between $0 and $40 billion.  The midpoint (50% exceedance probability) looks to be $15 billion cumulative over 25 years.    On an annual basis, the midpoint is $0.6 billion with a range from $0 to $1.6 billion.

Obviously, it isn’t a perfect comparison, one event is the estimated cost of doing something (AB 32), whereas the other is the estimated cost if we do nothing in the Delta.  There are other key differences too.

Still, the differences between the adjectives that are used is very revealing.  AB 32 is small and modest, whereas not "fixing” the Delta in the way preferred by water exporters will cause “catastrophe”, the economy to “run dry”, and cut off the economys “lifeblood." 

(last sentence deleted due to error.  ARB/AB 32 is not funded by the state General Fund)

About the Author

Ethan Jacob

Author & Editor

I am Ethan Jacob Executive Director of the Center for Business and Policy Research at the University of the Pacific, where I have a joint faculty appointment in the Eberhardt School of Business and the Public Policy Program in the McGeorge School of Law..

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