The move by Republicans and polluters to suspend or kill AB 32, California's Global Warming Solutions Act that seeks to reduce greenhouse gas emissions and spur green job growth, was dealt a devastating blow on Friday -- one of the authors of the much-cited (and much-criticized) Varshney/Tootelian report (VTR), which predicts an economic catastrophe if California implements AB 32, is now backing away from the report's claims.
Facing yet another round of criticism -- this time in a report by Stanford University economist Jim Sweeney that found VTR to be "highly biased...based on poor logic and unsound economic analysis" and overstates the costs of AB 32 "by a factor of at least 10" -- Sanjay Varshney has refused to defend his report's claims. When asked by a reporter for the Sacramento Business Journal to respond to Sweeney's criticism, Varshney, who is Dean of the Business School at California State University Sacramento, would only say, "I haven't really kept up with the debate. It will be very difficult for me to comment." (You need to be a subscriber to see the full article.)
Hardly what you'd call a full-throated defense, or even a boilerplate response about his confidence in both his methods and his conclusions. And Varshney should be well-prepared to address the kind of criticism found in the Stanford report since it echoes criticisms found by other economists, as well as the Union of Concerned Scientists.
The main and most obvious criticism of VTR is that it only looks at the projected costs of implementing AB 32 ($24.9 billion) while purposefully omitting any of the savings that AB 32 would generate ($40.4 billion) -- a net savings of $15.5 billion.
It is a methodology that literally makes no sense. How can you account for the cost of buying a more fuel-efficient car, then not account for the money drivers would save at the pump by driving a more fuel-efficient car? How can you include the cost of building a home so it uses no net energy, then not include the savings for a family living in that home who no longer has to pay energy bills? Yet that is exactly what VTR does, a methodology the Stanford report calls "highly biased and has no credibility."
Virtually all of VTR's conclusions are based on this decision to look only at costs without savings, which the Stanford report estimates causes the results of VTR to be inaccurate by a factor of ten or greater. The authors of VTR try to justify their methodology by claiming that the estimated savings generated by AB 32 are "too speculative to consider at this time," an explanation the Stanford report says has "little credibility" since VTR has no problem citing the costs of implementing AB 32, many of which are also speculative. And, as said before, it makes no sense to include the cost of increasing energy efficiency without including the savings from using energy more efficiently. The Stanford report goes on to highlight more errors and flawed methodology used in VTR, like claiming that saving $30/month by driving a new fuel-efficient car amounts to a $30/month increase in gas costs for those who stick with their current cars. It's no wonder economists Christopher Thornberg and Jon Haveman of Beacon Economics called VTR "one of the worst examples of schlock science we've ever seen."
Yet VTR -- for which Varshney and Dennis Tootelian were paid $54,000 by the California Small Business Roundtable -- is virtually the only evidence that AB 32 opponents give for their doomsday predictions that AB 32 will ruin California's economy, cost the state a whopping 1.1 million jobs (more than have been lost as a result of the current recession) and raise consumer prices. Republican Meg Whitman has mentioned its findings as a reason why she has promised to suspend AB 32 if she is elected governor, as has a representative for her Republican opponent, Steve Poizner. VTR has also been cited by numerous newspapers, including the editorial board of the Wall Street Journal, which heralded its findings as proof that there would be no "free green lunch" in California if AB 32 is implemented.
The fact that candidates like Poizner and Whitman (along with anti-AB 32 groups like the AB 32 Implementation Group) would put so much stake in a fatally flawed report that makes no secret of its most glaring failure is telling. But what are AB 32 opponents to do now when even one of VTR's principal authors won't defend its findings? Will they spend hundreds of thousands of dollars to fund a petition drive calling for the suspension of AB 32 when their main justification for suspending it -- the conclusions of the VTR report -- no longer applies? And considering the numerous studies that have found that AB 32 would create jobs, position California as a leader in the growing green/clean energy economy, reduce costs for businesses and consumers, and improve the health of Californians while reducing greenhouse gas emissions, what justification can AB 32 opponents give for defending a status quo that enriches the state's worst polluters?