Will carbon regulations boost or stifle the economy?

The potential economic consequences of tighter environmental legislation were thrown into the spotlight this week, after the State of California and the US Chamber of Commerce released contrasting reports on the topic and it emerged Republican vice presidential candidate Sarah Palin had lobbied California governor Arnold Schwarzenegger over the potnetial economic impact of moves to tax cargo ships.

California kicked off the debate with the release of a report reinforcing the case for its proposed AB32 carbon reduction bill, arguing that CO2 reduction measures will boost the economy.

The state's Air Resources Board released an economic analysis of the measures required by the legislation, which is designed to bring the state closer to the commitments required under the Kyoto Protocol, in which the US is not currently a participant.

Compared to a "business as usual" scenario where the state takes no action on global warming, the analysis found that implementing the AB32 measures would boost economic production by $27bn, increase the number of jobs by 100,000, and add $200 to the per capita income.

AB32, otherwise known as the Global Warming Solutions Act of 2006, will see carbon emissions in the state fall to 1990 levels by 2020.

However, the economic analysis contrasts sharply with a report issued by the US Chamber of Commerce this week. The organisation said that a move to regulate CO2 under the Clean Air Act could effectively halt US economic development by putting thousands of companies' projects under scrutiny.

The report, A Regulatory Burden: The Compliance Dimension of Regulating CO2 as a Pollutant, is a response to an advanced notice of proposed rulemaking i ssued by the EPA in July, which essentially postponed a decision on CO2 regulation until the next administration.

It argues that over one million commercial buildings would be submitted to a permit process if the EPA decides to regulate CO2.

William Kovacs, vice president of Environment, Technology, and Regulatory Affairs at the US Chamber, argued that these businesses would be subject to a provision in the act called "Provision of Significant Deterioration". Roughly 300 of those permits are issued per year at present, and he estimated that the number of permits necessary could balloon to 30,000, placing an extreme burden on both business and government.

"The PSD permit is hard to obtain and costs a lot of money - It could be $60,000, and they take 18 months at a minimum," he said, adding that the EPA was ill-equipped to deal with the workload. "So on day one that the EPA makes an endangerment finding, all of the economic development would stop until they get their permits arranged."

Kovacs said that he had not yet seen the California report, arguing that in contrast legislative efforts to curb carbon emissions would deliver net economic benefits through lower energy bills and the creation of new green collar jobs.

Meanwhile, Sarah Palin, the Alaskan governor picked as McCain’s running mate, saw her standing amongst environmentalists fall still further after it was revealed she had written to California Governor Arnold Schwarzenegger asking him to veto Bill 974, a state Senate bill that would impose tariffs on cargo carriers using California's ports.

The tariff, designed to tax carbon-heavy shipping and fund environmental projects in the state, would adversely affect the Alaskan economy, Palin said. "A very large percentage of goods (90 per cent or more) shipped to Alaska arrive as marine cargo in a container," she said in a letter to the California Governor.