California has the nation’s largest population and the world’s sixth largest economy, thereby empowering its politicians – or so they believe – to go their own way on public policy.
That hubris has its positive aspects, making California a pioneer on many policy issues. But it also has occasionally led politicians to believe they can ignore basic economic principles.
A rather sensational example is the misnamed energy “deregulation” bill that both houses of the Legislature overwhelmingly passed in 1996 without giving it the critical analysis such a huge step required. It promised benefits for everyone – lower energy costs for consumers and businesses and higher profits for utilities and generators – based on assumptions about the electricity market that proved to be absolutely wrong.
It opened the door to manipulation, drove one major utility into bankruptcy, almost made another insolvent, and wound up costing ratepayers untold billions of extra dollars as the state stepped in to prevent massive blackouts.
A couple of other examples are now playing themselves out.
The state Air Resources Board adopted a “cap-and-trade” system of carbon emission allowances it believed would gently compel consumers and businesses into sharply reducing the output of climate-changing gases.
However, the market is not functioning as the bureaucrats and politicians assumed. A glut of allowances – which accumulated in part because of state policies about their use – has clobbered the auction system because emitters could buy all they needed at prices well below the level fixed by the state.
Something similar is happening to the state’s system of recycling beverage containers, which is dependent on subsidies to recyclers from deposits paid by consumers, tied in part to the price aluminum, glass and other materials command in the commodities market.
The latter aspect was based on an assumption that prices for the materials would always be high enough to close the circle, but as recycling rates rose and commodity prices fell, the entire structure began to collapse, and politicians are now frantically working on a temporary fix until they come up with something to make it functional again.
The lesson from these examples is that even a state as large and seemingly powerful as California cannot issue Soviet-style decrees to compel behavior that ignore larger economic forces.
That doesn’t stop officialdom from trying, however.
One of California’s many strategies for reducing carbon emissions – on the arrogant assumption it will have global significance – is a mandate on auto manufacturers to produce and sell a specific number of zero-emission vehicles, aimed at having 1.5 million of them on the road by 2025. There will be penalties for falling short.
It’s actually a fairly modest goal, roughly 5 percent of the vehicles expected to be traveling the state’s highways and streets by then. Even so – and even with subsidies – California motorists are reluctant to buy as many ZEVs as bureaucrats want.
Most authorities blame low fuel prices, but for whatever reason, ZEVs are a hard sell.
“We have to give these vehicles away to avoid the penalties,” auto industry lobbyist Gene Erbin testified in opposition to a bill that would increase the penalties to as much as $150,000 per unsold vehicle.
One law even California can’t change is the law of supply and demand.