California moves on global warming, warned on cost

California, the leading U.S. state on climate change, set detailed goals on Thursday to cut greenhouse gases and address global warming but faced criticism the plan's economic assumptions were hopelessly optimistic.

Home to the world's eighth largest economy, California confirmed its U.S. environmental trendsetter status with an ambitious 2006 law that seeks to cut carbon emissions linked to global warming to 1990 levels by 2020.

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The law spearheaded by Republican Gov. Arnold Schwarzenegger was the first in the country to set carbon targets. The federal government still has no firm plan.

"(The plan) provides a road map for the rest of the nation to follow," Schwarzenegger said in a statement. U.S. Democratic President-elect Barack Obama has promised to make climate change a priority when he takes office on Jan. 20.

The California Air Resources Board voted on Thursday to adopt a plan to fill in details of how to cut carbon emissions, from forest conservation to energy efficiency and carbon emissions from industry and cars and trucks.

The goal of cutting carbon emissions about 30 percent below projected business-as-usual levels by 2020 has been widely accepted as a desirable target, and debate has moved to a cost-benefit analysis of means to make the cuts in the midst of an economic meltdown.

"We have laid out a plan which if followed can transform our economy and put us on the road to a healthier state," board Chairman Mary Nichols said as all eight board members approved the plan.

Measures include requiring that 33 percent of electricity be from renewable sources, regional transportation emissions targets and a cap-and-trade system for cutting industrial pollution by letting utilities and other companies trade emissions permits.

Much more remains to be done over the next few years. The plan has been compared to a menu for a meal, with recipes for dishes yet to be worked out.

'TRAIN WRECK' OR 'GUIDEPOST?'

Critics have urged the board to reconsider, including some economists who argue the analysis is full of rosy assumptions and ignores potential problems.

"All economists are skeptical when approached with a free lunch," said University of California, Los Angeles economist Matthew Kahn. "I wonder if there would be less likelihood of a backlash if there were more discussion now."

Companies throughout California fear rising electricity and other costs will put them out of business.

"This plan is an economic train wreck waiting to happen. Up until now, that train wreck has only existed on paper," said California Hispanic Chambers of Commerce Legislative Affairs Chairman James Duran.

The board, responsible for carrying out the 2006 law, said it saw the growth of green business more than making up for the costs. Its analysis shows per-capita income rising about $200 a year as a result of the changes to the economy and a $7 billion per year rise in the gross state product of California -- a relatively small effect on the nation's most populous state.

James Fine, an economist for the Environmental Defense Fund, argued that the impact more than a decade from now of major changes to the state economy today was impossible to tell with the precision demanded by critics. The bottom line, he said, was that the economic impact was negligible.

"It doesn't make a lot of sense to argue about whether the economic effects are going to be a little bit positive or a little bit negative," he said.

Fine and others expect California's plan to spur action from the U.S. Congress, which has failed to pass a cap-and-trade system for carbon that is central to the California plan. 

(Reporting by Peter Henderson and Syantani Chatterjee; Editing by Peter Cooney)

Sourced from the Thomson Reuters Carbon Markets Community - a free, gated online network for carbon market and climate policy professionals.