Is Green Good for Business?

"In California, we are doing everything we can to tip the balance in favor of the environment…California is big. California is powerful, and what we do in California has an impact. We are sending the world a message."—California Governor Arnold Schwarzenegger, April 2007

During his two terms in office, Schwarzenegger has improved the business climate, protected our industry from ill-advised ideas, reversed irresponsible spending by state government and stood firm against raising taxes. Our industry counts the governor as a friend and ally.

However, the governor and many businesses don't agree about his signing the "California Global Warming Solutions Act of 2006." Commonly referred to as "AB 32," this act created a first-in-the-world program to achieve "real, quantifiable, cost-effective reductions of greenhouse gases."

Per the act, the California Air Resources Board (CARB) will develop regulations intended to reduce greenhouse gas emissions by 25% by 2020. Mandatory caps will begin in 2012, and emissions from industries determined as "significant sources" will be measured in 2010.

At the measure's signing ceremonies the governor declared that he "wanted to make California number one in the fight against global warming," adding that AB 32 is "unquestionably...good for businesses."

Although many are doubtful, it's premature to tell if the governor was right about the measure "being good for business." Many California business groups recognize that the rules have changed and that we need to adapt to remain part of the decision-making process.

Agree or not, there's no longer much debate about whether global warming exists. The governor and a legislative majority believe it does, as evidenced by AB 32. The public believes it does, as evidenced by a field poll released in April 2007 that noted eight in 10 Californians had concerns about global warming. Understanding this new paradigm and being able to work within it is our only hope to shape future policy and mitigate impacts on business.

The field poll also shows disagreement on the best way to achieve the emission reduction. About 45% supported establishing a system to enable companies that can't reduce emissions to pay other companies to exceed their cutback totals (i.e., create a market-based approach with incentives and flexibility to achieve the goal of reduced emissions). However, 41% favored requiring major companies to make a uniform, across-the-board 25% cutback. We must focus now on strengthening the palatability of market-based approaches over strict mandates before the opportunity is gone.

We can also work to fend off legislative one-upmanship. Democrats have introduced an eight-bill package that aims to regulate and reduce greenhouse gas emissions in California. NAIOP SoCal, CBPA and other business groups are working hard to stop these measures before they complicate matters further.

One unintended consequence of AB 32 is that it might dissuade some industries from reducing current emissions. Since CARB won't take measurements by which industries will be held accountable for future reductions until 2010, companies currently reducing emissions don't receive any credit, therefore it might make it harder for them to show improvement post-2010. For this reason, NAIOP SoCal and CBPA are working with the governor and legislature to ensure that current reductions count toward AB 32 standards.

Another consequence of this measure is that environmentalists are now claiming that environmental impact reports required under California's Environmental Quality Act (CEQA) must now include an assessment of greenhouse gasses.

Development projects deemed to add a single molecule of carbon to the atmosphere may be stalled under CEQA and the AB 32 framework.

Many business groups are advocating on your behalf at every opportunity with the governor, in the legislature and in front of regulatory agencies in order to develop strategies to deal with the new regime of greenhouse regulation in California.

The views expressed in this article are those of the author and not Real Estate Media or any of its publications.