California Legislators Misunderstand Basic Economics. Taxpayers Will Pay the Price.

By Henry I. Miller, MS, MD — May 21, 2024
Instead of punishing U.S. oil producers, policymakers should seek scientific, evidence-based solutions to climate change that don't sacrifice U.S. economic growth and prosperity.

California's "Polluters Pay Climate Cost Recovery Act of 2024," also known as Senate Bill 1497, would supposedly hold fossil fuel polluters accountable for the climate damages caused by their products. However, upon closer examination, it becomes evident that this legislation is riddled with theoretical flaws and practical concerns that could have significant financial – and therefore, quality of life – repercussions for Californians.

One of the fundamental flaws of SB 1497 lies in its narrow focus on the negative externalities of fossil fuels, particularly greenhouse gas emissions, while overlooking their positive externalities, such as improved health and prosperity. Any fair assessment of the damage caused by fossil fuels must consider both sides of the equation, which this legislation fails to do. Public policy, like life, involves tradeoffs.

In particular, the act's assertion that the costs of global climate change have already been realized is misleading. Many of its estimates refer to potential future costs rather than actual damages that have occurred. Attempting to determine a "fair share" of these hypothetical future costs is inherently problematic and impractical.

Additionally, the act's attempt to assign blame to specific industries, such as U.S. oil producers, overlooks the complex web of contributors to emissions, both domestically and globally. This simplistic approach is unlikely to accurately and fairly allocate the costs of climate change and may result in dubious estimates.

Beyond its theoretical failings, SB 1497 poses significant and inevitable economic risks for Californians. By imposing costs on fossil fuel producers, the legislation effectively introduces a carbon tax, which could have dire consequences for the state's economy. Studies have shown consistently that carbon taxes lead to higher prices for consumers.

Furthermore, SB 1497 sends a signal to businesses that California is hostile to investment and growth, potentially deterring future economic development in the state. Despite claims of relieving taxpayers of the burden of climate harms, the act ultimately places additional financial strain on Californians.

How much strain? Although estimating the economic impact of SB-1497 is challenging due to the lack of specific details regarding penalties that would be imposed, based on comparable carbon tax models in Europe, projections suggest substantial economic losses for California. They include reduced economic growth, fewer job opportunities, and lower household incomes, particularly affecting lower-income and working families.

Economist Wayne Winegarden has made some estimates based on the impacts of carbon taxes on real GDP in Europe: "Applying these real GDP losses to California, SB 1497 would, over five years, reduce the growth in total economic activity by around $65 billion, dampen average household income growth by $1,120, lower job growth by 213,000, and increase the exodus from California by 29,700 people."

Such decreases in wealth would have potent negative effects on Californians' lives. Money spent on implementing and complying with regulation (justified or not) exerts an "income effect" that reflects the correlation between wealth and health, an issue popularized by the late political scientist Aaron Wildavsky.

It is no coincidence, he argued, that richer societies have lower mortality rates than poorer ones. Wealthier individuals are able to purchase better health care, enjoy more nutritious diets, and lead generally less stressful lives. Conversely, the deprivation of income itself has adverse health effects — for example an increased incidence of stress-related problems including ulcers, hypertension, heart attacks, depression, and suicides.

It is difficult to quantify precisely the relationship between mortality and the deprivation of income, but academic studies suggest, as a conservative estimate, that every $7.25 million of regulatory costs will induce one additional fatality through this "income effect."

In conclusion, SB 1497's flawed premise and economic consequences raise serious concerns. Rather than imposing additional heavy burdens on fossil fuel producers and consumers, policymakers should seek more evidence-based and equitable solutions to climate change that don't sacrifice economic growth and prosperity.

An earlier version of this article appeared in the Orange County Register on May 6.


Henry I. Miller, MS, MD

Henry I. Miller, MS, MD, is the Glenn Swogger Distinguished Fellow at the American Council on Science and Health. His research focuses on public policy toward science, technology, and medicine, encompassing a number of areas, including pharmaceutical development, genetic engineering, models for regulatory reform, precision medicine, and the emergence of new viral diseases. Dr. Miller served for fifteen years at the US Food and Drug Administration (FDA) in a number of posts, including as the founding director of the Office of Biotechnology.

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