New Report: California's Climate Policies Benefit Manufacturing and Help Reduce Energy Bills

California's climate and energy policies have helped improve the productivity of its manufacturers - with the state leading the nation in manufacturing output, exports, and jobs - and lowered business and household electricity bills, according to a report released today by the independent nonpartisan organization Next 10.

The issue brief examines business energy costs, particularly for manufacturing, and found:

  • California is still the top U.S. state for manufacturing.
  • California electricity and energy productivity in manufacturing is outpacing the rest of the nation.
  • California manufacturers spend a smaller share of total operating costs on electricity; and
  • Electricity bills are lower in California

Today's report flies in the face of claims that the state's climate and energy policies harm manufacturers by increasing their costs.

The California Manufacturers and Technology Association (CMTA), for example, has repeatedly claimed clean energy policies like California's Global Warming Solutions Act (AB 32) are causing higher energy costs that hurt competitiveness and are causing a mass exodus of manufacturers from the state. The oil industry front group Californians for Affordable and Reliable Energy (CARE), a coalition supported by the California Business Roundtable, makes similar claims.

These false claims have reemerged recently in an effort to thwart passage of California's Clean Energy and Pollution Reduction Act (SB 350, De León), a bill that includes improvements to building energy efficiency that would further boost energy productivity.

The analysis shows, contrary to doomsday claims, that California has achieved impressive economic growth not in spite of--but because of--the state's climate and energy policies.

"Energy policies that promote efficiency and reduce energy bills are contributing to the state's manufacturing success," said F. Noel Perry, businessman and founder of Next 10. "Even with the most aggressive carbon pollution reduction policies in the nation, California remains the top state for manufacturing."

Myth busting

Next 10's report specifically debunks a number of myths opposition groups seek to perpetuate at this critical time for determining California's future energy policy. Here are the highlights:

Myth: Clean energy policies deter manufacturers from producing in California

Fact: California remains the top state for manufacturing output and employment in the United States

California continues to lead the nation in manufacturing output, exports, and jobs. In fact, Next 10 said new data released this year from the 2012 U.S. Economic Census, shows the state was home to twice as many manufacturing companies as Texas, the second-largest manufacturing producer (36,300 vs. 17,700, respectively).

Over the past decade our manufacturing sector has also grown three times faster than the rest of the country (+15 percent vs. +5 percent) and recovered more rapidly from the 2007-2008 recession. Finally, since 2010 more offshore businesses have relocated to California than any other state.

Fact: California manufacturing's electricity and energy productivity is outpacing the rest of the nation

California manufacturers are more productive in terms of output relative to total electricity costs than any other state besides Connecticut. For example, in 2012 for every dollar California manufacturers spent on electricity they generated nearly $59 of output--$21 more than the rest of the United States. This gives companies in California a competitive edge.

Fact: Electricity is a smaller share of expenses for California manufacturers than most other states

California manufacturers also spend less on electricity as a share of their operating costs than most other states, ranking 15th in the country in 2012 (up from 22nd in 2002). If we include fuels for onsite power, California ranks even better at 13th.

Improvements in energy efficiency were a key driver in decreasing the share California manufacturers spent on electricity, according to the report. It also should be noted that--while electricity costs are often talked about as a major portion of business operating expenses--the median spent on electricity across all business sectors 2012 was just 0.6 percent.

Myth: California's electricity bills are the highest in the US

Fact: California residents have some of the lowest electricity bills in the country, and electricity bills for industry are better than average

While our electricity rates tend to be higher than the national average, thanks to better energy efficiency our actual average bills -- the amount that comes out of our bank accounts each month -- are among the lowest in the country, and in fact lower than 43 other states.

California's industrial sector, which includes manufacturing, also faces lower average electricity bills than the national average. Only our commercial sector lags behind, with bills 23 percent higher than the combined average of the rest of the country. This may be due to inefficiencies in commercial buildings, coupled with higher rates. Passing SB 350, which calls for doubling energy efficiency in buildings, would help lower these costs.

Since California passed the Global Warming Solutions Act our average bills across all three sectors have stayed relatively constant, while bills in other states -- such as Florida, New York, and Texas -- have increased greatly.

Fact: The global economy has the greatest influence on manufacturing

The manufacturing sector as a whole is undergoing profound changes globally, and employment in this sector declined in both California and the rest of the country over the past decade. However, California's continued leadership in manufacturing affirms that the global economy, technology, and workforce trends are more significant drivers of manufacturing operations decisions than climate policies.

While legislators consider whether to strengthen climate policies in California, it is important to remember how California's energy and climate policies have helped promote efficiency and reduced average energy bills for businesses and residents thus far, as well as encouraged manufacturers to be among the most energy productive in the in the country.

About the Authors

David Puzey

Policy Adviser, Energy & Transportation program

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