California and the Business Case for Environmental Regulation

Published April 18, 2018

2018-10-24 11:11:27

The Trump Administration is working hard to roll back the nation’s environmental regulations on the grounds that they are an economic burden on business. But evidence from California challenges this linkage. Throughout its history, the state has been on the cutting edge of environmental innovation, leading the United States in nature  and coastal protection, restricting oil drilling, regulating automotive emissions, promoting energy efficiency and most recently, curbing greenhouse gas emissions. Yet California has been the nation’s richest state since 1971

From 2013 to 2016, California grew more rapidly than any other state and is now the world’s sixth largest economy. The state’s history not only shows that rapid economic growth and stringent environmental regulations are compatible; it demonstrates that far from being an economic burden, many of the state’s environmental regulations have benefited business and promoted economic growth.

California was the first government in the United States to impose pollution controls on motor vehicles. The campaign to do so was strongly supported by the Los Angeles business community, most notably its powerful real estate developers. They feared that unless the city’s air quality measurably improved, it would become more difficult for the city to attract new residents and businesses.  

Thanks to the steady strengthening of both state and federal automotive emissions controls, air quality in Los Angeles has dramatically improved. During the 1970s Los Angeles averaged 125 Stage I smog alerts per year, but  it has not had a single one since 1999. In 2015, the city recorded its lowest smog level since reporting began. It is hard to imagine that Los Angeles would have continued to grow so substantially or become the center of the world’s entertainment industry as well as the location of so many high income communities had its air remained so hazardous.       

These pollution controls grew out of a long history of collaboration between California’s policymakers and business firms. In fact, California’s businesspeople and policymakers have been working together since the 19th century – when the protection of  Yosemite was backed by steamship companies and the Southern Pacific Railroad was an advocate of  protecting the sequoias of the Sierras. Both wanted to promote tourism to California.

Most recently, California businesses have backed the state’s wide-ranging initiatives to reduce greenhouse gas emissions. California’s historic 2006 Global Warming Solutions Act mandated a reduction in greenhouse gas emissions to 1990 levels by 2020. It was backed by more than 200 individual firms and business associations, including the state’s high-technology and venture capital firms in Silicon Valley. By 2006, nearly $2 billion in venture capital had been invested in clean technology. As one state policymaker noted, “The legislation . . . sends a signal to people that there is a market where people can invest. . . So what started as an environmental issue in 2001 or 2002 has garnered a lot of business support.”  

Thanks to the state’s promotion of renewable energy, 1,700 solar companies are based on California. The state accounts for half of the rooftop solar installations in the United States and a quarter of the nation’s solar energy jobs. Renewable energy mandates have been strongly supported by the state’s unions because of the jobs they create. All told, more than 500,000 people are employed in the state’s growing renewable energy sector.

The state’s Advanced Clean Cars Program and its zero-emission mandates have led Californians to buy or lease more than 200,000 pure electric vehicles. This represents roughly half of all such vehicles registered in the United States, and has made California, along with China, the world’s largest market for this new automotive technology.  Thanks to Tesla, California has become the center of electric vehicle technology, with several other auto manufactures opening design facilities in the state.

Between 1974 and 2014, energy consumption per person in the United States increased by nearly 75 percent, while California’s per person energy consumption has remained nearly constant. The state’s energy-savings program, building codes, and appliance efficiency standards have reduced the energy bills of Californians by nearly $90 billion and have also saved the expense of constructing what could have been up to 50 new power plants.

Revealingly, when in 2010 two Texas based oil companies launched a California ballot initiative to roll back the state’s climate change commitments, their effort met with strong business opposition from within the state, especially from its clean technology sector which now had investments of $6.6 billion. According to the Silicon Valley Leadership Group, with worldwide revenues of more than $2 trillion, “Our members believe that reducing greenhouse gas emissions and our dependence on fossil fuels presents an opportunity to transform the economy from one based on coal, oil, and gas to one that runs on clean renewable energy.” In sum, the record of California – the nation’s most populated and now its most rapidly growing state – challenges the claim that environmental protection is necessarily a burden on business. On the contrary, the state’s extensive history of environmental policy leadership – often backed by businesses allied with citizens groups – has long contributed to its prosperity. Both its wealth and its environmental standards have made California a truly “Golden State.”

With the retreat of environmental policymaking in Washington, more states can learn from what California has accomplished.   Policymakers, advocates, and others concerned about their state’s economic growth and competitiveness should support strengthening  their state’s environmental policies, and work with businesses who stand to benefit from putting their state on a “greener” growth trajectory. When a state protects its scenic beauty, improves its air quality, reduces its energy use, and promotes renewable energy, it not only protects its environment, but it also becomes a more inviting place to live,  work, visit, and invest.

David Vogel is the author of the just published California Greenin’: How the Golden State Became an Environmental Leader Princeton University Press, 2018


3 responses to “California and the Business Case for Environmental Regulation”

  1. Tom Lyon says:

    David, this is a great piece, and I look forward to reading “California Greenin’ ” on a winter’s day. The importance of coalitions between selected business groups and citizens’ groups comes through strongly in this story. And the fact that environmental protection has been a key to the state’s strength is a crucial message.

    My question is to what extent is this history due to California’s unique endowments of natural resources and aesthetic beauty? What is a state like Oklahoma to do, if its resources are concentrated in fossil fuels, the school system is terribly underfunded and it is hard to sell tourists on learning about the history of the Okies fleeing the Dust Bowl back in the 1930s or of white supremacist Timothy McVeigh’s bombing of the Alfred P. Murrah Building in 1995?

  2. John Maxwell says:

    David, you have written a thought-provoking article, but I wonder what it is precisely that states can learn from California. It seems that the progress made in California has come through legislative and legal battles that were hard fought buy each side pursuing its self-interest. This is what happens in other states; it’s just that the winners differ.

    Perhaps by looking into these environmental victories, one might be able to pinpoint pivotal roles played by individual legislators, business leaders, or activists that legislators could work to aid or replicate. I agree with Tom that if weather, beauty and unique natural resources are the pivotal factors, the “California case” is not a hopeful one.

    I’m sure that your book will provide more significant details, and serve as a starting point or more in the study of how one might hopefully replicate California’s successes.

  3. I think there’s a number of competing hypotheses that could have led to this phenomenon. 1) Maybe economic development and wealth crowded out polluting industries and created demand for environmental goods (a Kuznet’s curve hypothesis); 2) Maybe, as you seem to suggest, it’s a combination of public leadership and public-private consensus on environmental protection; 3) Maybe it’s a demand-pull story, where environmental laws (put in place due to a combination of factors) generated innovation & startups, which in turn led to demand for even more stringent environmental laws (to protect these start-ups).
    I’m wondering how it might be possible to test these hypotheses against each other (though I imagine there’s support for all 3).
    I also wonder, if (2) has the most explanatory power, why this story exists in California, but hasn’t seemed to take place in other locations.

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