Assembly Bill 32 (AB 32), the Global Warming Solutions Act of 2006, established California’s 2020 greenhouse gas emissions reduction target, requiring the state’s emissions to return to 1990 levels by 2020, a reduction of approximately 12.5% from current levels and 40% from business-as-usual in 2020.* The economic impact of this requirement is of obvious policy and practical significance to all Californians. As a result, AB 32 has been the subject of a tremendous amount of ongoing analysis, controversy, and some confusion.

This report aims to provide objectivity and clarity to the policy debate regarding the likely economic impact of AB 32. Specifically, it examines AB 32’s potential impact on small businesses in California by developing two relatively simple scenarios: a Conservative Case and an Extreme Case. The Conservative Case reflects a realistic, but relatively pessimistic, set of outcomes. The Extreme Case sets an unrealistically high upper-bound on AB 32 cost increases through assumptions and policy design features that overstate the cost impacts of AB 32. By design, the Extreme Case makes simplifying assumptions known to over-estimate AB 32’s costs as a way to make our modeling process more transparent than previous modeling efforts, and to provide more assurance of capturing extreme potential outcomes.

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