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Experts Say California's Environmental Policies are Bellwether for Economic Growth

Republican nominee Donald Trump doubled down on his very open hostility to environmental regulations last week in an economic policy outline.
Image: Vivint Solar technician Aguilar installs solar panels on the roof of a house in Mission Viejo
Vivint Solar technician Eduardo Aguilar installs solar panels on the roof of a house in Mission Viejo, California, in this October 25, 2013 file photo.Mario Anzuoni / Reuters file

Despite Republican presidential contender Donald Trump’s claims that environmental regulations hamper economic growth, many economists argue that such rules don’t hinder prosperity and they point to the state of California as proof.

Last month, California, a state billed as having the most stringent environmental rules, surpassed France to become the sixth largest economy in the world, raking in $2.46 trillion in gross state product. The Golden State also produced 459,400 non-farm jobs last year— more than any other state in the nation.

“GDP growth in California has outpaced the U.S. as a whole in recent years. Over this same time period, the state has implemented the most ambitious climate change policies in the nation. And CO2 emissions in the state have fallen,” said Meredith Fowlie, a professor of economics at University of California Berkeley.

Read More: California Overtime Tops $1B, Hits Pre-Recession High

The state's progress, economists say, would seem to counter traditional GOP notions which assert that environmental restrictions are an assault on private industry. The current Republican platform claims “expansive” EPA regulations assist in “creating regulatory uncertainty, preventing new projects from going forward, discouraging new investment, and stifling job creation.”

Trump, last week, for example, vowed to target” the Environmental Protection Agency’s carbon emissions and water use regulations as bad for business. Former Massachusetts Governor and former Republican presidential candidate Mitt Romney said that the EPA was a tool “to crush the private enterprise system.”

“California is demonstrating how economic growth can continue amidst more ambitious climate change policy," Fowlie said.

But California is enjoying this relatively new resurgence in prosperity after a multi-year recession starting in 2008, when the rest of the country also sank.

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During this fiscal low point, the state went in guns blazing to expand environmental policies, despite criticism that the move would have a disastrous impact on the state’s growth. Former Hewlett-Packard CEO Carly Fiorina, a Republican who once ran unsuccessfully for senator and president, argued against environmental policies in California in 2009 saying such actions “won’t make a bit of difference in climate change.”

Nevertheless, California lawmakers forged ahead over the next several years by limiting greenhouse gas emissions with a cap and trade policy, opting for cleaner water rules, requiring the use of renewable energy and pushing pushed for cleaner cars.

The state not only bounced back but flourished economically.

Some of the recovery was due in part to a rise in industries unaffected by environmental regulations like technology, entertainment and bio-technology, said William Fulton, director of the Kinder Institute for Urban Research at Rice University.

But the rest of the bounce back is attributed to an newly-evolved commercial landscape shaped by environmental policy. This "green industry" revolved around a sustainable and environmentally responsible business model—one that adjusts to work with environmental policy.

“Blue collar industries initially left the state rather than stay in place, the pollution caused by those industries also left the state,” said Fulton, who served as the planning director for the City of San Diego. “But the economy then shaped around that kind of aftermath, and there was growth in other areas like the green industry.”

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When the state government not only implemented but gave financial perks to businesses for adhering to these policies, plenty of “green entrepreneurs” jumped at the opportunity, said Matthew Kahn, a professor of economics at the University of Southern California.

California serves as a “green guinea pig” and this experimentation could potentially inspire a move towards a green economy in other parts of the nation once the cost benefits become apparent, he said.

By 2020, California’s emissions and cap-and-trade regulations will result in "cumulative benefits from avoided health costs, improved energy security, and reduced social costs of carbon valued at $10.4 billion," according to a report by the Environmental Defense Fund. By 2025, it will be a$23.1 billion.

California’s transition to a green economy has been relatively smooth because it wasn’t as dependent on traditional manufacturing jobs as compared to states like Ohio or Pennsylvania. Because of this, the state was able to experiment, test, and show cost effective results that will economically behoove other states to follow, Kahn said.

"It will still benefit a factory owner who only cares about cost, without any thought on the environment, to use methods that California uses because they will be cheaper," he said. California is getting better and better at making green options that are more financially competitive.

Read More: Businesses can go green without going under

When the cost of gas goes up, it benefits your pocket to drive an electric car, he said.

"The old economy Trump is speaking to at the end of the day is outdated, our current engine is a set of new products" that will be cheaper and better for the environment, he said.

The manufacturing industry in California accounts for 11.1 percent of the total output in the state and employs close to eight percent of the workforce, according to the National Association of Manufacturers.

The industry was slower to return to California because of expensive land and high union wages, environmental restrictions were a secondary deterrence, Kahn said.

Despite this, the state still has the nation's largest manufacturing sector in the country.

Automobile companies like Tesla and Fiskar have already set up shop in the state. Even Chinese based electric vehicle maker BYD opened up a production plant in Lancaster, California.

Read More: Tesla Opens Gigafactory to Expand Battery Production Sales

“If you want a polluted 1960’s economy, yes, the environment will be an impediment," said William Fulton. "But if you want to bring the country into a 21st century energy efficient economy, it won’t be.”