Costs are on the rise, especially in California, where they approach the astronomical. The state’s residents pay $53,170 per year for essential goods and services, more than 30 percent above the national median. They face the nation’s highest median housing, second-highest transportation, and third-highest food costs. The state is also increasingly unequal, as it is home both to America’s highest cost-adjusted poverty rate and to its largest number of billionaires.
How could the nation’s most populous and resource-blessed state become so expensive and inequitable? One reason is that California’s legislature has delegated seemingly unbounded authority to regulatory agencies, which have imposed on residents expensive mandates, often based on dubious statistical projections. Today, state climate policies, derived, in part, from such models and projections increase costs for poor families and shift billions of dollars to the wealthy in pursuit of carbon-emission targets.
California’s building codes are a perfect example of projection-based policymaking in action. In 1980, the Golden State enacted building codes that regulators confidently predicted would cut residential energy use by 80 percent. But according to a 2016 paper published by Arik Levinson, a former Obama administration economic advisor, energy savings fell “significantly short” of California’s estimates. He also affirmed that the reported success of these programs was almost entirely based on models rather than real-world data—more projections to validate the original projections. Supporters of such projection-based policymaking predictably pushed back on the study, but they did not rebut a more damning claim that Levinson later made on the Freakonomics podcast: that California-style regulations “don’t reduce energy consumption or pollution nearly as much as promised, if even at all.”
The state continues to use similar projections in its environmental policy today, despite the failure of its model-inspired building codes. Consider the plan California released in 2022 to achieve “carbon neutrality” by 2045. It includes targets for reduced personal-car use more than double those seen during the pandemic lockdowns, for electrifying home appliances, and for cutting dairy and livestock emissions with policies that will accelerate the relocation of food producers to other states and raise prices. State regulators estimated that implementing these changes would prevent future climate damages, or the “social cost” of carbon dioxide emissions, which they estimate as ranging from $36 to $130 per metric ton of carbon by 2050.
The state claims that the most cost-effective climate policy is to “deploy” electric vehicles (EVs) and “ reduce driving demand.” These measures, advocates claim, will not only be costless but also produce an average annual windfall of $128 per ton of reduced emissions by encouraging biking and walking. But this projection is textbook model-driven policymaking. Modern combustion cars are now so clean that tire particulates caused by roadway friction are worse than tailpipe emissions—and heavier EVs have higher tire emissions. Increasing urban residential density so that more people can bike, walk, or use public transit is a sensible objective, but even the least costly new urban apartment building is unaffordable for most workers, unsuitable for most families, and economically infeasible in almost all of California. The state’s supposedly cost-effective EV and reduced-driving climate policies ignore and undervalue factors that increase transportation, energy, and housing costs for already-struggling families, who need reliable and affordable shelter, energy, and transportation.
While rational climate policymakers would ensure that costs imposed today do not exceed the harms to be prevented tomorrow, California regulators seem committed to the opposite. The state admits that efforts to “generate clean electricity” will cost, on average, $497 for each metric ton of emissions reduced. The average annual bill for “decarboniz[ing] buildings” will be $585 per metric ton. Regulating “sparsely vegetated lands,” meantime, will reduce emissions at an astonishing cost of $450,619 per ton.
These policies will make California even more unequal. As the state’s nonpartisan Legislative Analyst’s Office confirmed in February 2024, most of the Golden State’s signature green energy and vehicle programs benefit California’s wealthiest residents and impose the highest burdens on the state’s poor and middle-class residents.
The state’s solar program, similarly based on model-driven estimates of climate benefits, is particularly regressive and ineffective. In 2006, California started offering generous tax incentives and other benefits to consumers who installed solar panels. But despite promises of savings, California’s residential electricity costs are nearly double the national average, and the solar subsidies shifted an estimated $6.5 billion per year from residents who did not install panels, mostly renters, to residents that did, mostly homeowners.
The widespread adoption of solar panels means that electricity production peaks in the middle of the day, when demand is lowest. This forces the state to waste, or “curtail,” an increasing amount of mistimed “renewable” power. California’s utility regulators finally made this program more equitable earlier this year, prompting howls from climate advocates and even a lawsuit. Meantime, however, the state and localities continue to require solar rooftops under myriad new building mandates, pushing already-exorbitant housing costs even higher.
The dominance of this policymaking approach is not limited to California’s environmental and climate policies. In 2008, voters approved construction of a high-speed line between Los Angeles and San Francisco with $9 billion of state-bond funding, after experts assured them that it would transport 117 million riders per year in 2030, turn an annual profit of over $ 1 billion, and largely be funded with federal money. In December 2008, the state listed the project in its climate plan and estimated that its completion would reduce emissions by 1 million metric tons by 2020.
Not an inch of the now-infamous project is operational. Present efforts are focused on building a line between Bakersfield and Merced that would cost up to $35 billion—more than the entire initiative’s estimated 2008 cost. Completing the voter-approved route is now projected to require another $100 billion. Rail officials admit that planning was “not based on technical and financial criteria.” Good to know!
California taxpayers are fed up with leaders who impose housing and other costs that residents simply cannot afford. A whopping 77 percent of California adults agree that housing affordability is a “big problem.” The legislature has heard the message and has wrestled more than 100 pro-housing bills into law since 2017—and yet, housing production has hardly budged.
Why? The state’s regulatory agencies make the cost of building almost anything prohibitive. California piles on cost burdens to apartments intended for low-income families, for example, with eye-popping price tags of $1.7 million per apartment in San Francisco. Even the cost of typically much smaller apartments for the homeless has reached $1 million per unit in Santa Monica. Federal taxpayers partly subsidize these California apartments with tax credits, even though the national average cost of building a low-income housing unit is only $232,000, according to HUD.
Neither the governor nor the legislature have shown willingness to disentangle the state and regional bureaucracies that prioritize their own interests above those of taxpayers. Their made-to-order models, predicting wildly inflated benefits, have consistently imposed costs on California’s middle- and lower-income households. It’s long past time for public officials to change course and eliminate these extraordinarily intrusive regulatory burdens. Golden State officials must insist that public policies be based on clear and compelling real-world evidence—not self-serving projections that too often fail to prove out.
Photo: Kevin Koeppen Photography / iStock / Getty Images Plus