I forgot two other things I wanted to note about the CARB study showing that California’s climate program will positively benefit the economy and public health.

First, and crucially, the press release notes that "the bulk of the economic benefits are the result of investments in energy efficiency that more than pay for themselves over time." Or in the stiff language of the report itself, "Positive impacts are anticipated primarily because the investments motivated by several measures result in substantial energy savings that more than pay back the cost of the investments at expected future energy prices."

This cannot be emphasized enough: the way climate legislation benefits the economy is primarily by stimulating investments in efficiency. Yes, renewable energies and technologies will be a tremendous boon in the long-term, but in the short term, it’s efficiencies — avoided costs — that turn the balance positive.

Carbon constraints (and other climate/energy policies) do this first by driving up the cost of the energy status quo, making previously marginal efficiency investments worth the effort. Second, they get people looking for efficiencies. Perhaps thanks to the continuing grip of our economic self-image as rational interest-maximizers, people underemphasize the role of custom and habit in these matters. Energy’s been cheap for a long time.

Second, also from the press release, "the results in the economic analysis may underestimate many economic benefits since the models do not include lower costs from innovation and improved technologies expected under a market-based program."

So CARB is self-consciously conservative in its economic outlook. Radical technological innovation is a weird beast in these debates. By its very nature it can’t be predicted, so it’s difficult to model. But U.S. experience has shown that environmental regulations do spur innovation and improvement, despite the inevitable conservative economic doomsaying.

There’s no way to say where and when innovation will occur, but it occurs. There’s a degree of trust and self-confidence involved that’s difficult to capture in cost-benefit language, but it is at the heart of public policy and we shouldn’t pretend it doesn’t exist.