For many years and in many arenas, California has been a trendsetter for the U.S. From McDonald’s hamburgers to Intel’s microchips, the Golden State has influenced the nation’s culture and economy in countless, sometimes controversial, ways.

Direct Legislation
Politically, California was one of the first states to adopt the concept of “direct legislation” in 1911 when voters approved a state constitutional amendment that created the “initiative, referendum and recall” processes. Over the years, state voters have weighed in on almost 350 propositions and have rejected two-thirds of them. In the recent general election, Proposition 23, dubbed the “California Jobs Initiative” by proponents and the “Dirty Energy Proposition” by opponents, was one of the latest high-profile initiatives to fall short of the mark (61% no on Nov. 2).

Prop 23 would have suspended California’s Global Warming Solutions Act (AB32), which was passed in 2006 with promises to cut greenhouse-gas emissions by 80% over four decades. Although Prop 23’s proponents may have correctly anticipated that job-killing regulations were repulsive to most voters in this election season, their campaign to restrain the AB32 behemoth fell flat.

Perhaps the most obvious detriment to the success of Prop 23 was its list of sponsors (including Koch, Tesoro and Valero). Californians tend to dislike large, out-of-state companies trying to influence elections (even if the influence is demonstrably beneficial to the electorate).

Curiously, the anti-23 campaign pulled in three times as many dollars as the pro-23 side. Many of the largest contributions were from Silicon Valley entrepreneurs and venture capitalists who have already invested heavily into fledgling clean-tech businesses that promise green rewards.

Another fatal flaw in the pro-23 campaign was its benchmark for determining when the state’s economy was strong enough to accommodate greenhouse-gas (GHG) restrictions. The state’s unemployment rate has been in the 12-13% range since August 2009, and Prop 23 would have suspended AB32 until unemployment fell to 5.5% for four consecutive quarters.

In principle, such a goal sounds laudable, but the state’s (non-partisan) voter guide included a chart showing California’s unemployment rate failing to meet the Prop 23 full-employment benchmark for approximately 35 out of the past 40 years. As a result, voters saw the initiative as disingenuous.

From this columnist’s perspective, Prop 23 would have fared better if it had been posed as a full-on referendum of AB32 rather than a wolf-in-sheep’s-clothing appeasement. Admittedly, a large number of Californians want the state to be a leader in GHG regulation and green energy solutions, but most don’t want to achieve those goals at the expense of mass layoffs and business failures. If voters had learned that AB32 itself was in fact the more extreme example of a ravenous wolf in disguise, Prop 23 might have had a fighting chance.

AB32 Agenda
On the surface, the cap-and-trade provisions of AB32 appear to promote free-market solutions to tough energy problems. This is a big reason for the law’s favor among Silicon Valley executives. However, these entrepreneurs likely do not yet understand that there is a fundamental difference between selling products that people want to buy (e.g., computers) and selling products that people are forced to buy (e.g., CO2 removers).

Regrettably, the California legislature demonstrated it was more interested in centralized control of energy than free-market solutions by the way it structured AB32. If Sacramento had truly wanted AB32 to spur innovation and conservation, they would have eliminated the auction tax (estimated at $75-1,400 per person per year going directly to Sacramento) and abandoned the “anoint a pet-technology” slush fund created thereby (up to $53 billion per year available to help innovative technologies). Enacting a revenue-neutral (and reasonable) cap on GHG emissions would have maintained momentum in green tech without soaking up taxpayer dollars (not to mention the higher energy costs for consumers).

Poor Prognostication
Government is notoriously bad at predicting which ideas will succeed in the marketplace. Private investors have a difficult enough time picking winners, but they at least are putting their own wealth at risk, not that of taxpayers. Government has no place subsidizing uncertain new technologies and ventures with public capital. Regulators should be traffic cops, not kingmakers.

If state legislatures beyond California have been contemplating GHG regulations and are feeling empowered by the failure of Prop 23, citizens in those states must speak up to halt the taxation, centralization and coronation provisions being considered. Bad legislation is one California trend we can all do without.IH