California’s energy agencies are once again kicking off a multi-year planning process designed to provide us with reliable, low-carbon energy at the lowest possible cost. The agencies assess the economy, estimate demand, determine their asks for generation and transmission, evaluate utility plans, and monitor implementation. It is a lot of work but it keeps the lights on, costs down, and emissions low.
The process involves analyses, reports, proposals, and workshops with industry experts, academics, and vested parties from all sides. The planning is thorough and effective. But right now unfortunately it seems to be impossible.
On Wednesday, the California Energy Commission held a “Commissioner Workshop on California’s Economic Outlook” to lay the groundwork for determining what demand will look like over the coming decade. The workshop included a deep dive on data center growth and some big sporting events (the 2026 FIFA World Cup and the 2028 Summer Olympics). But the first half was dedicated to a discussion about the state’s general economic outlook — population demographics, housing, jobs, cost of living, and so forth. I thought I would write a blog post about some of the economic factors that affect our electricity demand forecast. Boring, maybe, but at least somewhat informative.
Instead, the discussion was eye-opening. With disruptive policies being announced on a near-daily basis from the White House, many of them unclear in scope or duration, our ability to predict how the economy will evolve has been hamstrung, and the insight we do have is bleak. Panelists, who were experts in the field of economic forecasting, were shaken. Here are some of the issues they are struggling with.
Housing
Housing construction is a good barometer for potential growth. Last year we built 109,000 units. Nancy Wallace, a UC Berkeley professor of Finance and Real Estate, said that we have a gap of about 2.5 million units, so we would like to ramp up the pace of construction. On top of that, we have an immediate need to replace 12,000 units lost in the Los Angeles fires.
But the new direction on immigration and tariffs could impede any acceleration. Wallace noted that Canada supplies most of the soft wood we use for building, and China the aluminum and steel that we use. “Our cost indices in this state are higher than anywhere in this country, and these tariffs are absolutely going to push those costs up.”
At the same time, immigration pressure will reduce the construction workforce. It is not clear how fast this will happen or to what degree. But Jerry Nicklesburg, Faculty Director of the UCLA Anderson Forecast, observed that even if deportations do not ramp up quickly, if the threat keeps people from showing up at work then the effect on the labor force is the same. That is already happening. The contraction of the labor force will further push up the cost of construction.
Nickelsburg is pessimistic about our ability to close the housing gap, and even more pessimistic about any housing being affordable if these policies come to fruition: “If we were to go from 100,000 to 300,000 [units per year], we need something like half a million more construction workers. And where do they come from? So if they come from out of state they need a place to live right? …. Ignoring CEQA, ignoring Coastal Commission, ignoring zoning, if you took all of that away, we’re still a decade away from achieving this with really good planning.” But even in that best case affordability is not achievable. “But to see affordability as an issue go away? We’re not going to see it any time soon, and I think we have to be realistic about that.” (1)
So looming immigration and tariff policies are throwing a big wrench into our ability to produce affordable housing at scale. But what about the cost of living more generally?
Cost of Living
The panel discussed the impact of immigration policies on different sectors, not only construction but also agriculture, leisure and hospitality, and healthcare. The loss of immigrants will increase the cost of labor, push up the prices of basic goods, and lead to inflation. (2) Utility bills will also increase if the administration pushes for greater exports of liquefied natural gas. Those exports will alleviate some pain in Europe but will raise prices here. Home heating bills will go up, as will electric bills where natural gas plays a significant role. Nickelsburg predicts that spending will shift away from taxable sales as people pay more for food and other essentials. All of this will hurt the economy.
Somjita Mitra, Chief Economist at the Department of Finance’s Economic Research Unit in Forecasting, added that tariffs on imports behave like a sales tax, with consumers paying the price and low-income households most affected. The state can mitigate this some, but without more clarity on the severity and duration of these changes, it is hard to plan appropriately.
Health Care
Looking specifically at health care, panelists predicted that immigration policies that will reduce the healthcare workforce, combined with fiscal policies that threaten to cut funding for Medicaid, will make it harder for Californians to stay healthy and productive. This goes beyond low-income families. The panelists talked about what will happen with the Baby Boomer generation.
Walter Schwarm, Chief Demographer at the Department of Finance’s Demographic Research Unit in Forecasting said: “The biggest issue is when people start turning 75 or 80, because that’s when they start needing health care at increased levels.” He noted this is coming in about ten years, so we have some time to prepare. Yet he added: “There’s no way to have the boomers have the same type of retirement or the same type of [care] in terms of nursing homes, in terms of skilled care places. We just don’t have enough, and we will not be able to build enough to put everybody at the same rate that we did with the previous generation into these places…. The conclusion was, we should do this with home health. We should do this with aging in place. [But] those jobs are … at least traditionally among the lower wage jobs that immigrants have been drawn to. And so immigration policy … does figure a little bit into whether we can even do that.” (3)
Some of the traditional strongholds of California’s economy, the universities and startups that drive innovation, are also at risk.
Academia and Innovation
Wallace, who works at UC Berkeley, expressed grave concern about a new policy that slashes the “overhead” portion of NIH grants. That funding pays for graduate students, staff, buildings, and more. “[These policies represent] very quickly made, very poorly explained, massive changes in terms of how basic institutions are funded.” Many universities with large teaching hospitals and biomedical research institutes have already paused or restricted grad student admissions and staff hiring as they brace for the impact.
Immigration policies, and general anti-immigrant sentiment, will also hurt our startup culture. The panel expressed concern about “talent migration”, with skilled people opting to go to more welcoming countries, or stay at home. Even if we expand the H1B visa program, it might not be enough for people who view the United States as increasingly unwelcoming to foreigners.
Wallace highlighted another threat to California’s universities, one that was new to me. She noted that state universities, “every single one of them”, are in Wildland-Urban Interface areas, where they are at increasingly high wildfire risk. How are climate risks more generally impacting the economic forecast?
Climate Risk
Wildfires recently destroyed 12,000 units of housing in Los Angeles and caused a crisis in home insurance. (4) Wallace believes that home hardening is part of the answer, but it is not affordable for many people. Panelists agreed that with the higher cost of housing, insurance, and retrofits, our population is likely to become older and wealthier. They pointed to Altadena, much of it burned down in the Eaton Fire this year, as an example of a place that will become more expensive.
Wallace worries that the risk goes far beyond housing. “[Climate impacts will be] very severe, and the market that has not yet really awakened to this is the municipal bond market.” That market provides insurance for much of our infrastructure, including hospitals, schools, and libraries. Paradise’s downtown, which was destroyed by fire, was insured by a revenue bond. The cost of basic city services will go up in many places.
Climate mitigation is one area where Wallace highlights the positive impact of planning. She lauded the Bay Area’s long-term efforts and billions of dollars of investment to adapt to sea-level rise around SFO and the Embarcadero. The panel also seemed somewhat optimistic about our ability to address wildfire, notwithstanding the inevitable rise in insurance costs. In contrast, Wallace referenced the relatively small $400 million “Miami Forever” bond to protect its sewers, calling it “laughable”. (5)
Uncertainty and Disruption
Unfortunately, planning is not possible when the federal government’s policies are quickly drafted, hastily imposed, and just as hastily modified. Tariffs, when used as threats to extract policy concessions, are on-again, off-again. Nicklesburg said “[If tariffs are] just a negotiating tactic, business can’t decide whether or not they’re going to pay the higher prices. So if you have long lead time items, you’re going to cut back on your orders because you do not know what the cost of those items are going to be, and that’s going to impact US manufacturing.”
Moreover, he is concerned about the level of disruption in government. He considers this one of the biggest risks to our economy along with tariffs and immigration restrictions. “I think this is very much an underappreciated area when it comes to the impact on California’s economy. When you have the kinds of possible resignations, possible firings, possible reorganizations, you don’t have clear lines of authority. You have people hesitant to make decisions, and that kind of disruption can be massively important.”
One of the reasons that the United States has been a good place to do business is that it has had dependable, reliable policies and governance. One of the reasons that I have felt California is a good place to live, even in the face of climate change, is that it is a well governed state that plans appropriately for the future. But planning has become impossible, for universities, for farmers, for hospitals, for construction companies, for biotech, for climate tech, for low-income households, for seemingly anyone but the wealthy and the tech bros, though even they have to worry about H1B visas. The chaotic effect of these unilateral, poorly planned, hastily rolled out policies is alarming and a real cause for pessimism about our ability to mitigate or adapt to climate change, or just about anything else.
Please share in the comments if you have been affected by this, or if you see reason for optimism to contrast with the self-described “doom and gloom” panel that I watched.
Notes and References
0. I want to acknowledge the severity of the human rights issues that underlie some of these policies as well. This blog focuses on high-level economic planning, but the pain and disruption of some of these policies, the fear and uncertainty that they cause, for households, businesses, churches, neighborhoods, and all of our communities with undocumented immigrants, is searing.
1. Wallace did highlight two areas for optimism when it comes to building. One was the potential for converting large malls. She says that these are located near transit, buildings can be tall, and communities are generally very supportive of redeveloping them. The other area of optimism was in techniques for building tall wood-framed structures more quickly, referring to a 14-story building that was completed within a year.
There was an interesting sidebar about ADUs. About 20% of the 110,000 units constructed last year were ADUs. But Wallace was not bullish on their contributing meaningfully to the housing shortage. She and Schwarm both noted that it’s unclear how many are actually being used for housing vs (say) offices, and Wallace noted that there aren’t many sufficiently large lots or garages to accommodate these. “Hoping that ADU’s are going to make a dent, it’s just not credible.”
2. One panelist noted that there is a guest worker visa program on the books that can be used for seasonal workers (e.g., agriculture). It is used today for tourist destinations, and could provide some relief in other sectors. But it does not address permanent workers.
3. There was some discussion about the degree to which automation could overcome workforce shortages. It might be easier in some areas than others, but all are dependent on innovation and a thriving tech sector, which historically has relied on immigration.
4. The severity of the insurance crisis is hard to overstate. Among other things, the panel noted that State Farm is paying out $1.29 for every $1 it brings in.
5. At the same time, two of the panelists acknowledged that they thought wildfires were easier to adapt to than hurricanes.
Current Climate Data
Global impacts (January 2025), US impacts (January 2025), CO2 metric, NOAA climate dashboard
I am grateful that all of these links are still live.
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Alice J. Roden started working for Trending Insurance News at the end of 2021. Alice grew up in Salt Lake City, UT. A writer with a vast insurance industry background Alice has help with several of the biggest insurance companies. Before joining Trending Insurance News, Alice briefly worked as a freelance journalist for several radio stations. She covers home, renters and other property insurance stories.