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“Green Job” Fallacies (Part I: First Principles)

[Ed. note: The following is excerpted from Dr. Michaels's recent testimony before the Subcommittee on Water and Power. Part II tomorrow will examine how green jobs are defined by their proponents.]

It is rapidly becoming apparent that renewable energy is failing to produce the promise of painless prosperity embodied in “green jobs” that will simultaneously decrease unemployment rates and reduce pollution.  Begin with some principles:

1.  The proper goal of energy policy is to support the efficient provision of energy. 

The lower the cost of energy to the economy, all else equal, the higher will be job creation and economic growth outside of the energy sector.  Raising energy costs by forcing the use of uneconomic technologies that create more job slots will have exactly the opposite effect.  Put simply, more workers in energy reduce the production of non-energy goods and services.

2.  Any analysis of job creation by green energy must consider the simultaneous effect of job destruction.  

Policies that raise the cost of energy to households and businesses must leave them with fewer funds to spend elsewhere.  Such policies include the spending of tax revenues to support green activities instead of other government purchases or returning the funds to taxpayers.  To a first approximation the net effect of such programs on employment will be zero.  This is particularly important here because the new job slots are often visible, while the losses are dispersed among the thousands of goods and services that households and businesses will spend less on.  Jobs that cost more to create will generally have higher costs in terms of lost jobs elsewhere.

3.  Double counting of jobs and unrealistic assumptions about labor markets.

Although they seldom say so explicitly, the models that underlie most studies of green energy and job creation assume that there is a limitless pool of idle laborers with just the right skills to fill the job slots created by the spending.  As always happens in labor markets, many such jobs will in fact be filled by already-employed workers, whether the nation is in prosperity or recession.  Even if green policies moved massive amounts of labor between jobs they would have little impact on the national unemployment rate.

Government Modeling of Job Creation

Much federal research on both the technology and economics of renewables is in the hands of the National Renewable Energy Laboratory(NREL), where a now-standard computer model of the economic impact of renewable projects originated and continues to be maintained.

During my appearance at a 2010 hearing before the House Energy and Environment Subcommittee the discussion turned to what was known about the effects of renewables on unemployment.  After a representative of NREL testified about the optimistic findings of that standard model, known as JEDI (Job and Economic Development Impact), I commented that its use was entirely inappropriate.

I noted that JEDI is structured, by NREL’s own admission, in a way that makes any outcome other than job creation mathematically impossible. It is thus a worthless tool for analyzing the actual employment effects of renewables, because it can only produce favorable ones. [1] NREL’s representative disputed my statement, and that person and I agreed to submit supplemental testimony on the matter. .[2]

As I detail in that testimony, JEDI is one of a large class of “input-output” models that analyze the effects of a project by examining the payments its owners make to workers and suppliers of materials.  The monies they receive will in part be re-spent on other goods, and a “multiplier” effect  brings further increases in incomes, outputs and employment across potentially many industries.  I noted that

[T]here is nothing in the model that could conceivably decrease employment or output in other sectors of the economy.  Any project consider by JEDI, no matter how efficient or inefficient as a source of electricity, will show a positive effect on employment.  That increase may be large or small, but we can be certain that it will not be negative.

I further noted that most of the effects will be transitory, since most of the positions created will be in construction rather than operation.

JEDI’s creators appear to have consciously chosen to avoid discussing the sources of the workers or the funds for projects under study.  Even if there is a vast pool of unemployed workers in the project area who just happen to have the right skills, we can say nothing about its effect on overall employment.

JEDI does not net out jobs lost due to taxes paid by consumers and businesses elsewhere that they cannot spend as they wished to.  Even if the project is funded by private or public bond issue, alternative projects with their own employment consequences could have been undertaken.  It is not even enough to have workers in the project area with the right skills, because net increases in employment usually happen only if those persons have also been suffering long-term unemployment.

NREL’s  disregard of elementary economics and continued reliance on this model is remarkable, particularly in light of its’ creators’ acknowledgments of its inadequacies:

On occasion [the creators] have cited the works of others who use more complex models capable of forecasting both job creation and job destruction.  Such models can incorporate factors that include responsiveness to higher power prices, reductions in employment in conventional power, and the ‘crowding out’ of other capital spending by increased investment in renewables.  Sometimes such models produce negative effects on employment in the long run.  NREL’s researchers are thus aware that other models that capture important complexities are available (or they could surely create their own).  For unknown reasons, they instead persist in using a model that can produce only the single result of job creation from renewables.

The “green jobs” claim is logically insecure at best, and models like JEDI mask that insecurity by invariably finding that the jobs are created.  Interestingly, however, I am aware of no published research in which the predictions of JEDI or a similar model for some project have been compared with the actual results.  Apparently the model’s own creators also take its claims on faith, and that faith appears to be without foundation.

——————

The reader is also invited to consult Robert Michaels and Robert Murphy, Green Jobs:  Fact or Fiction? (Institute for Energy Research, Jan. 2009).

[1] The model and some applications are discussed in detail at http://www.nrel.gov/wind/news/2011/1574.html

[2]See Supplemental Testimony of Robert J. Michaels, PhD, June 28, 2010.  I have not seen any comparable submittals from NREL.

[3] Id. at 3.

[4] Id. at 5, one footnote omitted.  It is also noteworthy that the model has never appeared in the peer-reviewed economics literature.  As best I can discern, its basic structure was developed by urban planners rather than economists.

10 comments

1 Gary Mooney { 09.28.11 at 6:45 am }

Thanks for this post, Robert. It’s the first that I’ve seen that challenges the “jobs created” mantra with any backup of facts and information.

The Premier of Ontario has promised 50,000 new jobs as a direct result of its Green Energy Act, but with no recognition of jobs lost due to much higher power costs and no indication if the jobs are temporary or permanent.

McGuinty is trying to bootstrap an export industry in renewable energy technologies. If successful, jobs gained in Ontario could be more than jobs lost within Ontario, but that’s a big if.

He’s relying on paying a high price for renewable power and local content rules to support new local manufacturers during their startup period, and assumes that they will then be able to compete in the broader market — a faint hope.

2 Jon Boone { 09.28.11 at 7:08 am }

“I am aware of no published research in which the predictions of JEDI or a similar model for some project have been compared with the actual results.”

This is precisely the point. JEDI models have virtually nothing to do with reality. It has been relatively easy to document the rippling of wind projects throughout a local economy, since there are now so many of them. They all share the following characteristics.

(1) The projects are typically constructed by a roving band of professional, non local–and non union workers, many, if not most, from other countries: there are a relative handful of local workers–earth movers and security–who are employed at minimum wages for a few months of the construction, after which they are terminated.

(2) Permanent jobs consist of mainly one maintenance employee for every 15 turbines in the array, and usually one PR spokesman. These workers may or may not reside in the project’s state. Consequently, a 100MW wind project will likely employ a total of about eight employees for eight or ten years (the duration of the tax subsidies), most at a minimum wage, all in the context of a $350 million capital cost.

(3) There are virtually no value added revenues that accrue, since the equipment is specialized and brought together from venues around the world. And the large turbines are trucked typically over country roads. which quickly degrade under the load, repairs for which redound to local government.

(4) Aside from a temporary expansion of clientele for local restaurants and apartment rentals, which usually subsides with six months during the wind project’s construction phase, there are no lasting local revenues that accrue.

(5) Since many wind projects are built in rural areas, they are not taxed at the real value of their equipment as a realtime business personal property tax. Most are taxed based on farm machinery or local windmills. Many communities have no mechanism to tax the projects at all. Consequently, the wind LLCs will often offer PILOT (Payment in Lieu of Taxes) gestures of “good will,” typically a few hundred thousand dollars for local schools over a ten year period. These PILOT revenues may or may not be paid. This figure should be examined in the context of the tens of millions of dollars raked in.

(6) Nothing is really budgeted for deconstruction of the project when the tax subsidies run out. Local communities or property owners must bear this burden

(7) Wind lessors must sign contracts with wind developers that are so one sided that one lawyer has said they are unconstitutional. Many property owners are absentee and pay taxes based upon rural zoning assessments–that is, they pay very little back to local government and provide almost no revenue back to the local community by way of spending.

In sum, it would be fairly easy to document a dozen wind projects across the country to blow the NREL and their JEDI reports about the economic value of renewables completely out of the water.

3 Jon Boone { 09.28.11 at 8:22 am }

The other issue to mention here with regard to wind and solar “renewables” is that there is no evidence that any jobs produced result in decreases in jobs in other areas. Since wind and solar provide no or little firm capacity, they can’t replace conventional generating facilities, although they do generally make them more expensive to maintain. What people should understand better than they obviously do is that, all things being equal (that is, demand and conventional supply), the more wind, the more need for conventional supply. Wind is not an alternate energy source that can participate in meaningful sum/zero contests with coal, gas, oil, hydro, and/or nuclear.

However, there is ample evidence to show that the vast billions of public subsidies as incentives for wind development have resulted in lost opportunities for other–and effective–technologies.

4 Charles { 09.28.11 at 7:09 pm }

This is an excellent synopsis of the myths surrounding ‘Green Jobs” and renewables in particular. It is my objective in the future to try and hold the politicians to account whenever they announce one of these hare-brained schemes in the future.

For example, if installing a windfarm of say 100 Mwh capacity, politicians will need to nominate which fossil-fuelled generator will be retired, and identify the fossil fuel savings (i.e. the fuel that will not be burned due to the presence of the renewable facility) that will be achieved.

If they fail to remove or retire the fossil fuel generator specified then they should be held legally accountable for all the extra cost associated with the implementation of the renewable asset.

It might not be the cure-all, but surely it would help constrain some of the excesses we see in Green groups who are currently foisting these ludicrous schemes upon us.

5 “Green jobs” – @ about $20million per… | JunkScience Sidebar { 09.29.11 at 12:09 am }

[...] “Green Job” Fallacies (Part I: First Principles) by Robert Michaels September 28, 2011 [...]

6 Jon Boone { 09.29.11 at 8:31 am }

Charles:
Your prescription would end the wind scam quickly. The bunco scheme has prospered around the world because there is no accountability for its myriad claims beyond government reports like JEDI that themselves are not accountable to the real world. There is no indexing of wind performance to actual reductions in CO2 emissions or less consumption of fossil fuels anywhere. An examination of USEIA data across the country shows fossil fuel production increasing despite dramatic increases in installed wind.

That anyone these days can make a buck touting how wind is an alternate source of energy, that it is the enemy of fossil fuels, is a sad commentary about our society, particularly its media, its regulatory agencies, its politicians, and, not least, its economists.

7 Dr. Obama’s Miracle Green Job Elixir Gives $737 Million To Solar Firm Linked To Pelosi’s Brother-In-Law | robwerks.com { 09.30.11 at 8:22 pm }
8 NREL and its role on Vinalhaven: much ado about nothing « Fox Islands Wind Neighbors { 10.09.11 at 7:33 am }

[...] turbine controversy on Vinalhaven. Robert Michaels recently addressed NREL in a report:  ”The Green Jobs Fallacies” and it is interesting to read what he has to say about [...]

9 David Bergeron { 10.09.11 at 9:08 am }

It is no surprise that NREL’s JEDI model is bogus. This “Rocky Mountain High” organization has a tradition of offering very biased information to the public. Even the acronym of the model shows how unrealistic their thinking is. My experience with them is that they think they are the Jedi warriors for saving the planet, but I wish they would just all go get real jobs and actually contribute to the economy.

Michael, you should have no problem debunking their biased analysis. Please continue! And thank you for taking the time to do it!

10 Kimball Rasmussen { 10.10.11 at 9:34 am }

You might be interested to read “A Rational Look at Green Jobs.” That publication is based on testimony given to the “Western Caucus,” a joint gathering of Senators and Representatives that serve various western states. The publication uses the JEDI model and is able to demonstrate that each new wind related “green” job comes at a cost of 1.5 to 2.7 coal-related jobs. See http://scienceandpublicpolicy.org/other/a_rational_look_at_green_jobs.html

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