“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.  NREL’s representative disputed my statement, and that person and I agreed to submit supplemental testimony on the matter. .
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).
See Supplemental Testimony of Robert J. Michaels, PhD, June 28, 2010. I have not seen any comparable submittals from NREL.
 Id. at 3.
 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.