As time passes, the skepticism grows about the ability of government funding for “green jobs” to simultaneously (a) pull the economy out of recession and (b) reduce the risk of climate change. In the March 4 edition of Slate–hardly a bastion of reactionary conservatism–Senior Fellow Michael Levi of the Council on Foreign Relations took the greenwash off of “green jobs” in the essay, “Barking Up the Wrong Tree: Why green jobs may not save the economy or the environment.” Levi also directs CFR’s Program on Energy Security and Climate Change.
At first it sounds as if Levi is merely echoing the thoughts of Harvard’s Robert Stavins, who has recently been pointing out that it’s not necessarily optimal to try to use a single-bullet policy to address two different objectives. (This led to criticism from the always-entertaining Joe Romm that Stavins was incapable of walking and chewing gum at the same time.) Along the same lines of Stavins’ argument, Levi writes:
But just because “green” and “jobs” are both in demand doesn’t mean that policies focused on creating “green jobs” make sense. In fact, a close look at the economics of “green jobs” suggests that if we try to find a lasting solution to these challenges with a single set of policies, we might fail to deliver on both fronts.
But Levi doesn’t stop there. He goes on to challenge the efficacy of government funding for green jobs itself:
The fundamental problem is that there’s no solid evidence that green policies—even those aimed explicitly at creating jobs—will actually lower the long-term unemployment rate. Most of the research on how these sorts of programs might build up the work force simply tallies the payrolls, current or projected, of companies in renewable energy and other sectors…This approach is a natural winner: Green policies inevitably generate jobs in green industries, so the studies inevitably deliver good news. But skeptics argue that simple windmill-counting ignores an important fact: Every unit of energy generated from alternative sources displaces a similar amount generated by traditional means, so forgoing those other energy sources means giving up whatever jobs they were providing. This doesn’t mean that greening the economy will have no net impact on jobs, but it muddies the math considerably.
Levi has done his homework; he knows that the proponents of green jobs have a good comeback to the above argument. But then Levi gives the response to that:
[In response to my objection above,] the green jobs community…points out that a dollar spent on renewable energy or higher energy efficiency will generate more U.S. jobs than a dollar spent on traditional power. That’s probably true, since many green jobs are labor-intensive and clean energy is more likely to be generated at home rather than to be imported. But this misses a critical point, too: The dollar spent on green sources also generates less energy. (Renewables will be more expensive than traditional power for the foreseeable future.) Part of the gap can be closed by energy conservation, but other money will need to be diverted from elsewhere in the economy to make up for the remaining energy shortfall. The result is a loss of jobs somewhere else.
My point in the present blog post is not to definitively settle the score; for a more comprehensive analysis, I point readers to the study I co-authored with Robert Michaels on green jobs. What I am warning about is that many of the estimates of green jobs (that allegedly will be created by government funding) commit very naive mistakes.
To give a diferent example from the ones Levi discusses: Just the other day I heard a politician at the federal level (I forget who it was) talking about the “green” provisions in the stimulus bill. And the questioner asked whether the critics were right, when they said that cap and trade would harm the economy. In response, the politician pointed out all the jobs that would be created through the need to retrofit buildings, switch to alternative energy sources, etc.
This is crazy talk. Someone like Yale’s William Nordhaus can make a plausible case (.pdf) for a carbon tax, using the climate models of the IPCC (and in my opinion a heroic faith in the governments of the world to “get it right”). But Nordhaus is a sensible economist and recognizes that you don’t help the private sector by saddling it with another set of constraints. According to the politician’s logic, if the government required that all buildings be outfitted with polka dot wallpaper, it would stimulate the economy.*
* Unfortunately, there are Nobel laureates who would say that with a straight face. These days it’s getting hard to come up with a reductio ad absurdum…
The “Broken Window Fallacy” rides again!
Establishment of a “cap” at current emissions levels, or above current emissions levels as in the EU, affects nothing. Establishment of a declining “cap”, set initially at current emissions levels and declining progressively to a defined end point over a defined period imposes an obligation to invest capital which would have been invested at a later time, or not at all, either to capture and sequester CO2 or to switch to non-emitting processes or equipment.
Establishment of a mechanism to “trade” allowances provides emitters with economics-driven choices, including: reducing emissions by the required percentage each year; reducing emissions by more than the required percentage and trading the resulting surplus allowances to another emitter; and, continuing to emit at current rates and purchasing the required allowance from a source with surplus allowances.
Auctioning or selling the allowances imposes an additional cost on the process, effectively a tax, intended not to cause emissions to be reduced, but rather to raise funds for expenditure by the government on some related or unrelated program.
A declining “cap” requires that the number of allowances available must decline each year to remain within the “cap”. That would require either annual auctions or a one time auction of allowances with lifespans varying from 1 year to the number of years equal to the life of the program, plus some permanent allowances if the final emissions “cap” is not zero emissions.
Annual auctions have a potential advantage from the government perspective, since the price of the allowances is likely to increase as the available number of allowances decreases and the investment required to reduce or avoid emissions increases, once the “low hanging fruit” has been harvested.
A large part of this delimma is the attempt to “fix” multiple problems with a single solution–here the idea of “green jobs.” As Bob, correctly notes here, this approach fails as often as not, and in this particular case, I also note the “long term” issue of reducing productivity. These technologies may produce more jobs, but only because each job produces less output (be it kwh or some other metric.) As such they re-distribute the pie, they do NOT increase the pie size. Until we start worrying about pie size, we will not pull out of the dive.
Nicely (and correctly) argued. It’s interesting that ideas of a Marxian reserve army of labour also exists in the US. Of course we have such ideas over here in Europe, and of course it does not work. The general equilibrium perspective is useful, but not many people in important positions understands it.