Green Jobs or Industrial Calamity? Dueling Economic Models in Carbon Politics

In early June, the U.S. Senate considered the Lieberman-Warner Climate Security Act, which proposed the establishment of a cap-and-trade system for CO2 emissions, analogous to the cap-and-trade program in place in the U.S. for acid rain pollutants since the mid-1990's.

Predictably, the bill was defeated, before even going to a formal vote. In a press release, Senator Lieberman bravely painted the defeat with a positive spin: "We have convinced a majority of the Senate to support mandatory, comprehensive, market-based legislation to curb global warming and enhance U.S. energy security." No one expected the bill to make it out alive from the Senate, and even if it somehow had, the House would never have passed a similar bill, and surely President Bush would never have signed any such bill into law.

As might be expected, the Senate debate on the Lieberman-Warner bill largely came down to economic considerations. Those who favored the bill foretold of the massive "green economy" that would be spurred by its passage: the creation of wealth and jobs that would occur by pursuing technology innovations and growing businesses in renewable energy and energy efficiency necessary to combat climate change. On the flip side, those who voted against the bill saw the threat - increases in energy prices, loss of industrial competitiveness, declining economic activity - much more acutely than the opportunity.

In my view, both sides of this debate are guilty of hyberbole and exaggeration. Let's take each in turn.

Regarding the green economy, perhaps no phrase is more in vogue these days than "green-collar jobs" -- a concept most compellingly articulated by Van Jones, the founder and president of Green For All. A dynamic speaker, Mr. Jones was among the first to recognize that the adoption of green energy (renewables and energy efficiency) leads to local economic activity consisting of jobs that look very much like what used to be called "blue-collar" jobs - which offers the opportunity to rescue a segment of the U.S. population that has been increasingly disenfranchised in the past few decades.

I think this line of argument is conceptually solid. Certainly, energy efficiency retrofits and solar panel installations cannot be sent offshore: they must be done locally. And in many instances, the best opportunities are available in downtrodden urban areas that badly need building rehabilitation, economic revitalization and new job possibilities.

My primary beef with the green economy crowd is not with Van Jones, but to his often overly-ardent disciples that assign way too much credibility to estimates - in my view, guesses - of how many green jobs exist or will be created. Every politician and reporter wants to know the number of new jobs that will result from a move to an advanced energy economy. My pat answer to that question is, "It's likely to be a very big number, but no one can possibly quantify it with any degree of rigor." Yet, these "job studies" invariably produce numbers that are told and retold until they become accepted as fact -- when actually, they are pretty darn dubious.

This is most pointedly illustrated by the 2007 study commissioned by the American Solar Energy Society, developed by Roger Bezdek of Management Information Services, which claims a current "direct" green energy job count in the U.S. of 3.7 million. The incredulity of the study's results becomes clear when reviewing a case study for the state of Ohio, in which about 500,000 jobs are credited to 2006 energy efficiency activities in Ohio. Note that Ohio's current employment level is about 5.3 million to 5.4 million. Does anyone who knows anything about the state really think that nearly 10 percent of today's Ohio workforce is employed in energy efficiency products and services? I sure don't.

The other side of the climate change policy debates, those clinging to the status quo and skeptical of the advanced energy economy, is also guilty of overstatement to defend their position.

Earlier this year, the American Council on Capital Formation and the National Association of Manufacturers commissioned a study by Science Applications International Corporation of the economic implications of Lieberman-Warner. The study projected strong adverse impacts on manufacturing and industry, especially for many key states.

However, as well summarized in reports by both the Electric Power Research Institute and the Congressional Research Service, the ACCF/NAM/SAIC study is just one of several studies on this issue, with results that are far more economically scary than others performed by unbiased organizations such as the Environmental Protection Agency, the Department of Energy's Energy Information Agency, and the Massachusetts Institute of Technology. The ACCF/NAM/SAIC results are outliers - yet, they are used again and again by those interests who wanted to see Lieberman-Warner killed.

In short, both sides of the carbon debate - green jobs vs. economic destruction - use economic models inappropriately to justify their stances. This tendency reflects badly on both sides. But, of course, it is the side with the deeper pockets - the established industrial sector - that wins. And good policy loses.

As an economist, I wish that people would use economic models for insights, not numbers - a point very well summarized in an excellent white paper by Janet Peace and John Weyant issued by the Pew Center. If political leaders were to strip away the overly bold rhetoric and review the facts and analyses with the proper context and perspective, I think we would make a necessary first large stride towards forging an agreement on good carbon policy. In the meantime, the world is hostage to dueling models wielded by careless advocates making overly bold statements.

Because insight is desperately needed to cut through the fog of biased chatter, to provide some closing perspective on the tradeoffs between the costs and benefits of climate change policy, I'll leave the last word to remarks made last year by an eminent economist, the former chairman of the U.S. Federal Reserve, Paul Volcker, who gives a succinct personal view on the thorny economic questions associated with climate change:

"First of all, I don't think [taking action on climate change] is going to have that much of an impact on the economy overall. Second of all, if you don't do it, you can be sure that the economy will go down the drain in the next 30 years. What may happen to the dollar, and what may happen to growth in China or whatever, pale into insignificance compared with the question of what happens to this planet over the next 30 or 40 years if no action is taken."

What more need be said?

Comments

[americaforme]

I thought I was the only desenter on the Planet. I cant see on ( Gods Green Earth ) any reason that going Green, will economicaly save our financial demise. When forcasters in Stocks,say we're not at the bottom yet. Green??? would have us believe, this will save us from going hungry. Those in power, in green, are building millions of dollar homes. Tell me, haven't we been around this block before? Spin,Spin,Spin.

[research]

Stop all over and covert subsides for dirty fuels: coal oil and nukes.

Shift that 158b$ to solar wind and plug in hybrids.

in ten years all US energy can come from wind and solar.

see mu profile for details and links.

[joebhed]

Number Two
(I think this will be number One for some) :-)

Even more important, the much more significant economic impacts of these CC bills are not related to jobs, but rather the inane, if not insane, approach to funding the transition that we all agree is necessary.
Cap-and-trade should be put to bed along with the $1/gallon gasoline.

The acid-rain "model" has no application to today's situation with carbon.
The SOX-NOX solutions were available to the utilities "off the shelf".
They didn't need to wait 15 years for the technology needed to solve the acid rain problem.
Carbon CCS will be available 2020 - 2025 , IF we start now.

The CBO found the carbon tax to be the superior vehicle over any proposed Cap-and-trade system for achieving our CC goals, meaning a faster and cheaper end game.

So, if you want to discuss the economic impacts of the Climate Change debate, just know that some non-Repugs think the enviro-Dems are leading the unknowing sheep to slaughter by feeding our public policy solutions to the global financial services industry.
Thanks to Enron, Lieberman and Boxer.

Carbon tax now!

[joebhed]

Number One:

Well, here's the rub.
Being an economist and all.

You have focused on the jobs-impacts claims as the kind of "telltale" in our discussion of the economic impacts of CC legislation.

Suffice to say - a very large shift will take place within the economy towards the so-called green jobs. And overall it is hard to predict the net gain or loss in the total number of jobs after the transition.

FAR, FAR, FAR more importantly.
Economic drivers..

America needed to begin yesterday, to transition itself from an almost century long period of reductions in the average selling price of most forms of energy, to a presently inclining price curve, with a near term horizon of unprecedented rates of increase. We need to completely UNLEARN the cheap-energy-based economy.

[KillTheMessenger]

I say we just give it a try. We are losing jobs left and right while countries in Europe which are betting on green technology are gaining jobs. There is no reason we can't repeat that experience. There will always be naysayers who will argue against conservation for their own selfish purposes. Time to ignore them and get moving.

[mamacat]

Good article.

My two cents worth: being unable to quantify the benefits of pursueing goals related to a green economy is not the same thing as saying that there are not signifigant benefits. (As the author said, in similar words.)

What happens when we do not adapt to changing realities? Temporarily skipping over the arguments related to global warming, failing to produce alternatives to the use of petroleum seems like a sure-fire recipe for disaster economically. World wide demand for oil will likely soon outstrip any capabilities for production, making alternative power systems essential for the modern societies that we have come to enjoy. We need to have a debate about how much nuclear and coal power we need, but at this time, with clean renewable energy underutilised, it is obvious what we need to do.

We need to develop, in those locations where it is economically practical with today's technology, geothermal, wind, and solar energy, and everything else mankind has been able to develop. Once we have a better idea of how much each of those energy sources can contribute to our energy mix, we will have a better idea of what we need to do next. We need to get the minority party in Congress to stop blocking efforts to develop these energy sources, so that we can at last make signifigant steps toward restoring energy self-sufficiency to the U.S.

[joebhed]

Mama.

Agree with everything...
except...

"Once we have a better idea of how much each of those energy sources can contribute to our energy mix, we will have a better idea of what we need to do next."

That sounds like maybe, in the future, we will need some coal, and THEN we would have to figure out what to do about the carbon.

No, we need to start the entire revolution together.

We the people who inhabit the earth owe it to the earth and the other inhabitants to begin today to learn the technology that is needed to capture and sequester carbon from coal power plants.
Or some other such solution.
We who have upset the carbon balance owe it to our grandchildren to figure that out NOW.

We cannot ignore coal while we DO renewables and efficiency.
Even if WE decide NOT to use any more coal, the coal will not stay in the ground.
We do not own that coal.
No more than we own the oil we have given to the oil companies.

Our coal will flow to the global energy markets, and it will be burned somewhere, with or without sequestration.

We could nationalize the coal - not a totally bad idea.
We could have a moratorium on NEW coal plants until CCS is available.
But we CANNOT meet the goals of a healthy carbon balance without having the ability within the 2020-2025 time frame for CCS.
So, we MUST start now.

Respectfully.

[mamacat]

Hey Joebhed,

One look at the visible air pollution from China, and I think it is obvious we (the global community) need to do something about the idea of using coal for fuel. I think we need to continue with the development of alternatives to coal before we know how we are going to completely stop using coal for electrical production.

Meanwhile the demand for petroleum in the what we used to think of as the third world will likely soon outstrip global production capacity, with or without drilling off of Malibu and ANWR. When that time comes, and world demand outstrips world supplies, cars getting 100mpg will likely be thought of as gas hogs, while electric vehicles and mass transit become the norm.

Human use of petroleum and coal puts us in a race to see which disaster will overcome us first - global warming and disastrous pollution, or a collapse of civilisation due to a lack of fuel for our machines. We have shown that we are capable of tremendous technological creativity, and if we are also capable of a little societal foresight, we can avoid a lot of needless suffering. But, we need to develop power sources that do not foul up the air we breathe, and that are sufficient to everyone's needs.