By Walter Borden

California can show Washington, where climate legislation has stalled, that [by] putting a price on carbon — you can go about it in a way that is gradual….We are on the right track.   –George Schultz

Summary

The dynamics of green job creation are presented and analyzed in relation and response to a publication from the American Enterprise Institute (AEI) titled The Myth of Green Jobs. Formal critiques are referenced relating to weaknesses identified in the AEI paper’s research methodology and conclusions. This response challenges the contention that subsidies to stimulate renewable energy job creation are wasteful. Fund Balance argues that just as the fossil fuel industry required subsidy at its outset, renewable energy efforts require the same.  Benefits of public sector involvement via regulation and the seeding of innovation to help create labor pools and markets for renewable energy are described. Imperatives for our economy and society regarding addressing manmade global warming are discussed. The argument that for future generations to inherit a healthy planet and civilization so that they will not have to pay the bill for fossil fuel driven profligacy is advanced.

Stimulating Jobs in the Renewable Industry Sector

An essay published earlier this year titled the Myth of Green Jobs questions whether efforts to create “green jobs” are worth public investment.  It asserts Green Jobs replace more jobs than they create, and that subsidies for green jobs and renewable energy are misallocations of capital. A formal definition of Green Jobs is never offered. But, it seems to be any job  that A) does not involve fossil fuel and B) involves nascent and early-stage renewable energy technologies and whose state in the innovation cycle means they lack the price reductions of scale.

The National Renewable Energy Laboratory prepared a thorough technical critique of the methodology and conclusions of one of the essay’s most referenced studies: Study of the effects on employment of public aid to renewable energy sources,” written by researchers at Spain’s King Juan Carlos University. Its lead author, Gabriel Calzada Alvarez popularized the notion that for every 1 green job created in Spain 2.2 were destroyed. A notion repeated often on Fox News, whose parent company incidentally declared itself 100% Carbon Neutral in April 2011. This widely cited ratio cannot be verified based on Dr. Alvarez’s methodology in a  review of the paper by Fund Balance and elsewhere as noted above and below. However, before a further look at what is wrong with the AEI essay, a review of some of its arguments follows.

The essay states:  “A good example [of green jobs helping the economy] is the baseless assumption that there is a pool of qualified people not otherwise employed by private industry, immediately available, and willing to take newly created, government-subsidized, green jobs. Transferring skilled workers from jobs that produce value (profits) to “green jobs” created by government fiat is an inefficient way to deploy capital in a free market economy.”

The argument is made that the costs (taxes and government borrowing) of creating “green jobs” involves redeploying capital that would otherwise be used for investment or developing new products. This AEI essay asserts that these costs impose an economic opportunity loss to the free market. Its authors assume that government subsidized green jobs, paid for with deficit spending in the cases it cites, can only be temporary and never become permanent via transition to the private sector where they ultimately may be the most productive.

In reference to worker retraining and job creation, no data is provided supporting the argument that the private sector retrains workers with greater efficiency or to what extent it does so at all. In terms of how the AEI essay presents green job creation, official estimates are 188,000 in Spain, yet Alvarez and his co-authors use a figure of 50,000 for their calculations. Importantly, the study appears to restrict its analysis only to cleantech jobs. It does not incorporate jobs created as a result of energy efficiency retrofitting, conservation in new construction, or light/high-speed rail. Spanish incentives in support of Renewable Energy technologies has been in the form of Feed In Tariffs (FITs) that have reached levels up to $0.60/kWh of energy produced. This varies markedly from the typical U.S. approach of employing Producer Tax Credits (PTCs) to stimulate growth which are typically on the order of $0.02/kWh.

The AEI Essay also argues, “Green jobs merely replace jobs in other sectors and actually contribute less to economic growth.” This assumes all growth is good, something addressed later herein.  Further, comparing Spanish efforts to the United States makes little sense because the US has different incentive structures. 

Subsidies and Energy Costs

A theme of the AEI essay is that public policy is inefficient in creation of new areas of labor demand compared to private policy and sector driven efforts. It contends that since such efforts fail in Europe that the United States should not expect better results. Every generation facing deep economic crisis, and not every one does, must meet the challenge of creating jobs in the face of deficits and low GNP/GDP growth rates. History shows that the public sector can perform a definite, substantial, and positive role in such circumstances. The Works Project Administration, NASA, the lunar landing program, DARPA, and the internet exemplify such contributions. In these cases transitions of government subsidized labor to private sector employment strongly stimulated job and capital creation. And, these programs were mostly financed in times of deficit spending.

Fossil fuel extraction and distribution systems enjoy generous subsidies in the U.S. in  comparison to renewable and green subsidies according to the data in Chart One. In California, the world’s 8th largest economy, this process of using public resource and regulation to seed new markets for transfer of these technologies to the private sector has already begun. The AEI study refers to this as central planning and market-making by fiat. Former Secretary of State George P. Schultz along with Farallon Captial’s Founder Thomas Steyer make the case for public efforts to fertilize private entrepreneurship, to create jobs, and to secure economic and national security with renewable energy programs via their work on California’s proposition 32.

Chart One

The authors of the AEI essay contend that wind and solar power have raised household energy prices by 7.5 percent in Germany and Denmark resulting in the highest electricity prices in the European Union.  Are these prices artificial?  Or, do they reflect the real price of energy given that prices for fossil and fissile energy sources enjoy higher subsidy in the U.S than the E.U. Spain reached a peak of 40% in wind power this last March. How many barrels of oil weren’t imported as a result? What impact will this have on Spain’s energy costs as a function of this diminished need to purchase those quantities of oil? Certainly, on a general level, it improves their trade balance and reduces their dependence on Middle Eastern oil cartels.

The Cato Institute, a libertarian think-thank, released a study in 2005 on the subject of oil subsidies and energy costs. They report that the US spent between $30 to $60 billion a year safeguarding oil supplies in the Middle East during the 1990s even though its imports from that region totaled only about $10 billion a year over the decade. When the cost of maintaining the Strategic Petroleum Reserve and other oil protection services such as the coast guard clearing shipping lanes and providing navigational support to oil tankers are added,  actual subsidies to Big Oil are between $78 to $158 billion. So indeed, the US pays energy prices below what a purely free market would set.

Given the theme that since these initiatives have failed in the EU – making energy  more expensive there – why should we expect different outcomes in the US, the AEI essay argues. Outside of subsidies, prices for energy, in particular gasoline, do clearly appear distorted. And, in some cases to the upside with one root cause being un-regulated speculation. Since 1997 US oil consumption has dropped over a million barrels a day while refining capacity has dropped by about 1 percent. A bounty from this has been lower CO2 emissions. Why then if demand is dropping while available supply is increasing have costs gone up?  “It’s harder and harder for any reasonable observer to dismiss the role of excessive speculation in this market,” a professional Wall Street investor testified before Congress repeatedly stating that speculators are pushing prices up well beyond what supply and demand warrants.

In any event, swinging elections around rising oil prices is a cynical, short term strategy that might get a particular candidate elected, but in reality, no party will be able to control costs. Peak Oil is here, or arriving very soon, and immediate unregulated drilling in the Gulf of Mexico and ANWR will barely, if at all, brunt the impact of that physical reality on daily life and the economy. For example, drilling all the oil from the Gulf of Mexico would only add 500,000 barrels a day to the 89 million currently consumed by the US.  Drilling for more oil may create more jobs in the short term, but the AEI essay does not show how this would offset the lost green job creation or how energy prices in the US would be affected. Exxon Mobil, for its part, advertises that all the oil we need can be found in oil shale regions such as the Green River deposit.  Its claims that it could be extracted for between $20 and $30 per barrel, but it does not account for the impact on the environment or the need for a high volume of water to prepare it for market.

The true cost of gas for US citizens at the pump is the delivery price plus the taxes US citizens pay to subsidize the oil industry plus the the added volatility in price stability driven by energy speculators plus the ecological and social costs (BP spill, healthcare). Suddenly, oil is not as cheap as we all would hope, nor is its price being set by hypothecated market forces. And, much like with corn-ethanol, these taxpayers dollars are making fossil fuels artificially more competitive and keeping cleaner alternatives down. Price increases flow to a considerable extent from a lack of regulation on energy speculation.

Lastly, some would argue to remove subsidies for all, but this would confer an unequitable advantage for big oil. This industry has enjoyed massive subsidies for a century.  It is mature and well capitalized enough to innovate and create value and profit. Renewable energy merits, for the sake of fairness, our planet’s health and our legacy for future generations, the same public support during its infancy.

This means the public may be called upon to incubate renewable and cleantech with funds and subsidies until, like the internet and fossil fuel distribution systems, they generate enough profit to sustain themselves and produce prosperity.  The AEI essay cautions about public sector job creation and central planning but never addresses why non-renewable energy concerns merit subsidization, what their removal might mean for the real cost of nonrenewables, and how a lack of smart regulation can distort energy prices above price ranges that would be expected by supply and demand dynamics.

The Human Impact: Jobs and Carbon Markets

The Myth of Green Jobs presents case studies from Denmark, Germany, Italy, Spain, and the U.K. suggesting that Green jobs eliminate Brown jobs disproportionately. Regulation and publicly funded efforts to spur growth of such jobs are deemed inefficient.  Further, benefits arising from such efforts, having not materialized in just a few years time are judged inconsequential and detrimental. So, for example, a bill is currently moving through the legislature of California to require a third of the state’s electricity to come from renewable sources. Adherents to aformentioned AEI rationales argue that such policies will necessarily inhibit job creation. The AEI essay’s logic is that any subsidized labor creation, irrespective of its impact on the environment or ability to buffer our civilization’s exposure to a fossil fuel energy constrained future, is bad business with the possible exception of Brown jobs. Apparently, their view is that Brown jobs increase public prosperity more effectively.

An important counterpoint about green and renewable-based job development in Spain was made by Tracey de Morsella at greeneconomy.com.

“It is crucial to understand the magnitude of the investments made in Spain throughout the last 10 years: for all the renewable energy sources (solar, wind, wave), the initial investment is upwards of 95% of the total costs, whereas maintenance and operational costs are residual. In this respect renewables are similar to nuclear power, and unlike coal or oil-based power plants, where a large portion of the costs is the fuel itself. This explains much of the enormous costs per green job: the benefits for the investing country only start to become visible many years after the investment has been made. Also, was the value of the produced energy, being the primary goal of the investment, taken into account?”

As for the U.S., California’s policy to promote rooftop solar arrays and the 12,000 to 20,000 new megawatts of renewable energy yielded at diminishing to zero fuel costs from these arrays must not matter in the AEI’s big picture. Such projects allocate capital in ways inferior to the purported free market to which the AEI argument is tailored. But one has to ask, why then are so many leaders from the private sector in California active in using public works to lay the groundwork for private labor demand? Certainly such public support was one factor in Apple’s new patent for solar powered computers and cell phones.  In Michigan, Dow chemical benefited from worker retraining programs, and now has a successful solar shingle manufacturing plant in Michigan. New Jersey, home to more Superfund toxic waste clean-up sites per capita than any other state, through a combination of a stringent legislative energy mandate by state government and a generous carbon offset program has made it the nation’s second largest producer of solar power despite its relatively low solar resource, trailing only California.

In California, Farallon Capital Managing Director Thomas Steyer works to promote promote energy efficiency by reaching out to owners of the state’s 9 billion square feet of commercial office space to educate them about energy audits and gaining access to retrofit programs. According to Steyer, “No one has sent out staff before to help them change their behavior. Saving energy, not just building new renewables, is the killer app.”

Outside of efforts in California, one of the world’s unquestioned leaders in new technology, innovations that create economic benefit will not only concern sexy new technologies. Certainly Europe and China are ahead in areas like wind turbines and solar. A great deal of job creation will also be in more protean areas: insulation, energy efficient design, and localized agriculture. At any rate, technological innovation has proven fairly resistant to monopolies, so ground can be gained quickly with the right incentives.

Therefore policy innovation and its impact on energy costs in California and New Jersey should be looked at as well over the coming months. This is why California’s Cap and Trade system promises to teach our nation so much. It will provide guidance towards a set of rules for a market-oriented system that starts to price in the generally externalized costs of Brown jobs. Initial public R&D joined with public investment (the kind of things that often must be done directly by the government inititially) will allow for a cap and trade system to price greenhouse gas emissions and let the private sector take over. Even Koch Industries acknowledges that such markets create additional pools of liquidity and quietly tap them in Europe. As cap and trade boots up in one of the world’s great economic laboratories for innovation, other US states will get a valuable case study. Some would argue that case study accrues to their economic and public health benefit.  One thing the U.S. already knows from the E.U. Carbon Credit trade – it generates cash flow for industry groups and licenses sold by governments. As licensing operations arrive into the mainstream, corporate accounting practices will finally have to adapt to the real cost and revenue functions of full-cost, socially and environmentally aware accounting. At that point, the world will be surprised and delighted to wake up in a time when coal and oil are no longer made “cheap” through an accounting sleight of hand that internalizes profits and socializes costs.

Some favor a straight carbon tax over a cap and trade system. However, international coordination may work better and easier with cap and trade as it is more politically viable now that the U.S. republicans, like Pawlenty and Graham have flip-flopped. Verification of other nations’ implementation of carbon taxes seems destined for prolonged dispute. Monitoring CO2 emissions is much more feasible. Good regulation will, as always, be necessary in order to prevent abuse and fraud.

The AEI essay also never mentions what the downside of failing to create green jobs may be. Nor does it address the fact that new industries definitionally destroy obsolete jobs. Deficit hawks, down-sizing and right-sizing investment bankers in AEI’s orbit often argue in favor of the need to eliminate jobs in order to eventually create new ones. Creative destruction is their mantra, as long as the status quo energy economy is not threatened.  No clear argument is advanced that subsidizing green job creation inhibits labor and capital formation in the mid-term.  Even if this is so, is that necessarily negative? Are they really saying that we need to ruin the planet for future generations so that we can maintain an economy that poisons our environment but provides large amounts of jobs, convenience and profit?

The Imperative of Creating Green Jobs

Any activity that stimulates labor demand is good argues the AEI paper. Activity that filters job growth in any instance is understood to be bad. Therefore, economy and the environment can be separated, and environmental regulation is an economic burden and/or some sort of luxury that stands in the way of prosperity and self-reliance. Yet, the environment is the source from which all economy flows, and it must be protected. Difficult balancing acts as to whether say, an oil rig employee or fisherman’s job matters more to the economy increasingly challenge every serious policy maker and entrepreneur. Fund Balance presupposes no easy answers.

The AEI essay asserts that environmental regulations inhibit economic growth, and those that seek to incentivize green job creation are naive. Certain efforts in this area may well be misguided. That said, it is important to also ask why the countries with the strictest environmental regulations tend to be the wealthiest, happiest and most stable (SOURCE)? We might also look at the States of the Union, where environmental protection is not correlated with poverty and unemployment, but rather with prosperity.

Take West Virginia, the heart of coal country, at the center of mountaintop removal. Consequently, it has some of our most polluted land and waterways coupled with the highest incidences of industry-related accidents and illnesses and some of the weakest, long standing environmental regulations in the US. Developers are not clamoring to build on land saturated with mercury and arsenic. Collapsing real estate values are among the top unaccounted externalities of brown industries.

Has the avoidance of environmental responsibility contributed to prosperity in West Virginia?  One cannot find a West Virginia economic boom now or in recent memory. It has the 49th lowest per-capita income in the nation and unemployment is more than a point higher than the national average. Yet, states like West Virginia have some of the loudest anti-environment voices. Many rally around the coal companies, which claim that stronger environmental regulations will cost jobs, impede their state, and hurt their people. It is difficult to find data that lots of citizens want to move there as a result of its low tax rates.

The state of Florida recently rejected Federal funds for high–speed trains, yet this state ranks among the nation’s highest in terms of unemployment and lack of healthcare access. It will be interesting to see how the other states that snapped up the funding will fare in terms of long-term job creation as a result of this economic stimulus and critical infrastructure investment.

The green job imperative and its related economics therefore must also be considered in terms of impact on public health. States with higher CO2 pollution rates quite often have higher rates of illness. How does higher exposure to brown job pollution effect the health and productivity of our populations?  The answers to these questions have material economic repercussions, consider the tobacco industry lawsuit for reference. This is another question that Fund Balance will be exploring in the coming months.

The Public Role in Economic Responses to Global Climate Crisis

Adapting economies away from non-renewable labor towards green jobs no doubt renders some jobs obsolete. Fund Balance welcomes an analytical discourse on this issue, but those opposed to renewable energy fail to do so in The Myth of Green Jobs. There are a number of issues, not all of which validate cherished assumptions of some renewable energy advocates, that must be addressed. For example, what are the environmental and public health impacts of wind turbines on birds, bats and humans? Another assumption we accept as false is that the transition from non-renewable economies to renewable ones will be painless and involve no sacrifice. The question really boils down to will it be even harder to adapt later – when the stakes are even higher – than to start now. We think the answer is yes. More aggressive and attractive approaches to limiting carbon pollution with a straight tax may not be politically feasible right now, but any and all efforts to aggressively, and at least fairly price the externalities that are impacting our economy and ecosystem are welcome and appropriate.

It remains a stretch to suggest that green jobs may be a partial cause of Spain and some other EU nations’ economic problems. At this time, there has been no scientific study or policy analysis released that proves such, or that details exactly how green jobs cause unemployment. High unemployment on its own, in countries with historically high unemployment even during good times, is not in and of itself, proof that the cause of unemployment is green jobs or investments in renewable energy from the public sector.

Benefits outside of direct job growth matter as well: significant economic and ecologic upside occurs when solar power allows businesses and homeowners to feed energy into the grid rather than just selling their excess power, as happens now. Many new homes come with solar panels fitted, but there is still room for  value creation in their installation.  Anecdotal evidence is emerging that homes fitted with solar panels are more valuable.  Such developments, combined with policy efforts listed above, are poised to give American panel-makers the scale they need to regain the market lead they have lost to their Chinese and German rivals. More importantly, value created from such solar installations are important if we are to properly value savings generated by the carbon offsets the shine through from them.

Some readers of the The Myth of Green Jobs could be forgiven for assuming that its authors would support eliminating public funds for the interstate highway system, bridges, rail system, postal/communication systems, or electric grid. Further, efforts towards renewables are said in the AEI essay to have attracted black-marketeers and corruption. It states, “experiments with renewable energy in Europe have led to job loss, higher energy prices, and corruption.” No information is given indicating that corruption in the renewable energy sector is greater relative to any other sector or industry. For reasons that will be understandable to many, AEI does not try to argue that there is no corruption in the oil industry. Nevertheless, they seem to imply that in an unconvincing sort of way.

Spending during the Great Depression to create roads, bridges, and other infrastructure increased demand for labor, equipment, and materials. Based on the historical record, there is no reason that green jobs should crowd out other types of jobs because public investments are supporting the private sector.  There is ample historical data available demonstrating that public investment in the nation’s physical economic infrastructure improves private-sector performance by raising average productivity and contributing to private-sector growth.

The question seems to be about how to establish the role of government in the creation of renewable energy, labor and markets? Thus far, supply side arguments have not helped us understand why the corporate sector, with the largest cash hoard relative to GDP on record, consistently fails in this regard. What little is left of US regulations can’t be blamed for preventing the deployment of these massive capital reserves on our nation’s crumbling infrastructure or the drag bad infrastructure creates on productivity and job growth. We know that ultimately the private sector will make the investment, but the groundwork must be laid by the public sector and implemented through sound policy.

History shows that government has to provide the incentives. When costs are imposed on others, and there is no incentive to reduce those costs, markets become distorted. This is why it’s time to eliminate Big Oil subsidies and ensure that susbsidies for renewables are targeted and limited in duration. Climate change, as Paul Krugman says “is the mother of all externalities.” It’s a global, non-discrete phenomenon and the private sector by itself is not going to deal with it. As Dr. Krugman also observes, “Left without any government intervention, we’re just going to basically par-boil the planet….”

In 2006, then President George W. Bush’s Climate Change Science Program formally declared,“clear evidence of human influences on the climate system.” There was a time that the GOP leadership was osmosing towards policy driven action on climate change and crisis. We should all hope that the recent vote in the house to repeal the science of global warming via Section 2(b)(4) of H.R.910, is more show than substance.

The overwhelming consensus on man-made global warming, referred to in the Bush administration report, emerges from climate experts and is confirmed by an independent study that surveys all climate scientists who have publicly signed declarations supporting or rejecting the consensus. They find between 97% to 98% of climate experts support the consensus (Anderegg 2010). Moreover, they examine the number of publications by each scientist as a measure of expertise in climate science. They find the average number of publications by unconvinced scientists is around half the number by scientists convinced by the evidence. Not only is there a vast difference in the number of convinced versus unconvinced scientists, there is also a considerable gap in expertise between the two groups. Hence, the more they are subject matter experts, the more convinced they are that man-made climate change is real and an issue.

Conclusion

In The Myth of Green Jobs the author writes, “To understand the fallacy of the government creating green jobs through subsidies and regulations, we have to refer to the writing of French economist Frédéric Bastiat.” Back in 1850, Bastiat defined a “broken window” fallacy to be where a window is destroyed jobs have been created jobs as someone has to replace the window and the materials must be bought etc. In the end, as the argument goes,  job destruction in such a case is an illusion creating jobs only by destroying many more. Perhaps this logical fallacy, rather than being applied to Green Jobs, should be applied to destroying watersheds and habitable land in order to extract natural gas and coal. The myth of Brown Jobs, as it were. This AEI essay and its assumptions bring to mind another French thinker from the 18th century, Voltaire. His character, in Candide, Dr. Pangloss describes every problem faced by an enlightened man as nothing more than a predicable outcome in this best of all possible worlds.

Several myths come to mind from reading this AEI essay:

1. Fossil fuel companies have large profit margins (the dolphins will pay for the oil spills).
2. Public funds and policy play no role in private sector innovation and job creation.
3. The planetary cost of explosive C02 pollution has no place on balance sheets.
4. In this best of all possible worlds, our civilization is impervious to the effects of an addictive resource that is both dwindling rapidly and choking the planet.

The Myth of Green Jobs is an essay that would make Dr. Pangloss proud.

© Fund Balance, 2011.