Green Jobs: Creating a New Bubble?
No one can question President Obama's commitment to green jobs. He is proposing to create 5 million green jobs (about 3% of the US employed workforce) through new programs such as the Green Job Corps, the Clean Energy Corps, and the Global Energy Corps.
It is a matter of faith, not evidence, that the government is so wise that it can anticipate what green jobs will be needed in several years and train people to do them. Unless energy at least triples in price (which is entirely possible), there are likely to be few jobs for the new green-collar workforce that are mandated, not by the needs of the market, but instead by government.
Nonetheless, the leading advocate of a green economy, Vann Jones, is in the White House pressing his vision on the American economy.
In the London Times, Dominic Lawson opines:
The key to a successful, wealth-generating economy is productivity. Saving energy is what businesses have done already, because it lowers their production costs. The problem with any form of subsidy is that it makes the consumer (through hidden taxes) pay to keep inherently uneconomic businesses "profitable". Meanwhile, diversified energy companies such as Shell, with plenty of speculatively acquired wind-farm acreage, are salivating at the plans by Obama to introduce cap-and-trade carbon emissions targets for American industry.
Obama's energy secretary, Steven Chu, had some soothing words for US manufacturing companies that complained that the new policy will make them even less competitive with Chinese exporters, since the people's republic has indicated that it has no intention of inflicting a similar increase in energy costs on its own producers. He suggested that America might have to introduce some sort of "car-bon-intensive" tariff on Chinese goods. One of China's envoys, Li Gao, immediately retorted that such a carbon tariff would be a "disaster", since it could lead to global trade war.
Actually, Mr Li is right: and this is how an achingly fashionable and well-intentioned plan to create "millions of new green jobs" could instead end up making the global economy even sicker than it is already.
The London Times article in effect asks: Are green jobs the new sub-prime (tip to Instapundit
Further, do efforts to create green jobs even work to create more jobs than they destroy?
Spanish University Study Questions Green Jobs.
A Spanish university study finds that the Spanish government's promotion of green jobs was extremely harmful to its economy:
1. As President Obama correctly remarked, Spain provides a reference for the establishment of government aid to renewable energy. No other country has given such broad support to the construction and production of electricity through renewable sources. The arguments for Spain's and Europe's "green jobs" schemes are the same arguments now made in the U.S., principally that massive public support would produce large numbers of green jobs. The question that this paper answers is "at what price?"
2. Optimistically treating European Commission partially funded data1, we find that for every renewable energy job that the State manages to finance, Spain's experience cited by President Obama as a model reveals with high confidence, by two different methods, that the U.S. should expect a loss of at least 2.2 jobs on average, or about 9 jobs lost for every 4 created, to which we have to add those jobs that non-subsidized investments with the same resources would have created.
But there's more:
Overall, Spain lost nearly 113,000 jobs while creating their green jobs. Those jobs were lost mainly in "metallurgy, non-metallic mining, and food processing ..."
- Despite a vigorous support of the green jobs policy, Spain has actually created "a surprisingly low number of jobs." Additionally, the majority (two-thirds) of the jobs created came in short-term construction, fabrication, and installation positions. A further one quarter came in administrative and marketing. Only one in ten of the jobs created were permanent positions in operation and maintenance.
- Spain spent €571,138 for each green job created, including subsidies of more than €1 million per wind industry job.
- Each "'green' megawatt installed destroys 5.28 jobs elsewhere in the economy. 8.99 by photovoltaics, 4.27 by wind energy, 5.05 by mini-hydro."
- These costs are "inherent in schemes to promote renewable energy sources."
- Comprehensive energy rates would need to be increased by 31% to repay the debt generated by subsidies to renewable energy.
- The only way for the renewables sector to be "countercyclical" in the current economic crisis is through the provision of government subsidies. Once those subsidies are removed, the industry finds itself in a classic "bubble" condition and facing collapse.
- The renewable sector in Spain consumes "enormous taxpayer resources. The average annuity payable to renewables is equivalent to 4.35% of all VAT collected, 3.45% of the household income tax, or 5.6% of the corporate income tax for 2007."
As a clean-coal blog notes, this echoes a paper by Andrew Morriss et al. on Green Job Myths:
If the Spanish study is correct, can the US afford to spend $900,000 for every green job created and to lose 5 jobs elsewhere in the economy for every green megawatt added?
Green jobs estimates include huge numbers of clerical, bureaucratic, and administrative positions that do not produce goods and services for consumption.
- The green jobs studies made estimates using poor economic models based on dubious assumptions.
- By promoting more jobs instead of more productivity, the green jobs described in the literature encourage low-paying jobs in less desirable conditions.
- Companies react more swiftly and efficiently to the demands of their customers and markets, than to cumbersome government mandates.
- Some technologies preferred by the green jobs studies are not capable of efficiently reaching the scale necessary to meet today's demands and could be counterproductive to environmental quality.
If the net costs are even a quarter as high as these Spanish estimates, the net effect of the American effort to create 5 million green jobs would be significant GDP decreases, a massive net loss of millions of American jobs, and a staggering waste of money.
More on the Myth of "Green Jobs":
Speaking of "green jobs," my former colleague Andrew Morriss has co-authored a paper with Roger Meiners, Andrew Dorchak, and William Bogart debunking basic "green jobs" claims. The full study, "Green Jobs Myths" is on SSRN. Here's the abstract:
A rapidly growing literature promises that a massive program of government mandates, subsidies, and forced technological interventions will reward the nation with an economy brimming with green jobs. Not only will these jobs improve the environment, but they will be high paying, interesting, and provide collective rights. This literature is built on mythologies about economics, forecasting, and technology.
Myth: Everyone understands what a green job is.
Reality: No standard definition of a green job exists.
Myth: Creating green jobs will boost productive employment.
Reality: Green jobs estimates include huge numbers of clerical, bureaucratic, and administrative positions that do not produce goods and services for consumption.
Myth: Green jobs forecasts are reliable.
Reality: The green jobs studies made estimates using poor economic models based on dubious assumptions.
Myth: Green jobs promote employment growth.
Reality: By promoting more jobs instead of more productivity, the green jobs described in the literature encourage low-paying jobs in less desirable conditions. Economic growth cannot be ordered by Congress or by the United Nations. Government interference - such as restricting successful technologies in favor of speculative technologies favored by special interests - will generate stagnation.
Myth: The world economy can be remade by reducing trade and relying on local production and reduced consumption without dramatically decreasing our standard of living.
Reality: History shows that nations cannot produce everything their citizens need or desire. People and firms have talents that allow specialization that make goods and services ever more efficient and lower-cost, thereby enriching society.
Myth: Government mandates are a substitute for free markets.
Reality: Companies react more swiftly and efficiently to the demands of their customers and markets, than to cumbersome government mandates.
Myth: Imposing technological progress by regulation is desirable.
Reality: Some technologies preferred by the green jobs studies are not capable of efficiently reaching the scale necessary to meet today's demands and could be counterproductive to environmental quality.
In this Article, we survey the green jobs literature, analyze its assumptions, and show how the special interest groups promoting the idea of green jobs have embedded dubious assumptions and techniques within their analyses. Before undertaking efforts to restructure and possibly impoverish our society, careful analysis and informed public debate about these assumptions and prescriptions are necessary.
A second paper — which is basically just a shorter version of the first one — "7 Myths About Green Jobs" is also on SSRN here.