The Green Jobs Delusion

Ronald Bailey's fourth dispatch from the Copenhagen climate conference.


Copenhagen, December 17—"It's all about the jobs," declared U.S. House Speaker Nancy Pelosi in her remarks at the Copenhagen climate change conference today. To hear Pelosi talk, saving the planet from climate doom is incidental to making sure Americans are employed making windmills, solar panels, electric cars, and weatherizing houses. Speaker Pelosi is heading up a 20-person congressional delegation here in Denmark, including such luminaries as Rep. Charles Rangel (D-N.Y.), Rep. Henry Waxman (D-Calif.), and Rep. Ed Markey (D-Mass.). The monikers of the latter two solons—Waxman-Markey—are shorthand for the American Clean Energy and Security Act cap-and-trade bill that passed the House last June. The bill would require the U.S. to cut its emissions of carbon dioxide by 17 percent below 2005 levels by 2020.

Joining in the jobs theme, Rep. Markey also declared that the Waxman-Markey bill "is something that is going to create a technological revolution." At his press conference the day before, Sen. John Kerry (D-Mass.), who is a co-sponsor of an energy and climate change bill in the Senate, similarly asserted, "Our bill is essentially a jobs bill." Markey predicted that the scale of the changes sparked by congressional climate change legislation would exceed the telecommunications and Internet booms of the 1990s. So will new climate change policy spark a clean energy revolution?

Given the array of government energy mandates and billions in subsidies poured into cleantech, there is no doubt that those sectors will see increased jobs. The effect on overall employment is far less clear. Cleantech energy is currently more expensive than conventional sources of energy. Many argue that the price difference simply reflects the fact that conventional sources—chiefly fossil fuels—are cheaper because no one is being forced to pay for their externalities, e.g., damaging the climate and health. Once people have to pay for their externalities through, say, a carbon tax or a cap-and-trade scheme, then renewable energy sources become more competitive. Fair enough. But either way, the price of energy is going to go up. If people and businesses are paying more for energy that means that they have less left over to buy other products and services, a fact that would tend to reduce employment downstream.

Yet green energy proponents have produced reams of studies that show that carbon rationing leads to more jobs. For example, Bracken Hendricks, a senior fellow at the Center for American Progress, told The New York Times, "We found that you get four times the number of jobs from investing in efficiency and renewables than you get from investing in oil and natural gas." This is largely because renewable technologies "are more local and they're more labor-intensive."

At the Copenhagen conference, I met Nathan Ratledge, the director of the Community Office for Resource Efficiency, who confirmed Hendricks' observation. As we rode the metro to the conference, Ratledge and I had a pleasant conversation about the great successes of Aspen, Colorado, in producing green jobs. With the financial crisis, construction jobs in Aspen disappeared. But thanks to stimulus money and tax breaks earmarked for weatherization, unemployed construction workers are now insulating houses. Tax breaks have similarly encouraged a solar power installation boom. When I asked him if solar was price competitive with conventional power without government guaranteed low interest loans and tax breaks, Ratledge admitted that it wasn't. But he predicted that the price of Chinese solar panels was falling so fast that it would soon outcompete conventional power. I chided him that it sounded like the federal stimulus was actually creating green jobs in China. Ratledge did note one rapidly growing green sector in the U.S.: energy auditing. Of course, people and businesses wouldn't need to hire energy auditors if the price of energy remained low or if they didn't have to comply with new energy efficiency regulations.

Other countries have tried to use energy policy to produce jobs. Germany is often cited as an example of how government policy can drive the adoption of renewable energy and produce scads of green jobs. For example, in his opening statement at a May 2009 climate change hearing, Sen. Kerry praised Germany for putting "in place strong policy mechanisms to drive investment in solar power and other renewable energy sources. As a result, renewable energy usage has tripled to 16 percent, creating 1.7 million jobs. By 2020, Germany's clean energy sector will be the biggest contributor to the nation's economy."

However, a study released in October finds that the German green job miracle is largely a mirage, and an expensive mirage at that. The report, published by the nonprofit German think tank Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI), notes that as a result of the German government's energy policies, Germany leads the world in solar panel installation and is second only to the U.S. in wind power generation. Great, right? Actually terrible, says the report. Let me quote some of the report's sobering conclusions at length:

While employment projections in the renewable sector convey seemingly impressive prospects for gross job growth, they typically obscure the broader implications for economic welfare by omitting any accounting of off-setting impacts. These impacts include, but are not limited to, job losses from crowding out of cheaper forms of conventional energy generation, indirect impacts on upstream industries, additional job losses from the drain on economic activity precipitated by higher electricity prices, private consumers' overall loss of purchasing power due to higher electricity prices, and diverting funds from other, possibly more beneficial investment.

Proponents of renewable energies often regard the requirement for more workers to produce a given amount of energy as a benefit, failing to recognize that this lowers the output potential of the economy and is hence counterproductive to net job creation. Significant research shows that initial employment benefits from renewable policies soon turn negative as additional costs are incurred. Trade and other assumptions in those studies claiming positive employment turn out to be unsupportable.

In the end, Germany's PV promotion has become a subsidization regime that, on a per-worker basis, has reached a level that far exceeds average wages, with per worker subsidies as high as 175,000 € (US $ 240,000). …

Although Germany's promotion of renewable energies is commonly portrayed in the media as setting a "shining example in providing a harvest for the world" (The Guardian 2007), we would instead regard the country's experience as a cautionary tale of massively expensive environmental and energy policy that is devoid of economic and environmental benefits.

Despite the fondest hopes of Kerry, Pelosi, Markey, and other Democrats in Congress, carbon rationing has not noticeably sparked a technological revolution in Europe yet. One might argue that a cleantech takeoff is just around the corner and that the energy revolution is just at the same stage as the Internet revolution was in 1991. Maybe. But the Internet analogy deployed by Kerry and co. misses the mark in another way—the Internet and cell phone boom took off as a result of deregulation and was largely financed by private capital. By contrast, the Capitol Hill denizens now haunting the Copenhagen conference imagine they can spark a similar technological revolution by passing a massive 1,400-page bill, laden with subsidies, tax breaks, and fine-grained regulations for all aspects of energy production.

It might just be necessary to impose carbon rationing and boost energy prices in order to avoid possibly disastrous consequences of manmade global warming, but doing so will increase unemployment rather than lower it. When Congress tries to pass climate change legislation next spring, Speaker Pelosi may well find out that it really is "all about the jobs."

An update to yesterday's dispatch from Copenhagen: A total diplomatic implosion remains possible. The U.S. and China are still at loggerheads. As of now, the U.S. is insisting that China must commit to some kind of legally binding emissions obligations. If China refuses, the U.S. will sign no agreement. Who will blink? My guess is that the U.S. will. The conference is supposed to conclude tomorrow afternoon, but the safe bet is that it will actually end, one way or the other, on Saturday.

Update: The AP reports a possible breakthrough at the conference:

An announcement by Secretary of State Hillary Rodham Clinton that the United States would contribute to a climate change fund amounting to $100 billion a year by 2020 was quickly followed by an offer from China to open its books on carbon emissions to international review.

The U.S. delegation did not immediately react to the offer by Vice Foreign Minister He Yafei. But it went a long way toward the U.S. demand that China report on its actions to limit the growth of Beijing's carbon emissions and allow experts to go over its data.

Maybe the Chinese blinked after all.

Ronald Bailey is Reason's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is available from Prometheus Books.