SUMMARY
INTRODUCTION
  by Max Schulz
ABOUT THE AUTHOR

ENERGY & ENVIRONMENTAL MYTHS

POLICY IMPLICATIONS
APPENDIX
NOTES

POLL RESULTS
Manhattan Institute/Zogby Survey of Adults Question Frequencies

Manhattan Institute/Zogby Survey of Adults Question X-tabs

 
 

 

 

 


President Obama plans to create 5 million new jobs “by strategically investing $150 billion over the next ten years to catalyze private efforts to build a clean energy future.”[46] Many people, including 53 percent of respondents, believe that such a future—an economy anchored in renewable energies and alternative transportation fuels—is the path to economic progress and prosperity.

Most likely, the government will attempt to make the transition to such an economy through three main avenues: increasing expenditures for alternative-energy research and development (R&D); supporting existing renewable energy and alternative-fuel industries through mandates and subsidies; and imposing a regulatory regime, particularly on carbon emissions, that discourages traditional energy jobs in favor of so-called green jobs, which are jobs in the renewable energy and alternative-fuel sectors.

One cannot rule out the possibility that federally subsidized R&D will hasten technological breakthroughs that lead to large numbers of high-paying jobs in environmentally friendly industries. Moreover, since private financing is scant for some nascent technologies, public funding might be the only way for them to become commercially viable. Finally, though regulations that discourage carbon-intensive energy sources will likely be very costly, one rationale for such regulations is that the economy currently does not recognize the possible negative effects of carbon; thus, industries have little incentive to change on their own.

However, such measures will not produce long-term economic prosperity. Making a transformational shift away from fossil fuels and traditional energy jobs toward alternative energies and green jobs carries serious risks—most important, that subsidizing economically less efficient energy sources will hinder economic growth. When the propped-up industry produces less output for every dollar spent than in industries already operating in the market, overall economic efficiency declines. Moreover, artificially creating jobs through government mandates—as opposed to creating a need for jobs organically, through market demand—carries the risk of creating supply where there is insufficient demand and thus pulling resources from more productive uses.[47] In other words, creating jobs in alternative-energy sectors will ultimately reduce jobs in conventional energy and other sectors, as overall energy costs rise. The end results are reduced overall productivity and higher consumer costs.[48]

R&D for Renewables

Because renewable energies are economically less efficient than conventional sources of power than fossil fuels—and require more money and space to produce equivalent amounts of power—the displacement of traditional energy jobs with renewable energy-based jobs means wasted money and space. Even if more people are employed, an economy rooted in economically inefficient technologies depresses real wages and increases consumer costs.

Clearly, given the Obama administration’s $150 billion plan to create 5 million clean-energy jobs over ten years and the recent $787 billion federal stimulus package’s appropriation of over $45 billion to energy efficiency and renewable energy, the government is poised to increase alternative-energy spending significantly in the near term.[49] Among the stimulus’s expenditures are $500 million to train workers for green jobs, $2 billion for research on electric-car batteries, and $3.4 billion for carbon capture and sequestration projects.[50] (For fiscal year 2008, the Department of Energy’s Office of Energy Efficiency and Renewable Energy received appropriations of just over $1.7 billion.)[51] In addition to this ramped-up R&D spending for alternative energies, American taxpayers will continue to subsidize such technologies, as the government attempts to support alternative energies until they are economically viable on their own.

Subsidies for Green Industries


Making a transformational shift away from fossil fuels and traditional energy jobs toward alternative energies and green jobs carries serious risks—most important, that subsidizing economically less efficient energy sources will hinder economic growth.


The problem is that many technologies that have been funded and subsidized for years are still merely small contributors to our overall energy supply. Wind energy and solar energy take in billions in R&D dollars and subsidies, yet they collectively generated less than 1 percent of our nation’s electricity in 2007.[52] Aided by billions of dollars in subsidies and protected from overseas competition by steep tariffs on imports, corn ethanol—which has two-thirds the energy content of gasoline—is still only a minor player in our nation’s transportation-fuel mix, and multiple ethanol refiners are ceasing operations.[53] Even so, government mandates require blending increased amounts of corn ethanol and other alternative fuels into our gasoline supply in the coming years.

The wind, solar, and ethanol experiments have, to date, been three unsuccessful efforts by government to “pick winners” in the energy industry. Perhaps the federal tax subsidies for these industries will ultimately prove to have seeded important new energy sources. But thus far, they have diverted resources to less productive, less efficient uses and have likely increased overall energy costs.[54]

Green Jobs

As politicians and policymakers worry about mankind’s possible impact on climate, lower-carbon-emitting technologies like wind power and solar power look particularly appealing. In addition to federal R&D and subsidies, the government will attempt to make the transition away from fossil fuels and toward green jobs through regulation of carbon-dioxide emissions. Most likely, such regulation would occur via carbon taxes or cap-and-trade programs.

Carbon taxes are straightforward and transparent, imposing a government-set cost on each metric ton of carbon dioxide emitted. Cap-and-trade programs, on the other hand, are essentially hidden taxes. First, the government sets an overall emissions cap—which would be lowered over time—that is apportioned among major emitters via emission credits, which entitle the credit holders to emit a certain amount of carbon dioxide.[55] (The credits could be handed out by the government, or they could be auctioned off, in which case the government would take in substantial revenues from the purchasers of the credits.) Then, emitters may buy and sell credits, depending on whether they are over or under their number of credits. The Obama administration’s original fiscal year 2010 budget assumes the implementation of an economy-wide cap-and-trade regime to reduce greenhouse-gas emissions approximately 14 percent below 2005 levels by 2020, and approximately 83 percent below 2005 levels by 2050[56] and assumes a starting price of $20 per ton of carbon emissions, an amount that the Obama administration says is conservative and likely to rise.[57] Because either system would impose a cost on a by-product of energy production—carbon dioxide—both routes, most likely, would significantly increase the cost of energy production and result in higher energy costs for consumers, as well as lead to net job losses.[58]

Many of these losses would come from our nation’s oil and natural gas industries. According to the Independent Petroleum Association of America, almost 1.8 million people were directly employed in the United States’ oil and gas industries in 2007, up from just over 1.5 million in 1975.[59] Moreover, because coal emits twice the carbon of natural gas when burned, a regime that penalizes carbon could lead to even greater job losses in the coal industry. In 2007, 81,278 workers were directly employed in the U.S. coal industry.[60] The significance of the potential harm to the coal industry must not be overlooked, as any losses in the industry that generates roughly half of all electricity produced in the United States will surely be felt throughout the economy.[61]

U.S. policymakers are keen on the idea of moving away from the burning of fossil fuels and toward increased use of renewable energy sources to meet our energy and electricity needs. In order to do so, policymakers are likely to push for increased spending for research and development of renewable energies, expanded renewable energy mandates and subsidies, and the regulation of carbon emissions. Undoubtedly, many jobs will be created to realize these objectives, but whether such a transformation will create sustainable jobs or produce net employment gains remains to be seen. Most likely, abandoning fossil fuels in favor of less economically efficient energy sources will increase costs for producers and consumers, ultimately resulting in net job losses.

Both the potential costs and potential benefits of moving toward a “green economy” must be considered when crafting energy policy. Whether we, as a nation, feel the benefits are worth the costs remains an open question.

One option for regulating carbon-dioxide emissions—an option backed by President Obama—is the imposition of a cap-and-trade program, under which an overall-emissions limit would be set, and emitters could buy and sell the right to emit, based on whether they are above or below their respective emissions allotment. Many groups, both public and private, issued cost projections[i] for the most well-known cap-and-trade proposal to date, found within the America’s Climate Security Act of 2007 (also known as the Lieberman-Warner bill), which failed on the Senate floor in June 2008. The following list provides estimates—based on different assumptions—for U.S. net job losses under the Lieberman-Warner bill, which called for reductions in greenhouse-gas emissions of 15 percent below 2005 levels by 2020, 30 percent below 2005 levels by 2030, and 70 percent below 2005 levels by 2050:[ii]

  • Charles River Associates International: “We have estimated 1.2 million to 2.3 million net job losses by 2015 over our set of scenarios. By 2020, our scenarios project between 1.5 million and 3.4 million net job losses. There is a substantial implied increase in jobs associated with ‘green’ businesses (e.g., to produce renewable generation technologies), but even accounting for these there is a projected net loss in jobs due to the generalized macroeconomic impacts of the Bill.”[iii]
  • National Association of Manufacturers/American Council for Capital Formation: “Job losses of between 1.2 million to 1.8 million in 2020 and 3 million to 4 million by 2030.”[iv]

An instructive example of the possible consequences of aggressive carbon-reduction mandates is found in Europe’s cap-and-trade regime, the Emissions Trading System (ETS). Energy and electricity prices are substantially higher in Europe than in the U.S., and European manufacturers have been hurt by the high costs imposed by the ETS. European steel workers have even taken to the streets to protest against Europe’s carbon-emission caps, which they say threaten their jobs.[v] Mark J. Perry, professor of finance and economics at the University of Michigan (Flint), writes, “Europe’s first three years of cap-and-trade have not worked as intended. Emissions have risen instead of fallen. And cap-and-trade has imposed a significant cost on their economies from lost competitiveness, lost jobs, and lost investment.”[vi]


i Cost projections included estimates of GDP loss, job loss, and increases in the cost of energy and electricity.

ii For more on the estimated costs of the Lieberman-Warner bill, see “The Cost of Warner-Lieberman,” Institute for Energy Research, http://www.instituteforenergyresearch.org/cost-of-climate-change-policies/. For more on a number of different carbon-reduction analyses, see “The Cost of Climate Regulation for American Households,” Bryan Buckley and Sergey Mityakov, George C. Marshall Institute, March 2, 2009, http://www.marshall.org/pdf/materials/636.pdf.

iii Testimony of Anne E. Smith, Ph.D., November 8, 2007,
http://epw.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=80bc79be-c338-4a76-b438-205eb79da3d5.

iv “Analysis of The Lieberman-Warner Climate Security Act (S. 2191) Using The National Energy Modeling System (NEMS/ACCF/NAM),” American Council for Capital Formation and the National Association of Manufacturers, http://www.accf.org/pdf/NAM/fullstudy031208.pdf. For an interesting exchange concerning The Washington Post’s citing of the ACCF/NAM study, see “Eric Pooley discussion paper,” Joan Shorenstein Center on the Press, Politics and Public Policy, Harvard Kennedy School, http://www.hks.harvard.edu/presspol/publications/papers/discussion_papers/d49_pooley_full.html.

v “Some 5,000 steel workers from across the continent protested outside European Union headquarters Tuesday to demand their industry be exempt from planned pollution caps, which they fear will lead to job losses. Unions from across the 27-nation bloc are backing steel companies to pressure EU governments and lawmakers to water down rules to cut pollution and carbon dioxide emissions. They say such regulation would lead to higher production costs and job losses.” See “European Steel Workers Protest EU Pollution Cap,” Constant Brand, Associated Press, December 2, 2008, http://www.manufacturing.net/News-European-Steel-Workers-Protest-EU-Pollution-Cap.aspx?menuid=.

vi “Cap and trade plan would send prices soaring and put a staggering burden on U.S. consumers,” Mark J. Perry, Canada Free Press, February 4, 2009, http://www.canadafreepress.com/index.php/article/8205. “Cap-and-trade regimes have advantages, notably the ability to set a limit on emissions and to integrate with other countries. But they are complex and vulnerable to lobbying and special pleading, and they do not guarantee success. The experience of the European Union is Exhibit A…the Europeans have not had much success reducing greenhouse gas emissions.” See “Climate Change Solutions,” The Washington Post, February 16, 2009, http://www.washingtonpost.com/wp-dyn/content/article/2009/02/15/AR2009021501425.html.

 
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