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Green Jobs: Debunking the Debunkers
Tom Konrad, Ph.D., CFA
July 2009
(Courtesy Alt Energy Stocks)
Energy markets are neither free nor efficient, so traditional
economic arguments against regulation and other government
interventions do not apply.
In response to my
recent article digging into green jobs, a reader
sent me a copy of a
March paper by Andrew Morriss et al at the
University of Illinois that attempts to debunk green jobs
myths. While I see major flaws in most green jobs papers I read, many
of the myths cited by this paper are irrelevant to what I consider the
most important questions:
- Can government intervention to clean up the energy sector
create jobs and boost the economy?
- What interventions are likely to be the most effective or
harmful?
Other "myths" are simply not myths; the flaw arises
because the debunkers are economists, and approach the subject
from the perspective of economics. The problem is that the energy
market is neither free nor efficient, so the traditional economic
assumptions about how supply and demand regulate price simply do
not apply. I'll deal with the myths in the order they are
presented by Morriss et al.
Define "Green Job"
From the paper:
Myth 1: Everyone understands what a “green job” is.
Fact
1: No standard definition of a “green job” exists.
My Thoughts: The hundreds of billions of
dollars to be committed are designed to promote cleaner energy. Who
cares how green jobs are defined? The important question is Question
#1 above: Regardless if the jobs are defined as "green" or not, will
more jobs be created by promotion of cleaner energy, or by some
alternative sort of spending. My last article answered this question
in favor of clean energy.
Productivity of Green Jobs
From the paper:
Myth 2: Creating green jobs will boost productive employment.
Fact 2: Green jobs estimates in these oft-quoted studies include
huge numbers of clerical, bureaucratic, and administrative positions
that do not produce goods and services for consumption.
My Thoughts: If cleaning up the energy
economy simply creates a shift to the less efficient use of labor,
then it is not worthwhile.
However, labor efficiency is the
wrong metric. Higher labor efficiency can nearly always be achieved
with greater use of capital or energy. For instance, driving to work
is statistically more labor-efficient than taking light rail. If I
take light rail, then the pro-rated labor needed to run the rail
system goes into the cost of getting me to work. If I were to drive,
my labor in guiding the vehicle would not be counted in work
statistics, because I am not paid for my efforts (even though I'm
probably not enjoying myself much.) Nor is the capital investment in
my car included in the calculation, (although the road I drive on
probably is) because it is a private, not business or government
expenditure.
Green spending is likely to be more
energy-efficient than other spending: reducing energy use one of the
main goals. Capital spending may go up or down, and labor usage may
increase, as labor is substituted for fossil energy. The goal should
be to find those sectors which most effectively substitute spending on
labor (a renewable resource of which we currently have more than we
are using) for spending on fossil energy (a nonrenewable resource
which causes harm to the environment.)
As I previously
discussed, spending on energy efficiency programs such as
weatherization are ideally suited to substitute labor for energy.
Weatherization gets the largest share of the energy spending from the
stimulus bill.
Modeling
From the paper:
Myth 3: Green jobs forecasts are reliable.
Fact 3: The
green jobs studies made estimates using poor economic models based on
dubious assumptions.
The forecasts for green employment in these studies optimistically
predict an employment boom that will take us to prosperity in a new
green world. The forecasts, which are sometimes amazingly detailed,
are unreliable because they are based on: a) Questionable estimates by
interest groups of tiny base numbers in employment, b) Extrapolation
of growth rates from those small base numbers, that does not take into
consideration that growth rates eventually slow, plateau and even
decline, and c) A biased and highly selective optimism about which
technologies will improve. Moreover, the estimates use a technique
(input-output analysis) that is inappropriate to the conditions of
technological change presumed by the green jobs literature itself.
This yields seemingly precise estimates that give the illusion of
scientific reliability to numbers that are actually based on faulty
assumptions.
My Thoughts: As often with the arguments
against greenery, the critics equate greenery with exciting new (and
expensive) technologies such as solar PV. Some of the proponents fall
into this trap as well. And everyone should be uncomfortable with
relying on attributing any level of accuracy to a study even though it
claims to be precise. Precision is impossible in economic forecasting.
In fact, the majority of the spending will be going to old, proven
technology with a long track record. Building weatherization and mass
transit have been around and evolving for over a century, and these
two alone get well over half of the spending. Cofiring of biomass is
also a proven and very cost effective technology. All of these will
reduce, not increase the overall cost of energy, without waiting for
technology improvements.
No, we won't get the number of jobs we
expect, but for the purpose of decision-making, we only need to be
confident that we'll get more jobs than if we had not acted.
"Free" Markets
From the paper:
Myth 4: Green jobs promote employment growth.
Fact 4: By
promoting more jobs instead of more productivity, the green jobs
described in the literature actually encourage low-paying jobs in less
desirable conditions. Economic growth cannot be ordered by Congress or
by the United Nations (UN). Government interference in the economy –
such as restricting successful technologies in favor of speculative
technologies favored by special interests – will generate stagnation.
Myth 6: Government mandates are a substitute for free markets.
Fact 6: Companies react more swiftly and efficiently to the
demands of their customers/markets, than to cumbersome government
mandates.
My Thoughts: The government already interferes on a massive scale
in energy, to support the fossil fuel industries. Electric and gas
utilities are either government regulated (IOUs), government-run (munis),
or government-sponsored non-profit cooperatives (REAs.) Unless you
live in Lubbock, your electric utility is a monopoly. Our
transportation infrastructure is government-built and maintained (or
government-sponsored, in the case of toll roads.) Rules, taxes , and
incentives specifically targeted at fossil fuels are legion.
Deriding "government interference" in an industry with so much
government involvement already is ludicrous. Nothing can happen in the
energy industry without "government interference." The trick is to
make sure that any change is change for the better. "Hands off" is not
an option.
Yes, green spending produces a higher proportion of
low skilled jobs than would spending on capital intensive fossil
fuels. But green spending creates more jobs at every skill level than
spending on fossil fuels, making workers at every level of skill
better off.
A typical instance of the authors' blind faith in
markets appears in the section titled "Markets vs. Mandates." "The
implication of the necessity of a mandate is that profit-seeking
building owners are too foolish to make investments in energy saving
despite the alleged short-term paybacks." Yet this is precisely what
happens, if not because building owners are foolish. It happens
because renters, not building owners derive the benefits from the
efficiency investments, and because many building owners lack the
skills and information necessary to make informed decisions.
Instances of profit-seeking building owners not making efficiency
improvements abound. When the building owner does not pay the utility
bill (as with most rentals), there is no incentive to make such
improvements at all. Even in owner-occupied buildings, how many
building owners know what improvements will be cost effective, or make
it a priority to find out? Without adequate information, no
improvements will be made.
Anti-Trade
From the paper:
Myth 5: The world economy can be remade by reducing trade and
relying on local production and reduced consumption without
dramatically decreasing our standard of living.
Fact 5: History
shows that individual nations cannot produce everything its citizens
need or desire. People and countries have talents that allow
specialization in products and services that make them ever more
efficient, lower-cost producers, thereby enriching all people .
My Thoughts: To the extent that we're not just exporting the manufacture of
energy-intensive goods to other counties, I agree with this caveat.
However, to the extent that transport requires large amounts of
energy, some of the arguments for re-localization make sense, or where
the production of the good (such as oil) is controlled by non-market
forces (Russia, Venezuela, OPEC, etc.) free trade (which is rooted in
the assumption that markets operate efficiently) does not make sense.
If we could actually create an increase in domestic oil, the
conservative proponents of domestic drilling (whom I think of as the
"Local Oil" movement) would have a point, despite the fact that they
use the same anti-trade rhetoric. Unfortunately, since total
production of domestic oil is capped by our already-diminished
reserves, the Local Oil movement is simply asking for more domestic
oil today, at the cost of less domestic oil for our children. In
contrast, today's local farmers can avoid taking food from their
children by using sustainable farming practices.
Free trade
makes sense in free (or at least reasonably efficient) markets where
total supply is not limited. Inefficient markets may rob us of the
benefits of free trade. When the total supply of a commodity is
finite, as with fossil fuels, we can never have true "free trade,"
because one set of participants has no voice in the transaction.
Future generations have no say about what they give up in future
consumption when we consume a finite resource today.
Pie-in-the-Sky
From the paper:
Myth 7: Wishing for technological progress is sufficient.
Fact 7: Some technologies preferred by the green jobs studies are not
capable of efficiently reaching the scale necessary to meet today’s
demands.
My Thoughts: Absolutely true. We can't decarbonize the economy this decade. We
need to start now with the established, cost-effective technologies we
have today, such as energy efficiency, electricity transmission, wind
power, geothermal, and mass transit which are capable of scaling and
bring both jobs and economic benefits today. As new technologies such
as solar become cost effective, we will have the infrastructure in
place to allow them to scale.
The gigantic scale of the job is
a reason to start as soon as possible, not to delay.
Posted by Tom Konrad on July 12, 2009 12:00 PM |
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