By Ronald Bailey
In his State of the Union speech a couple of weeks ago, President Barack Obama planned to “win the future” by, among many other things, having the federal government “invest” in “clean energy technology—an investment that will strengthen our security, protect our planet, and create countless new jobs for our people.” But will investing in clean energy actually produce countless new jobs?
A couple of weeks ago, the California think tank Next 10 asserted in its 2011 Many Shades of Green report that employment in the state’s green core economy grew at 3 percent between 2008 and 2009. Employment in the rest of the economy, meanwhile, grew at just 1 percent. The report defines the "green core economy" as businesses that generate clean energy, conserve energy, or reduce and recycle wastes.
Specifically, the Next 10 report finds that the number of jobs in California’s green core economy rose between 2008 and 2009 from 169,000 to 174,000—an additional 5,000 jobs. Green jobs account for just 0.9 percent of California's overall 18.8 million jobs. Note that California’s unemployment rate is 12.5 percent, which means that 2,270,000 Californians are without work.
Unfortunately, when it comes to green jobs both the president and the Next 10 report are focusing on the seen while ignoring the unseen. In his brilliant essay, “What is Seen and What is Unseen,” 19th century French economist Frederic Bastiat pointed out that the favorable “seen” effects of any policy often produce many disastrous “unseen” later consequences. Bastiat urges us “not to judge things solely by what is seen, but rather by what is not seen.”
So let's take a look. Many of the green core economy jobs created in California are the result of policies that restrict the production and use of conventional sources of energy. For example, electricity generators in California are required to produce 20 percent of their supplies using renewable sources by 2010, a requirement that will rise to 33 percent by 2020. In addition, California’s Global Warming Solutions Act will impose steep reductions in carbon dioxide emissions produced by burning fossil fuels. Other green jobs are the result of regulations requiring energy conservation [PDF] in residential and commercial construction. Certainly, these activities provide some benefits, including pollution reduction and energy savings. But let’s focus on the claim that on balance they provide more jobs than they kill.
A new report, "Defining, Measuring, and Predicting Green Jobs," by University of Texas economist Gurcan Gulen, issued by the Copenhagen Consensus Center, takes apart many studies predicting that policies mandating alternative energy production, energy efficiency, and conservation will create a boom in employment.
First, Gulen notes that many such studies fail to define clearly what they mean by green jobs. He points out that many pro-green jobs studies do not distinguish temporary construction jobs from more permanent operation jobs. Many studies also assume that green jobs will pay more than jobs in conventional energy production. But why would a construction job at a wind farm pay more than one at a conventional power plant?
Even more disturbingly, many green job studies have no analyses of job losses. Clean energy costs more than conventional energy, which means consumers and businesses will have less income with which to buy and invest. This reduces their consumption of other goods and services, resulting in job losses in those sectors—one of Bastiat's "unseen" effects. In addition, many studies simultaneously count on protectionist policies to exclude clean energy imports while assuming that domestic companies will be freely exporting to other countries.
As an example of how these pro-green jobs studies go wrong, Gulen analyzes the 2008 green jobs study [PDF] by the consultancy IHS Global Insight. That report found that the U.S. currently has 750,000 green jobs, of which 420,000 are in the engineering, legal, research, and consulting fields. Gulen observes, “Given that there are also categories for renewable generation, manufacturing, construction, and installation, it is likely that the majority of the jobs in the largest category are not directly associated with the generation of a single kWh (kilowatt-hour) of ‘green’ power or a single Btu (British thermal unit) of ‘green’ fuel.” The Global Insight study also reports that government administration generates 72,000 of the current green jobs. Green policies often don't produce power, but do produce more regulators.
The Global lnsight study further asserts that pursuing green energy will increase economic productivity. “When compared to conventional technologies on unit of energy output, due to intermittency and low capacity factors, wind and solar are likely to be more labor intensive (hence less productive),” notes Gulen. In fact, Gulen adds that other studies are counting on the fact that green energy technologies are more labor intensive as a way to generate more jobs.
This strategy is reminiscent of the no doubt apocryphal story of the American economist visiting Mao’s China taken on a tour of a construction site where 100 workers were using shovels to build an earthen dam. "Why don't you just use one man and a bulldozer to build the dam?” asked the economist. The guide responded, "If we did that, then we'd have 99 men out of work." To which the economist replied, "Oh, I thought you were building a dam. If your goal is to make jobs, why don't you take their shovels away and replace them with spoons?"
Gulen is not alone in his concerns about overblown claims for green jobs. A 2009 report [PDF], by Hillard Huntington, executive director of the Energy Modeling Forum at Stanford University, also found that promoting green energy is not a jobs generator. Huntington calculated the number of jobs per million dollars invested in various types of electricity generation. A million dollars invested in solar power produces three to five jobs; wind 1.6 to 6.5 jobs; biomass 1.8 to 6.5 jobs; coal 3.7 jobs; and natural gas two jobs. It looks like renewables are often winners at job creation until Huntington points out that on average an investment of a million dollars produces about 10 jobs.
“Electricity generation across all sources creates far fewer jobs than other activities in the economy; the estimates in the figure suggest that they range between 17-67 percent of the average job-creation in the economy,” reports Huntington. “These net job losses mean that subsidies to either green or conventional sources will detract rather than expand the economy’s job base, because they will shift investments from other sectors that will create more employment.”
Another way to look at it is that in the worst cases, investing in solar power destroys seven jobs, wind eight jobs, biomass eight jobs, coal six jobs, and natural gas eight jobs, each compared to the 10 jobs generally created per million dollars of investment. All subsidies to the electric power sector divert money that would otherwise be invested in higher value wealth and job-creating activities.
Huntington concludes, “Policymakers and government agencies should look askance at the claimed additional job benefits from green energy.” Gulen agrees, “Adding ‘net’ jobs cannot be defended as another benefit of investing in these [green] technologies.” In other words, President Obama and other proponents of green energy like Next 10 are seeing only what their policies produce, and ignoring what their policies destroy.