Some green jobs are costs in benefit-cost analysis

From Forbes (For Job Market, Green Means Growth):

The greening of industry is creating a constellation of new careers, and they're not your everyday forestry professions. Many of them are environmental twists on old professions, like law, or in Makower's case, journalism. Others are engineering careers tied to research in renewable technologies like wind energy and ethanol production. For instance:

-- Emissions brokers: In a market economy, credits to emit greenhouse gases can be traded on an exchange, and brokers facilitate the deal. If the U.S. ever moves to a mandatory trading system, expect this field to boom.

-- Bio-mimicry engineers: This new branch of science uses Mother Nature as a model for solving engineering problems. For example, Atlanta's Sto Corp. created a self-cleaning paint that repels dirt whenever it gets wet, just like the lotus leaf does.

-- Sustainability coordinators: Corporations from AstraZeneca (nyse: AZN - news - people ) to Wal-Mart (nyse: WMT - news - people ) are now employing managers to oversee the economic and environmental components of company efforts.

-- Green architects: With an increasing focus on energy-efficient buildings, a growing number of architects and developers are getting certified to become specialists in green design.

In a standard benefit-cost analysis of an environmental policy that leads to the creation of jobs such as emissions brokers, bio-mimicry engineers, sustainability coordinators and green architects, the cost of these jobs (i.e., wages, salaries and benefits) would go in the cost column. Government policy raises the cost of doing business. Some of these costs are passed on to consumers in the form of higher prices.

These costs, (1) reductions in profit (i.e., producer surplus) and (2) higher prices (i.e., lost consumer surplus) would be compared against the environmental quality benefits (e.g., the value of improved health, better recreational opportunities) that the policy generates in order to determine if the policy is economically efficient (i.e., net benefits are positive).

Comments

[odograph]

Well, sure. On a project basis salaries are costs. The thing is, I don't think that really disproves or contradicts Thoma when he says:

For the reasons I explained here, I don't necessarily agree with point 2 [crowding out?]. If the employment of idle resources in the short-run enhances growth prospects, then the number of jobs and hence employment can increase overall. In that case, it's possible for jobs to grow in all sectors. That may not happen - I'm not saying it will - and I don't think long-run job growth is the primary goal of short-run stabilization policy, but it's not out of the realm of possibility.

Thoma actually goes further than I have done, leaving open the possibility of a long-term "growth in all sectors."

[Odograph]

Pick up on the "Some" in the title, it strikes me that I should be able to find examples of win-win where the green plan also lowered total project costs:

Spurred into action by a phone call from Google cofounder Larry Page, the University of Michigan is on its way to becoming a leader in green computing, hoping to save money and the environment.

and

These kinds of power needs add up. U-M spends about $4.8 million a year on electricity for computers and other office equipment. This activity generates about 65 million pounds of carbon emissions annually.

The school wants to reduce this amount by 10% by adopting green computing practices, saving half a million dollars each year.

It's almost as if they hit two birds with one stone.

[Patrick]

I feel like there would exist a market failure in something like the "green architect" job market: the incentive to go the extra mile to go from regular to green architect seems too low. Of course, its likely that with efficient pricing consumers will demand green buildings from developers who in turn demand green blue prints (green prints?) etc etc like you've been saying. But what about thin housing markets, for example? Developers will just build what they want (i.e. cheap, non-green houses) and consumers will just have to make do, only able to abate a still inefficient portion of the home's externalities. Stepping in encouraging this particular green job would make green architecture a norm in all housing markets, thick or thin, and we would not have this worry. At least some of these jobs should make it to the benefit side, shouldn't they?

[odograph]

I think we've had discussion here in the past about how "bogus" green buildings were. If I recall correctly the root-item was a news story of a school sold a "green" building that produced higher energy costs than before.

Obviously buyers hate it when that happens. If I were hiring an architect for a zero-energy (or near) home, I think I'd feel better about it with some certification.

(I guess you are suggesting that building codes take everyone "green", but I'd worry about lack of flexibility in design.)

[Wy]

I don't think so, and that your standard analysis misses a very important point ...

"low hanging fruit".

Namely, the only questions aren't costs and benefits, but also that of organizational inertia and transaction costs.

Organizational inertia and its associated 'transaction costs' in shifting from 'the old way of doing business' can very well keep more efficient, lower cost technologies from taking effect. Example: An analysis only considers upfront costs may ignore things like 'daylighting' and high efficiency systems with very low payback costs but result in a (slightly) higher initial cost.

A environmental program can very well both a producer surplus AND result in lower prices, because it results in more effective organization and management.

[John Mashey]

This is slightly weird.

There may be a bunch of new types of green jobs, but the ones I see around here are the construction workers upgrading into solar installers, or people building solar panels or solar thermal systems.

Many architects are developing "green" practices as part of their normal business.

I'm not quite sure why it's a "cost" to spend some money upfront to reduce the long-term energy costs. Our local utilities (like PG&E) have efficiency people to come do building audits ... because they think it's a good investment.

Chevron Energy Solutions is an interesting division of Chevron, staffed by "green jobs" people.

We recently completed a very green new town center.

I don't know if the first cost is more or less expensive than it might have been, but it should have good long-term energy costs, and it is *very* attractive.

Sooner or later, oil+gas are going to be very expensive, notwithstanding the current gyrations. Is it a "cost" to have designed buildings that last and are still useful when that happens?
{A: depends on what they cost and how long they last. I would observe that the US has built a lot of buildings with $20/bbl oil that might be hard to replace. I'd worry if I had a poorly-insulated home heated by oil.]

[odograph]

Other commentators seem to be picking up on the same vibe that I do. There are a lot of ways to take the original Forbes article, but a focus on costs seems a strange one. From that article:

"They're what I call the 'and' generation," he says. "They don't want to make money or support the environment. They want to do both."

You'd think that a post could be done on opportunities there, rather than pitfalls.

I guess it's like the old green building thing. Certainly there are bad green buildings, but I don't really remember env-econ doing a post since on a green building that worked, as a win-win.

Maybe we are ready for a follow-on post: "Some green jobs reduce final costs in benefit-cost analysis"

[Sandy Chan]

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[John Whitehead]

Odo et al.,

There are a lot of ways to take the original Forbes article, but a focus on costs seems a strange one. ... You'd think that a post could be done on opportunities there, rather than pitfalls.

That is why economics is known as the dismal science. We strange economists are most adept at recognizing the opportunity costs of various decisions. No one else really seems to care of opportunity costs offset some, or all, of the benefits of a good idea.

[Eli Rabett]

"-- For example, Atlanta's Sto Corp. created a self-cleaning paint that repels dirt whenever it gets wet, just like the lotus leaf does."

There are obvious direct economic benefits here in lower maintenance and perhaps longer life, much like using LEDs in traffic lights. It strikes me that you are forcing a questionable POV here.

[odograph]

John, to you believe in insulating houses at all?

Someone could throw this paragraph in opposition:

No one else really seems to care of opportunity costs offset some, or all, of the benefits of a good idea.

If opportunity costs are accepted as large and nebulous they can be used to defeat anything.

The Forbes article, and the other commentators, seem on the other hand to be looking for the authentic win-win. And sure, authentic win-win plans should have considered their actual and concrete opportunity costs.

[Eli Rabett]

Well, the half life of these things is about a day, so here goes. In addition to what everyone else is saying, you are assuming that the bio-mimicry engineer will not be working if it were not for the green job. Since without the green job she would be working, the cost of her salary to the economy is not changed although the benefits may be different.

In short, you are assigning additional costs to green jobs that are not additional costs to the economy. This is valid for a company (should we hire someone else) but it is not valid for the entire economy, unless you can show that additional jobs are being created which have additional costs. Creating jobs is however generally thought to have huge benefits for the economy as her spending ripples through and new products come on the market.

OTOH, better paint, LEDs that last longer and such will lead to less employment for painters and Asplundh bulb changers. According to your metric that is a benefit. They might disagree unless we can generate additional green jobs.

In short try again.

[John Whitehead]

Eli,

An environmental regulation that leads to the creation of a "green job" will cause business firms to hire someone to do something that they wouldn't have done otherwise. These are additional costs to the firm and result in lower profits.

The worker is hired away from some other sector of the economy where they could have been producing something that someone actually wanted. No one wants to replace a broken window. This represents lost productivity.

The idea that environmental regulations create economic benefits is the broken window fallacy. The idea that a window repair job is "created" when a window is accidentally broken. The broken window fallacy explains why any economic bump as a result of a natural (e.g., hurricane Katrina) or technological (e.g., Exxon Valdez oil spill) disaster reflects costs and not benefits.

The benefits of the environmental regulation are the health, recreation and etc benefits of the cleaner environment. The benefits may be greater than, equal to, or less than the costs.

[odograph]

The "broken window" in this context is the recognition of environmental externalities. The fallacy of the invocation in this context is that by not "noticing" the externalities, you can ignore them.

It's the broken window fallacy, fallacy.

[John Whitehead]

Odo,

Er, I, er, "noticed" the externalities here:

The benefits of the environmental regulation are the health, recreation and etc benefits of the cleaner environment. The benefits may be greater than, equal to, or less than the costs.

[odograph]

Isn't the broken window the environmental harm?

People who invoke the "fallacy" only do it by pretending to see no harm.

The broken window fallacy explains why any economic bump as a result of a natural (e.g., hurricane Katrina) or technological (e.g., Exxon Valdez oil spill) disaster reflects costs and not benefits.

No benefits of cleanup John?

Come on, the original and correct form of the fallacy was about people going out to break windows, in order to create make-work.

It is not in a million years about ignoring windows broken beyond our control.

[John Whitehead]

Odo,

This is an application of the broken window fallacy. The fallacy is correctly used to combat the misguided claim that natural or technological disasters create economic benefits in the form of jobs.

No benefits of cleanup? For the third time:

The benefits of the environmental regulation are the health, recreation and etc benefits of the cleaner environment. The benefits may be greater than, equal to, or less than the costs.

[odograph]

I missed something in a cache refresh, and answered twice, sorry.

[Eli Rabett]

John, you are still assuming that the person doing the green job would not have had a different job and further you are assuming that what the person is producing in the green job is not wanted or and further you are assuming that what the person does in the green job does not bring a profit to the company and further you are assuming that the what is produced does not bring benefits to whomever buys the product or service......

Which is especially silly given at least one of the examples you mentioned

-- Bio-mimicry engineers: This new branch of science uses Mother Nature as a model for solving engineering problems. For example, Atlanta's Sto Corp. created a self-cleaning paint that repels dirt whenever it gets wet, just like the lotus leaf does.

Wanna enter a strawman contest?

BTW bio-mimicry is hot stuff in materials science, see the MRS Bulletin, August 2009 where the feature article discusses Bioinspired Materials for Self-Cleaning and Self-Healing.

In other words your strawman burnt down

[John Whitehead]

Eli,

... you are still assuming that the person doing the green job would not have had a different job and further you are assuming that what the person is producing in the green job is not wanted ...

Naw. In fact, it is usually the opposite that is the case. Government policy often leads to a transition of workers from one sector to another. In their original employ, they are making something that consumers want. As environmental clean up crews, they are making environmental quality (something that people want) and the cost is the lost widgets from their previous employ.

... you are assuming that what the person does in the green job does not bring a profit to the company ...

I'm not making that assumption and, anyway, those profits are irrelevant to the concept of opportunity cost.

in other words your strawman burnt down

Not a strawman and nothing burnt down, but thanks for your comment.