Last Friday I spoke with Brian Roger at The Energy Collective (previous post). Based on my notes and the podcast, here is our Q & A ...
1. John, I thought we'd talk today about "green jobs," something I know has been on your mind recently. First, what is a "green job"?
Good question because there is no accepted definition, from what I can tell. Clear examples of green jobs are those in the renewable energy sector and jobs weatherizing homes. Some green jobs are in the construction sector, building a smart electricity grid, say, that are not permanently “green” although they are counted as such. Also some studies find that many green jobs are accountants and lawyers who could work in any sector of the economy. Green jobs studies sometimes include indirect jobs, like those in factories that might use renewable energy, but these jobs aren’t “created” by government policy. The factory would run on coal power just as well.
2. Barack Obama has talked of investing $15 billion a year over the next decade on renewable energy—creating 5 million new green jobs that pay well, can't be outsourced and will help our dependence on foreign oil. What are your thoughts on that?
In order for a $15 billion stimulus over 10 years to lead to 5 million jobs, the government spending multiplier would need to be about 5. Christina Romer, Obama’s chief economist is using a multiplier of 1.5 in the Romer-Bernstein jobs study so I think the 5 million green jobs is a campaign promise that won’t materialize. It could be more like 1.67 million jobs generated in that sector. But it is not clear that the 1.67 million jobs are net jobs. Many of these could be reallocated from another sector of the economy.
3. Is it possible, at this stage, to have any real consensus on the number of jobs, the types of jobs that are likely to be created over the next decade?
The short answer is no and the Romer-Bernstein report emphasizes the great uncertainties involved in this sort of exercise. Another problem is that the types of policies that are being discussed in Washington ignore the demand side of the energy market. Consumers pay most attention to prices and a policy that makes the price of coal and other dirty energy sources higher, as high as renewable energy, would address the demand side of renewables. So far, there is little discussion of pursuing climate change policy and directly raising the price of dirty energy. So, I’m worried that we might end up with excess supply of high-priced renewable energy that no one wants to buy. The Obama-Biden plan produces a 25% renewable energy portfolio standard to force the demand, but this leads to its own economic problems. The standard could actually lead to higher renewable energy prices and lower nonrenewable energy prices.
4. Setting aside the number of jobs that might be created, how long will it take for them to be developed? In some instances, presumably the buildup might be quite slow.
Right, speed is not something that government and the construction industry is famous for. Construction takes time so even “shovel ready” projects won’t reap macro economic rewards until towards the end of 2009 or 2010, when the economic recovery is already expected to have kicked in. I doubt that the renewable energy part of the stimulus package will have much short-term macroeconomic impact which is the way the stimulus package is being sold.
5. Is it a mistake to try to justify renewable energy, solar projects, and the like based on the number of green jobs that will result from those commitments?
Yes. Green jobs is the wrong metric for environmental policy. Jobs are actually better measures of the costs of an environmental policy. The true economic benefits of environmental policy is the improved human and ecosystem health that results, improved outdoor recreation, less soiling on buildings and other things. Economists spend a lot of time estimating these benefits and comparing them to the costs of environmental policy. It is most often the case that environmental benefits exceed policy costs and the environmental policy is a good idea. The danger with equating green jobs with environmental benefits is that other equally worthy environmental policies aren’t labor intensive so we don’t see the jobs associate with them. For example, environmental preservation is not labor intensive at all but still generates enormous economic benefits. In today’s green jobs climate, environmental preservation gets the shaft.
6. Some argue that stimulus money should be used to update the nation's electrical grid, one that could better handle wind and solar power—and enable a "green technology boom." What do you believe our priorities should be?
I like to separate the spending of stimulus money from environmental policy. There is a lot of macroeconomic research that suggests that tax cuts and monetary policy are more effective ways of managing a macroeconomy. Fiscal policy can be largely ineffective due to policy lags. The house bill introduced today might not lead to government spending until the recovery is underway. So, I’d like to think about a smart grid independently of a stimulus. A limitation of renewable energy is that it is difficult to export energy from state to state. States that have excess energy can’t sell it. If we pursue climate policy that increases the price of coal then the demand for renewables will rise and there will be a need for cross-border selling. So, there is a big role for the federal government to play to set up the electrical grid.
7. 2009 likely will be a year of immense change, one way or another. Where do you think we'll be a year from now?
I’m no forecaster but I’m optimistic about the economy. My best guess is that the economy will be recovering since banks will decide to begin lending money again sometime. After all, banks don’t make money unless they make loans. The profit motive is a powerful incentive. I’m pessimistic about the stimulus. Much of the $800 billion stimulus won’t be spent in a year from now due to policy lags and other political forces. We’ll have a larger government debt and we’ll be hearing talk about government budget cuts. And I’m pessimistic about climate policy. I think I’ll still be hoping for some type of climate change policy, cap and trade or a carbon tax, a year from now.
