Runaway green jobs inflation

Last month, the Brookings Institute published a report entitled “Sizing the Clean Economy” which promises:

The “green” or “clean” or low-carbon economy—defined as the sector of the economy that produces goods and services with an environmental benefit—remains at once a compelling aspiration and an enigma.

The report claims to offer a definition of green jobs, but that was done several years ago by a San Mateo consulting firm working for a Next10, a California advocacy group.

Of more concern is that Brookings is perpetuating — if not magnifying — the use of “green” as a political statement rather than an economic concept. For as reputable a group as Brookings — the most prestigious economic thinktank on the left — this is troubling.

In previous incarnation as a green jobs project director, I decided that the “green” jobs concept seemed like sausages — you didn’t want to see how they were made (calculated) or it would make you squeamish.

An article from the Mackinac Center for Public Policy (in Michigan) shows how we should ignore the command to “pay no attention to that man behind the curtain” — because (as in the movie) he is no wizard. (Yes, Mackinac is trying to unmask the wizard while Toto is just a naïve little dog, but…)

I was aware of one of the problems in the existing definition. Suppose a building contractor switches from installing inefficient windows to energy saving windows? Voilà! We’ve created a green job!

At least that building contractor (or roofer or electrician) is doing something to make the world a greener place by reducing the need for carbon-based fuels. However, what happens if a janitor switches from traditional chemical cleaning solutions to natural ones? Voilà! Another green job!

Jack Spencer of Macinac interviewed one of the authors, Brookings analyst Jonathon Rothwell, and it gets worse.

First, all mass transit jobs are counted. So if we had bus drivers 20 years ago or Pullman porters 75 years ago, they were working in green jobs and they didn’t even know it.

Then there’s the unappealing matter of garbage. As Spencer puts it:

Regarding the matter of waste industry jobs being included as part of the “clean economy,” did the report include everyone from the designer of a landfill to the person who picks up the trash from the curb?

“Yeah, that's pretty much it,” Rothwell said.

In other words, much of what is counted as “green” jobs are jobs that already exist, have existed for decades, and (unless we have gross labor inefficiencies) are not really growth areas of the economy.

If you add up all the bus drivers and trash truck drivers, it certainly dwarves the number of people working in companies that make renewable energy products. It probably even dwarves the people in the building trades installing solar panels, double-pane windows and CFL light bulbs.

Meanwhile, advocates, politicians, and reporters are republishing these estimates without reservation or qualification. The politicians are intentionally misrepresenting the truth — because they want to claim credit for private sector job “creation”. VCs seeking government subsidies also want to exaggerate the benefits of their tiny little companies. I guess (as in other stories) the reporters are merely economically ignorant naïve.

This is not particular to green jobs, but is a problem anywhere politicians get involved. The arguments for attracting sports teams and their stadia are similarly suspect, both because of the “multiplier” effect but also because money visibly spent at a pro football game is money not spent on a college game, movie, or just a 24-pack of beer. (The problem of unseen substitution is exactly as predicted by Frederic Bastiat 160 years ago).

Again in my efforts to develop renewable energy jobs, we found there weren’t all that many in California, and that the perception this was a growth area exacerbated the mismatch of supply and demand by attracting more job seekers than there were jobs.

One of these days people will realize how much fewer jobs have actually been created (as opposed to shifted) by green technologies. I look forward to the day when we measure such jobs the same way we measure IT jobs or aviation jobs — in specific (identified) companies and industries. Certainly that’s the only measure that matters to entrepreneurs, employees, investors and others that have real skin in the game.

Can we win the clean energy race? Should we?

Browsing the WSJ.com website, I found an advertorial that proclaimed

China Becomes “Clean Energy Powerhouse”

China, determined to be on the forefront of green technology, “is emerging as the world’s clean energy powerhouse,” according to a recent study from The Pew Charitable Trusts, an independent non-profit organization based in Washington, DC

For the first time ever, China topped all nations last year in investments in low-carbon energy like wind and solar power. Over the past five years, environmentally friendly energy finance and investments in China grew from $2.5 billion to $34.6 billion, almost double the $18.6 billion in investments attracted by the United States.

And that is only one part of the country’s growing emphasis on environmentally friendly products and practices. Along with ambitious targets for wind, biomass and solar energy, China aims to spend 34 percent of its $586 billion stimulus package on green projects.

The advertorial, sponsored by Hong Kong-based Cathay Pacific, went on to note the airline’s involvement in carbon offsets and the other customary forms of greenwashing used by big businesses. (I don’t take the dead tree WSJ anymore, so I didn’t see when/if it ran in the real paper.)

Pew is an environmental advocacy group that got a lot of coverage when their study of G-20 countries (entitled “Who's Winning the Clean Energy Race?”) came out in March. A well-orchestrated PR campaign — tied to legislative hearings in Congress — brought the issue back to the forefront last month.

The numbers in the report compiled by Bloomber New Energy Finance seem accurate. However, the conclusions seem intended to stampede US public sentiment towards greater Federal spending (or mandated ratepayer spending) to subsidize the sale of RE equipment in the US. To quote from the executive summary:

This report documents the dawning of a new worldwide industry—clean energy—which has experienced investment growth of 230 percent since 2005. Demonstrating its strength, the clean energy sector declined only 6.6 percent in 2009 despite the worst financial downturn in over half a century. In 2009, $162 billion was invested in clean energy around the world. …

Within the G-20, our research finds that domestic policy decisions impact the competitive positions of member countries. Those nations—such as China, Brazil, the United Kingdom, Germany and Spain—with strong, national policies aimed at reducing global warming pollution and incentivizing the use of renewable energy are establishing stronger competitive positions in the clean energy economy. …

There are reasons to be concerned about America’s competitive position in the clean energy marketplace.

Relative to the size of its economy, the United States’ clean energy finance and investments lag behind many of its G-20 partners. For example, in relative terms, Spain invested five times more than the United States last year, and China, Brazil and the United Kingdom invested three times more. In all, 10 G-20 members devoted a greater percentage of gross domestic product to clean energy than the United States in 2009. Finally, the Unites States is on the verge of losing its leadership position in installed renewable energy capacity, with China surging in the last several years to a virtual tie.

The U.S. policy framework for reducing global warming pollution and promoting renewable energy remains uncertain, with comprehensive legislation stalled in Congress. On the other hand, America’s entrepreneurial traditions and strengths in innovation—especially its leadership in venture capital investing—are considerable, giving it the potential to recoup leadership and market share in the future.

Policy, investment and business experts alike have noted that the clean energy economy is emerging as one of the great global economic and environmental opportunities of the 21st century. …

Nations seeking to compete effectively for clean energy jobs and manufacturing would do well to evaluate the array of policy mechanisms that can be employed to stimulate clean energy investment. This is especially true for policymakers in the United States, which is at risk of falling further behind its G-20 competitors in the coming years unless it adopts a strong national policy framework to spur more robust clean energy investment.

In other words, the Pew argument is that there is a “race” and the US is losing. This is a proven rhetorical device: The “missile gap” was used during the Eisenhower administration and the Space Race during four administrations to build support for massive Federal spending on aerospace technology.

But perhaps the argument is less effective today. Some of a libertarian bent would argue against Pew by saying (roughly) “if other countries want to waste their money renewable energy, let ’em.” This is probably preaching to the choir — those who buy this argument weren’t going to listen to Pew and vice versa.

My own concern is: is it reasonable to believe that US mandates for RE will create jobs and a self-sustaining US industry? The success of Vesta and other Danish wind turbine companies is the best case. The NYT reported Wednesday about similar hopes by Silicon Valley companies using advanced technology to efforts to keep up with Chinese manufacturing costs.

Worst case is the ongoing collapse of the German solar industry (after years of the world’s best solar incentives). Another is the one-way shift of solar jobs by US designers to Chinese factories — in parallel to most other medium-technology manufacturing moving to China or other offshore locations.

But suppose we can win the race: Should we? The leading academic journal on innovation policy, Research Policy, ran a series of four articles this month on how innovation policy should respond to the global warming threat. The lead article by three of the world’s leading innovation economists emphasized the broad dissemination of clean energy technology to reduce global carbon emissions rather than hoarding to help domestic energy producers:

In recent years, the threat of global climate change has come to be seen as one of the most serious confronting humanity. To meet this challenge will require the development of new technologies and the substantial improvement of existing ones, as well as ensuring their prompt and widespread deployment.
…
Combating global warming, as we noted earlier, requires that technological solutions be deployed on a global scale as soon as possible. … Much more than “technology transfer” will be required, although support for the global dissemination of information and, potentially, subsidies for other nations to stimulate the adoption of technological solutions may be important parts of the international scope of such a program.

To put it in plain English: technological solutions to climate change must be shared and perhaps even subsidized for the rest of the world.

So for any US policy, I see at least a four-way tug-of-war of competing goals: helping the business growth and profits of US companies, providing US jobs, spending government (or ratepayer) money most efficiently, and saving the planet. When the US DoD invented the Internet we could have all four, but that outcome seems unlikely for today’s challenges due to both the capital investment and large number of foreign competitors and countries chasing these same clean energy jobs.

I don’t know which goal (or goals) will win out, and without knowing the specifics I can’t personally say which one should win out.

References

David C. Mowery, Richard R. Nelson, Ben R. Martin, “Technology policy and global warming: Why new policy models are needed (or why putting new wine in old bottles won’t work),” Research Policy, Volume 39, Issue 8, (October 2010), Pages 1011-1023. doi: 10.1016/j.respol.2010.05.008

Pew Charitable Trusts, “Who's Winning the Clean Energy Race? Growth, Competition and Opportunity in the World’s Largest Economies,” Pew Charitable Trusts, March 2010