EDITOR’S NOTE: This piece is adapted from the March 8, 2010 issue of National Review.
After declaring energy cap-and-trade “dead” in the Senate, the Left’s new favorite Republican, Sen. Lindsey Graham (R., S.C.) has been working hard to resurrect it under another name. Working with Senators Kerry (D., Mass.) and Lieberman (I., Conn.), along with lobbyists for the major electric utilities (and, err, Big Oil), Senator Graham appears to have come up with a new boondoggle that would institute a cap-and-trade scheme for utilities only, thereby creating a carbon cartel. The plan would impose a carbon “fee” on transportation fuels, driving up the price of gas, that would be rebated in the shape of funding for highway projects — which the Big Oil lobbyists appear to believe would help offset the rise in gas prices. All of this, of course, amounts to a new tax on energy, so Senator Graham and his cohorts are cloaking their smash-and-grab raid in the mantle of investment in “green jobs.”
This is music to the Obama administration’s ears, as the president’s enthusiasm for green jobs knows no bounds. BarackObama.com, the website of the president’s grassroots organizing group, has set out the philosophy: “America can be the 21st century clean energy leader by harnessing the power of alternative and renewable energy, ending our addiction to foreign oil, addressing the global climate crisis, and creating millions of new jobs that can’t be shipped overseas.” Last Earth Day, energy secretary Steven Chu wrote: “By providing the training that will turn 20th century blue-collar jobs into secure 21st century green-collar jobs, we are paving a pathway out of poverty; strengthening urban and rural communities; rebuilding a strong middle class; and protecting the health of our citizens and planet.”
Green jobs, it would seem, are a magic bullet for the administration, solving the problems of unemployment, poverty, community degradation (and therefore crime, presumably), class struggles, public health, terrorism, and global warming at a stroke. What could possibly lead anyone to object to them?
The answer is — as ever, for a conservative — real-world experience. Germany and Spain went down the green-jobs road many years ago, for much the same reasons as the administration. They saw it as a way to make their countries world leaders in coming technologies, provide good jobs to replace decaying industries, and insulate against energy shocks originating overseas.
It didn’t work out that way. A recent report from German think tank Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI) sets out what happened in Germany. Titled “Economic Impacts from the Promotion of Renewable Energies: The German Experience,” it illustrates how the German green-jobs initiative failed to meet any of its objectives. Taking jobs first, the report concluded that although at first glance the green-jobs program had been a great success, producing 278,000 extra jobs by 2009, once one takes into account offsetting factors, such as jobs lost from increased energy prices, the net number was negligible or even negative. Moreover, the green jobs that do exist appear to depend on a robust export market, but the reality is that other nations have rapidly undercut German green-hardware prices — meaning that much of German green-energy installation simply imports cheaper foreign-produced components. The German subsidy of green energy is therefore actually subsidizing jobs in developing countries such as China. The RWI found that the subsidy per job amounted to $240,000.
Surely, however, a decade of subsidizing renewable energy means that Germany now produces substantial amounts of it, and has freed itself from dependence on foreign powers? No. Wind power represents about 6 percent of German electricity generation, and solar power is a mere tenth of that. Most German electricity is generated from natural gas, and Germany obtains 40 percent of its gas from Russia, a figure projected to rise to as much as 60 percent by 2020.
What about strengthening the middle class? Well, consumers have borne the cost of the policy. They paid over $100 billion to subsidize wind and solar power over the last decade, with the costs of the subsidies accounting for 7.5 percent of household electricity prices.
As for the climate effect, subsidizing green energy is an extremely expensive way of reducing emissions. The price for a permit to emit one ton of CO2 under Europe’s cap-and-trade scheme — the market cost of reducing emissions — is about $20. Reducing emissions by subsidizing wind power works out to a cost of $80 a ton. For solar power, the cost is a staggering $1,050 a ton.
Finally, the policy has not even supported innovation. The study found that “claims about technological innovation benefits of Germany’s first-actor status are unsupportable: In fact, the regime appears to be counterproductive in that respect, stifling innovation by encouraging producers to lock into existing technologies.” Given that even Secretary Chu admits that we need “Nobel-level breakthroughs” in energy technology to have any hope of reducing emissions by 2050, locking in these existing technologies through green-jobs programs would indeed be counterproductive.
The story is the same in Spain, which set out to be the world leader in solar technology. A study by a team from King Juan Carlos University in Madrid led by Gabriel Calzada Alvarez found that the opportunity costs of public investment in renewable energy were very high, resulting not just in significant numbers of jobs destroyed or never created, but in unsustainable bubbles in the renewables sector:
The most paradigmatic bubble case can be found in the photovoltaic industry. Even with subsidy schemes leaving the mean sale price of electricity generated from solar photovoltaic power seven times higher than the mean price of the pool, solar failed even to reach 1 percent of Spain’s total electricity production in 2008. . . .
The only way for the “renewables” sector — which was never feasible by itself on the basis of consumer demand — to be “countercyclical” in crisis periods is also via government subsidies. These schemes create a bubble, which is boosted as soon as investors find in “renewables” one of the few profitable sectors while . . . fleeing other investments. Yet it is axiomatic, as we are seeing now, that when crisis arises, the Government cannot afford this growing subsidy cost either, and finally must penalize the artificial renewable industries which then face collapse.
Having recognized their unsustainability, the Spanish government itself decided to reduce the size of subsidies to renewable energy. Analyses suggested that the solar industry was on course to lose 40,000 jobs this year. However, it may be that the U.S. taxpayer is now subsidizing them instead. Under a new program that allows renewable-energy providers to opt for cash payments rather than the 30 percent investment tax credit, the Treasury Department has awarded $295 million — out of a total of $502 million — to Spanish energy giant Iberdrola.
And Iberdrola isn’t the only foreign recipient. According to a report from the Watchdog Institute, there are plenty of countries that received stimulus cash to create green jobs, but created plenty overseas and few or none here. Most of the jobs that were created here were temporary. Despite all the stimulus money, the American wind industry lost permanent manufacturing jobs (while creating temporary construction jobs) last year, because demand for over-expensive energy plummeted (without the stimulus money, the industry would likely have collapsed).
There are already signs that green jobs created in the U.S. are going to be just as expensive as the German and Spanish ones. On January 8, the Department of Energy announced the awarding of $2.3 billion in tax credits to companies for the creation of 17,000 “clean-tech” jobs. At over $135,000 per job, the administration is not yet up to the spending-per-job level of Germany, but that’s probably because it hasn’t concentrated on the vastly expensive solar industry yet.
This is all the more ridiculous when one considers that there are ways to create real jobs in the energy sector that would have a beneficial effect on the economy. For instance, Sen. David Vitter (R., La.) has proposed a “no-cost stimulus” bill that would create an estimated 2 million jobs by opening up areas of the Outer Continental Shelf currently off limits to oil and gas exploration, while also streamlining the licensing of new nuclear plants. Vitter even proposes that oil-and-gas royalties be paid into a trust fund that would promote renewable energy.
Senator Graham’s enthusiasm for green jobs manifests in a willingness to sell out the American consumer in order to demonstrate “bipartisanship” on fluffy environmental issues. He’ll certainly see an improvement in his relations with the mainstream media, and probably get a few invitations to speak to adoring college students. After all, it worked for John McCain. Indeed, just this week the Guardian newspaper in the U.K. said that Graham should take over from Al Gore as the face of the environmental movement. However, if his “green jobs” trick manages to hide the decline in real employment for a short while, his true legacy will be one of damage to the American economy. As legacies go, that’s not one to covet.
– Iain Murray is vice president for strategy at the Competitive Enterprise Institute.