We are spending a lot of bucks for not much bang
After the collapse of the French Second Empire, the Paris Commune established itself as the world’s first truly socialist government. Its enlightened employment policies included, my history teacher told me, paying gangs of otherwise unemployed men to dig holes in the ground, then paying further gangs to fill them in. This policy would actually be preferable to the Obama administration’s proposed solution to widespread unemployment: green jobs. While the Communards simply threw funds away, green jobs would actively harm the rest of the economy. It would be as if the holes dug by Commune workers collapsed the walls of Paris’s bakeries.
In time, green jobs will be looked on as just as ridiculous. Yet the administration’s enthusiasm for them 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 7 times higher than the mean price of the pool, solar failed even to reach 1% 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.
If the wishful thinking of green-jobs theory continues to be the cornerstone of so much of the administration’s policy, President Obama could eventually find himself less happily remembered than the Paris Commune. As legacies go, that’s not one to covet.
– Mr. Murray is vice president for strategy at the Competitive Enterprise Institute.