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Clean Energy: For the Good of the Economy

by Eileen Lynch In the panic over midterm elections and hype about the U.S. withdrawal from Iraq an important issue has slipped under the radar in the last few months. After a flurry of outrage over the BP oil spill in the Gulf, America is once again apathetic about global warming and the future of renewable energy. We can't ignore reality: fossil fuels are inherently dirty and finite; the future of the U.S., and of the planet, lies in renewable energy.

Thankfully, a number of highly estimable leaders from both parties recognize this and banded together to do something about it. On September 13th, the Governors’ Wind Energy Coalition - a coalition of 29 governors - sent a letter to the Senate emphasizing the necessity of a national renewable energy standard.

What does this mean? Recently a report was published by Ernst and Young ranking China as the best market for renewable energy investment in the world. This is not just an environmental issue; investment in renewable energy has become one of the most pressing economic matters for our country. The market for renewable energy provides thousands of jobs and holds the potential for hundreds of thousands more. In order for the U.S. to remain a viable competitor in the global economy we must, in the words of the Coalition, “pass a strong national renewable electricity standard that will require our utilities to get more of their electricity from clean, renewable resources and create…clean energy jobs in America.” The future of energy lies not in crude oil, coal and natural gas, but in the infinite sources of nature, such as wind, sun and water.

I commend these governors for reaching across party lines for the good of the country. It’s inspiring to see political leaders working together, especially in the heated, bipartisan climate of today’s politics. As divided and troubled as the U.S. is, it’s important to keep in mind that this country is, above all, land, and we as a whole must do everything we can to preserve it. And hey, if protecting our ecology boosts our economy and keeps us ahead of the game globally, that’s just an added bonus.

Photo Courtesy Lillie Catlin
Topics: Eileen Lynch 
Green energy subsidies/mandates do not create jobs in some costless way. Yeah, such policies can create jobs in some industries, but they can also destroy jobs elsewhere by raising energy costs or by leading to higher taxes.

The economic argument here makes little sense. You're basically saying that government mandates (or interventions of some other sort) create jobs. Even if we grant this dubious claim, it doesn't follow that this particular intervention is then justified. Maybe there are 50 other interventions that would be even more efficient at creating jobs.

Also, I suspect these governors are saying these things, because a) they are lobbied by these green energy industries or b) it sounds good. I highly doubt it has much to do with an understand of economic policy.


September 22, 2010 at 3:31 AM Tim Ryan said...

So you don't think infrastructure-based government mandates can create jobs, rd? Might I suggest you research the presidency of Franklin Roosevelt?

I'm not sure I understand your point. An energy overall might create jobs, but there are other things that could possibly create even more jobs, so let's disregard the energy mandate and concentrate on other things? Why are the two options exclusive? Perhaps if you would specify "other interventions" this would make more sense?

September 22, 2010 at 1:27 PM 
I actually think it is highly unlikely that an energy mandate will create more jobs than it kills. I think the mainstream of the economics profession is likely with me on this one. There's a fairly strong case for a carbon tax, but that's a bit different. Mandates tend to be way less efficient. Think of a mandate as a tax that raises no revenue. It's a tax in the sense that it raises the cost of doing business (e.g. it clearly costs money to comply with regulations or we wouldn't really need the regulation. Businesses would be taking these steps anyway.) But we get no revenue from it. What a waste. If you want to change the way business behaves, you often should tax undesirable behaviors, which both discourages the behavior and raises revenue.

I have researched FDR's policies quite a bit. I think almost every prominent economist, left or right, would consider the NIRA and AAA (mandates for industry and agriculture respectively) to have been job-killers.

There was one policy of Roosevelt's that was enormously successful as stimulus, and that was expansionary monetary policy (e.g. devaluing the dollar). I do support expansionary monetary policy today.

However, in economics a free lunch is incredibly rare. A handout to one industry is often a takeaway from another industry and maybe a takeaway from the economy as a whole. Usually there is a deadweight lose and the handout does not pass a cost-benefit test.

A good rule of thumb (though there may be exceptions) is that government should let industries rise and fall on their own, rather than pick winners and losers. We see what happened when they spent decades helping out the housing industry. And almost all economists agree that the giveaways to farmers are disastrous (raising our taxes and hurting third world farmers).

So, yes, almost any policy can create jobs. But we want policies to create more jobs than they destroy.

If you're interested in combating global warming, I suggest you read this article on the carbon tax.


September 22, 2010 at 8:27 PM 
Just to clarify:

I don't see a carbon tax as a policy that fights unemployment. Possibly over several decades it will, but even in that case it is dubious. The goal of the carbon tax is to maintain the health of the environment.

If you want to know what I think we should do to spur the economy, I would say first and foremost, the Fed should pursue more expansionary monetary policy.

Maybe a payroll tax holiday as well (maybe for a year or two).

Some infrastructure spending makes sense, but that will likely be slow. It's hard to justify a mandate on businesses though.


September 22, 2010 at 8:34 PM 
The thing about clean energy jobs is that they will last. We will run out of coal eventually, we will run out of oil, we will run out of natural gas. It might take awhile, but it will happen. In the meantime, the best way to safeguard our economy is to invest in resources that will not disappear and jobs that will exist as long as we exist. Green Energy may not be a popular short term policy, but it's my opinion that politicians need to take a few steps back and focus on the long term good of the country, not the most recent poll results for their upcoming re-election.

You're right that such a mandate would take money away from some industry, and you're right that some people will be hurt by that. But the long term effect is a positive one, both for the environment and the economy.

September 23, 2010 at 4:18 PM 
That's an interesting argument, but if these industries start dying (not any time soon of course, look how profitable oil companies have been!!) then they will reduce their hiring and young people will going into the thriving industries instead. Why not let these industries die a natural death?

September 26, 2010 at 1:40 PM 
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