The Great Green Jobs Claim

I periodically hear this during presidential campaigns and when various elected officials are trying to push a green policy, often in response to global warming.

Because of [insert environmental problem here] we need to pursue a policies that will promote [insert one or more alternative fuel/energy sources here]. And not only will it address [the environmental problem noted above], but it will also reduce our demand for foreign oil, which often goes to the terrorists, but it will also promote job growth.

I’ve always found this argument to be extremely annoying. Why? Because anyone who has sat through intermediate micro economics should know that it is just simply bunk.

Intermediate micro is where you are introduced to the concept of relative prices. Typically, it is in a “two good world”. This simplification allows the instructor to draw graphs of indifference curves and budget constraints. And the point of tangency between the budget constraint and (highest possible) indifference curve is the point where people consume various amounts of the two goods. This point of tangency is where the ratio of the prices is equal the ratio of marginal utility for each of the two goods. Change the prices and you’ll move to a new point of tangency and a new allocation of goods.

What the above argument is saying (implicitly) is that we’ll change the price ratio by subsidizing whatever green energy/fuel source they prefer, be it switch grass, tar sands, or solar power. However, we can also change the price ratio in another way: taxing the offending energy/fuel source. In most cases it is going to be a petroleum product like gasoline or maybe coal or even both. If we subsidize, for example switch grass based energy production we are in effect lowering the price of energy derived from switch grass relative to all other sources of energy.

Now, why do I say the above claim about jobs is baloney? Because we can get the same change in relative prices by taxing the offending sources of energy, but this option is never discussed. Why? Because nobody thinks raising the tax on gasoline by $5/gallon is a good way to stimulate the economy. Thus, the jobs claim is just not true. Or to put it differently, sure, you’ll get more jobs in producing energy from switch grass, tar sands and the like. But you’ll also lose jobs in the market for the offending energy source. The citing of the gross number of jobs created in the alternative energy source markets is not sufficient. The true measure is the number of net jobs created or lost. But politicians never tell you that.

Further, you’ll get an immediate price response by taxing the offending energy source so it will work even better at reducing the negative environmental impact. In short the most obvious and direct solution is never, ever discussed. This is the main reason why I scoff at people who are hysterical about global warming. If it is really the dire threat they say it is, then a tax on gasoline and other petroleum products should be the way to go. Instead of trying to jury rig up some stupid carbon credit trading scheme which in actual practice has turned out to be nothing more than corporate welfare they should be arguing for a tax on the offending energy source. But they don’t.

Note: This isn’t to say that global warming is not a problem or that we should ignore it.

FILED UNDER: Economics and Business, Environment, Government
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. Triumph says:

    I periodically here this during presidential campaigns and when various elected officials are trying to push a green policy, often in response to global warming.

    Huh? Is George W. Bush your speechwriter?

  2. Steve Verdon says:

    Dammit Triumph, you aren’t supposed to make helpful criticisms. Its too out of character for you. Here, hear, and heer. Fixed; thanks.

  3. Zelsdorf Ragshaft III says:

    If this administration were to tell the truth about what their policies would cause, there would be wide spread opposition to their agenda. However, when legislation is written in private and representatives of the opposition party are excluded something shady is being done. Cap and trade is just a way to extend government control into our lives.

  4. Alex Knapp says:

    Most people who are serious about building a green economy believe that a carbon tax is superior policy to cap and trade or subsidies. It’s only the belief that a tax isn’t politically feasible that causes the mangled arguments above.

    I’ll also note that we do, in many insidious ways, heavily subsidize oil and coal at the expense of other sources of energy.

  5. Furhead says:

    Regarding jobs, my opinion is that it depends on the number of jobs required to deliver solution X. There’s still tons of research going into solar technology, but once somebody installs the panels, there’s basically no maintenance for a couple decades. The technology to drill for oil isn’t moving quite as fast, but you’ll always need to move the oil from one place to another (and refine it, etc.).

    In other words, I would think that changing our allocation of energy sources would also change the number of jobs, but I don’t have the numbers to say whether they go up or down.

    Agreed with the rest of the post.

  6. Steve Plunk says:

    Are we just going to ignore that Mann was flawed, the planet has been cooling, and the sun is the likely culprit for warming cycles? I guess we can continue to play the global warming game or we can face reality and understand doing nothing is the best policy regardless of warming, cooling, or whatever.

    Green technology should be supported in focused amounts do avoid the common mistake of subsidizing crooks and charlatans who feed off these fads. This national mobilization of efforts is likely to just make a few of the “connected” people rich while the technology advances only slightly faster.

    No discussion of energy policy would be complete without the inclusion of natural gas and exciting changes going on there. That is a place where government efforts could yield results for the economy very quickly.

  7. Duracomm says:

    Alex,

    I agree with you on the carbon tax. However I am pretty cynical about your statement

    I’ll also note that we do, in many insidious ways, heavily subsidize oil and coal at the expense of other sources of energy.

    I have seen studies include things like highway patrol costs as a subsidy to the petroleum business.

    One of the last subsidy studies that made a big splash declared that the deduction of royalty payments was a subsidy when in any other business it would be considered an honest and legitimate business expense.

    Take away all of the alleged subsidies for petroleum and coal and we would still use mostly petroleum and coal for energy.

    Take away the subsidies and mandates for alt energy sources and they would mostly disappear.

    No great loss since some of them are horrendously destructive to the environment.

  8. Grewgills says:

    the planet has been cooling

    It has not been cooling. The most common method to make it appear as though it has been cooling is to use 1998, a particularly strong El Nino year, as the starting point and even then we see a quick drop and then a continuing warming trend.

    he sun is the likely culprit for warming cycles

    That would be much more convincing if it were not for the fact that based on solar irradiance we should be in a cooling period.

  9. Triumph says:

    Most people who are serious about building a green economy believe that a carbon tax is superior policy to cap and trade or subsidies.

    The problem with these energy bills is that they are attempting to do things that may be incompatible.

    If reducing carbon is your goal, then nothing is better than having a cap. Taxes on carbon will not guarantee reductions–a well-designed cap will.

    Remember that the cap and trade framework, which came out of the Montreal Protocol to deal with sulfur dioxide and then modified to deal with other greenhouse gases under Kyoto was not meant to stimulate the economy; rather they were meant to cap emissions.

  10. Steve Verdon says:

    Alex,

    It’s only the belief that a tax isn’t politically feasible that causes the mangled arguments above.

    True, but my point is that the claims about green jobs is simply false. It is a lie. You can’t say, “We’ll create 50,000 new green jobs” while remaing silent on the tens of thousands that are destroyed elsewhere in the economy.

    I’ll also note that we do, in many insidious ways, heavily subsidize oil and coal at the expense of other sources of energy.

    I always hear this claim too, but never ever see any serious work on looking at both the subsidies and the taxes and trying to determine the overall effect. For example, here in California there is something like $0.5/gallon in taxes (going by memory here).

    And lets face it, without the subsidies many of these green forms of energy would vanish or shrink tremendously. Can we say the same thing about oil and pretroleum products? I don’t think so.

  11. odograph says:

    Politicians only use “green jobs” salesmanship because they think it works. And it does seem to attract media attention to their program, which is their goal.

    http://www.env-econ.net talks about this a lot. An outside observer might think I have more in common with them than I have disagreements … but I get cantankerous about the disagreements.

    For me it’s all about the underlying program. If the program makes sense in more rational terms (total benefits and total costs, to borrow from economics) then we should think about it.

    If yelling “green jobs” promotes BAD programs (like corn ethanol) I’ll complain, if it supports good programs (like desert solar thermal power generation) then maybe I won’t.

    (env-econ tends to be down on anything even called a green job)

    Now this is all might seem complicated by the parallel discussion about recession and stimulus – but it’s really pretty easy. If that solar plant has net benefits, then doing it during a recession helps (more). If that corn ethanol program does not have net benefits, then doing it at any time is bad.

  12. odograph says:

    Starting with the assumption that either a carbon tax or a cap and trade system would be graduated and more strict over time:

    Most people who are serious about building a green economy believe that a carbon tax is superior policy to cap and trade or subsidies.

    I view this as a catch-22.

    If everyone were ready for a GW response, then a straight carbon tax would be the way to do it. And, everyone, ready to get started, would agree.

    They would shift their consumption to lower carbon intensity starting now.

    If everyone isn’t ready for that, then you could start doing something that lets laggards be, like a cap and trade system with less than 100% auction.

    You get two benefits with that. You give coal companies free credits, and they are “part of the solution” without actually doing anything. You give some more to gasoline refiners, and gasoline prices don’t rise, everyone keeps driving. Politically powerful producers and consumers are insulated.

    It’s all good, except you aren’t really doing anything. Cap and traders say they can make the jump, and bring those laggards (free riders, really) into the tent.

    But I say, are you sure? You are choosing a path that lets laggards lie … are you sure you’ll convert them? If you could, why not now, and why not go for the honest and complete carbon tax?

    … why build in free riding?

  13. Our Paul says:

    It may be me, it may be Firefox, it may be my aging Apple, or it may be the fact that nobody else has tried…

    I cannot call up any of the links you gave on this post, Steve. Yes, I did turn the box off, waited 3 to 5 minutes. Yes, I can access other posted links on OTB…

    Sigh…

  14. odograph says:
  15. Wayne says:

    I wouldn’t trust anything that Hansen puts out. He has been caught cooking the books before. Anytime so call scientist refuse to release raw data it should send up red flags.

    Here is a good article about cooking the books.
    http://strata-sphere.com/blog/index.php/archives/10811

    The UKMET office showed that Earth’s temperatures have been cooling for the past five years.

    http://www.examiner.com/x-1586-Baltimore-Weather-Examiner~y2009m1d21-Oceans-are-cooling-according-to-NASA

  16. Steve Verdon says:

    Links are fixed, for some reason they got boogered up when I copied and pasted from word. I think it is the way word does the “.

  17. Our Paul says:

    Odograph, thank you!!! I would have searched for the key terms Steve Verdon used, but I feared it would not contribute to my understanding of global warming.

    Nothing like having your fears confirmed…

  18. Mithras says:

    Verdon,
    Are you talking about domestic jobs? Because I think part of the argument here is that we’re shifting jobs from oil companies overseas to the U.S. (I don’t claim to have numbers to prove this.)

    Also, we know from decades of dual-use technology being spun off from (otherwise useless) military spending that the government can pay for basic R&D that will feed future industries that build on it. You’re assuming a tradeoff between two known options and ignoring innovation.

  19. Grewgills says:

    I wouldn’t trust anything that Hansen puts out.

    The graphs I linked to were prepared by Dr. Makiko Sato, not Hansen. I realize this will make no difference to you because all of NASA is suspect as long as Hansen is there, right?

    He has been caught cooking the books before.

    Nonsense. There was incorrect data included at one point. It was quickly corrected once noticed and made absolutely no difference in the trends observed.

    anytime so call scientist refuse to release raw data it should send up red flags.

    The NASA GISSTemp data is and has been available for some time now. That is how McIntyre found the one error that is his claim to fame.

    The UKMET office showed that Earth’s temperatures have been cooling for the past five years.

    See here why that article is incorrect.

    I do find it a bit odd that you take McIntyre’s word as gospel and discount all of NASA, NAS, and virtually all peer reviewed articles as deliberately misleading.

  20. Steve Verdon says:

    Also, we know from decades of dual-use technology being spun off from (otherwise useless) military spending that the government can pay for basic R&D that will feed future industries that build on it. You’re assuming a tradeoff between two known options and ignoring innovation.

    Its true innovation could result in an unexpected boost in employment, so what? Are you telling me that the green jobs claim is true because the Tooth Fairy might bless us with jobs…or not?

    And why not let business handle that kind of R&D? If particular research program shows promise as being a profit generator, then let the R&D go. But with politically funded R&D it is runs the risk of what is politically viable as opposed to what is economically viable.

    Sure, basic level R&D probably should be funded by the government, and all results should be in the public domain (after all public monies were used).

    As for the international employment argument, I’m totally unpersuaded. That logic implies we could have a $5/gallon tax on gasoline with absolutely no adverse impact on employment. Sorry, but no. You see, the people buying gasoline are not only going to buy less due to the substitution effect (i.e. using alternatives) but also due to the income effect (a higher price for gasoline is in part like reducing the consumer’s overall income). As such they’ll consume not just less gasoline, but less of all other goods (assuming normal goods). Now multiply that my tens of millions of consumers and you have a lot less consumption expenditures.

  21. Mithras says:

    Are you telling me that the green jobs claim is true because the Tooth Fairy might bless us with jobs…or not?

    No need to be testy. I’m just suggesting you consider the economic benefits of investing in power generation R&D are greater than those produced by mature power industries. It is an unknown quantity, I grant you.

    As for the international employment argument, I’m totally unpersuaded. That logic implies we could have a $5/gallon tax on gasoline with absolutely no adverse impact on employment.

    You came up with the tax angle as an analogy to subsidizing research into green energy, but let’s be clear: We’re not discussing a tax. We’re talking about subsidizing research out of general tax revenues, which revenues are not drawn from the same economic strata. A $5/gallon tax on gas would have a huge spending reduction hit because it will affect people of average and below-average incomes. But those people won’t be paying the same additional amount in tax for the subsidies for green jobs. Also, potentially, the spending on this program might be offset to some extent by decreases in other programs. Bottom line: Your assumption that the economic effect would be exactly the same as a gas tax hike is not proved.