Climate policy and jobs: What economists know

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"Climate policy and jobs: What economists know"

This repost comes from economists at E3 Network: Eban Goodstein, Kristen Sheeran, Director, Peter Dorman, Jonathan Isham, and John Laitner.

I. Addressing Climate Change Can Lead to Net Job Growth in the United States

Many economists believe that due to the global downturn, the US will experience high rates of unemployment (>6%) for a number of years to come. However, a steady shift toward climate protection will likely boost net job growth in the US:

  • Reduced oil imports would create jobs. Reducing oil imports can save hundreds of billions of dollars each year on imported oil. Rather than send this money abroad, it can be spent at home, creating jobs. We have the potential to create 900,000 new jobs in the US for very $100 billion decrease in oil imports2.
  • Carbon solutions invest in labor intensive domestic jobs and domestic resources. The solutions to climate change””ranging from  renewable energy, to high-speed rail, to smartgrid investments, to sustainable biofuels””depend more on domestic resources, and also use more labor per dollar invested, than do fossil fuel alternatives. One recent study suggested that a switch towards carbon-reducing investment could create 1.7 million near term jobs (Pollin et al. 2009).
  • The United States can create jobs by re-assuming technology leadership. China is moving aggressively to capture leadership in solar, wind, high-speed rail, and other key clean energy solutions. But as recently as 1995, the US was the technology leader in wind and baseload solar”””solar thermal. US utilities today are purchasing these technologies from China, Denmark and Spain. By reassuming technology leadership, and adopting a policy framework to support clean, homegrown energy industries, the US can create new jobs by selling into an emerging, massive global market.
  • Investment in clean energy can mobilize capital to end the recession. The current downturn, resulting from the collapse of an asset bubble, is the hardest type from which to recover. In these types of recessions, self-corrective mechanisms are weak. Concerned about lack of future demand, businesses scale back investment, which has a multiplier effect, holding back recovery. A sustained national effort to rewire the country with clean energy, including a cap and trade system as a central driver, could mobilize large-scale private sector investment and initiate a positive feedback process: investment –> jobs –> income –> investment –> jobs –> sustained growth.

II. Addressing Climate Change Will Not Result in Significant Job Loss

In spite of heated rhetoric claiming that past episodes of environmental regulation have been “job-killers”, numerous independent studies show:

  • Plant closings and layoffs as a result of environmental regulation are very rare. Repeated studies show that layoffs attributable to environmental regulations account for only 1/10th of 1% of all layoffs nationwide: around 1,000-3,000 jobs per year across the entire United States. For example, less than 7000 jobs were lost between 1990-1997 as a direct result of the Clean Air Act Amendments taking effect. Over that same period, 10 million US workers were laid off for non-environmental reasons (Goodstein 1999).
  • Proposed climate legislation will not be costly and will have little overall negative impact on employment through 2030. In sharp contrast to the “sky-will-fall” claims of industry trade groups, independent academic and government studies of US climate legislation, from MIT; Harvard’s Dale Jorgensen; the Energy Information Administration; The Research Triangle Institute; and the Department of Energy’s Pacific Northwest National Lab, see very low short-term costs and negligible impacts on long-run job growth.
  • Environmental spending creates jobs that offset losses. Compared to overall spending in the economy, on a per dollar basis, spending on environmental protection and clean-up employs twice as many workers in construction (11% versus 4%) and 25% more in manufacturing (20% versus 16%) (Pollin et al. 2009). A study by Resources For the Future’s Morgenstern et al. (2002) of the heavily regulated steel, petroleum, plastics, and pulp and paper industries concluded: “While environmental spending clearly has consequences for business and labor, the hypothesis that such spending significantly reduces employment in heavily polluting industries is not supported by the data.”
  • Few firms flee the United States to “pollution havens” in poor countries. Environmental costs are generally below 2% of total business costs. Firms that do leave the US generally do so in pursuit of lower labor and health costs, expenditures forming a much higher percentage of their total costs. Economists searching for evidence supporting widespread flight of polluting industries have not found significant effects. In the climate-change case, the handful of energy intensive industries that might be subject to competitive pressure from abroad can be shielded with WTO-sanctioned import tariffs.
  • Climate action will heavily impact one group of workers: coal miners. With or without greenhouse gas controls, coal industry employment is predicted to fall significantly by 2025 as a result of mechanization. If carbon emissions are restricted, we are likely to see a further decline of jobs of about 1,500 per year (Goodstein 2009). The nation has a clear obligation to invest heavily in adjustment assistance to help miners who lose from climate stabilization efforts. However, as Senator Byrd from West Virginia has stated, “To be part of any solution, one must first acknowledge a problem. To deny the mounting science of climate change is to stick our heads in the sand and say ‘deal me out.'”

By Eban Goodstein, Director, Bard Center for Environmental Policy, Kristen Sheeran, Director, Economics for Equity and the Environment Network, Peter Dorman, Evergreen State College, John Laitner, Director, Economic and Social Analysis, American Council for an Energy-Efficient Economy, Jonathan Isham, Middlebury College.

For more Detailed Information:

A more detailed discussion of the issues explored here can be found in The Trade-off Myth: Fact and Fiction About Jobs and the Environment, Eban Goodstein (Island Press 1999). The four industry study is “Jobs Versus the Environment: An Industry-Level Perspective“, Richard Morgenstern et al., Journal of Environmental Economics and Management, May 2002 43(2). For a review of the MIT, EIA, Research Triangle, DOE, and Jorgenson analyses of the costs of proposed US climate policy, see “The Economics of 350” Frank Ackerman et al. (E3 Network 2009). The estimate of 1.7 million jobs is from “How the economic stimulus program and new legislation can boost US economic growth and employment“, Robert Pollin et al. (Political Economy Research Institute 2009). See also “Climate Change Policy as an Economic Redevelopment Opportunity: The Role of Productive Investments in Mitigating Greenhouse Gas Emissions“, John Laitner (ACEEE 2009). The case that carbon legislation can help end the recession is made by Economics Nobel Prize winner Paul Krugman, “An Affordable Salvation“, New York Times, April 30, 2009. Senator Byrd’s speech “Coal Must Embrace the Future” (December 3, 2009) can be found at http://byrd.senate.gov.

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22 Responses to Climate policy and jobs: What economists know

  1. Geo Francis says:

    Drilling programs will reduce crude prices. Taxes on wind turbines can help against the massive killer deficit.

  2. DavidCOG says:

    Off topic: Joe, would you like to comment on:

    * Estimated Levelized cost of new generation resources, 2016. http://www.eia.doe.gov/oiaf/aeo/electricity_generation.html

    On face value it makes nuclear look like an attractive option based on cost alone.

  3. J.A. Turner says:

    Great post! The hyperbole about massive job losses and economic collapse that has been the mantra of the defenders of the status quo needs to be vigorously challenged. The implication that we would all be too stupid to change course or make any adjustments if carbon regulation created serious problems is deeply insulting. The opponents of carbon regulation ought not to be allowed to say such things unchallenged.

  4. Seth Masia says:

    Also see http://ases.org/climatejobs

    This series of studies, focusing on individual states and the national economy, forecasts that a good climate bill would produce 4.5 million net new jobs by 2030.

  5. PSU Grad says:

    Unfortunately, I keep coming back to this Upton Sinclair quote: “It is difficult to get a man to understand something when his salary depends on his not understanding it.”

    Too much money and perks in maintaining the status quo.

  6. Daniel Ives says:

    RE: #1 Geo Francis

    I must say I disagree. First, drilling domestically will do very little to lower crude prices. We just don’t have enough reserves to make much of a difference in the crude price. We would be much better off investing that money elsewhere. Second, drilling only exacerbates our oil addiction and carbon emissions. Third, why on earth should we tax wind turbines? We want to ENCOURAGE wind development. It creates jobs, supports rural economies, is competitive with fossil fuels (in $/kWh basis), and is nearly carbon-free.

  7. mike roddy says:

    DavidCOG,

    The EIA/DOE levelized energy costs that you linked are not at all accurate. They come from industry submittals, not research performed by DOE employees, which means that they can be disregarded.

    Look at the Lazard study if you want the real numbers. That’s where the banks and utilities look, and explains why nuclear is not getting funded, in spite of government loan guarantees and meltdown insurance. Or, follow what happened to the San Antonio twin nuclear plants: original cost projections nearly tripled, to something absurd like $15 billion for 1200 mgw.

    Nuclear is alive at all only because of support from major corporations and their employees in Congress. Coal, oil and gas companies love nuclear, not only because it will always be too expensive to compete, but because there is a limit to how fast they can be built: 8 years from conception to deployment, and an upper limit of 4 plants per year, due to technical and infrastructure limitations.

    This means that nuclear is harmless to the coal and natural gas companies. Not so with solar and wind, which have no upper limit on deployment: components are simple and abundant, required construction skill level is not high, and construction cost curves are headed down, not up.

    The fossil fuel companies are ruthless and amoral, and will stop at nothing to delay deployment of renewable energy. Or perhaps you already knew that.

  8. fj2 says:

    A wartime economy based on battling the climate change crisis will likely achieve full employment.

  9. WAG says:

    Awesome post. We need more like this to explain WHY climate action is good for jobs. To most people, it just sounds so intuitive that higher costs = fewer jobs. But as this post makes clear – as this post makes clear – a closer look at the numbers reveals the “common sense” answer to be wrong.

    Of course, that’s the next problem – 40% of the country thinks that looking at data rather than “common sense” is a sign of elitism.

  10. PSU Grad says:

    “40% of the country thinks that looking at data rather than “common sense” is a sign of elitism”

    That’s exactly correct. Add another I ran into the other night…stating at a local governmental meeting that you’re willing to pay (through taxes) for necessary services is another sign of elitism (if not downright anti-Americanism).

    How did we come to this point? Where have all the responsible adults gone? (Those are rhetorical questions for another time).

  11. Richard Caperton says:

    @mike roddy and David COG: The assumptions chart shows that EIA thinks you can build a new nuclear plant for roughly $3500 per kw. This is ridiculous, given the cost estimates for both the San Antonio reactors that mike roddy mentioned and the Southern Co. reactors that have been awarded a loan guarantee. The overnight costs should be more in the range of $7000-$8000 per kw.

  12. fj2 says:

    re:
    “China is moving aggressively to capture leadership . . . high-speed rail . . .”

    Hopefully, in the near future, common knowledge will include the distinction between large vehicle high-speed rail and small vehicle high-speed rail where the latter newer strategy provides much more favorable practical outcomes including ease-of-use, higher performance and resilience, lower cost, smaller environmental footprint, and most importantly: distributed on-demand capability since the same vehicles can be used on and off rails.

    Likened to the federal highway system, China’s $300 billion for large vehicle high-speed rail may be scaled back and will likely require ongoing subsidies for expensive transport; a burden which may be greatly mitigated or eliminated entirely with newer more effective small vehicle transit.

  13. Rio Servetus says:

    $5 billion dollars stimulus for weatherizing
    \
    593,000 homes is the goal

    9,100 homes actual

    The process is riddled with red tape.

    http://abcnews.go.com/WN/Politics/stimulus-weatherization-jobs-president-obama-congress-recovery-act/story?id=9780935

  14. DavidCOG says:

    mike roddy,

    > The EIA/DOE levelized energy costs that you linked are not at all accurate. They come from industry submittals, not research performed by DOE employees, which means that they can be disregarded.

    Right. I was suspicious when I was shown – hence the question. :)

    > Look at the Lazard study if you want the real numbers.

    Ah, yes – that’s a ‘little’ different! here’s the PDF if anyone else wants it.

    > Or, follow what happened to the San Antonio twin nuclear plants: original cost projections nearly tripled, to something absurd like $15 billion for 1200 mgw.

    Described here: http://www.grist.org/article/how-much-will-nuclear-cost-us-citizens/

    > The fossil fuel companies are ruthless and amoral, and will stop at nothing to delay deployment of renewable energy. Or perhaps you already knew that.

    I’m finding that if I assume the very worst, reality is a little worse still.

    Thanks for the info.

    And thanks to Richard Caperton.

  15. DavidCOG says:

    Also, can anyone recommend a good blog that focuses on energy – particularly debunking the nuclear propaganda and bull?

    [JR: I do. Try here.]

  16. Hal says:

    The problem with these economic analyses is that they don’t pass the smell test. If green jobs were really such a great economic opportunity, the private sector would be funding them vigorously and there would be no need for government subsidies. The mere fact that the government has to throw its weight around and shift investment away from where it would naturally go, proves that the economics of these green jobs don’t add up. Any time government shifts investment from its natural course you get inefficiency. That is econ 101.

    The only exception is when there is market failure. If there are structural reasons why the private sector cannot see the profit opportunities or cannot act on them, maybe government regulations make sense. But you have to make that argument to get past square one in this debate.

    Now as it happens there are two good arguments for market failure, but neither side wants to make them. The first is the obvious, CO2 pollution as a public anti-good. Reducing CO2 emissions improves life for everyone but the private sector cannot capture the profit from this action, hence it does not happen naturally. That justifies carbon taxes or regulation but it leaves the action open to criticism that it imposes costs. Well of course it imposes costs, but hopefully they are better than the alternative of frying our children. But this article is trying to weasel out of that admission.

    A second argument for market failure is that there are in fact private profits available, but they are too far in the future and beyond market planning horizons. In this model the government forces companies to invest where they don’t want to, but eventually they will thank the government because they will find themselves more profitable than they would have been. I think a lot of these green jobs arguments are along these lines. But the problem is that they don’t want to say it clearly, because once again the implication is that there are in fact real costs imposed in the short term. There will be short term inefficiency and diversion of resources away from maximum short term profitability. The justification is that in the long term we are better off. But these authors are trying to avoid casting it in these terms because they know the public has no appetite for taking nasty medicine today because it will be good for them tomorrow. They try to pretend that the medicine tastes yummy and that there are all these jobs just waiting to spill out of the cornucopia.

    These arguments would have a lot more credibility if they presented the costs openly and honestly instead of trying to sweep them under the rug.

  17. DavidCOG says:

    > [JR: I do. Try here.]

    :) That’s in my notes already. I was hoping someone was running a blog that had a narrow focus on nuclear FUD and propaganda. I’m seeing a lot of it on reddit and around the tubes – and some of the purveyors are clearly working in the industry so can bamboozle with technical jargon that I’m not familiar with.

  18. Eban Goodstein says:

    Hal,

    Efficiency and employment are different issues; your model assumes no macro market failure, and as such, no real unemployment. In this world, as government policy redirects resources towards clean energy investments, you get a movement along the production possibilities curve, you don’t move inside it. You may get slightly slower (or faster) long run growth (those are the costs or net benefits of policy) but that translates into slower or faster income growth, not employment.

    You’ll note we preface our comments with ” assuming cyclical unemployment remains > 6%” In that case, you have a massive macro market failure in which, for the reasons we identify, green policies are likely to generate short run job growth.

  19. Rabid Doomsayer says:

    Even without peak oil and climate change society as we know it is in deep trouble. Look at the world wide explosion of urban violence over the last few decades, we are well past peak social cohesion.

    Economically we are in trouble if oil is much above $100 bbl in today’s values. Economic recovery would immediately put prices above that value and thus send us back into recession.

    Renewable energies do not have the punch of fossil fuels, they can only slow the slide. We have so missed the boat for a painless transition. We are for a great deal of pain and the longer we delay the greater the pain will be.

    Now add into this mix the degree of climate change that is already inevitable. The picture is not pretty.

    Think how much more prepared we would be if the money waisted on wars over the last decade had been spent on renewables.

  20. GFW says:

    To follow up on Eban’s reply to Hal, the argument is that it is good for society, not merely to preserve a livable climate, but also in terms of employment, for society to take money from fossil fuel companies and invest it in green tech. The anti-government argument is that taking money from anyone always costs jobs.

  21. Zan says:

    Great post, Joe!

  22. Leif says:

    Reply to Hal, #16: ” If green jobs were really such a great economic opportunity, the private sector would be funding them vigorously and there would be no need for government subsidies.”

    The only way to get out of this mess, IMO, is with GREEN ENERGY. The reason we are in this dilemma is because societies and world governments have refused to place a value on the natural systems contribution to humanities survival. Clean water, pure air, functioning ecosystems, and the like have been allowed to be sacrificed for the dubious cause of corporate profits and a rising GDP. If I throw a paper cup out of my car window I can be fined ~$100. That would translate to about a million dollars a ton if done one at a time. Other than being unsightly, no real long term damage has occurred. Corporations pollute the air, water, and earth for FREE! What a deal. Your segment of society even defends their right to do same and screams “NO NEW TAXES” at the suggestion of even $15 per ton for long term toxins. It takes energy for me to earn my money to pay my paper cup fine. Society makes a profit on the current system by selling our future. Green sustainable energy is the only currency that can start to fill the hole we have dug. No new taxes, fine, I guess we all die. Take your pick.