Where are the green energy jobs?

by on September 6, 2011 at 7:24 am in Economics | Permalink

David Brooks writes:

Recently, Aaron Glantz reported in The Times on some of the disappointments. California was awarded $186 million in federal stimulus money to weatherize homes. So far, the program has created the equivalent of only 538 full-time jobs. A $59 million effort to train people for green jobs in California produced only 719 job placements.

SolFocus designs solar panels in the United States, but the bulk of its employment is in China where the panels are actually made. As the company spokesman told Glantz, “Taxes and labor rates” are cheaper there.

There’s a wealth of other evidence to suggest that the green economy will not be a short-term jobs machine. According to Investor’s Business Daily, executives at Johnson Controls turned $300 million in green technology grants into 150 jobs — that’s $2 million per job.

Sunil Sharan, a former director of The Smart Grid Initiative at General Electric, wrote in The Washington Post that the Smart Grid, while efficient and environmentally beneficial, will be a net job destroyer. For example, 28,000 meter-reading jobs will be replaced by the Smart Grid’s automatic transmitters.

A study by McKinsey suggests that clean energy may produce jobs for highly skilled engineers, but it will not produce many jobs for U.S. manufacturing workers. Gordon Hughes, formerly of the World Bank and now an economist at the University of Edinburgh, surveyed the landscape and concluded: “There are no sound economic arguments to support an assertion that green energy policies will increase the total level of employment in the medium or longer term when we hold macroeconomic conditions constant.”

Claudia Sahm September 6, 2011 at 8:33 am

There are two kinds of news articles I am getting a little tired of 1) articles that tell us won’t work to stimulate the economy (tearing stuff down is an economist’s specialty) and 2) articles that make grand statements about what needs to be done but are devoid of details and are completely unrealistic (aliens are not going to help us…at least the outer space kind). What I would like to find in my over-flowing RSS reader is the following: Suppose you get a call from a staff economist at the CEA (not a council member but a staffer) and after discussing the effects of the latest policy that person asks you: so what kind of stimulus do you think would work? And then think about all the political constraints (not most economists forte)…If it had to be a tax cut to get passed what is the all-time best tax cut to promote or does that tax cut not exist? And after you have tried to come up with something sufficient and feasible. Then try to answer the question…’What if you are wrong, then what?’ See there are a some people who are pushing bold, innovative ideas, but not many of them are willing to accept that they might be totally wrong. They are not willing to sell a backup plan or acknowledge that their plan might have negative, unintended consequences. Guess what if the elevated unemployment is all structural (which I personally do not think it is) and we stimulate the economy…we have some bigger problems (anyone remember stagflation?…actually I don’t.) It takes a lot of confidence to make bold policy proposals but it takes a lot of humility and patience to push through actual change. So I like the article in this post…it is probably a good warning to people to me who think they can ‘kill two birds with one stone.’ But I was actually looking for a little different article this morning. I am sure it is out there somewhere, but it’s not on this page.

nelsonal September 6, 2011 at 10:28 am

I suspect one problem is, that a decent number of manufacturing jobs were in home manufacturing, so to raise manufacturing employment, you’ll need to start bulldozing houses and increase household formation, but it’s hard to tell where to bulldoze with fairly haphazard foreclosure policies thus far. The best way to long run stimulate this would be liquidating housing (foreclose on everyone who is in a home they can’t afford and sell them), but almost any scenario that accomplishes this runs a very high chance reducing the number of people who are currently paying their mortgage, which few politicians could survive.

TallDave September 6, 2011 at 11:59 am

Unfortunately, it appears we are already drowning in deadweight losses from “stimulative” subsidies that accomplish little other than encouraging rentseeking.

The evidence suggests we need to pare all the subsidies back — education, green energy, ethanol — and privatize what we still subsidize. This will be painful in the short run, but in the long run we’ll be better positioned on the Rahn curve and incentives will line up better with productivity increases (rather than rentseeking).

FYI September 6, 2011 at 12:10 pm

I agree. The problem is that people (like claudia) still think that ‘stimulus’ is the only solution. That is why Krugman and others are coming up with these crazy rationalizations on why the stimulus we already tried didn’t work (it was just not the right amount or the right kind).

I do agree with Claudia in one thing: economists who believe that stimulus are not the answer are afraid of saying that loud and clear. They prefer to detail on why the stimulus hasn’t worked instead of proposing alternatives (even if that alternative is doing nothing).

Jake September 6, 2011 at 10:38 pm

“… $186 million in federal stimulus money… created the equivalent of only 538 full-time jobs. A $59 million effort to train people for green jobs in California produced only 719 job placements”

Lets see, for less than 1 week’s cost in Iraq we get 1,247 full time jobs? In addition once ‘weatherized’ the energy use goes ……..wait for it………..Down! shock, some poor bastard gives less money to PG&E or SoCal energy? I wonder what they’ll do with the money?

Bill September 6, 2011 at 9:00 am

How much do we spend in the Middle East to secure access to oil?

lxm September 6, 2011 at 12:47 pm

+1

The Anti-Gnostic September 6, 2011 at 1:23 pm

Oil is a fungible commodity sold on global markets. What is being ‘secured’ is the Jewish nation-state of Israel.

Bill September 6, 2011 at 1:47 pm

The residual or surge supply is in the middle east.

The Anti-Gnostic September 6, 2011 at 4:28 pm

And that supply will get to markets just fine without the US military blowing up everything in sight and deposing the only people smart enough to run the place. Arabs are as incentivized to sell oil as any producer.

msgkings September 6, 2011 at 5:14 pm

Hmm…a Mubarak/Qaddafi/Assad/Hussein fan. Pretty bold take, Anti-Gnostic.

Bill September 6, 2011 at 6:07 pm

Anti–Do you remember, or did you ever hear about, the previous oil embargoes in the 70′s?

TallDave September 7, 2011 at 11:18 am

If the goal was to make another 1973-style embargo less likely, we’re not really in any better position today. (You do realize Iran was still pro-U.S. in 1973, right?)

If the goal was to get oil, we could have:

1) Stopped resupplying Israel in 1973 and avoided the embargo
2) Supported the Shah militarily in 1979
3) Ignored Saddam in 1991 and kept buying his oil
4) Ignored Saddam in 2003 and kept buying his oil
5) Seized the Saudi oilfields at any time (this would take a matter of hours)

Clearly our policies are not focused on getting oil. Hell, we don’t even care enough about oil to inconvenience a few caribou in Alaska.

TallDave September 6, 2011 at 4:56 pm

Zero dollars, oil is fungible.

Or did you want that in euros?

Eric Rasmusen September 6, 2011 at 9:07 am

I’d like to see an article on where the government money actually goes. How much is spent on salaries for new jobs, how much on raises for old jobs, how much on materials, how much on capital?

Every single news article looks to be fallacious in that if a business buys materials or capital, or even uses the money for dividends, jobs are going to be created somewhere. The jobs just aren’t in the green sector, or whatever sector is being given the money.

Claudia Sahm September 6, 2011 at 9:53 am

That study is hard since money…and some jobs are fungible. Of course, I am all for careful accounting and collecting data. But as the take down of the Mercatus study showed last week it is a high bar. There is no question that the government could not get more bang for the buck. I am sure there is not a private company on the planet that does not have some inefficiencies lurking about. But what do we do about it now. We have a lot of idle resources right now…real people, many of whom want to work.

The Anti-Gnostic September 6, 2011 at 1:44 pm

The ‘idle resources’ were manufactured and deployed into activities that were in turn dependent on deliberately-targeted low interest rates and government spending. Now that economic reality has asserted itself and it’s clear those activities cannot be sustained at artificially low interest rates and/or continued government spending, those resources are necessarily going to sit idle until the market is allowed to clear and positive rates of return on the assets can be realized.

Unfortunately we did just the opposite in 2008, so three years on the structure of production remains distorted.

blah September 6, 2011 at 3:58 pm

Maybe we should endow each of them with a one-way ticket to China. Would be cheaper.

Eric Rasmusen September 6, 2011 at 9:14 am

Claudia Sahm, there’s actually a second study I’d like to see too: what would have happened if the government had done nothing to try to help this recession? (after November 2008, say— I’ll grant that TARP was useful at first). Economies in recession tend to be self-stimulating, as whatever shock caused the recession wears off. This recession is lasting longer than anyone expected, and one strong possibility is that we’re like the 18th century invalid who catches cold and then can’t get better because his doctors bleed and purge him every day.

Claudia Sahm September 6, 2011 at 10:00 am

The macroeconomist in me thought we were going to get that with the debt ceiling default…but thankfully that unforced error was avoided. Look that’s the pain with macro (why I am happier doing research in applied micro)…you don’t get to see the counterfactual. And sadly as even one of the most astute students of economic history explained to me that history does not repeat itself. There are parallels, but you don’t literally see the same events played out twice with different choices. You can look to other countries, but they have different institutions and cultures (which can make a huge difference) and you can look to the past (but the same caveats apply..the world changes). Finally, not all economies are self-healing…not all equilibria are ‘happy’ ones. What if people now believe that their income growth is permanently lower (like they all read Tyler’s book)? Expectations can be pretty strong according modern macro folks. You expect little income growth, so you don’t go out and spend, no one hires more workers, and guess what your income doesn’t grow much. Now that does not have to be the right story (it would be a break from a lot of past experience) but it might be right.

Thomas DeMeo September 6, 2011 at 9:27 am

Once the renewable energy markets reach the tipping point where investments clearly perform favorably to traditional sources, then there will be a massive jobs increase. Until then, investments will actually cost jobs. This should occur in in the next five years, or so.

D September 6, 2011 at 11:04 am

I think it will take a lot longer. Renewable energy competes with commodities that almost by definition will fall in price as renewables become more cost-effective. There won’t be a tipping point where renewable is always the smart choice.

Instead, I believe it will slowly work its way in through greenfield capital projects such as new buildings, not retrofitting old ones. Regulation may force utilities to use more renewables, but it will be many years before the lower cost of renewables makes it a no-brainer.

Thomas DeMeo September 6, 2011 at 11:44 am

Your point is valid, but it will only delay the tipping point by a couple of years. It won’t prevent it. Every technology has this problem at one level or another, and they all get left behind eventually, despite the fact that after it happens, the price crashes.

I also think that if you look at electric vehicles, the technology/cost trend there is ahead of the broader energy trend. In 5 years, it will be foolish for most of us to buy gas cars. It will pull us away from gasoline and into longer term electricity production investments.

D September 6, 2011 at 7:00 pm

I dunno. The argument makes sense for fax machines and similar technologies. Even if the cost goes almost to zero, for 99% of communications you can use email at an even lower cost plus it’s much easier to use.

I don’t see how electric cars will be easier to use than gasoline, so it still becomes a question of cost.

Thomas DeMeo September 7, 2011 at 11:36 am

Electric cars already are several times cheaper per mile, and this ratio will only increase over time. In volume, an electric drive train can be built much more cheaply than a combustion engine. In 5 years, the range, recharge time, and other battery limitations will be solved, and with increased volume, the cars will be cheaper to run and cheaper to build by a substantial amount. Most vehicles sold will be electric. So we agree. It will become a question of cost.

mw September 6, 2011 at 10:12 am

What is the point of this? To argue that green energy is a boondoggle? In that case, is there some reason Tyler/David Brooks couldn’t write a near-identical post titled “Where are the Silicon Valley jobs?” because, for twenty years now, they’ve only employed a small number of highly-skilled US engineers with most of the unskilled jobs going to China? Would that be similar evidence that Silicon Valley is a boondoggle? And if Tyler/David did write such a post, wouldn’t he stop himself before doing it, realizing that Austrians also use the Silicon Valley-esque “labor shortage” as evidence of structural unemployment, skills mismatch, yada yada, and we wouldn’t want to bite the hand that feeds?

D September 6, 2011 at 11:00 am

Silicon Valley is run on private capital, though I’ll grant that in the early days government spending on computers for the space program provided a big boost.

And it’s certainly not a small number of jobs. Silicon Valley currently has a shortage of skilled workers and colleges can’t keep up with the demand.

Back in 2003 there was a huge surplus and a lot of people moved away from the Valley as a result. Should the government have stepped in and tried to create jobs instead?

Steven Kopits September 6, 2011 at 10:13 am

+1 for Claudia.

You can’t create sustainable jobs with subsidies. There are, however, jobs being created. Lots, in fact, in oil field services. Our OFS clients are making plenty of money. We need to do more of that, faster.

I have been toying with the Claudia* Fed Study Series. There are any number of interesting analyses, I think, that need to be done, and just don’t always have the time or expertise. But someone–and I mean the Fed–should be doing them. So here’s Claudia FSS #1:

At the EIA annual conference in April 2010 (a year and a half ago), we were allowed to put questions to the lunch speaker, in this case, Larry Summers. My two questions to Larry were the following:

- at what oil price is the economy materially prevented from re-employing the unemployed?
- at what oil price will the US go into recession?

Larry’s (somewhat flustered) response was: “Well, oil prices will vary!” (or something pretty close to that–the video is probably on the EIA site.) Now, I didn’t ask by accident, since I had a pretty good idea. And I didn’t ask because I thought Summers knew the answer–I assumed he didn’t. I asked because I thought it was a question the CEA should be assigning to a couple of staff economists. (Apparently not.) But I think the question is still pertinent, given the employment track record of the past 18 months and the weakness of the US, and indeed, advanced country economies since the oil price spike in April. So this is a topic worth researching, I think.

To do this study, I would start with Jim Hamilton’s last five or six papers on various oil topics (alll easy reads). And I would read my October 2009 article in Oil & Gas Investor, titled “Peak Oil Economics”, which lays down the basic analytical models and the predictions of which are proving spot on. (It’s either on the Douglas-Westwood website or send me an email, and I’ll send you a copy.) I also have plenty of presentations and articles available on the internet.

I would add that, right now, there is a difference of perception between Jim and myself. Jim thinks a slowdown is more likely; I’m calling for outright recession. We’re using two different models which are not necessarily incompatible, but not reconciled, either. To date, Jim is proving correct: the economy is weak, but hasn’t fallen over. But I’ll stay with my forecast for now; to me, the global economy still looks like it’s unwinding. (It appears that my model needs another shoe to drop: Greece would seem most likely.) In any event, there are at least two models with testable predictions in use today. They are not secrets, and they are pretty easy to understand and critique.

I strongly believe the Fed should lead in this topic with expertise and analytics–and frankly, in sharing and discussing its views on blogs like this one*. In understanding the basic levers of the economy–notably, the economic impact of oil prices–the Fed should be way out in front, not following a few independent researchers and consultants.

*****
* The reason I name the series for Claudia–she has guts and an opinion, and is willing to express it.

Claudia Sahm September 6, 2011 at 2:17 pm

To be clear I have a lot of colleagues doing excellent work:http://www.federalreserve.gov/pubs/workingpapers.htm That’s why I work where I do. The problems with economy are really hard, but it is rewarding to work with people who are trying to fix them. I am lobbying for a new series for publishing our current analysis…not just our long term research. I doubt the name you propose will stick, but it makes me smile. But I do appreciate the kind words (which are way nicer than mean words). And it should please you that I am trying to move to a job at work with more research time. It would be better than harassing bloggers, though probably not as much fun. Above all, I am pleased to find so many interesting ideas here today. It makes my tough job a little bit easier. (I am an information gatherer at work…not a decision-maker.) But there’s a lot of ideas out there. I am not totally convinced about stimulus being the answer, but I do think smart, effective government can be part of the solution. If nothing else than to help people help themselves. Back to work…

Steven Kopits September 7, 2011 at 7:50 am

What does it take to get the Fed to dedicate one manager and two staff economists to oil markets full time?

I have great regard for the Fed, but for goodness sake, we’re in the middle of an oil shock. The Fed just has to get smarter on the topic.

TallDave September 6, 2011 at 11:47 am

Deadweight loss.

Benny Lava September 6, 2011 at 12:00 pm

“the Smart Grid, while efficient and environmentally beneficial, will be a net job destroyer. For example, 28,000 meter-reading jobs will be replaced by the Smart Grid’s automatic transmitters.”

But wait, won’t the savings of the smart grid lead to reduced rates, which will boost consumer spending and increase jobs elsewhere? At least, wasn’t that what we were told would happen when manufacturing was outsourced and automated away? How is this any different than what has been happening for hundreds of years during the industrial revolution? More evidence towards the singularity?

lxm September 6, 2011 at 12:58 pm

Well, if the numbers get good enough I will be happy to put PV on my roof and there will be jobs, skilled to be sure, but not ‘highly skilled engineers,’ to do that work.

Right now solar energy apparently is the fastest growing industry in America and has become a net exporter. http://thinkprogress.org/romm/2011/09/04/311706/conservative-media-solar-power/

And as far as jobs are concerned: “the deployment of new technologies, like wind and solar power, has the potential to support 20 million jobs by 2030 and trillions of dollars in revenue, analysts estimate.” http://thinkprogress.org/romm/2011/09/05/311875/in-the-future-the-only-jobs-left-will-be-green/

Yes, I know, it’s from a left wing source, so it can’t be true, can it? But what if it is?

The Anti-Gnostic September 6, 2011 at 2:00 pm

Trillions in new revenue? Why not quadrillions? Octillions?

Coal, oil and methane are just super-concentrated solar/wind energy. Nuclear energy is even more concentrated than that. Hydroelectric packs a decent punch as well.

The energy return from highly diffuse sources like wind and solar is just not there. I’m not sure what all the greenies think is going to power their electric cars, their iPads, the magnet schools full of computer terminals and musical instruments, or the ‘fair trade’ coffee beans brought by multi-modal transport, but it’s not going to be wind and solar.

lxm September 6, 2011 at 6:48 pm

“Coal, oil and methane are just super-concentrated solar/wind energy.”

That’s absolutely true. But coal, oil and methane will run out. Later rather than sooner, maybe. But some day for sure.

I hope nuclear can pick up the slack, but that has it’s own problems.

Let’s start another war to get more oil.

Doc Merlin September 6, 2011 at 1:20 pm

Years ago, I called this.
Any job which wouldn’t exist if it wasn’t for a subsidy is unlikely to be a net benefit for society.

georgesdelatour September 6, 2011 at 2:16 pm

Allo me to re-post a comment by Tim Worstall:

I know that everyone’s already bored with me saying this but it still is true. Green jobs are a cost, not a benefit, of various Green plans. If we need to have four people generating our energy, instead of one (or 2 million instead of 30, any number larger than the current one in fact) then this is 3 (or nearly 2 million etc) people who cannot be off doing something else, wiping bottoms, curing cancer or just relaxing with a nice frothy pint.

So all of the shouting that we get about this plan for windmills, or that for recycling, the other for insulation, about how many jobs they will create, is nonsense. Those shouting are parading their ignorance, insisting that one of the costs of their plan is a benefit.

However, yes, it does get worse than this:

A study of renewable energy in Scotland shows that for every job created in the alternative energy sector, almost four jobs are lost in the rest of the economy.

We’ve now got a UK study to accompany that Spanish one that showed that 2.2 jobs are lost (as a result of higher energy prices etc) for every green one generated, the German study which showed the maths going similarly the wrong way.

So not only is the argument about Green jobs wrong in theory, it’s also not even correct in its own terms. Diverting resources from productive areas of the economy to unproductive ones destroys jobs, not creates them.

Sadly, it won’t stop the idiots bleating about how many green jobs their proposals will generate but can we at least all start laughing at them as they do so?

http://www.adamsmith.org/blog/environment/green-jobs-are-a-cost,-not-a-benefit/

Justin September 6, 2011 at 6:01 pm

To me, the talk about government investing in wind power, solar power, etc. being a good investment and creating jobs does more to hurt its popularity. It seems pretty clear that it isn’t true, but by belaboring the point, liberals open up their view to attack from conservative pundits, who can cast their debunking of the jobs myth or good investment myth as a reason we shouldn’t be investing in clean energy at all. We should be doing it because climate change is a problem that has possibly dire consequences for future generations, and finding an alternative energy to carbon laden fossil fuels is a good way to combat this. There’s not enough of that argument being used anymore and too much of lesser arguments being used.

Yancey Ward September 6, 2011 at 7:11 pm

Well, this would actually work quite well, but we first need to blow up the power plants and the refineries to get it going, or, at least, regulate them out of existence. It is, after all, just a one time fixed cost, and Bastiat doesn’t apply in a liquidity trap anyway.

Tim Franklin September 7, 2011 at 1:00 pm

This can be examined with the economists view on make-work basis, meaning , opposite of labor is leisure, Economists view that labor is scarce and that the more you make with less labor is really good because you’re freeing up resources and regular people think that labor needs to more people working for others and working period. To some economist this is a great thing because we are freeing up jobs but is it really a great thing to free up “28,000 meter reading jobs”? Also with the money invested in green energy the jobs are not supplying as in other investments, such as infrastructure? Also with the globalization of the green energy, the investment in green energy, in my opinion does not out weight the different investments in other resources due to the fact of outside economies coming into the equation. Again going back to the basic economic model of investment but these bills and grants still pass every day by our representatives.

valuethinker September 8, 2011 at 1:10 pm

There is a shocking absence of general equilbrium thinking in this post.

Weatherizing homes reduces energy consumption.

Capital intensive businesses like utilities may shed jobs as a result, but:

- natural gas prices will fall increasing spending power by all companies and individuals consuming natural gas. US exporters that use natural gas or electricity for energy become more competitive, export more

- consumers who benefit from less spending on utilities will have more money to spend on other goods and services, which may create more jobs depending on how they spend that money

- the US becomes capable of producing more GDP for the same amount of energy– in other words, Total Factor Productivity rises. In the long run, that means higher real GDP growth per capita

So the question is when to stop doing this? The answer:

- you have to assume there are barriers to maximum energy efficiency. Which of course there are– the well known split incentive problems, the fact that consumers and businesses are capital constrained, the well documented fact that demanded paybacks are on the order of 2-3 years, ie Internal Rates of Return of 25-40% pa, which equate with the sorts of returns demanded by Venture Capitalists for risky technology ventures, not risk free savings (discount rates should be 4-5%). Information on energy efficiency is costly to obtain and al evidence shows consumers and businesses often ignore it.

- and of course there are the deadweight costs of global warming. Which you might reduce in the long run: Hurricane Irene, Wildfires in Texas etc. are, if they are climate change related, big costs of climate change for the US economy. So is the Texas drought generally: food prices are soaring in some categories

At some point you will reach returns from energy investments which are below the social costs. But I would suggest this is at 3-4% pa, ie payback on investments at 15-20 years. Those low numbers because for investors they are risk free (unless energy prices fall) and US Treasury bonds pay those kinds of rates (after tax, even lower).

To the extent the government can bring forward investment in energy efficiency and renewable energies, down to payback periods of 20 years, it increases the potential size of US GDP (and indeed the actual) to do so.

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