In the red with green policy

In the red with green policy
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First Published: Wed, May 06 2009. 09 33 PM IST

Image: StockXpert
Image: StockXpert
Updated: Wed, May 06 2009. 09 33 PM IST
A report by the Asian Development Bank identified South-East Asia as being very vulnerable to climate change. In turn, it encouraged governments to provide incentives for green investment schemes to shift towards renewable and clean energy options for the power and transport sectors.
This echoes the commitment of US President Barack Obama to push for a “green stimulus” as a component of his strategy to remedy the crisis. Indeed, the image of the shift towards “green” energy use in the US economy has been portrayed as an engine of economic growth that would rival the computer.
Image: StockXpert
The presumption behind these commitments is that emission controls and subsidies for “green” energy generation will reduce carbon dioxide (CO2) emissions at low cost and lead to more jobs. But government funding to “create” green jobs may involve the worst of both worlds. As it is, schemes that expand public sector debt based on populist calculations rather than economic realities impose the burden of these ploys on to future generations.
In framing his recovery plan, Obama often refers to Spain’s green job creation as a model. Unfortunately, a report from the Instituto Juan de Mariana in Madrid demonstrates that subsidies from the Spanish government destroyed employment elsewhere in the economy.
The study found that total subsidies to “create” each green job averaged €571,138 (in excess of $600,000), while those for wind farms exceeded €1 million. By contrast, the private sector generates jobs for a fraction of the cost of subsidized green ones.
While only one of 10 green jobs is permanent, each green job “created” led to around 2.2 other jobs being lost. In terms of alternative energy programmes, each green megawatt of power installed led to a loss of nearly six jobs on average.
In sum, the Spanish experience suggests that Obama’s plan to “create” up to five million green jobs will cause 11 million other jobs to be lost. Headline numbers about “green” jobs always overlook how the use of subsidies will crowd out or destroy jobs in other economic activities.
Supporters insist that subsidized renewable energy leads to construction and operation of renewable facilities using more labour than conventional ones. But that is bad, not good, news.
The build-out for alternative fuel production does require more labour to build than conventional power stations. But this higher labour-intensity of production is a non-economic use of labour that cannot lead to a net increase in employment.
New jobs based on higher taxes divert funds that could be used in other economic sectors. And subsidies that support inefficient technology and raise the labour-to-capital ratio will lead to lower demand for labour so that real wages tend to fall.
In all events, the enormous economies of scale of conventional power stations lead to lower unit costs so that more jobs can be created throughout the economy.
In the end, these subsidies will require higher electricity rates, more taxes or, more likely, both. Neither bodes well for an economy that is struggling to right itself.
But there is more. President Obama seeks higher energy prices with the aim of inducing lower CO2 emissions to move them 80% below 1990 levels by 2050. And proposed climate change legislation, such as a 648-page Bill introduced by US congressmen Henry Waxman and Edward Markey, would lead to many new regulations and more taxes.
They project revenues of $656 billion from “cap-and-trade” between 2012 and 2019 to subsidize green energy and green jobs. But this requires diverting those funds from other parts of the economy.
As it is, raising energy prices will kill jobs in industries with high energy inputs by inducing them to move where energy costs are lower, including offshore. And transforming the nature of energy use will certainly kill jobs in non-renewable energy sectors. At risk are the jobs of 1.6 million workers in the oil and gas industry as well as those of hundreds of thousands of employees who are directly and indirectly involved in coal mining in the US.
Forget the hype and political posturing. Destroying jobs in efficient industries to “create” jobs in inefficient sectors cannot lead to net economic gain since subsidies divert resources from sectors that suffer offsetting losses.
The simple truth is that public sector spending on projects to promote eco-friendly growth will not—and cannot—lead to sustainable economic development. Unfortunately, the myths of economic policy serve the interests of opportunistic politicians and avaricious bureaucrats too well.
Even the basic premise that it is necessary to reduce carbon emissions to thwart climate change might be in error. A more important driver of climate change is solar activity and the impact upon absorption and reflection of solar dimming and brightening of the sun. These factors tend to be ignored and were left out of the climate change models of the UN. If human contributions to greenhouse gases are not the main cause of climate change, policies to reduce CO2 emissions will unnecessarily impose costly burdens.
Christopher Lingle is a research scholar at the Centre for Civil Society in New Delhi and a visiting professor of economics at Universidad Francisco Marroquin in Guatemala. Comment at theirview@livemint.com
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First Published: Wed, May 06 2009. 09 33 PM IST
More Topics: US | Barack Obama | Green Stimulus | Climate | ADB |