1 Step Forward, 2.2 Steps Back
May 8, 2009 by A. Fletcher Mangum
On April 22, President Obama gave an Earth Day speech where he summarized his vision for U.S. energy policy. The driving message of that speech was that, “the bulk of our efforts must focus on unleashing a new, clean energy economy.” As part of those efforts, the President proposed doubling the nation’s renewable energy capacity over the next few years, and backed up those words with a commitment to invest “$15 billion each year for 10 years to develop clean energy.”
Sounds great! But, before we gleefully unleash ourselves to the business of completely realigning the U.S. economy, due diligence requires that we ask a few questions. Such as, what are the real economic implications? According to some projections, not only will clean energy solve climate change, it will also create millions of jobs, increase economic competitiveness, and do all of that at little or no additional cost. Well, as an economist I can tell you, the one thing to keep in mind about projections is that, “she who controls the assumptions also controls the answers.”
Unlike the U.S., all European Union countries signed onto the Kyoto Protocol in 1997. As a result, they are many years ahead of us in implementing clean energy policies and need not project the economic implications of those policies, they can simply measure them. To date, the most comprehensive study of that nature was done in Spain and released earlier this year. What that analysis showed was that for every green job that the Spanish government created through subsidies, 2.2 other jobs were lost as economic resources were pulled from other sectors of the economy.
It is exactly this kind of experience that recently drove Vaclav Klaus, the President of the Czech Republic and current President of the Council of Ministers of the European Union, to write the following. I am amazed to see people going along with the currently fashionable political argument that policies like cap-and-trade, government mandates, and subsidies for renewable energy can actually benefit an economy … This is a fantasy. Cap-and-trade can only work by raising energy prices. Consumers who are forced to pay higher prices for energy will have less money to spend on other things.
Another question we need to ask is, if we do focus “the bulk of our efforts” on clean energy, can it meet the bulk of our energy needs? And the answer to that question appears to be almost certainly, “not anytime soon.” For example, currently about 45 percent of the electricity generated in Virginia comes from coal-fired plants, 35 percent from nuclear power, 18 percent from oil, natural gas, and hydroelectric, and 4 percent from other renewable sources (primarily wood). According to Governor Kaine’s Virginia Energy Plan, in order to keep electricity imports at current levels, Virginia will need approximately 4,000 megawatts of additional generation capacity by 2016. Even if we were to achieve President Obama’s ambitious goal of doubling our renewable energy capacity, that would only generate about 1,000 megawatts, or about one quarter of the estimated need. So, where do we get the rest?
In the near term, the only real solutions are coal and nuclear power. Both have their strong points. They’re here and “shovel ready” and both have large economic ripple effects in Virginia. Coal is the state’s most significant indigenous energy source and remains an economic mainstay in Virginia’s western-most counties. The state is also positioned to be a leader in nuclear energy because of rapidly expanding nuclear engineering and construction clusters in Lynchburg (AREVA and Babcock & Wilcox) and Newport News (Northrop Grumman), as well as the largest undeveloped uranium deposit in the U.S. (Pittsylvania County). Moreover, Virginia’s already above-average reliance on emission-free nuclear power goes a long way to explain its already below-average level of greenhouse gas emissions.
In short, clean energy may not be the panacea that its proponents claim and before we bend our economy over backwards to paint it green, we need to ask, and get answers to, some serious questions. This is not to say that clean energy is not “a” answer to our energy needs. In particular, ongoing research in second generation bio-fuels at the Institute for Advanced Learning and Research in Danville and the Virginia Institute of Marine Science at Gloucester Point, ongoing research in clean coal technology at the Southwest Virginia Higher Education Center in Abingdon, a planned wind farm in Highland County, and further development of emission-free nuclear power offer significant promise.
But it is to say that, at least in the near term, clean energy is not “the” answer and we should not use it as a cudgel to thwart the exploration and development of more traditional energy sources. Nor should it be pursued in a way the irreparably harms our economy.
Dr. A. Fletcher Mangum is Managing Partner of Mangum Economic Consulting
This article IS well written. The problem with the “Create 1 Green Job Take away 2.2 other Jobs” theory is that the equation is missing the negative externality which dirty energy represents. We need to calculate and include the long term negative effects that dirty energy will have on our economy before we give up on Green Energy as a jobs creation policy. When you do that it is clear that in the short term, yes clean energy won’t create the jobs it displaces, but it will create a platform for future and sustainable economic growth.
Embedded in this article is the assumption that we can continue removing millions of pounds of carbon from the ground year after year, put it into our atmosphere, and nothing will happen – there will be no costs or job losses associated with it. Is this a realistic assumption?
@Kim While I agree that the supply of coal (Carbon as you put it.) is not everlasting, steps are being taken to keep the resulting pollution out of the atmosphere. An example would be the new “scrubber” at the Dutch Gap power plant. This new unit removes more than 90% of the pollutants from coal burning AND results in a reusable byproduct called Gypsum, used to make drywall. As a person living close to this plant it’s nice to see steam coming out of the scrubber stack instead of that yellowish looking junk coming out of the other stacks.
Until renewable resources become cost effective (I’ve been waiting decades for this to happen.) they will only continue to provide the more wealthy folks knowledge that they are saving the environment while us common folk can only wait. At this point even funding for better choices would also be better than what we have available now. Even if I could afford to install solar panels or wind driven power generation I would have to remove at least 45% of tree growth from my property in order to install them. Defeating the whole saving the environment portion. We need more choices.
It is about time that someone shines the bright light of rationality on the “green energy” fad. While I will be among the first to conserve resources, I also am honest enough to admit that I want reliable energy at affordable prices. The economics of so-called green energy do not add up and current technologies cannot overcome present challenges. Then ,of course, there are those stubborn laws of physics that keep making trouble. I cannot think of a single non-nuclear alternative source that can survive in the free market. All of them, except nuclear (which some do not consider green enough), are heavily subsidized by taxpayer funds. So, in effect, we all get to pay twice — once for the subsidy and once for higher energy costs. Let’s all be honest about the prospects of altenative energies in the near term — investing in technologies that may help those energies compete in the free market. In the meantime, let’s get focused on nucelar energy.