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The Myth of Green Jobs & Other Myths of Climate Change

Mark PartridgeSwank Professor in Rural Urban Policy

The Ohio State Universitywww.aede.osu.edu/programs/Swank

Tripti Uprety and Shibalee Majumdar, AEDE Ph. D. Candidates

The Ohio State University

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Motivation• Define “Green Jobs” for my purpose• The U.S., Ohio and Central Ohio are slowly

shifting to alternative energy environments with many positive outcomes:– Energy Security: Acquire energy independence

from Middle East oil supply and finite fossil fuel supplies worldwide (Oil sands and coal)

– Environment: Acquire independence from fossil fuel and address global warming

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Motivation• Cap-and-trade aims to promote environmental

accountability and sustainability. • One possible concern about cap-and-trade for

Americans is possible job losses in coal mining and other sectors of the economy.– For example, manufacturing and farming are energy

intensive—which puts them at greater risk.• Yet, in many cases, the costs will simply be passed on to

consumers with little net effect for producers.

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Will “Cap-and-Trade” wipe out the economy?• The 1990 Clean Air Act used cap and trade to limit sulphur dioxide.

Instead of inflicting grievous economic harm (as feared), it delivered sharp reductions in pollution without noticeable effects on jobs.

• Congressional Budget Office (CBO) and Congressional Research Service (CRS) estimated the effects of the proposed cap-and-trade program on overall output and employment.

• CBO estimates a GDP loss ranging from 0.5% - 3.8% by 2030 for the cap-and-trade program.

• EPA/IGEM-REF estimated the a 2.6% GDP loss by 2020 as a result of the cap-and-trade program.– i.e., slow income losses that eventually total a permanent reduction of

2.6% to GDP. – This is like losing an average year’s growth in the economy.

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Graphical Illustration

• Regardless of whether cap-and-trade creates inefficiencies, the same number of people will be employed.

• Labor Demand shifts downward with cap-and-trade program.

• Wages experience a slight decrease.

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Graphical Illustration of the Long Run• US Labor Market ~ 140 million workers• Natural Unemployment Rate ~ 5%

# of workers (in millions)133 million

Labor Demand without Cap-and-trade

Labor Demand with Cap-and-trade

Labor SupplyWage

1. Number employed = 133 million workers

2. Wages and prices adjust to reestablish “full employment” with slightly lower wages

3. “Green energy” also will not increase total U.S. employment.

W0

W1

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Graphical Illustration

• Even in the short-run, the total effect cannot be too large because the numbers of jobs are not that large.

• The conclusion is that cap-and-trade will have limited effects on the traditional fossil fuel economy—the economy is flexible enough to adjust to these changes in terms of overall jobs

• Take coal mining for example.

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Coal Mining Employment in Ohio and USA between 1998 and 2007

1998 2007 Change

Ohio 3,635 2,649 -986

US 81,272 79,848 -1,424

Source: U.S. Census Bureau, County Business Patterns

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Non-Farm Employment Share in Coal Mining

1998 20070.0000

0.0010

0.0020

0.0030

0.0040

0.0050

0.0060

Ohio US

Year

Perc

enta

ge

Source: U.S. Census Bureau, County Business Patterns

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% Change in Coal Mining Employment:1998-2007

Ohio US

-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

Perc

enta

ge

Source: U.S. Census Bureau, County Business Patterns

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The Myth of Green Jobs• Many advocates of mitigating climate change

believe that supporting alternative energy will spur massive job creation, where Ohio is one of countless places trying to be leaders in this wave.– I will argue for many reasons that this is not realistic.– Foremost, would alternative energy producers be

competitive and sustainable if they are bloated with high labor costs? NO!

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Subsidies & Incentives, Tax Credits have Opportunity Costs!

• Santa Claus and the Tooth Fairy do not pay for these schemes.

• Whether building the latest fads such as “clusters,” bio-tech, creative class, value-added, etc. etc. etc., politicians are quick to respond w/o any research basis by offering tax incentives.

• Shifting money from taxpayers to favored activities have costs.– At the federal level, the money has to be paid back to

the Chinese as well as other opportunity costs.

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Subsidies, Incentives, Tax Credits have Opportunity Costs!—cont.

• At the state and local level:– Local economic developers often focus on “cutting

deals” and not on the well-being of their community (for job promotion)

– Subsidies to favored firms imply that someone else has to pay the taxes or services have to be cut for businesses and households.• The result is the rest of the economy is less competitive and/or

households have a lower quality of life.

– Politicians ignore “displacement” effects—e.g., a subsidy to attract Wal-Mart will lead to closure of nearby hardware, grocery stores, and other businesses.

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Subsidies, Incentives, Tax Credits have Opportunity Costs!—cont.

• New businesses will lead to higher wages and land-costs—depressing expansions for existing businesses and deters the location of new businesses.

• For these reasons, impact studies of job creation are too often quite overstated—e.g., casinos.

• The net result is that economic activity is only modestly affected and may even decline.– (see Goetz et al., 2009; Gabe and Kraybill, J. of Regional

Science. 2002; Edmiston, 2004.)

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Green Energy - Sustainability• To be sustainable. Green energy has to be competitive

on a cost basis• It can be say 30-40% more expensive than traditional

fuel because of lower social costs. It can’t be many times more expensive.If so, alternative energywill not be sustainable.A bloated alternativeenergy sector implies that it won’t be competitive!!!!

Fossil Fuels: Coal-based Electricity• We need an assessment of fossil fuel productivity

to benchmark what is needed for Green energy.• Whatever the source, we will have some sort of

distribution network. So, I will focus on the base source.

• Montana & Wyoming Coal Mining—why, these are rural areas and I grew up in that region.– It makes my main point.

• Then compare this briefly to wind turbines and then ethanol in more detail.

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Biomass1.3%

Geothermal0.4%

Solar/PV0.0%

Wind0.7%

Coal49.0%

Petroleum1.6%

Natural Gas20.0%

Other gases0.4%

Nu-clear19.4%

Hydroelectric Conven-tional7.1%

Other 0.2%

Source: Department of Energy, Energy Information Ad-ministration

Percentage of US Electricity Generated by Source, 2006

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Coal’s role in the economy

Source, EIA

Source for coal employment is Energy Information Administration, Department of Energy. http://www.eia.doe.gov/cneaf/coal/page/acr/table21.html.

Total US coal production: 1,162,750 (thousand short tons), http://www.eia.doe.gov/cneaf/coal/page/acr/table1.html

Share of U.S. Coal Production

Approx share of U.S. Electricity

WY share of US total coal production 38% 19%

MT share of US total coal production 4% 2%

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Coal Mining Employment—We are efficient at producing fossil fuels!

#Employees in coal 2006*

Total State employees 2006

% total that are in coal mining

Montana 942 630,288 0.15%

Wyoming 5,837 375,047 1.56%

U.S. 82,959 177,815,600 0.05%

*Includes all employees engaged in production, preparation, processing, development, maintenance, repair shop, or yard work at mining operations, including office workers, Source: Energy Information Administration http://www.eia.doe.gov (including energy production)http://www.eia.doe.gov/cneaf/coal/page/acr/table21.htmlTotal state and U.S. employment is from the U.S. Bureau of Economic Analysis.

Fossil Fuels vs. Green Energy• Only, 6,800 coal miners produce coal that

supplies 21% of U.S. electricity! – A key reason that we are ‘addicted’ to fossil fuels is

that we are so remarkably productive at it. • Green energy needs to be at least ‘nearly’ as

productive to be sustainable.• We cut it slack if it is ‘clean’—i.e., properly pricing carbon.

– But, the numbers of jobs should be thought of in the tens of thousands, not the millions.

– We need a green-energy sector that employs few workers to be competitive, not one that employs ‘millions’ of workers. The latter is not sustainable.

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Sustainable Green Energy needs• A punch line of this talk is that green energy

cannot be nor should it be some sort of a major jobs creator if it is to be sustainable.

• Those who claim otherwise have either not thought through what a 21st Century Green Economy would have to be to be competitive. – Or, they are special interests that would benefit or

they are letting pollsters set the agenda.• A national energy policy is not the same as good

local economic development policy!21

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Everyone wants to be Green Energy Leader

• It seems like all 50 states, 3,140 counties, and about every advanced economy wants to be the leader of green energy. This is always the case in fad-based economic development.

• Very Very few will win.• Reminds me of how every place wanted to be the next

Silicon Valley in the 1980s and 1990s.

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Fad Based Economic Development

• U.S. weekly Newsweek named the South Korean President Lee Myung-bak

“one of the new green leaders.”• “Korea is planning to build more small-sized dams

….This four river restoration project is expected to help both change the climate of the Korean Peninsula and create thousands of jobs, which will help the country achieve economic growth.”

• “A total of 100,000 houses will be powered by solar energy by 2012, up from 14,500 houses in 2007, according to the Ministry of Knowledge Economy.”

SOUTH KOREA

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Fad Based Economic DevelopmentRHODE ISLAND

• In November 2008, the Rhode Island Economic Development Corporation announced its plans to manage the state’s Renewable Energy Fund (REF), making a new commitment to stimulate job growth in green technology/green energy sectors of Rhode Island’s economy.

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Fad Based Economic Development

ONTARIO• The Green Energy Act (GEA), will help the

government ensure Ontario’s green economic future by: building a stronger, greener economy with new investment, creating well-paying green jobs and more economic growth for Ontario – a projected 50,000 jobs in the first three years; better protecting our environment, combating climate change and creating a healthier future for generations to come

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Fad Based Economic DevelopmentMICHIGAN

• Gov. Jennifer M. Granholm: -“By investing in our workforce, manufacturing

infrastructure, and natural resources, we can make Michigan the state that helps end our nation’s dependence on foreign oil and create good paying jobs in the process….Michigan is uniquely positioned to diversify its economy and create jobs by growing the renewable energy sector.”

• Van Jones (White House Special Advisor on Green Jobs, Enterprise and Innovation)

“Diversification into the green economy and training Michigan’s already skilled workers for green jobs is a recipe for economic success”

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Fad Based Economic Development

SPAIN• Spain's Answer to Unemployment: Go Greener*

- Washington Post Article: “Through a combination of new laws and public and private investment, officials estimate that they can generate a million green jobs over the next decade.”

• Spain forecasts that the contribution to total final energy from renewable sources in the country will be 22.7% by 2020 and 42.3% of electrical power generation

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Fad Based Economic DevelopmentSpain

Study of the Effects on Employment of Public Aid to Renewable Energy Sources

states: "Spain’s experience (cited by President Obama as a model) reveals with high confidence, by two different methods, that the U.S. should expect a loss of at least 2.2 jobs on average, or about 9 jobs lost for every 4 created, to which we have to add those jobs that non-subsidized investments with the same resources would have created.” (http://www.juandemariana.org/pdf/090327-employment-public-aid-renewable.pdf)i.e., the basic displacement effects I described.

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Fad Based Economic DevelopmentDENMARK

• Connie Hedegaard, Denmark’s Minister for Climate and Energy, says: "We, the politicians of the world, have a responsibility to reach a truly global climate change agreement in Copenhagen in December 2009. But it is the business society that can deliver the tools to turn our vision into reality. Businesses can provide the clever solutions to make it possible to live in a both modern and sustainable society. Luckily, this is the path that ensures jobs, growth and the answers on how to use the scarce energy resources in a more intelligent manner. That is why green growth is the only growth we can afford.“

• Though as the above quote shows, Denmark does get caught up in the “flavor of the month development.” Denmark does it right. It puts a tax on energy and uses the market to determine alternative energy—less of politicians and bureaucrats picking the winners.

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Fad Based Economic DevelopmentObama’s Campaign Promise

• Obama’s Rural and Energy Program• “Promote Leadership in Renewable Energy: Obama and Biden

will ensure that our rural areas continue their leadership in the renewable fuels movement. This will transform the economy, especially in rural America, which is poised to produce and refine more American biofuels and provide more wind power than ever before, and create millions of new jobs across the country.” [emphasis added] *

In the energy section, in his website says:“Create Millions of New Green Jobs”

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What about Ohio?• Ohio faces massive challenges including the loss of over 550,000

jobs between June 2000 and Dec. 2009.• Source Bls.gov, February 8, 2010.

• ohiorecovery.gov Nov. 19,2009 Press Release:- Ohio will conduct a "green jobs survey" of Ohio employers, to better

identify the number of green jobs available in the state, and the skills required to fill them.

*Source: http://recovery.ohio.gov/news/2009/11/

– As of yet, there is no record of a “green job survey” being conducted as of February 3, 2010.

• We have very little idea of the size of Ohio’s green economy or whether it is creating jobs.– Ohio is basing it’s economic strategy on the fly with very little research

basis or data. Source: www.recovery.ohio.gov/news/2009/11

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What about Ohio?• Governor Strickland said in his state of the state

address: - "We are shaping Ohio's future by strengthening our

advanced energy economy today. Supporting the growing wind and solar industries creates jobs, creates energy and reduces costs for hard-working Ohioans,"

- "These Recovery Act-funded projects take the state another vital step toward our goal of making Ohio a world center for advanced energy.“

- Creation of Energy Gateway Fund.

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What about Ohio?• Governor’s State of State Address:- According to the Council of State Governments,

Ohio ranks first in total number of new green jobs created last year. Ohio will become "America's Energy Gateway".

- This statement caught my attention because I know of the lack of data on the green economy. So, I looked at the Council of State Governments website.

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What about Ohio?

What about Ohio?

# of Jobs Job Description

2296 Weatherization of Homes

134.44 Clean Water State Revolving Fund

76.13 Drinking Water State Revolving Fund

52 Remediation of Uranium

4 Water Pollution Control

1 State Energy Program

1 Environmental Management

1 Removal Radioactive Materials

0.16 Fossil Fuel Electric Power Generation37

Break down of Green Energy Jobs in Ohio, Council of State Governments Report

CSG reports that 2,565.73 Green jobs were created/saved in Ohio under the American Recovery and Reinvestment Act 2009.

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•The Ohio Dept. of Development is providing $12 million of incentives and the Federal Gov’t will provide $50.7 million worth of tax credits. •For 80 jobs, this works out to a subsidy $784,000 per job that could have been spent on programs that have high job-producing results.•The Governor also spoke of a Bio-refinery that will soon open in Ohio.• The Director of ODOD stated that they “expect” a new-bio-refinery will break ground in the next couple of years and will create 40-80 jobs.• Compare these job totals to the 550,000 lost jobs since 2000

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Michigan example

• Since we have no data for Ohio, let’s look at Michigan which is one of the few places that has tried to collect the data.

• Like Ohio and seemingly every other place, Michigan has aggressively pursued alternative energy and green jobs.

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Michigan’s Green Jobs Initiative

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Michigan Green Jobs Initiative• Renewable Energy’s share of MI non-farm employment = .02%• Michigan Green Jobs Survey Report states:- 8,843 jobs created in Renewable Energy Production*- Between 2005 – 2008, “Renewable energy cluster’s” employment

grew about 7.7% (~2.5% per year)• The renewable energy cluster employed 18,000 jobs in 2008. 2.5%

growth then yields about ~450 jobs being created per year by this cluster.

• Bureau of Labor Statistics reports a loss of 860,400 jobs in Michigan in 2000 – 2009.

Source: www.bls.gov/data/#employment• For green jobs to absorb this loss, it will take ~1900 years.

* Source: Michigan Department of Energy, Labor & Economic Growth http://www.milmi.org/admin/uploadedPublications/1604_GreenReport_E.pdf

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Michigan Green Jobs Initiative

• Michigan Green Job Initiative also reports: - The renewable energy production sector grew about 30% between 2005-2008 in direct jobs. This is almost 10% per year.- 8,843 jobs provided by Renewable Energy Production implies growth of 880 jobs a year.

• At this rate, it will take ~977 years to compensate for the jobs loss since 2000.

• Michigan should consider a strategy with higher payoffs for job creation if they want to create jobs.

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Michigan Green Jobs Initiative lost 18.5% employment between 2004-2008

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Conclusion

• There is a strong opinion on the need for green energy.• The climate change debate has produced a lot of hot air with claims

and counter claims about job gains and job destruction.• Both sides of the debate appear to have greatly overstated their

claims.• In my opinion as a professional economist, the net impact on Ohio

employment from climate change legislation will be almost imperceptible—a “few” lost jobs in the fossil fuel sector and manufacturing that would be offset by a “few” new jobs in the alternative energy sector (though temporary jobs in energy conservation).

• The discussion about job creation distracts from real environmental problems and real solutions to creating jobs.