The January 12, 2009 issue of The New Yorker includes a well-written and in some ways inspiring article by Elizabeth Kolbert, profiling Van Jones, founder and president of Green for All. In the article, “Greening the Ghetto: Can a Remedy Serve for Both Global Warming and Poverty,” Kolbert includes the following passage:
When I presented Jones’s arguments to Robert Stavins, a professor of business and government at Harvard who studies the economics of environmental regulation, he offered the following analogy: “Let’s say I want to have a dinner party. It’s important that I cook dinner, and I’d also like to take a shower before the guests arrive. You might think, Well, it would be really efficient for me to cook dinner in the shower. But it turns out that if I try that I’m not going to get very clean and it’s not going to be a very good dinner. And that is an illustration of the fact that it is not always best to try to address two challenges with what in the policy world we call a single policy instrument.”
That brief quote generated a considerable amount of commentary in the blogosphere, much of it negative, and some of it downright hostile. This surprised me, because I didn’t consider the proposition to be controversial, and I had chosen my words carefully, simply stating that “it is not always best to try to address two challenges with … a single policy instrument.” Two activities — each with a sensible purpose — can be very effective if done separately, but sometimes combining them means that one does a poor job with one, the other, or even both.
In the policy world, such dual-purpose policy instruments are sometimes a good, even great idea (gas taxes are an example), but other times, they are not. Whether trying to kill two birds with one stone makes sense depends upon the proximity of the birds, the weapon being used, and the accuracy of the stoner. In the real world of important policy challenges — such as environmental degradation and economic recession — these are empirical questions and need to be examined case by case, which was my point in the brief quote. Since my further explanation of this point in the green jobs context (in an interview that lasted 30 to 60 minutes — I don’t recall) did not find its way into Ms. Kolbert’s article (no fault of hers — she had plenty of sources, plenty of material, and limited space), let me provide that explanation here.
In 1990, when Congress sought to cut sulfur dioxide (SO2) emissions from coal-fired power plants by 50% to reduce acid rain, Senator Robert Byrd (West Virginia) argued against the proposal for a national cap-and-trade system, because it would displace Appalachian coal mining jobs through reduced demand for high-sulfur coal. He recommended instead a national requirement for all plants to install scrubbers, which would have increased costs nationally by $1 billion per year in perpetuity.
Fortunately, Senator Ted Kennedy (Massachusetts) recognized that these two problems (acid rain and displaced miners) called for two separate policy instruments. Simultaneous with the passage of the Clean Air Act amendments of 1990, which established the path-breaking SO2 allowance trading program, Congress passed a job training and compensation initiative for Appalachian coal miners, at a one-time cost of $250 million. Acid rain was cut by 50%, $1 billion per year was saved for the economy, and sensible and meaningful aid was provided to the displaced miners. Two different policies were used to address two different purposes. Sometimes that is the wisest course.
What about two current challenges: concern about the environment, in particular global climate change, on the one hand, and the need to turn around the economy, on the other hand? Can “green jobs” be the answer to both?
Will an economic stimulus package — properly designed — lead to job creation in the short term? Yes, but to some degree this will be by moving forward in time the date of job creation, as opposed to creating additional jobs in the long run. Of course, at a time of recession and increasing unemployment, that can be a sensible thing to do. So, by expanding economic activity, an economic stimulus package can surely create jobs — green or otherwise — in the short term.
But will a stimulus package — such as subsidies for renewable energy — create net jobs from the change in the nature of economic activity? The key question here is whether the encouraged economic activities in green sectors are more labor-intensive than the discouraged economic activities in other sectors, such as with a shift to renewables from fossil fuels.
This is considerably less clear, but there are cases where it is likely to be valid. Solar rooftop installation, for example, is labor-intensive. And the greatest consistency between economic stimulus and greening the economy is within the energy-efficiency realm, in particular, activities such as the weatherization of homes and businesses. Such projects are highly labor-intensive, can be done quickly, and will save energy. And, importantly, they will reduce the long-term cost of meeting climate objectives.
But some other areas, such as new green infrastructure, will happen much more slowly — partly because of NIMBY (“not in my backyard”) problems — and so are less consistent with the purpose of economic stimulus. An example of the challenge is presented by the current interest in expanding and improving our national electricity grid.
A more interlinked and better grid is needed for increased reliance on renewable energy sources, which will be needed to address climate change. First, greater use of renewable resources will require an expanded grid just to transmit electricity from the Great Plains, for example, to cities with high demand for power. And, second, this will also require the use of a so-called “smart grid,” so that greater reliance on intermittent sources of electricity, such as from wind farms, can be balanced with cuts in consumer demand when power is scarce.
But the timing of grid expansion — important for the use of renewables and achieving climate goals — is not coincident with the appropriate timing of the economic stimulus. As was reported in an article by Matthew Wald in the New York Times (“Hurdles (Not Financial Ones) Await Electric Grid Update,” January 7, 2009, p. A11), the CEO of the American Transmission Company — which operates in four midwestern states — said that the firm’s most recent major project, a 200-mile transmission line from Minnesota to Wisconsin, took 2 years to build, but 8 years prior to that to win the necessary permits!
Likewise, an article by Peter Behr in Climate Wire (“Green Power Express line gets derailed by patchwork grid rules,” Feburary 12, 2009, p. 1) focuses on the dilemma facing ITC Holdings, the nation’s largest independent electric transmission company, which has been seeking permission from the Federal Energy Regulatory Commission to build a line to bring wind power from the Great Plains to the Midwest and East. The company’s chairman and CEO, Joseph Welch, indicates that a greater hurdle than the necessary money or “even the ever-present citizen opposition to new transmission projects” is a set of rules for interstate transmission lines that effectively prohibits projects that are not immediately required to maintain the grid’s reliability. A project intended to provide future green power does not meet the test.
These are just two examples of the unpleasant reality of the pace of investment and change in this important category of green infrastructure frequently talked about in the context of quick economic stimulus. Surely, economic recovery, increased reliance on renewable sources of energy, and a smarter, inter-connected grid are all important. But that does not mean they are best addressed with a single policy instrument – the economic stimulus package.
So, the strongest support for “green job creation” is with regard to economic expansion, as opposed to changes in the economy. Of course, the key economic question remains whether even more jobs would be created with a different sort of expansion. In any event, while we are expanding economic activity through the economic stimulus package, it makes sense to reduce any tendency to lock in new capital stock that would make it more difficult and costly to achieve long-term environmental goals. But that is very different from claiming that all substitution of green activities for brown activities creates jobs in the long-term.
As the government uses economic stimulus to expand economic activity, it can and should tilt the expansion in a green direction. But rather than a “broad-brush green painting of the stimulus,” this may call for some careful, selective, and well thought-through “green tinting.”
Addressing the worst economic recession in generations calls for the most effective economic stimulus package that can be devised, not a stimulus package that is diminished in effectiveness through excessive bells and whistles meant to address a myriad of other (legitimate) social concerns. And, likewise, getting serious about global climate change will require the enactment and implementation of meaningful, dedicated climate policies, most likely a comprehensive national CO2 cap-and-trade system. These are two serious but different policy problems, and they call for two serious, carefully-crafted policy responses.
After I wrote this brief essay, someone brought to my attention an article posted at Slate by Michael Levi, a senior fellow at the Council on Foreign Relations(“Barking Up the Wrong Tree: Why ‘Green Jobs’ May Not Save the Economy or the Environment,” March 4, 2009). I found Levi’s assessment to be sensible and compelling, but I may be biased by two realities: one is that he and I are fundamentally in agreement; and the other is that we have been professionally affiliated, because he is the co-author of a paper (“Policies for Developing Country Engagement” ) which is part of the Harvard Project on International Climate Agreements, a global research and outreach initiative which I direct. Rather than summarize or repeat any of Michael Levi’s article, I urge you to read it in its entirety at the Slate web address above.
Rob,
I fully agree that “it is not always best to try to address two challenges with … a single policy instrument.” Sometimes, of course, it may be the case, and there may well be some green spending programs that could help kill two birds with one stone. But more importantly, the numbers simply don’t add up.
Obama’s stimulus package contains provisions to the tune of $100 billion in direct appropriations and tax breaks for green energy and energy efficiency. McKinsey estimates that the United States alone will require one trillion dollars in added investment by 2020 to guide it onto a low-carbon pathway and meet climate policy goals. This translates into one stimulus bill per year, every year between now and 2020. Government spending alone will not generate the required investment.
As you rightly say, this is exactly where a cap on carbon comes in. A cap would not only provide the basis for the necessary long-term restructuring of the US economy, it would also act as a short-term stimulus.
The cap – even one that goes into effect in, say, 2013 – would help put assets on companies’ balance sheets now, which would immediately change the financing equation in favour of increased spending and investment.
See my comment in the Financial Times’ Economists’ Forum for a more detailed argument on why this would be the case — in particular also why a cap, rather than a tax, would be the right environmental, political, and economic answer.
Best,
Gernot
If Green jobs yield a more efficient economy then there should be more people employed (assuming all the smooth, stationary conditions and low dead weight losses). This assumption presupposes that the effects of energy inefficiency are well allocated.
For example, consider a Tort method of CO2 containment. In this scenario, people who have an expectation of preindustrial pollution, by virtue of their energy efficiency, could sue those who destroy that expectation. The net effect would be a proper transfer between those who like it hot and those who like if cooler, resulting in the equilibrium temperature. This system should create a net job gain as it is an endogenous adjustment to a know but unallocated cost.
Tort would work because the judicial system comprises much less than 1% of the economy, vs the federal government which itself is a major player in co2 pollution via its control of 20% of the economy. Such a Tort system would accomplish the task with minimal pain and the fastest equilibrium times; and all it requires would be a rule change by the EPA. Tort works only if we have a commonly accepted vision of nominal preindustrial temperatures. Tort has the capability of seeking and refining the truth about temperature displacement through the judicial examination process. Tort is not limited to election cycles, suits can be updated as new scientific information becomes available. Tort can account for scientific uncertainty in its awards, and Tort can appropriately combine suits into class actions in a way the best matches the aggregate of polluters and non-polluters. And finally, Tort can put the transaction costs of judicial action onto the suing party, thus alleviating the corruption problem of secondary gain.
What Tort does not do is give the pollution experts direct control of the process.
what’s your timeframe for green transition? it looks like we’re heading for doing the biggest chunk — the switch — inside one generation. that sort of mashes short and long term together. how do you then figure “natural” employment? with conversion being sort of crawling-all-over other activity for years and years, why isn’t retrofit work new use of “underemployed” resources?
I’m in the Lester Brown “Plan B 3.0” camp. We’re effectively at war with nature. And nature will win with, at some juncture, swift action. Brown uses a simple fiction to point out the severity of our delimma. He calculates that China, if it can maintain an 8% annualized GDP growth, will in the year 2030 need all of the world’s oil production.
Can’t happen, of course. I mean, India at present rates of birth will be more populous than China in 2030. Also can’t happen. The question to be asked is what will happen instead? And when, because obviously what will happen will happen considerably before 2030.
Somehow, someway, nature is going to reign us in. And she will do so long before 2030.
The time to pay the bill is now. There is no later.
I agree with your overall point, but it’s also potentially a false opposition. First, the reason for pursuing the “dual benefit” may be implicitly or explicitly political – arguably Keynes showed that digging holes and refilling them may be better than nothing – but that may not be acceptable to the public, that wants to see ‘investment.’ Within the goal of investment, there may be some types of investments that are clearly better-suited to fitting two goals at once (or alternatively, that will get more political support).
My favourite proposal for ‘green stimulus’ is to hire an army of underemployed to do energy audits and quick energy-saving fixes – for free. The potential energy savings are enormous, those hired would get training in energy efficiency concepts and basic skills (and be likely to employ them afterwards), it would give most of the population a reason to support (they are getting something for their stimulus money that may actually save them money personally), and – if supported with good educational materials – may change the nature of the environmental/energy debate. Some households that receive energy audits would be given very good reasons to invest to reduce their energy expenditures now, spurring economic activity (purchases) further – but ones that do not increase their (cash-flow adjusted) debt load. Most of these purchases would be labour, reducing the ‘leakage’ problem of stimulus.
Finally, unless I’ve got my math wrong, the added costs (expenditures on this stimulus) may increase the ability of the populace to pay down the government’s debt in future. Think of it this way: if each household can get savings of $100 a year, they should be able to support e.g. additional tax payments of $50/yr, which would support e.g. $500 of government debt while still leaving everyone better off. And this is without counting the extra investment. Plug in whatever numbers you like for theory: if you assume 100 mln households, this potentially finances $50 bln in govt debt. If you can save every household $1000 annually – a number I do not think beyond reason – you’re beginning to get numbers close to the cost of the stimulus.
I saw Van Jones about a year ago on Tavis Smiley. He was the first person that broke down the whole green movement down in such a common sense that I decided top get involved and try to help people find green jobs.
Kevin Lockett
http://www.hirejam.com
http://www.hirejamus.blogspot.com