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Wherefore Art Thou, Green Obama

Saturday, November 21, 2009

Those hoping for a green jolt to the economy must come to grips with three serious misconceptions.

China is proving to be a major challenge to President Obama’s ambitious environmental agenda. Designed to reinvigorate flagging hopes for the Copenhagen climate summit, his recent trip yielded no commitments that the Chinese are willing to significantly curb carbon emissions. He also returned home to the dismal news that China may be benefiting more than the United States from his job creation policy, which he has tied in significant measure to promised investments in green technology. While the employment market at home continues to falter, China’s recovery is gaining steam—bolstered in part by American-based companies investing in green projects.

Consider Boston-Power, a New England-based battery manufacturer. In June, it announced it would build a new manufacturing plant to produce environmentally sustainable lithium-ion batteries, creating 600 green jobs. “Our goal is to make Massachusetts a manufacturing hub for the advanced batteries that will power the nation’s clean energy future, and Boston-Power’s plan to create this facility in Auburn is a big step toward that goal,” said Massachusetts Governor Deval Patrick. It was exactly the kind of initiative Obama had anticipated when he began shoveling money into green projects, one of the centerpieces of the jobs recovery act. The Massachusetts plant was hailed as a sign that the green jobs renaissance was indeed materializing.

Earlier this month, the company quietly scrapped its plans after it couldn’t get stimulus money or an investment commitment from banks to build the plant. Boston-Power is now looking to build in China, where green investment dollars are more readily available.

The president made a grievous tactical mistake by hyping green jobs as a recession palliative.

With the chorus of politicians calling for increased government investments to create “green collar” jobs, it brings to mind the bellowing Wizard of Oz overseeing the Emerald City—an all-powerful disembodied figure formed out of steam from a giant cauldron. Then Dorothy’s Toto pulls back the green curtain, revealing that the verbally awe-inspiring Wizard is a tiny man furiously spinning dials in a frantic attempt to keep the fantasy alive.

Green Shell Game

Mr. Wizard, meet President Obama. Throughout this dismal year, President Obama has promised that upwards of 5 million jobs would result from a huge injection of investment in alternative energy technology. The green jobs proposal was also the lynchpin of the European Union’s alternative energy legislation, dubbed the “Community Strategy and Action Plan: Energy for the Future.” Its goal: create a job boom by funding massive new investments in renewable energy.

So far, we’re left with sizable handouts, no coherent vision, few concrete results, and lots of speeches: there’s “room for debate” on how we do it, there’s “no silver bullet,” blah, blah, blah. Obama is doling out $80 billion as part of his energy policy, but it’s going out in a helter-skelter manner, and green job creation is meager at best.

Those hoping for a green jolt to the economy must come to grips with three serious misconceptions:

First, green stimulus works slowly. New York State illustrates the problem. Of the $25 billion allocated for energy efficiency in the U.S. package, it collected $394 million. By October, the government estimated, it had produced 43 New York jobs. It doesn’t mean the money has been wasted; it does mean the green investment strategy must be understood as a long-term commitment, and not mis-marketed, as the administration is doing, as a quick fix. Retrofitting an aging energy infrastructure takes time and planning (and, ironically, is being brought to a crawl because it is embedded in a bureaucracy created by activists determined to vet every detail against preservation rules and bureaucratic environmental regulations).

Most of the new wind and energy manufacturing jobs created by the European and American stimulus grants are going to overseas manufacturers.

Second, most of these anxiously anticipated green jobs won’t pay much. The biggest engine of job creation over the past two decades was the technology industry. But let’s face it: the majority of those jobs consist of manipulating tiny chips into circuit boards. They’re low wage jobs, which is why they’re concentrated in Thailand, Bangladesh, and elsewhere. Although the term “green jobs” may conjure up images of dazzling high-tech solar panels and glass-sheathed new buildings, the nuts and bolts of turning the world green is making nuts and bolts, but in an energy conscious way. That’s not a solution to the Great Jobs Depression in the U.S. or any industrialized country.

Third, the green jobs that we do get, whatever they might pay, cost a lot to create. As a candidate, Obama estimated each green job would cost $30,000 to create. Even his political allies mocked that total. A study sponsored by the left-leaning Center for American Progress, released in 2008, estimated that each job would cost $50,000. That estimated the number of jobs that might be added if the government spent more money on clean energy. It didn't count jobs that might be lost elsewhere in the economy if the country shifted to alternative energy, which is costlier than traditional sources. Alternative energy projects will clearly lead to higher energy prices in the short to medium term and put a drag on the economy. But those numbers were pies in the sky. There are some hard figures on green-job creation in Europe, and the story is sobering.

The Obama administration has pointed to Spain and other European countries as a “reference for the establishment of government aid to renewable energy” to create jobs, but the experience there suggests caution at best. According to estimates in a study by economists at Spain’s Universidad Rey Juan Carlos, the Spanish green job program cost $43 billion in recent years, creating green jobs at an astounding cost per worker of $854,000. Why the high figure? These economists factored in the number of jobs that were not created by force-feeding investments into alternative energy. By diverting investments from other sectors, the study estimates that for every green job created upwards of 2.2 jobs were lost.

While there remains a bubble in investment money available to finance green projects, the demand for alternative energy technology is just not there yet.

While “it is not possible to directly translate Spain’s experience with exactitude,” reads the report, the United States could lose “at least 6.6 million to 11 million jobs, as a direct consequence were it to actually create 3 to 5 million ‘green jobs’ as [President Obama has] promised (in addition to the jobs lost due to the opportunity cost of private capital employed in renewable energy).”

In other words, Spain’s hyper-aggressive (expensive and extensive) green employment policy generated far fewer jobs than expected, and only about one-tenth of those were the permanent high-paying operational and maintenance positions necessary to shake the economy out of its doldrums.

China Syndrome

The story, sadly, gets worse. Over the past two years, there have been numerous announcements of high-profile, technology-intensive projects in alternative energy funded in part by government money. In 2008, the Democratic Governor of Massachusetts backed an $58 million incentive package for Evergreen Solar, an energy panel maker promising 350 new jobs and promoted as the centerpiece of the state’s efforts to make itself a green energy and job hub. At about the same time, General Electric was sweeping up subsidies for its solar-panel manufacturing facility in Delaware that employed 82 workers.

The Spanish green job program cost an estimated $43 billion in recent years, creating green jobs at an astounding cost per worker of $854,000.

Both have turned into job-creating busts. GE announced this fall that it is shutting down production. While there remains a bubble in investment money available to finance green projects, the demand for alternative energy technology is just not there yet. Evergreen Solar did temporarily add workers, but the expectations (read: green hype) far exceeded sales, and the company, which lost $167 million this past year, is now shuttering capacity and shifting what’s left to China. Hope does not yet equal business.

Then there’s the Texas Green Jobs Massacre. There was a burst of excitement in late October accompanying the announcement that a large-scale $1.5 billion wind farm would be developed in West Texas using federal dollars. But any anticipation of the 330 American jobs that would be created was quickly overshadowed by the sobering reality that the most important components to be manufactured, 240 wind turbines, would be made in China. That’s a 2,000-job windfall, courtesy of Uncle Sam.

Even Democratic Senator Charles Schumer was angry: “I’m all for investing in clean energy, but we should be investing in the United States, not China,” he said. “The goal of the stimulus was to spur job creation here, not overseas. This project should not receive a dime of stimulus funds unless it relies on U.S.-manufactured products.”

Retrofitting an aging energy infrastructure takes time and planning, and, ironically, is being brought to a crawl because it is embedded in a bureaucracy created by activists determined to vet every detail against preservation rules and bureaucratic environmental regulations.

But here’s the rub: Most of the new wind and energy manufacturing jobs created by the European and American stimulus grants are going to overseas manufacturers because there is not enough demand yet for a green U.S. manufacturing infrastructure to have developed. “Socialized” Europe and centrally controlled China don’t have to deal with those economic realities. Forced by public authorities to invest in alternative energy and even in carbon-free nuclear energy, European and Asian companies are now poised to take advantage of the green-energy dollars flowing in the United States. They also get most of their seed capital not from U.S. banks, but from overseas financial institutions with years of familiarity with these kinds of projects and therefore a much higher comfort level about dispensing green risk capital. The U.S. partners in the West Texas wind farm couldn’t get financing in the United States, which forced them to seek out a partner in China, where commercial banks readily came up with the financing.

Despite the stimulus package’s dismal track record for creating sustainable green American jobs, there are arguments to support the alternative energy boondoggle of 2009—really, truly. One of the main reasons there is not enough green manufacturing capacity is because the United States has had an appalling track record in supporting nascent industries. It takes years to develop an alternative energy infrastructure, and the United States is way behind Europe and Asian countries. Over the past two decades, the United States probably made the better bet. As Geoffrey Styles of Energy Tribune notes, because of generous tax benefits to inefficient alternative energy producers and hidden tariffs, “European taxpayers and consumers have borne much of the pain of driving down the costs of wind power to a point at which it can begin to compete with power generated from natural gas (and to a much lesser extent from coal) with only the modest subsidies U.S. taxpayers have been willing to provide.”

As U.S. production acumen in the green sector matures, opportunities will open up. Money flows both ways. Europe provides generous tariffs for infrastructure investment available to manufacturers from around the world, including American players. Last month, Duke Energy struck a deal with ENN Group in China to develop commercial solar projects in the United States. This bodes well for the dream of a greener economy in the United States over the long term. And as alternative energy costs come down, private money will start flowing.

As a candidate, Obama estimated each green job would cost $30,000 to create. Even his political allies mocked that total.

But swallow hard: to achieve its long-range goals, in the short term, to stoke demand, Washington may need to continue backing select green projects, even though some of the money will go into foreign company coffers willing to do business in the United States despite the dismal economy. This is not an argument for reflexive massive subsidies. Rather, the United States needs to establish a stable regulatory framework and a long-term policy for its green sector. To create sustainable employment, we need long-term commitments to build new business infrastructures, not just short-term money dumps. To soften the trade-off, there is an argument for consideration of local content laws—the crude name is “Buy American”—to justify the short-term subsidizing of foreign companies.

The Vision Thing

The wild card in all this is the president. Where is Obama’s Great Green Narrative to focus the nation? In a recent speech promoting a “smart grid,” Obama compared the U.S. electrical system to American highways before President Eisenhower launched the blacktop-building boom of the 1950s. But energy reform is a bigger project than the Interstate Highway System, bigger than the great water projects of the Tennessee Valley Authority, and faces more domestic opposition than did the space program.

The key to Americans meeting the challenges of the past has been their willingness to believe in a vision of change, hope, and growth to justify the risk and sacrifice. The president made a grievous tactical mistake by hyping green jobs as a recession palliative. We all know that Obama can play the tiny man behind the green curtain spinning a story with the help of a teleprompter, but it remains to be seen whether he has the fortitude and indeed the real vision of a leader to define and carry forward a transformative Great Green Narrative.

Jon Entine is a visiting scholar at the American Enterprise Institute and director of AEI projects Global Governance Watch and NGOWatch.

FURTHER READING: Entine criticized the Copenhagen energy talks for adding hot air while missing real policy in “The Copenhagen Climate Extortion.” In “Green Revolution in the Balance,” he discussed impediments to bio-engineered crops for starving countries. “The Quiet Death of the Kyoto Protocol,” by Samuel Thernstrom, discusses Obama’s rejection of the Kyoto Protocol and its implications for U.S. environmental policy. Kenneth Green also explains that cutting developed-world greenhouse emissions first is illogical for the long term, in “Who Should ‘Go First’ on Greenhouse Gas Control?”

Image by Darren Wamboldt/Bergman Group.

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