Cap and Charade

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ENVIRONMENT AND ENERGY OCTOBER 14, 2010

Cap and Charade

The green jobs myth.

In August 2008, then-candidate Barack Obama traveled to Lansing, Michigan, to lay out an ambitious ten-year plan for revitalizing, and fundamentally altering, the American economy. His administration, he vowed, would midwife new clean-energy industries, reduce dependence on foreign oil, and create five million green jobs. “Will America watch as the clean-energy jobs and industries of the future flourish in countries like Spain, Japan, or Germany?” Obama asked. “Or will we create them here, in the greatest country on earth, with the most talented, productive workers in the world?”

Two years later, the answer to that second question appears to be no. Obama’s environmental agenda is in tatters. His green jobs plan has done little to make a dent in unemployment, which persists at close to 10 percent. Obama’s signature environmental initiative, cap-and-trade, died in the Senate in July. And, during the first year of Obama’s tenure, China massively outspent the United States on clean-energy technology.

The story of how Obama’s green agenda came up empty is more complicated than the one conventionally told by Democrats and greens, who imagine that cap-and-trade would have been transformational had Republicans and global-warming deniers not gotten in the way. In truth, the president’s strategy was flawed from the start. Cap-and-trade would not have birthed a domestic clean-energy economy—indeed, it wasn’t designed to. Meanwhile, the administration’s green stimulus spending was split between short-term, if worthy, investments in green technology, to which far too little money was allocated, and overhyped public-works projects that would never have delivered the new industrial economy Obama promised as a candidate.

 

Shortly before the House passed its version of cap-and-trade legislation last year, the Center for American Progress (CAP), headed by Obama transition director John Podesta, released a study claiming that the cap-and-trade bill and the stimulus combined would create 1.7 million new jobs. Democrats repeatedly pointed to the CAP report to support their jobs claims. Extrapolating from the report’s analysis, it seems that over half of the new jobs, almost 900,000, were supposed to come from building retrofits. The study’s authors apparently believed that a mere $5 billion in stimulus funding for weatherization, plus a price on carbon, would leverage $80 billion annually in private investment and lead to the retrofitting of every single commercial and residential building in America in just ten years.

Alongside the CAP report, the Natural Resources Defense Council and the leading green jobs group, Green For All, released another study written by two of the same authors, claiming that roughly half of the jobs would benefit low-wage workers and would offer “decent opportunities for promotions and rising wages over time.” Indeed, environmentalists such as Van Jones—who had come to prominence calling upon young people to “put down those handguns and pick up some caulking guns” and briefly served as Obama’s green jobs czar—claimed that building retrofits and cap-and-trade legislation could save both the planet and the inner city.

In reality, the stimulus’s $5 billion weatherization program, according to the Department of Energy, created or saved just 13,000 jobs during the last reported quarter. But, even if more of these jobs had been created, the idea that inner-city youth should see what are essentially janitorial jobs as a pathway out of poverty was always far-fetched. America’s black middle class emerged from the steel, ship, and automobile factories of the postwar industrial heyday. Those jobs were high-skill, high-wage, and long-term. They manufactured products that could be sold on domestic and foreign markets, and they provided the economic basis for a dramatic improvement in black America’s standard of living. Jobs retrofitting buildings and weatherizing homes are, by contrast, low-skill and short-term.

The passage of cap-and-trade would not have changed any of this. The Obama administration’s own analyses concluded that cap-and-trade would have resulted in net job loss, not job creation. That’s because the primary obstacle to building a clean-energy economy is not the absence of a carbon price, such as the one that would have been created by cap-and-trade. Rather, it is the vast price gap between fossil fuels and cleanenergy technologies. While fossil fuels are energy dense, widely available, easy to consume, and supported by a welldeveloped infrastructure, the alternatives are costly, cumbersome, intermittent, or all of the above.

The assumptions behind cap-and-trade represented an odd marriage between the environmental left and a faith in the power of markets that is generally associated with the economic right. Operating in the tradition of Democratic neoliberalism that rose to prominence after the Reagan revolution, cap-and-trade advocates argued that private firms are better and more efficient at “picking winners,” technological and otherwise, than government. Even Jones, a longtime left-winger, accepted the conceit. “The real solution to this whole thing is to put a price on carbon,” he told the radio show “Democracy Now!” in the fall of 2008. When neoliberal greens speak grandly of “investments” in clean energy, they are often referring to private ones, not public ones.

While market incentives can help deploy and modestly improve existing technologies, history shows that new technologies and new industries require massive support from governments. The Internet, biomedical research, jet engines, solar power, wind power, nuclear power—all were possible in large part because the government made investments on a scale that private firms simply could not match over a period of decades. Those investments “crowded in” rather than crowded out private dollars—and the results have benefitted virtually all segments of society.

Europe’s experiment with carbon pricing bears this out. The European Union has had a cap-and-trade system in place since 2005, and Norway and Sweden have had carbon taxes since the early ’90s. None have spurred much innovation. On the contrary, much of Europe has been on a coal-plant-building binge over the last decade. Where European nations have advanced clean-energy technologies—whether wind in Denmark, nuclear in France, or solar in Germany—they did so through direct investments in those technologies that dwarfed the economic incentive provided by carbon pricing.

Obama made some such investments, but, in addition to being short-term, they were relatively small. The majority of the approximately $70 billion in green stimulus money went to retrofitting or stimulating the old economy; about one-third went to building a new one. Notably, even those modest investments had a salutary effect: They saved the American renewables industry, which was in free fall after the 2008 financial crisis, and gave a boost to U.S. manufacturers of electric car batteries.

But whole new industries are not created overnight, which is why China just announced it would be spending $739 billion on “newly developing energy industries” over the next ten years. Obama could have focused on winning a similarly long-term commitment to public investment in green innovation and manufacturing. Instead, he threw his political capital behind cap-and-trade, which was never imagined by the economists who invented it to be a means for creating domestic industries.

Unfortunately, Obama and most Democrats still don’t get it. With little job creation to show for their green stimulus investments, White House officials are now touting the short-term benefits of the critical investments in technology and manufacturing. Yet they don’t seem particularly intent on blocking them from expiring next year.

 

Obama appears genuinely moved by the vision of a clean-energy economy. He seems to have convinced himself, however, that America’s energy economy can be transformed through carbon markets and efficiency retrofits. The president’s proposal to “make clean energy the profitable kind of energy”—which was always code for making fossil fuels more expensive—today needs to be replaced by a focused effort to make clean energy cheap through innovation. Doing so will require large, direct, and sustained federal investments in new energy technologies. This focus on innovation may seem like an indirect way to create jobs, but history shows it is also the one with the strongest record of producing whole new industries—industries that have driven America’s long-term economic expansion.

There is a growing consensus in favor of such an effort, which includes some conservatives and Republicans who opposed cap-and-trade. Support for greater investment in energy innovation includes corporate chieftains, such as Bill Gates, GE’s Jeff Immelt, and Intel founder Andy Grove, as well as dozens of Nobel laureate scientists and energy policy experts across the ideological spectrum.

The failure of cap-and-trade to make it through the Senate may thus turn out to be a blessing in disguise. It spares the country a program that would have done little to help either the economy or the environment. And it gives Obama and the Democrats an opportunity to reconsider how they might build the clean-energy economy they were elected to deliver. With the right policies, the answer to the question Obama posed two years ago in Lansing—will the United States lead the way in creating clean-energy jobs?—can still be yes.

Michael Shellenberger and Ted Nordhaus are co-founders of the Breakthrough Institute. This piece ran in the October 28, 2010, issue of the magazine.

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posted in: environment and energy, energy, environment, lansing, america, united states, barack obama, van jones, senate

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