THE AVENUE OCTOBER 2, 2009
We, like everybody else, have a lot of interest in the nature, size, and costs of developing a "green economy," and so are interested in understanding the existing scholarship. One of the most influential scholars on the subject recently has been an associate professor at King Juan Carlos University in Madrid, Gabriel Calzada Álvarez. Unfortunately for the quality of the debate, his much-touted findings fail to hold up under some fairly simple scrutiny and provide an extremely flimsy basis for policy-making.
In recent testimony he gave a rather bleak assessment of the Spanish government’s effort to spur green jobs through fiscal policy: “For every one green job financed by Spanish taxpayers, 2.2 jobs were lost as an opportunity cost....Since 2000, Spain has committed €571,138 ($753,778) per each ‘green job.’”
These dismal numbers are based on an unpublished working paper that he wrote with two co-authors in March of 2009. This work has been discussed widely in various advocacy and media outlets (including last week’s Washington Post) and even critiqued by the U.S. National Renewable Energy Laboratory. While some have pointed out that his jobs data understate those published by the UNEP (by almost a quarter) and Spanish government sources, he obtained his figures from a 2003 study from the European Commission’s Monitoring and Modelling Initiative on the Targets for Renewable Energy (MITRE), a reputable source. As it happens, many other issues have been raised, but I will focus on one that generally has not been discussed, his cost calculation.
Keep reading for the full breakdown of the assumptions and estimates, but the first thing to realize is that Calzada’s calculation that 2.2 jobs are “destroyed”--the opportunity cost--for every green job comes from this simple formula:
Number of Jobs Displaced in Economy per Green Job Created = Value of Government subsidies per new green job/National average value of new capital per new job
The MITRE net “green jobs” projections appear to be based on a standard impact model, which adjusts for job displacement and supply chains. Their final estimate, which Calzada uses, projects that 52,000 net jobs will be created in Spain under its 1998 Royal Decree.
As for the subsidy, Calzada reports that the Spanish government has committed itself to spend € 28.7 billion Euros from 2000 to 2010 in subsidies, but it is unclear how he arrives at this number. A note on Table 2 suggests that he obtained price data from the CNE (National Energy Committee) and multiplied the value of consumed energy products by the difference between the average “selling price” and the average “market price” for the unregulated producers.
There are at least two problems: first, Calzada seems to use actual subsidy data which include the various amendments to the original (issued in 2004 and 2007), but MITRE’s 2003 study bases its job estimates from the outdated Royal Decree 1998; secondly, one should consider that economic growth in the renewable market will also generate tax revenue.
The fact that subsidies differ according to the size of the company’s generating capacity, its technology, and its fulfillment of regulatory requirements, make calculating the actual subsidy very difficult, so I turned to a more transparent estimate. The European Commission (EC) requires member countries to report “state aid” to various sectors under its competition laws. In its definition of state aid, the EC classifies one sector as “Environmental Protection and Energy Saving Expenditure.” This should encompass all tax subsidies and credits to the renewable energy sector, and, in practice, it is likely to be, if anything, too broad for our purposes. These data are only available from 2002–2007, but it is easy enough to take the annual average in state aid, which was € 124 million and compare this to annual projected job growth (5,250). So, the EC data on subsidies to all aspects of the environment and energy sectors was still much less than Calzada’s estimate for the yearly average spent on subsidies to renewable efforts--€ 2.9 billion.
With a few other basic calculations, the new headline figures can be tallied: The Spanish government creates 10.5 nets jobs in the green economy for every euro invested relative to the domestic economy. (The number is 1.7 if you accept Calzada’s cost estimates and use the 2007 UNEP data on jobs in the renewable industries).
Of course, as with Calzada’s matter-of-fact claim, we shouldn’t put much weight in this calculation. Even if the method is adequate, these jobs numbers are projections from outdated assumptions and the state aid number is not narrowly tailored to the renewable energy market and neglects other complications--such as the revenue changes and externalities.
Undoubtedly, there are many exaggerated claims on both sides of the green economy debate. And we're looking further into the numbers ourselves. We can only hope that future studies receive similar attention as Calzada’s.