Wednesday, March 03, 2010

The Green Job Myth - Or Is It?

There is a strong claim by politicians in a variety of countries that climate change policies and regulation, coupled with investments in green technologies, will create green jobs. Al Gore suggests that the right kind of strategy could create 1.7 million US jobs. Michael Ignatieff, Canada’s liberal leader, suggests that Canada could create, well a lot of green energy jobs with the right policies – cap and trade, investments in a smart-grid, non fossil fuel power policy and carbon taxes. Gordon Brown, the current British Prime Minister, speaks of 400,000 green jobs in eight years.

These claims are based, in part at least, on the 20087 IPCC Fourth Assessment Report report, especially Chapter 11, which looks at the economic costs and opportunities linked to climate change action. This chapter did not go through the normal double review process the IPCC always says is the hallmark of its quality assurance process. Had it done so, some key problems may have been caught.

The first of these it that there are few peer reviewed papers which support the position taken in the summary of this chapter in the Summary for Policy Makers associated with the IPCC fourth assessment. One of the authors of several IPCC documents and one of the world’s top economists, Richard Tol, has now suggested that the basis for many of the claims are papers in the so-called “grey” literature – magazines, pamphlets and other documents – rather than peer review literature. Despite claims that the processes of the IPCC focus only on peer reviewed cases, this is clearly simply untrue as has been shown in other chapters of this report and is now shown to be untrue here.

The second problem a sceptical and thorough review would have revealed is that the claims made for the economic impacts of carbon mitigation and other measures are based on computer models and simulations, which are in turn based on the assumptions made by the modelers. One of these assumptions is that policies for the environment will always be smart and well designed – something it is difficult to imagine coming out of the US Senate. One peer review study of the EU policies – the 20% reduction in CO2 emissions by 2020 – shows that it is poorly designed as a strategy and will cost more than twice the amount needed to achieve the outcome, thereby costing jobs.

The third problem is that some of the caveats disappeared between various drafts of this Chapter. For example, a key assumption in some models is that revenues from carbon taxes and emission permit auctions are used to reduce taxes on labour. If this revenue is not dedicated to this, but instead used to invest in technology (which is what Obama plans), then jobs will be lost. Further, there is no positive impact on employment and job creation if emission reductions are achieved by subsidies for renewables or if emission permits are given away for free – both actions being commonplace amongst governments, as we can see in Spain. There every “green job” created with government money in Spain over the last eight years came at the cost of 2.2 regular jobs, and only one in 10 of the newly created green jobs became a permanent job, according to a study released in 2009.

This Spanish experience is noteworthy. Dr. Gabriel Calzada, an economics professor at Juan Carlos University in Madrid, has said the United States should expect results similar to those he found in Spain. "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,” wrote Calzada in his report: Study of the Effects on Employment of Public Aid to Renewable Energy Sources.

So we now have an uncertain basis for predictions with respect to green job growth, a string of caveats which, when taken together, suggest a high degree of risk in the predictions and firm evidence from the Spanish experience that the risk associated with a strong push for a green job economy are very serious indeed – especially now that Spain, together with Greece, Ireland and Portugal are on the EU’s “critical list” in terms of economic well being.

Don’t panic, say some politicians, we have another source for our confidence: the Stern Report, released in 2004. This political document – it came from a the UK Finance Ministry – suggests that that tackling climate change will cost 20 times less than doing nothing and thus underpins UK political initiatives, such as emission trading or energy-efficiency actions. It also suggests that such policies will create a green economy, with thousands of new jobs. In a thorough review of this document, Richard Tol suggests that it uses only the most pessimistic impact studies, starts from a too-low discount rate and has no real cost-benefit analysis. Tol therefore called the report "alarmist and incompetent".

His main criticism of the Stern report are these: (a) the Stern Review Team used the scientific literature selectively and the bias systematically favoured the worst case scenario; (b) they made technical errors (counting risks twice over, refusing to take into consideration the considerable attenuation of net damages obtainable via adaptation strategies, forgetting some of the economic costs of prevention policies, discrepancies between the damages as described and economic growth assumptions, in Africa in particular, etc.); and (c) they manipulated the economic concepts and tools, in particular the discount rate, so as to paint the most alarming picture of expected damages if the international community failed to take early energetic action. Tol’s analysis, which is thorough, explores the implications of these problems in detail.

What are we to make of all of this? It is simple – we are being asked to place a bet with a high level of risk that it may have the opposite impact to that intended (see Spain). The bet will involve a massive new tax, cap and trade regime and lifestyle changes in the hope that a large number of new green jobs will be created. Don’t you thin we should demand better evidence that it will work? Don’t you think we should know about the assumptions being made. All of the evidence suggests that it is not a simple equation – green policies don’t equal green jobs. Time for a real debate.

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