The 'Green Jobs' Myth

A European lesson in the pitfalls of industrial-environmental policy.
As he did for health care, President Obama has turned to Europe for inspiration on the environment. Countries such as Spain and Germany are "making real investments in renewable energy" and are "surging ahead of us," he has warned.In last week's State of the Union speech, Mr. Obama proposed to reverse the trend: "The nation that leads the clean energy economy will be the nation that leads the global economy," he said. "America must be that nation."
By all means, let's look at Europe's experience. Consider Germany. An October 2009 study by RWI Essen, a leading economic research institutes, found that costly government handouts more likely destroyed than created jobs, and stifled rather than promoted technological innovation—and all without reducing CO2 emissions.
The study estimates that the total cost of subsidizing solar and wind power generators installed between 2000 and 2010 was €53.3 billion ($74.1 billion) and €20.5 billion ($28.5 billion), respectively. The price mark-up for electricity consumers in 2008 was about 1.5 euro cents per kilowatt hour, or 7.5% of a household's average electricity bill. And with a price tag of up to €175,000, or $244,000, in subsidies per job, it's also difficult to call Germany's renewable energy policy a jobs miracle.
"We would . . . regard the country's experience as a cautionary tale of massively expensive environmental and energy policy that is devoid of economic and environmental benefits," the researchers concluded. Keep in mind that cash-for-clunkers was another German brainstorm.

It gets, er, better. Because the sun doesn't always shine and wind doesn't always blow, solar and wind power need conventional backup, which undermines the argument that they promote energy security. And Germany's 20-year head-start in renewable energy promotion has not led to the expected technological breakthroughs, either. On the contrary, the system stifles innovation as it "compensates each energy technology according to its lack of competitiveness," as RWI puts it. The guaranteed government aid thus "creates perverse incentives to lock into existing technologies" rather than develop tomorrow's quantum leap.
The subsidies for renewable energy also failed in the goal of cutting CO2 output. True, the promotion of renewable energy reduces the electricity sector's emissions. But in the presence of Europe's cap-and-trade system—which the Obama Administration would like to impose on the U.S. economy—obsolete emissions certificates can be sold to other industries. The result is "merely a shift rather than a reduction in the volume of emissions," according to the RWI.
But what about the jobs argument? A government can always put people to work in any number of ways. But "green" jobs turn out to be a uniquely expensive proposition. A study published last year by researchers at King Juan Carlos University in Madrid showed that Spain, which copied much of Germany's system and which Mr. Obama also looks to as a model, spends €570,000 ($794,000) to get one worker employed at a solar-panel assembly line. As for the "sustainability" of those jobs, RWI notes that "It is most likely that whatever jobs are created by renewable energy promotion would vanish as soon as government support is terminated." Translation: "green jobs" means taxpayer subsidies unto eternity.
Green jobs also mean forfeited opportunities, as subsidies crowd out jobs in the traditional energy-generation sector, job losses from the drain on the economy as a result of higher energy prices, consumers' loss of purchasing power and the misallocation of funds from more productive investments. As RWI warned, "Governments should scrutinize the logic of supporting energy sources that cannot compete on the market in the absence of government assistance." To which we would only add that here's a case where President Obama really could benefit from studying the European model.