WASHINGTON, FEBRUARY 18, 2009--During the 2008 campaign, President Barack Obama advocated spending $150 billion to create 5 million new "green" jobs. The final stimulus bill includes billions of dollars in loan guarantees and tax credits for    clean energy producers and billions more to improve energy efficiency and update the electric grid. Most economists agree that, during recessions, government spending can create net jobs, and that increased energy efficiency is a boon to the economy--but consensus ends there. Economists at a February 12 AEI event discussed what the government's energy and employment goals ought to be and how best to achieve them.

Robert Pollin of the University of Massachusetts explained that because clean energy production and efficiency measures are more labor-intensive per unit of expenditure than the production of fossil fuels, decreasing the proportion of energy that we get from coal and oil will also create jobs. He argued that this is a necessary contribution to fixing two different problems: climate change and outsourcing. He objected to the term "green jobs"; his economic models predict that spending would create jobs in various fields: "construction, manufacturing, support, lawyers." He argued, however, that spending on green initiatives would create jobs more efficiently than spending on other sectors and that many of the jobs would be immune to outsourcing. Much of this job creation potential comes because we are in a recession: private-sector borrowing has drastically declined, so banks are "sitting on cash reserves." Pollin argues that if the government can incentivize spending in the green sector, the use of currently idle resources will create jobs.

CRA International's Anne Smith agreed with Pollin about the potential for some job creation via recessionary spending. "You can create net job increases in the near-term," she said. However, she argued that carbon-limiting regulations will always result in net job losses. Smith's macroeconomic models led her to conclude that a carbon-limiting package like Lieberman-Warner would destroy jobs and lower wages at an annual GDP cost of $330 billion in 2015. It is easy to notice jobs created by legislation, she said, but it is harder to detect when jobs are lost due to regulation. For instance, the effect of higher energy prices would be felt strongly and negatively in the service sector. Smith also argued that many of Pollin's green jobs could be done more cheaply abroad, and therefore would be vulnerable to outsourcing.

Skip Laitner of the American Council for an Energy-Efficient Economy argued that politicians are missing the real story about the potential to green the economy: the vast possible gains from increasing energy efficiency. His models, he said, showed that energy-related sectors only employ about two jobs per million dollars spent, whereas all other sectors create about seven. Therefore, Laitner argued, the real "green" jobs are not in the energy sector--they are the jobs we can create via increased efficiency and the elimination of jobs in the energy sector. He suggested we could expect a net job gain of over two million by 2030 via increasing energy efficiency, showing that there is more energy to be saved via efficiency than is contained in the entire outer continental shelf.

AEI's Alex Brill, a former chief economist to the House Committee on Ways and Means, described the concept of green jobs as "a Washington kind of thing . . . a [poll-]tested phrase." Like Smith, he argued against targeting specific sectors and in favor of broad objectives and considerations of how policy affects workforce participation rate and unemployment rate. He emphasized the importance of measuring policy effects in the aggregate (to "raise the overall 'greenness' of the economy") and advocated using market incentives to become greener. He also voiced concerns about the way the stimulus package has the government, not the free market, deciding which sectors to invest in. For instance, Brill's economic modeling shows that weatherization--for which the stimulus bill includes funding--has much lower returns than advertised. He concluded that government policy with the goal of greening the economy should raise the cost of energy and let the market find the most efficient way to deal with this.

Some of the disagreements between economists were value differences, others modeling differences. Smith's models presented a decrease in GDP by 2030 from Lieberman-Warner or similar legislation of about $1,700 per household, which Pollin called negligible. Other differences of opinion related to modeling techniques: Pollin used input-output modeling, which uses a different set of assumptions and tools than Smith's general equilibrium modeling, with different results. There are objections to both kinds of modeling, and some economists would agree with Brill, who stated: "I don't have a lot of faith in any of these models." 

--ABIGAIL HADDAD

For video, audio, and more information about this event, visit www.aei.org/event/100008.

For media inquiries, contact Veronique Rodman at 202.862.4870 or vrodman@aei.org.

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