Posted by: bmeverett | April 26, 2009

Green jobs or con jobs?

President Obama took an Earth Day trip to Newton, Iowa to celebrate the resurrection of the town, thanks, naturally, to “green jobs.” For over 100 years, this small town was headquarters to the Maytag Corporation, known for its home appliances and its “loneliest guy in town” repairman. The Maytag guy got a lot lonelier in 2006 when Maytag was acquired by Whirlpool. Not needing an extra corporate headquarters, Whirlpool decided to close the Newton offices as well as the appliance manufacturing plant located there. Newton was clearly in big trouble, but riding over the hill came Trinity Structural Towers, a company that makes support structures for large wind turbines. According to President Obama, this is all to the good. After all, who could possibly object to the creation of 100 new jobs in a town devastated by corporate greed (also known as economic growth?
All of us can be happy for the lucky 100, but let’s think a bit before we celebrate. Let’s say that a worker in Newton, Iowa has a 10-year old car which gives up the ghost and can’t be repaired. It’s a hardship not to have a car. Unfortunately, the guy has no money to buy a new car, so he appeals to the federal government for help. Not wanting to say no to anyone in need, the government picks someone at random in New York City, confiscates his car and gives it to the guy in Newton. Good idea? Should the President fly out to Newton to celebrate the Government’s role in providing people with cars? Of course not. There’s no value added to the economy; the government simply made one citizen happy at the expense of another.
Suppose the government instead taxed 300 people $100 each and used the $30,000 to buy the poor guy in Newton his new car. Now they have one very happy voter and 30 mildly unhappy voters. This might work politically if the unhappy people weren’t going to vote for the administration anyway. Economically, however, it’s no different than the confiscation. We’re just spreading the pain around.
How about taxing three million people 1¢ each to buy the guy in Newton his car? The three million people probably won’t even notice the difference, and how angry can they be anyway? Economically, it’s still no different. Although the economic cost of the tax is very small, so is the benefit – only one person was helped.
The wind factory in Newton suffers from the same problem. Although the 100 lucky workers are working hard and earning a real paycheck, the only reason that Trinity Structural Towers is in business is that the US Government heavily supports wind power through a Production Tax Credit (PTC) of a 2.1¢ per kWh or a 30% Investment Tax Credit (ITC), whichever the developer chooses. In recent years, the government has periodically allowed these subsidies to lapse, then reinstated them. Lots of wind capacity was built in years when the subsidies were available, but very little when it was not. We can reasonably conclude that nobody would be building much wind power without the subsidy.
What would happen if we eliminated the subsidy altogether? Instead of wind power, we would be building other kinds of electric power plants, mostly natural gas, and the machinery and equipment for those power plants would be built somewhere by some other workers. We would also stimulate the production of natural gas, which would employ more people to find it, produce it and deliver it. Furthermore, the money for the subsidy has to come from somewhere. Currently the US Government is borrowing funds which are coming out of the capital markets. Those funds could have been used for something else that creates jobs. Future generations will have to repay these loans, again diverting funds which could have been used to create jobs.
In other words, there are two sides of this equation. The jobs that are created in Newton are clearly identifiable. More jobs may be lost because of the subsidies, the Government deficit and higher prices of electricity, but these jobs cannot be identified and have no constituency to fight for them. Nor can future generations stand up to complain about the burden we are placing on them.
We have this same problem with anti-trade legislation. The jobs saved by limiting import competition are obvious, while the jobs lost because of export sales that never materialize are not.
President Obama sees reduced greenhouse gas emissions as another benefit of wind power, and he is of course right – in theory. But how much carbon does the subsidy save? Let’s suppose that each kWh of wind power replaces an equal amount of electricity generated by coal – our highest carbon fuel. Each kWh of coal-fired power produces roughly 1 kilogram (2.2 lbs) of CO2, while each kWh of wind power produces no CO2. The 2.1¢ subsidy is therefore equivalent to a price of about $21 per metric ton of CO2. According to the White House, the President’s national “Cap-and-Trade” proposal would cost $650 B over 8 years. Over that period of time, the US will emit about 46 billion metric tons of CO2. So the President thinks that about $14 per metric ton is the right price for CO2. That suggests that the wind power subsidy is not paying its way in terms of carbon reduction.
It may be coincidence that the President staged this event in Iowa, home to the infamous Iowa Caucuses, but I doubt it. Climate change and economic recovery are serious issues. We need some clarity here, not the usual smoke-and-mirrors.



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