September 9, 2009

The “Green Jobs” Myth Behind Cap and Trade

(This op-ed was published in the Detroit News on Sept. 9, 2009 under the title “Benefits of cap and trade legislation too costly.”)

Facing growing skepticism over his support of the costly Waxman-Markey cap-and-trade bill, President Barack Obama has decided to recast it as a path to economic prosperity and green jobs.

“We’ve seen that other countries realize a critical truth,” he said in a Rose Garden speech. “The nation that leads in the creation of a clean energy economy will be the nation that leads the 21st century global economy.”

“Make no mistake,” he continued. “This is a jobs bill.”

Gov. Jennifer Granholm echoed these sentiments recently: “The old argument that anything that helps the environment has to hurt the economy is over.”

If these bold claims — that cap-and-trade will lead to a booming “clean energy economy” and create “green jobs” — sound too good to be true, it’s because they’re not true.

Many prominent scientists believe that rising carbon dioxide (CO2) levels in the atmosphere are causing temperatures on earth to rise. Other, equally eminent scientists dismiss this notion.

Obama has embraced the global warming view and argues that the root of this problem stems from our failure to adequately take into account the cost of emitting CO2 when we consume energy. Energy production from coal, gasoline, natural gas and other so-called “fossil fuels” is a major source of CO2.

The president’s solution is to limit (or cap) these emissions. As with any restriction on energy output — i.e. the Arab oil embargo of 1973 — this will drive up energy prices.

Because energy is used in the production and distribution of virtually all goods and services, the impact of these hikes will be felt economy-wide. Some will be readily apparent. The price of electricity (70 percent of which is produced by burning fossil fuels), for example, will rise. Other effects will be less obvious. Food prices will rise because energy is used extensively in the production and transportation of agricultural products.

The Waxman-Markey plan tries to minimize these costs by granting “rights” to pollute and allows them to be traded. Such rights are most valuable to firms that would find it very expensive to reduce their CO2 emissions and less so to those that can cut their pollution at little cost. The exchange of pollution rights among firms will ensure that those who can cut their CO2 emissions most cheaply do so first. This reduces the costs to the economy of complying with the cap.

While Waxman-Markey lowers the costs of limiting CO2 emissions, it does not eliminate them. Higher prices will mean that consumers’ paychecks do not go as far and economic well-being will decline. This reduction may be worth it. After all, we may stave off the extinction of our species. Or it could be a colossal waste of money. There is no free lunch, however. The cost of reduced CO2 emissions is lower economic output, not economic nirvana.

The claims about this plan creating jobs are also misleading. The high levels of unemployment we are currently experiencing are transitory and due to the ongoing recession. A cap and trade program will do virtually nothing to alleviate this problem.

When the economy returns to full employment levels, so-called “green energy” jobs will simply replace those lost in the conventional energy sector. It’s hard to say whether there will be more or fewer jobs in that sector. If the production of green energy was more labor-intensive there might be more jobs. If it were more capital-intensive, there might be fewer. In any case, the cap and trade bill is not the panacea for our employment woes.

All of this talk about “a clean energy economy” vaulting the U.S. to the front of the global economy and creating millions of jobs is a canard. The Waxman-Markey bill should be judged on its merits. Citizens should study the issue and ask one simple question: Are the potential benefits of reducing CO2 emissions likely to exceed its costs? If they believe that they are, they should embrace the plan. If they do not, they should reject it.

Patrick Fleenor is chief economist of the Tax Foundation.