Members of Congress like to play games and they like to spend money. What better analogy to use to describe Congress’s proposed green energy policies than the Price is Right? As Congress seeks to implement policy that would create green jobs by mandating renewable energy projects, three cautionary European tales suggest the U.S. should take a second look at cap and trade and renewable energy mandates. We’ll take you through a Price Is Right showcase style tour of three failed renewable energy initiative.
Our first stop takes us to Germany where think tank Rheinisch-Westfälisches Institut für Wirtschaftsforschung just released its study on the economic impacts of the country’s green energy initiative. Commissioned by the Institute for Energy Research (IER), the report finds with per worker subsidies for solar industry jobs are as high as $240,000. Last year, “the price mark-up attributable to the government’s support for “green” electricity was about 2.2 cents US per kWh. For perspective, a 2.2 cent per kWh increase here in the US would amount to an average 19.4% increase in consumer’s electricity bills.” Government subsidies for wind and solar are projected to be over $100 billion from 2000-2010 and, to make matters worse, as the subsidies run out, so do the jobs.
Our next stop on the trip brings us to Denmark, and if you don’t mind a brief layover in Oslo, you’ll receive a complementary Nobel Peace prize. President Obama stresses we should be more like Denmark since 20 percent of the nation’s electricity comes from wind power. But is that really the case? According to a study from the Danish Centre for Political Studies (CEPOS), also commissioned by IER, the road to increased wind power is less traveled for a reason. The study refutes the claim that Denmark generates 20 percent of its power from wind stating that its high intermittency not only leads to new challenges to balance the supply and demand of electricity, but also provides less electricity consumption than assumed. The new study says, “wind power has recently (2006) met as little as 5% of Denmark’s annual electricity consumption with an average over the last five years of 9.7%.” Furthermore, the wind energy Denmark exports to its northern neighbors, Sweden and Norway, does little to reduce carbon dioxide emissions because the energy it replaces is carbon neutral. The study goes on to say that absent of government subsidies, Denmark would be absent a wind industry.
The third and final destination on our green energy tour takes us to Spain, another country Obama says the U.S. should replicate when it comes to energy policy, saying, “they’re making real investments in renewable energy.” But real investments aren’t necessarily good investments. Another IER-commissioned study coming out of King Juan Carlos University in Madrid by Gabriel Calzada found that, for every green job created, 2.2 jobs in other sectors have been destroyed. Furthermore, Spain’s government spent $758,471 to create each green job and used $36 billion in taxpayer money to invest in wind, solar, and mini-hydro from 2000-2008.
Which brings us back home to the United States where our government wants to create green jobs by subsidizing windmill and solar projects as well as cap carbon dioxide in what they call a pollution reduction bill. But there are two fundamental problems with this: First, as shown in the Spanish study and explained by Heritage analyst David Kreutzer: “Environmentalists do not see government expenditure as having a cost. They employ the same free-lunch fallacy that underpins essentially all the analysis showing green-energy subsidies increase employment.
The first week of every principles of economics class goes over the problem with free-lunch assumptions. The labor and material used to make windmills or solar panels or to install insulation cannot simultaneously be used to make refrigerators and automobiles. When government spends more money, it necessarily diverts labor, capital and materials from the private sector. Dr. Calzada simply calculated how many jobs, on average, would have been supported with these resources had they been left to the private market.”
Secondly, with cap and trade Congress is mandating higher energy prices and killing many more jobs throughout the process. Consumers spend less. Businesses, faced with higher prices, are forced to make production cuts and reduce labor or they will move to another country where the costs of operation are cheaper without cap and trade and renewable energy mandates. Our analysis of the proposed green energy economy will destroy 1.9 million jobs in 2012 and 2.5 million by 2035 – after accounting for the green jobs created.
George Mason economist Tyler Cowen writes, “We’re dealing now with something beyond the Keynesian short run and so those extra jobs are a drain of resources from elsewhere. If you wish, sub out the word “energy” and sub in the word “agriculture” and then reevaluate the sentence from the vantage point of 1900. Would it truly create net jobs — much less good jobs — to trash tractors and industrial fertilizer? The ideal situation would be a technology where very few jobs were required to create and distribute the nation’s energy supply.”
Heritage energy expert Ben Lieberman sums it up well, saying, “Real-world experience bears this out. Governments that subsidize or mandate green jobs reap fewer overall jobs and a weaker economy.”
When it comes to green energy economies and green jobs, the price is wrong. When the price is right, the market will invest in alternative energy technologies without help or mandates from the government. But as it stands now, we’ll pass on that showcase.