Saturday, April 26, 2008

Job losses and the environment

This topic is usually considered in the context of "environmental regulations causing Job losses" for competitive reasons.

A new study from the Solar Energy Industries Association provides a unique twist on the usual analysis. This time they are effectively saying that a lack of regulations (or a relaxation of regulations) will lead to job losses.

This article raises a number of interesting questions. First, are green jobs really "quality jobs"? If there were no regulations would a number of jobs not have been lost in the first place?

Clearly the "SEIA" have a strong interest in arriving at these results.

New Study: Delay in Extending Renewable Energy Incentives Risks Loss of Over 116,000 American Jobs [SEIA]

A new economic study by Navigant Consulting finds that over 116,000 U.S. jobs and nearly $19 billion in U.S. investment could be lost in just one year if renewable energy tax credits are not renewed by Congress, according to preliminary results released today by the American Wind Energy Association and the Solar Energy Industries Association.

The study finds that over 76,000 jobs are put at risk in the wind industry, and approximately 40,000 jobs in the solar industry. The states that could lose the most jobs include: Texas, Colorado, Illinois, Oregon, Minnesota, Washington, Iowa, North Dakota, Oklahoma, Pennsylvania, and California. The lion's share of these states would lose more than 1,000 jobs.

"This study confirms the huge economic stimulative impact of extending the tax credits for renewable energy," commented Gregory Wetstone, Senior Director for Public and Government Affairs of the American Wind Energy Association. "At risk are many thousands of construction jobs, operations and maintenance jobs, and a major shot in the arm for the ailing U.S. manufacturing sector. Shuttered facilities that once provided steel, railcars, trucks, submarines, and household appliances are now being converted to manufacture renewable energy components. Today, however, investors are holding back because of Congress' delay in extending renewable energy tax credits, undermining one of the brightest and fasting growing areas of the American economy."

"Solar energy is an economic engine that creates high-quality jobs and attracts commercial investment," said Rhone Resch, President of the Solar Energy Industries Association. "If the investment tax credit is not renewed in early 2008, it will disrupt this high-growth sector, impact tens of thousands of U.S. jobs, and undermine advances in clean energy production."

The Navigant study is released just as the U.S. Department of Labor reports an economy-wide job loss for the first time since 2003. Some 17,000 pink slips were issued in January, with construction and factory workers especially hard hit, according to DOL.

The strong growth in the renewable energy industries combated some of this loss by creating thousands of jobs, particularly where they are needed most, in construction and manufacturing: in 2007 alone, wind turbine installations employed approximately 8,000 people in construction, and at least 14 new manufacturing facilities have been opened or announced across the nation to make wind turbines and wind turbine components.

H/T: Treehugger


Prasad Rao said...

I'm glad Rob posted this one because it gives the lie to the oft-heard refrain that environmental regulations only cause job losses. The truth is that in the short run, compliance with regulations creates economic activity. An increase in economic activity adds to GDP and increases jobs at firms positively impacted by the regulation. At the same time, regulatory requirements add to the marginal cost of production (at firms hurt by regulation), reducing both their competitiveness and that of the industry against foreign competitors. Job losses result when the firm (and the industry) contract.

But no issue is that simple. Job gains and losses do not occur within a firm or even within an industry. If they did, there wouldn't be much of an issue. The design and structuring of environmental regulations matters. Regulations that apply ununiformly - across size or technological vintage, profitability or that are undiscriminating of locational differences and market niches bring about a conflict of interest within the industry. Such is the case with renewables. Subsidies and tax credits for non-renewables draw a clear line between non-renewable and renewable energy firms, pitting them squarely against each other in the debate. The format of the subsidy also matters to its efficiency. A renewable energy mandate is different from an investment tax credit, which again is different from a credit on business income (revenue or profit). Regardless of the form, these policies increase their market share and employment in the sector. In a stagnant or shrinking industry, such policies would weigh upon the non-renewable energy industry and cause some of the highest cost firms to scale back. Job losses would result. In an expanding economy however, impacts upon jobs would be hard to detect, if at all.

The various renewable programs in the US have sought to 'level the playing field' for the fledgling industry against the domination of the fossil-fuel behemoths. Renewable energy subsidies and tax credits expand the industry and that in turn fuels job growth. Clearly, dismantling the renewable energy subsidies would reduce the growth rate of this industry. Employment in the renewables industry would not grow as fast as it would have otherwise. With the economy poised to enter a recessionary phase, that would be bad news to the labor market and among legislators at the Hill who must be weighing their decision very carefully. On one hand, they must seek the least cost road to a cleaner economy in preparation for a carbon-tax regime; on the other, they must evaluate the costs and benefits of subsidizing the renewable industry: poorly targeted subsidies could distort the economy and reduce the industry efficiency and competitiveness (though, targeted subsidies to renewable energy firms could improve their odds against foreign competitors and open up new export markets and boost economic growth down the road).

Whether job gains more than compensate for the job losses is a matter of further theoretical and empirical analysis. What one can affirm is that though impacts upon employment are the prime criterion in many legislative debates, regulations should be determined by maximization of 'net benefits' across regulatory alternatives. Job losses can be handled through welfare programs and with income/opportunity redistribution programs.

Rob Elliott said...

Thanks for the excellent comment Prasiad. You have summarised many of the points that I was too lazy to make very well (and better than I would have done).

There is certainly more work to be done linking labour markets and the environment and is actually the content of a recent PhD proposal I have worked on for a potential new student.

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