It's Even Harder Being Green During a Recession

Clean energy benefited from billions in stimulus funding. But as projects fail to deliver many jobs, that government support could poison the movement.

600 wind turbines2 REUTERS Mario Anzuoni.jpg

When Congress announced that it would pass an economic stimulus approaching $1 trillion in early 2009, every industry lined up at the Capitol for a handout. This is hardly surprising: when the government is giving away free money, everybody wants their fair share. The renewable energy industry was no exception. It ended up getting tens of billion of dollars through several different provisions. But as its projects fail to deliver the jobs promised, the funding could poison the green energy movement in the long run.

How the Government Can Advance Green Energy

There are essentially two ways that the government can help to push green energy endeavors. The first is through direct spending. It can provide direct subsidies like loan guarantees to industry players or it can provide tax breaks to firms or consumers who purchase the industry's products. In the stimulus, spending took both of these forms.

The second way the government can promote clean energy alternatives is indirect. It can provide a competitive advantage by making fossil fuel options more expensive. It can do this through stricter regulation or taxes.

The problem, however, is that a recession is the very worst time for the government to push green energy through either of these methods. The spending isn't particularly effective at job creation, and if costs rise for firms and consumers, then even more jobs will be lost.

Good Energy Policy Can Be Poor Stimulus

Here's the problem with having funding for renewable energy initiatives in a stimulus bill: it actually makes for pretty poor stimulus. Wind turbines, solar panels, electric cars, and other new green technologies are very expensive. So the output you're getting for each dollar spent is low relative to what you might get from other industries. And less output for more dollars means relatively fewer jobs than other alternatives.

To make matters worse, the jobs these produce are exactly the wrong kind as far as stimulus is concerned. Many are for high-skilled workers. Some aren't very shovel ready, as sometimes research or development is necessary before production can occur. And some of the most expensive and essential materials necessary for the products -- like rare earth metals -- are produced in China. That creates lower-skilled jobs that create value from natural resources overseas but not in the U.S.

Earlier this month, the Energy Department confirmed this problem. Its $38.6 billion loan guarantee program created only 3,545 new, permanent jobs after being half spent. The Obama administration promised it would create 65,000 jobs. So at this pace, it will barely provide 10% of the jobs projected. That's a cost of potentially $2.7 million per job.*

Increasing Taxes and Regulation Kills Jobs

This point is true no matter what the economic situation: taxes and regulation are bad for jobs. If firms face higher taxes, then their profits will fall. That will leave them less money to expand and create jobs. If regulation rises, then firms' costs rise. Again, this reduces profits which will also force job cuts or slower hiring.

For example, a recent study by the National Economic Research Associates on behalf of the American Coalition for Clean Coal Electricity finds that some of the EPA's new and proposed regulations would be terrible for the already weak economy. It asserts they would lead to "183,000 lost jobs per year and significant increases in the price of electricity and natural gas."

Of course, we can quibble about the study's numbers. Maybe the job losses and additional costs wouldn't be quite as great. But during a time when so much suffering is connected to prolonged unemployment, are policymakers really going to err on the side of the EPA here? There might be times when, on balance, some lost jobs are better for the nation than forgoing additional tax revenue or regulation. But when unemployment is very high or rising, the economy becomes the priority.

So What's the Solution?

In general, recessions serving as a rough time for green energy shouldn't surprise us: a poor economy is not a time during which technological advance tends to flourish. Firms are cutting costs, investors are pulling back, and consumers aren't spending. The money just isn't available for an expensive product to succeed.

But for for the reasons described above, recessions can be particularly dangerous for green energy. People, even politicians, could begin to confuse the poor decision to advance green energy during a recession as being a poor decision to advance it anytime. What might be good public policy at one point in time could be bad public policy at another.

The best answer here isn't one that renewable energy companies or proponents will like. As long as the economy is bad, investment in the new technology needs to be left to the private sector, and new regulation and taxes should be deferred. Pushing for government support for green energy endeavors at a time when healing the economy is a priority will just end up being counterproductive.

By the government focusing its time and money on better ways to get business moving again, the economy will heal sooner. And that recovery will be a time when new energy technologies can flourish: investors will be looking to spend more money and consumers will be able to better stomach higher energy costs. Even though it might have a sour taste, patience might be the green energy movement's best medicine until the economy recovers.


* Note: As a commenter points out, we don't know how much these guarantees will actually cost yet -- just how much was allocated. However, there were other stimulus programs that were direct spending.

Image Credit: REUTERS/Mario Anzuoni