Can the Green Obama Push create new jobs, end the recession and green the economy? Here is a quick sketch of two possible pathways.
Reform the tax code such that we raise the carbon tax and we cut income taxes. Gib Metcalf of tufts is working on such proposals;
This would get the incentives right to green our economy in terms of power plants, building energy consumption and vehicle fleet economy. While it is difficult to precisely estimate how many "new jobs" this bundled tax policy would generate, I am optimistic that it would accelerate the economy's transition to a green, growing economy.
If President Obama pursues this "New Deal" style green big push such that he commits the government to purchase large amounts of solar panels and other green infrastructure, then it better be the case that there are sharp "learning by doing" effects for producers of green output.
Learning by doing simply means that a firm's average cost of production declines as cumulative experience increases. If this is the case, then government can help an immature new technology such as renewable energy compete against dirty incumbents (such as coal fired powered plants) by promising to purchase the first generation of expensive products. This is a credible signal to businesses of a a "Field of Dreams" effect. If firms build a green product, then government will buy it. If such firms gain valuable experience from selling to government and then lower their cost of production (through learning by doing effects), then government can eventually phase out the subsidies and the new green technology can cost-effectively compete against the dirty incumbents.
Economists continue to debate whether learning by doing effects are large enough so that we can be optimistic that government can trigger this "green push".
Here is a good article from Business Week
Green Biz November 26, 2008, 5:00PM EST text size: TT
Can Obama's Stimulus Plan Spur Green Jobs in the U.S.?
Barack Obama's energy plan seeks to turbocharge America's eco-friendly businesses and keep jobs at home. But the hurdles are high
By John Carey
Barack Obama's plan to pull the country out of recession has a strong green hue. Conventional wisdom says Washington won't have the stomach or the dollars to tackle long-term issues like climate change or dependence on foreign oil when the economy is in the tank and oil prices have plunged. Wrong conclusion, Obama says. These problems, "left unaddressed, will continue to weaken the economy and threaten national security," he said on Nov. 18 in a video message to a climate summit meeting in California.
His fix? Obama plans to set ambitious targets for reducing emissions that cause global warming—and to invest $15 billion or more per year in energy efficiency, renewables like wind and solar, biofuels, nuclear power, and "clean" coal. Beyond the environmental benefits, says the President-elect, the investment "will also help us transform our industries and steer our economy out of this economic crisis by generating 5 million new green jobs that pay well and can't be outsourced."
Whether or not a "green" stimulus will create millions of American jobs is hotly debated by economists. On the one hand, the seeds of the transformation have already been planted thanks to market forces, such as overall higher energy prices, and government policies like tax credits for renewable energy. But there are also major questions. Many executives and experts say the most effective policy to push America toward a clean, efficient energy future is putting a price on emissions of greenhouse gases like carbon dioxide, thus raising the price of energy. That's a tough sell now to Americans struggling to pay their bills. There's also a danger that the government could steer investments to the wrong technologies. Remember synfuels, President Jimmy Carter's experiment to reduce dependence on foreign oil? Most important, a green stimulus plan from Uncle Sam may end up sending billions of dollars to foreign companies instead of to Main Street, since the U.S. lags in such crucial industries as solar panels and wind turbines. Will green technologies become today's VCRs and flat-panel TVs, invented in the U.S. and commercialized elsewhere?
But the fear of enriching overseas companies simply makes a green stimulus more necessary and urgent, proponents argue. Without a plan like Obama's, which would expand U.S. markets for new technologies, American companies may fall even further behind. Michael R. Splinter, CEO of Applied Materials (AMAT) in Santa Clara, Calif., is a believer in the need for government support. Splinter has seen his business of supplying equipment for factories to make solar panels soar beyond his wildest projections. But 97% of the company's equipment goes to foreign manufacturers, who then sell panels in the U.S. It seems like the U.S. has "given up on manufacturing," Splinter laments. "Right now we are on a path to being a second-tier player in clean energy technology."
A plan like Obama's could turbocharge American industries, Splinter and other executives say. Why have European companies become world leaders in wind and solar power? Because a number of governments guarantee that anyone who supplies renewable power to the electric grid will get a premium price for that power. That cost is then passed along to customers.
POLITICAL LAND MINES
Similar incentives could work magic in the U.S., says Lester Brown, president of the Earth Policy Institute. America already has a vibrant green-energy sector, so the transformation could be rapid. There are upward of 3 million Americans employed in green jobs, ranging from renewable-power startups to businesses with products that reduce waste and pollution or boost energy efficiency.
And even when goods come from foreign companies, some of the jobs will be in the U.S. One growing trend is for European and Asian manufacturers to build factories in America so they can be closer to what promises to be the world's largest market. Spanish wind company Gamesa is bringing 1,000 jobs to several factories in Pennsylvania and its North American headquarters in Philadelphia. In Memphis, Sharp opened its first plant outside of Japan for making solar panels.
Some green industries are homegrown by nature. Biofuel refineries need to be built near the crops that provide the feedstock. Even more jobs would be created by making U.S. houses and buildings more energy efficient, argues economist Robert Pollin of the University of Massachusetts, Amherst. "There is about $26 billion in retrofitting on public buildings that could be done the day after legislation is signed," Pollin says. "The job impacts are very high. Each $1 million in spending would bring about 18 jobs."
What could Washington do to grow the green economy? Limit emissions of greenhouse gases, thus raising the price of using fossil fuel and steering the industry toward more environmentally friendly alternatives. Continue or boost tax credits for biofuels, wind, and solar. Make infrastructure investments, such as building transmission lines needed to bring power from large solar power plants in the desert or from North Dakota's windswept prairies. And increase federal dollars for energy research and development, aiding programs that have withered during years of declining funding. All of this, proponents say, would foster enough innovation to help American companies leapfrog their overseas rivals. "America's future depends on our ability to spark an energy revolution," argues Massachusetts Institute of Technology President Susan Hockfield.
Skeptics wonder, however, if such a sweeping transformation is possible. "The optimist in me wants to believe it," says Matthew E. Kahn, an economist at the University of California, Los Angeles. "The cynic in me asks, is this like FDR jobs creation in the guise of green jobs?" Kahn believes that rather than spending federal dollars, the best approach is simply increasing the price of carbon—which is politically difficult.
Passing Obama's green stimulus package will be an uphill battle, and its success if implemented is far from certain. But the nation's financial mess is so bad that the President-elect has a freer hand. He also needs to show action on climate change to help restore America's reputation around the world—and to bring China and India on board. The surge earlier this year in oil prices (expected to rise again after the recession ends) even has brought traditional opponents of renewable energy and climate action to the bipartisan table, as long as they get expanded drilling rights. Says Thomas J. Donohue, president of the U.S. Chamber of Commerce: "Energy policy can create jobs, give an economic lift, and get us out of this ditch."
with Adam Aston
Carey is a senior correspondent for BusinessWeek in Washington.