Friday, June 24, 2011

Carbon Cap & Trade: What Do We Know About Jobs Impacts?

Erin Mansur and I have written a paper focused on estimating how the count of manufacturing jobs in a local area responds to that area's labor regulation, environmental regulation and electricity prices.  Abstracting from transportation costs of inputs and shipments of output to final consumers, a cost minimizing production facility will seek out a geographical area featuring low regulation and low electricity prices.  Given that industries differ with respect to their labor intensity, pollution intensity, and electricity they use per dollar of output they create, we predict that those industries that are the most electricity intensive (i.e they use a lot of electricity to make their output) will respond the most to electricity prices.

Our econometric evidence supports all three of these claims.

As the political parties continue to debate the costs and benefits of enacting carbon pricing.  Here is some evidence.  Erin and I ask the following question.  If a state such as California enacts a $15 per ton carbon price while all other states do nothing, what will happen to California's total count of manufacturing jobs given historical patterns from 1998 until 2006.

We predict that such carbon pricing will raise industrial electricity prices by .4 cents per KWh.  California's manufacturing industry is not a major user of electricity and so we predict job loss of 6,648 jobs or a -.5% decline.

Before opponents of cap and trade start to cite these numbers, it is important that clear headed folks keep in mind that this legislation will also stimulate the vaunted "green jobs" for the State.  If this legislation can be shown to create more than 7,000 new jobs for California then I would be more confident in calling this legislation a net jobs creator.  

The key point that nerds need to study is that such legislation simultaneously "destroys jobs" and "creates jobs".   Here is another NBER study.

Given that incumbent firms (who are part of the "old economy") already exist and will complain about placing a positive price on carbon emissions, there is a political interest group asymmetry.  Many of the "green jobs" firms who will be born because of this regulation do not exist yet and thus cannot lobby in favor of the legislation.



Panel B: Simulation of Carbon Policy ($15/ton of CO2) by State

Change in
Percent
Average
Change in
State
Employment
Change
Electricity Index
Electricity Price
Ohio 
-27,736
-4.8%
26.9%
$0.013
Pennsylvania 
-25,218
-4.7%
28.4%
$0.010
Texas 
-20,471
-2.8%
22.3%
$0.009
Indiana 
-18,933
-5.4%
27.4%
$0.013
North Carolina
-18,399
-5.4%
25.4%
$0.009
Michigan 
-16,653
-3.4%
21.6%
$0.013
Wisconsin 
-15,759
-4.7%
27.4%
$0.012
New York
-15,146
-3.1%
22.4%
$0.011
Georgia 
-14,930
-6.5%
28.0%
$0.009
Illinois 
-14,466
-2.6%
26.1%
$0.012
Tennessee 
-13,309
-5.8%
26.2%
$0.010
Alabama 
-12,445
-7.2%
28.5%
$0.009
New Jersey
-11,495
-3.9%
27.8%
$0.009
Missouri 
-10,928
-5.5%
22.8%
$0.011
South Carolina
-10,508
-6.4%
30.7%
$0.009
Florida 
-10,441
-3.4%
21.4%
$0.009
Virginia 
-10,396
-6.5%
25.7%
$0.010
Minnesota 
-8,498
-3.8%
20.8%
$0.012
California 
-6,648
-0.5%
19.5%
$0.004
Kentucky 
-6,642
-5.0%
25.2%
$0.013
Maryland 
-6,612
-5.6%
24.1%
$0.011
Louisiana 
-6,522
-6.4%
26.1%
$0.009

continued on next page.
Table 7, Panel B: Continued

Change in
Percent
Average
Change in
State
Employment
Change
Electricity Index
Electricity Price
Arkansas 
-5,055
-5.9%
26.4%
$0.009
Massachusetts 
-5,053
-1.9%
22.3%
$0.011
Iowa 
-4,482
-4.9%
23.6%
$0.012
Kansas 
-3,916
-3.9%
19.0%
$0.010
Connecticut 
-3,874
-2.2%
19.7%
$0.011
Washington 
-3,857
-1.8%
20.5%
$0.004
Oklahoma 
-3,613
-3.8%
24.3%
$0.010
Colorado 
-3,496
-2.9%
20.4%
$0.004
Mississippi 
-3,224
-7.7%
22.7%
$0.009
Oregon 
-3,177
-2.3%
21.6%
$0.004
Utah 
-2,353
-2.6%
21.2%
$0.004
Nebraska 
-2,159
-4.4%
22.1%
$0.012
Rhode Island
-1,694
-3.3%
24.4%
$0.011
Arizona 
-1,503
-0.9%
19.3%
$0.004
New Hampshire
-1,400
-2.9%
19.8%
$0.011
South Dakota
-917
-5.8%
19.9%
$0.008
Vermont 
-710
-4.7%
12.3%
$0.011
West Virginia
-684
-2.4%
38.6%
$0.013
New Mexico
-654
-3.1%
19.3%
$0.004
Montana 
-632
-8.3%
30.6%
$0.004
Nevada 
-584
-1.5%
25.7%
$0.004
Idaho 
-518
-2.4%
10.1%
$0.004
Delaware 
-514
-2.9%
26.3%
$0.009
Maine 
-462
-2.1%
28.4%
$0.009
Wyoming 
-454
-10.6%
23.7%
$0.004
North Dakota
-251
-1.8%
20.1%
$0.012
District of Columbia
0
0.0%
19.4%
$0.009

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