President Obama traveled to the Massachusetts Institute of Technology today to deliver a speech on climate change. Part of the speech focused on innovation and the benefits of entrepreneurial risk taking while the other focused on government investments for renewable energy and the importance of climate change legislation. There was both good and bad parts of President Obama’s speech.
The good:
“Dr. Moniz is also the Director of MIT’s Energy Initiative, called MITEI. And he and President Hockfield just showed me some of the extraordinary energy research being conducted at this institute: windows that generate electricity by directing light to solar cells; light-weight, high-power batteries that aren’t built, but are grown — that was neat stuff; engineering viruses to create — to create batteries; more efficient lighting systems that rely on nanotechnology; innovative engineering that will make it possible for offshore wind power plants to deliver electricity even when the air is still.
And it’s a reminder that all of you are heirs to a legacy of innovation — not just here but across America — that has improved our health and our wellbeing and helped us achieve unparalleled prosperity. I was telling John and Deval on the ride over here, you just get excited being here and seeing these extraordinary young people and the extraordinary leadership of Professor Hockfield because it taps into something essential about America — it’s the legacy of daring men and women who put their talents and their efforts into the pursuit of discovery. And it’s the legacy of a nation that supported those intrepid few willing to take risks on an idea that might fail — but might also change the world.”
President Obama is right in that innovation and the entrepreneurial spirit is largely why the United States’ economy is what it is. These innovative technologies could eventually save Americans a lot of money on their energy bills. But it also goes to show how far away some of these technologies are from commercialization, which means they may not be able to hit the market yet without help from the taxpayer. When it comes to basic research and development, government funding may be prudent, but after that, it should be left for the market to determine whether or not these innovations will be successful. And even much of the research and development stage, including MITEI, is privately funded.
Let’s not forget, however, that wind, solar and biofuels aren’t new technologies and have been subsidized by the government for decades and still only provide an insignificant fraction of our energy supply. The reason they’ve been subsidized for such a long period of time is that they simply can’t compete but that shouldn’t stop American ingenuity. It should stop subsidies for failed projects. If private investors want to step up and continue to fund these projects, it’s their money. They can spend it how they please.
And this is where the President’s speech takes a wrong turn:
“That’s why the Recovery Act that we passed back in January makes the largest investment in clean energy in history, not just to help end this recession, but to lay a new foundation for lasting prosperity. The Recovery Act includes $80 billion to put tens of thousands of Americans to work developing new battery technologies for hybrid vehicles; modernizing the electric grid; making our homes and businesses more energy efficient; doubling our capacity to generate renewable electricity. These are creating private-sector jobs weatherizing homes; manufacturing cars and trucks; upgrading to smart electric meters; installing solar panels; assembling wind turbines; building new facilities and factories and laboratories all across America.”
But the green stimulus, free lunch rhetoric neglects the costs, both real and opportunity costs, that come with a government stimulus. Heritage analyst Ben Lieberman writes that a green stimulus is actually a contradiction in terms: “Support for renewables would likely cost more jobs than are created. For example, subsidies for wind and solar energy would, at least from the narrow perspective of the wind and solar industries, create new jobs as more of these systems are manufactured and installed. But the tax dollars needed to help pay for them cost jobs elsewhere, as would the pricey electricity they produce.”
Our analysis of the Waxman-Markey cap and trade bill finds that there will be 1.9 million fewer jobs by 2012 after accounting for green jobs. Job losses would grow to 2.5 million by 2035. This makes us a cap and trade naysayer, who Obama attacks towards the end of his speech:
“The naysayers, the folks who would pretend that this is not an issue, they are being marginalized. But I think it’s important to understand that the closer we get, the harder the opposition will fight and the more we’ll hear from those whose interest or ideology run counter to the much needed action that we’re engaged in. There are those who will suggest that moving toward clean energy will destroy our economy — when it’s the system we currently have that endangers our prosperity and prevents us from creating millions of new jobs. There are going to be those who cynically claim — make cynical claims that contradict the overwhelming scientific evidence when it comes to climate change, claims whose only purpose is to defeat or delay the change that we know is necessary.”
We’re naysayers because we believe the huge costs of this bill far outweigh the negligible environmental benefits. On top of the job losses we project that: Cumulative gross domestic product (GDP) losses are $9.4 trillion between 2012 and 2035; Gasoline prices will rise by 58 percent ($1.38 more per gallon) and average household electric rates will increase by 90 percent; And a typical family of four will pay, on average, an additional $829 each year for energy-based utility costs. We’re cynical for a reason.
If MIT students wanted to listen to a real expert on climate change, perhaps they should have gone with one of their own: Richard Lindzen.
Green Jobs? Mandated Wind and Solar? Cap & Trade? We’ll Pass on that Showcase
Author: Nick LorisMembers 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.