Resident Scholar Kenneth P. Green

Before I launch into the topic of this presentation, I would like to reveal a bit about my biases first. I am an environmental scientist by training, having attained a doctoral degree in environmental science and engineering from UCLA in 1994. I am an economist by contagion--I have worked in free-market think tanks with a strong economic focus for about 15 years now. Politically, I'm socially liberal, and fiscally conservative.

And despite the characterization of this conference as a conference of climate skeptics, I want to state at the outset that I am not a skeptic regarding climate change: I'm an empiricist. I actually like to look at the data, rather than at un-testable computer models. That data shows that we've had a modest warming since 1850, as we emerged from the last ice age. That warming trend has leveled off and begun decreasing in the last decade. There is a plausible theory that greenhouse gases can trap some heat in the atmosphere, which would manifest, depending on underlying broader natural climate trends as a mitigation of a cooling trend, or exacerbation of a warming trend. How much warming humanity's greenhouse gas emissions will cause is unclear, as non-anthropogenic climate trends can clearly over-ride anthropogenic warming. Also, estimates of climate sensitivity to carbon dioxide are also highly sensitive to assumptions about feedbacks. I believe, from what we've observed, and from well-thought out theoretical proofs (some that you'll see in other presentations here) that the sensitivity of the climate to greenhouse gases is moderate, on the order of about 1 to 1.5 degrees Centigrade of heat retention for a doubling of the concentration of carbon dioxide in the atmosphere, and that's the high-end. If it is that high, it could indeed cause some trouble in climatically sensitive areas, and some attention should be paid toward preparing for adaptation in those areas, and on getting people out of them by ending the subsidization of risk. If the sensitivity is lower still, there may be no observed harms at all resulting from greenhouse gas emissions.

Now, to the topic at hand: the proclaimed "Greening" of the economy, an endeavor that I am indeed skeptical about. You have all heard the new "Green" litany: Our technocrats in government, we are told, will spur the creation of a new generation of green technology, which will create millions of new green jobs, and a new green-technology business sector, while stopping global warming.

Best of all, if you call it green, there really is a free lunch: with rigged economic analyses, governments and special interest groups claim that all of this will not only be free, it will be highly profitable! It will establish us as a world leader in environmental technology!

So let's talk about these claims, beginning with green technology, the new holy grail of our eco-technocrats. First, what exactly is green technology? In the old days, when I was studying environmental science, that was easy to pin down: it was something that prevented toxic stuff from entering the environment, like a scrubber for sulfur emissions, or a waste water treatment  plant, or a catalytic converter on your car. For conventional pollutants, green tech was pretty easy to identify, and nobody pretended it was going to make a profit: it was a cost of doing business. For greenhouse gases though, green tech seems to be any comparable machine that gets you the thing you want (electricity, light, mobility, refrigeration, etc.), but with fewer greenhouse gas emissions.

What do we know about green technology from a socio-economic standpoint? First, we know that it's not profitable, or the private sector would already be doing it without government intervention. In fact, since renewable energy and renewable products can't be sold without massive subsidies, we know that green technology will lose money.

We also know that consumers generally don't like them, either on a cost or performance standpoint. Despite massive subsidies, only a small fraction of the population has chosen to live in tiny, energy efficient homes, buy smaller, more efficient refrigerators, or drive small, energy-efficient cars. They've proven remarkably reluctant to give up on things like plasma televisions, that large freezer in the garage, and those inefficient incandescent light bulbs. The only way to get consumers to adopt green tech is to either bribe them or ban alternatives.

But this time, we're told, the government will get it right! Wind and solar power, and plug-in-hybrid cars, will be the answer! We've heard this song and dance before, and what everyone but the government knows is, the government is horrible at picking winning and losing technologies. Not only do they lack the technical expertise, they lack the information of experts and markets, and they lack responsibility for gambling with taxpayer dollars that would otherwise constrain private actors.  This could explain why, despite spending a great deal of taxpayer dollars in the 1970s, we don't drive around on synfuels. It could also explain why, despite California's mandates and massive subsidies, we are not driving electric cars, or fuel-cell cars. It also explains why California doesn't boast the thriving battery and electric-car production facilities that California regulators promised would result from their mandates for electric vehicles. For an even better, more recent example, we have the debacle of corn-based ethanol, where your government technocrats arranged a system to literally bribe farmers to turn corn into it gasoline, jacking food prices up domestically, and leading to food riots and starvation in developing countries. Oh, and while they were at it, they created an environmental nightmare of greater air pollution, water pollution, and yes, greenhouse gas emissions.

Instead of green technology, we're likely to get mostly vaporware, as the preferred technology of government fails in the market, even with subsidies, all the while our known, reliable tech ages and falls into disrepair.

But okay, let's suspend our skepticism about the reality of green tech, and assume that it's real! Can it then create net new jobs, rescue Detroit, and stimulate the economy? Let's start with the idea that the government can "create" new jobs.

The short answer is "No." What we know, from the fundamentals of economics is that government can't "make" net-new private sector jobs: only consumer demand for net-new products can do that. Instead, government has to destroy some jobs in order to create others. In the green case, they'll be destroying jobs in the conventional energy sector, and likely in other tech sectors through taxes and subsidized competition. The stranded assets in the destroyed industry are a dead weight loss to the overall economy.

The subsidized jobs are, by definition, less efficient uses of capital than market-created jobs. That means they are less economically productive than the jobs they displace, and contribute less to economic growth than the jobs that were displaced.

The final good produced by government-made jobs is inherently a non-economic good, which has to be maintained indefinitely, often without an economic revenue model, as in the case of roads, rail system, mass transit, and likely windmills, solar-power installations, etc. If things made have to eventually be de-commissioned, that cost also comes out of economically productive uses.

Because federal job projects must comply with the Davis Bacon act which ties compensation to the local (usually union) compensation rate, government-made jobs are more costly than private-sector jobs. Some estimates are that they're twice as costly.

Invariably the government takes a significant cut of moneys taken from taxpayers or businesses to administer job creation programs, in some cases, consuming the majority of revenues gathered as part of a "job creation" program.

The bottom line is that government job creation is private-sector job destruction with wide ranging (negative) effects on the economy. In the end, there are fewer jobs on net, and lower economic productivity on net than there would be if the government had not acted.

Environmentalists will argue that the environmental benefits we'll receive are still so valuable that it's all profitable. We'll be so much better off that we can absorb the economic losses, make the damaged people whole, and live in ecotopia. But claims that environmental benefit will outweigh economic harms in so called "green jobs" have not generally been substantiated. Scrutiny of such claims invariably reveals over-estimated benefits, and under-estimated costs. Besides, with the economic growth of China and India, the US could pretty much cease emitting greenhouse gases entirely, and the benefits would be undone in short order.

But, certainly, the government can at least fix the auto sector by greening it, right? I mean, that technology does exist, and its costs should come down over time, won't it work for Detroit?

Almost certainly not. The problem with GM and Chrysler is overly high labor rates due to historically caving into the UAW, and servicing the massive obligations for overly-generous retirement and healthcare commitments made in prior decades.

Their unionized labor and fossilized management culture has also failed to compete with non-union domestically-produced foreign brands in terms of coming up with better designs, and producing higher quality, more capable, more durable, better-featured and less expensive cars.

The problem was not a lack of green cars: Ford, GM, and Chrysler all make hybrids and small, fuel-efficient cars--but nobody wants to buy them, and the automakers make little profit on them.  Forcing automakers to put out even more green cars that people don't want will make things worse, not better: automakers generally lose money on green cars. They cost much more to build and maintain, but people won't pay enough for them to let carmakers show a significant profit. Many analysts believe that Toyota loses money with every Prius they sell.

And the vaunted "plug-in hybrids will be even worse, with estimates of an added $18,000 to the price of a comparable conventional car. GM's president has raised the estimated price of their planned plug-in hybrid from $30,000 to $40,000, and says they will lose money at that price.

The only way these cars will sell and make a profit for automakers is if the government gives whopping subsidies to buyers, along with constant infusions of cash to keep propping up the big-three, and even then, only if Congress somehow forces the cost of foreign-brands up, perhaps by their new unionization initiative, Card Check.

Alright, so the green wave won't create jobs, and it won't save Detroit, but won't it stimulate the economy?

Well, to be a stimulus, money must enter the economy quickly, leading to the purchase of goods and the hiring of people before the economy recovers on its own, which is generally expected to happen in late 2009 or early 2010. Few "green" energy projects can get out of the planning process in that time frame.

Windmills and solar power generators certainly can't be brought on line this quickly. Experience in Europe shows that wind power and solar power are invariably slow to come on-line, and often have cost and delivery-date over-runs. Plus, the requirement for private capital to be leveraged will slow things down as private capital isn't exactly sloshing around freely right now--that's why they're trying to stimulate the economy to begin with. In the long term, the more expensive wind and solar power we lay on (it is inherently non-economic as a good) the more expensive we make our energy, which means more expensive, less competitive goods and services. Far from being a stimulus, this initiative is a long-term depressant for GDP and employment.

The same is true for expansion of the electrical grid. Assuming that one can acquire 3,000 miles of high-voltage power lines within 2 years, siting and routing the power lines through national and state parks, getting environmental clearances, buying rights of way, will all push this project long past being a "stimulus."

Home weatherization and government-facility retrofit might qualify, assuming there are enough trained people and supplies available to allow a rapid ramp up of this sector. The same is true for insulation of schools and renovations to government buildings. Such spending will not, necessarily be economic, as one assumes that if there was more money to be saved on energy than it would cost to renovate, building owners would have done so already. And compared to building facilities that are energy efficient de novo, renovations are a costly process, diluting any gains made by reduced purchase of energy.

One can debate all of these efforts on their merits as whether or not they are useful infrastructure spending, and whether it's reasonable that the Federal Government engage in what should be state-based spending, but one can not, in any serious way, consider these kinds of projects a "Stimulus" that responds to the current financial crisis facing the world.

To wrap this up, all the green hype sounds great. And really, who wouldn't want to live in a pristine environment, with Camelot's always-pleasant climate? Unfortunately, the green-economy movement is more a technocrat's fantasy than sound public policy. At the end of the day, if the green-dreamers succeed, we'll have more expensive energy, cars, appliances, lighting, food, and everything else created with, transported with, and maintained with energy. If they don't succeed, we'll have wasted massive amounts of tax dollars creating a great green bubble, which is something we really don't need.

Kenneth P. Green is a resident scholar at AEI.