Green Jobs Cost Big Bucks—Or Do They Promote Diversification and Actually Lower Energy Costs?

 

The Council on Foreign Relations produced a study on the costs of “green energy” that lays out the high costs involved with the promotion of solar and wind, which–at a time of surging natural gas production domestically–should give us pause for reconsideration. However, Luke Busby, an energy expert and NSF participant, argues that the CFR study is biased and misleading. He lays out an argument for “clean energy” and for renewable energy mandates. 

The summary of the CFR study and Busby’s thoughtful response are below. Ty

 

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Obama’s Green Jobs Cost Big Bucks Posted on November 2, 2012 9:52 am by Benn Steil and Dinah Walker President Obama is committed to pursuing a “[renewable-energy] strategy that’s cleaner, cheaper, and full of new jobs” (January 24, 2012). He highlighted the job point during the October 16 presidential debate: “I expect those new energy sources to be built right here in the United States. That’s going to help [young graduates] get a job.” Green may be good, but this week’s Geo-Graphic shows that the jobs come at a hefty cost. The Joint Committee on Taxation estimates that energy-related tax preferences will cost Americans $5.4 billion this year. Half of this, $2.7 billion, will benefit green sectors: $1 billion in nuclear subsidies, $1.3 billion in wind-energy credits for electricity production, and $400 million in solar-energy property credits. So-called “section 1603” renewable energy grants, part of the 2009 fiscal stimulus package, will cost taxpayers a further $5.8 billion. If we assume that the grants are awarded across sectors in the last five months of this year as they were in the first seven, then the nuclear, solar, and wind energy sectors will receive $4 billion of this, boosting total green-sector subsidies to $6.7 billion this year. Taxpayers will also provide $700 million in energy-efficient property credits. The credits apply mainly to solar, though we don’t know the precise allocation – so we leave it out of the figure, which therefore understates the cost of solar-backed jobs. Dividing the total wind, solar, and nuclear subsidies by the number of Americans employed in these sectors (252,000), they are currently generating jobs at an average annual cost to taxpayers of over $29,000. Wind jobs cost taxpayers nearly $47,000 per job per year. By way of comparison, the coal, oil, and gas sectors receive $2.7 billion in subsidies annually, and employ about 1.4 million Americans. The taxpayer-cost per job in these sectors is therefore just over $1,900. The bottom line is that green-energy jobs cost taxpayers, on average, 15 times more than oil, gas, and coal jobs. Wind-backed jobs cost 25 times more. Given the current state of energy-production technology, green jobs don’t come cheap.

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Response to “Obama’s Green Jobs Cost Big Bucks”

By Luke Busby

“Given the current state of energy production technology, green jobs don’t come cheap,” concludes a recent Council on Foreign Relation’s article entitled, “Obama’s Green Jobs Cost Big Bucks.” There is nothing novel, new, or even important about this simplistic assertion, which is clearly intended to stoke anti-renewable sentiment. A deeper look at the subtleties of the issue reveals a more complex picture.

For example, it’s widely known that renewables are more expensive, but only if one does not account for extremely expensive environmental externalities such as global warming, which the oil and gas industry conveniently gets to ignore in its pricing.

There are significant reasons for the resurgence of political support for the renewable energy industry over the past twenty years or so. Growing awareness of global warming and the approach of peak oil coupled with events like the dramatic price spikes in fuel prices — such as the one which followed hurricane Katrina and  immediately preceded the economic crisis in 2008  — frightened the consuming public and exposed the frailty and inflexibility of our energy infrastructure. As a result, the public demanded action and elected leaders who support renewable energy.  But the economic crisis that began in 2008 caused a substantial drop in demand for electricity and prices for natural gas and coal have fallen dramatically.  Now some fickle policy makers have forgotten the hard lessons of the past 20 years and have waned in their support for renewables, largely based on narrowly focused data like that presented in CFR’s article.

But the fundamentals haven’t changed. My home state of Nevada has an electricity generation fleet that is roughly 70% dependent on natural gas, basically none of which is produced in the state.  The costs for this fleet will amortize over a period of about 30 years.  Just 4 years ago the price of natural gas spiked almost four fold over what it is today.  If such a spike were to happen now it would certainly crush Nevada’s recovering but fragile economy. In the short term there would be essentially nothing that state policy makers could do about it.

With such reliance on natural gas, it is reasonable to question whether utilities are setting up customers for hugely risky and economically damaging price swings.  It’s not in the public’s interest to have an energy policy that is reactive and that makes long term decisions based on the fossil fuel du jour. The “surging natural gas production” in the United States the past few years— which is causing the current low prices — is yet another turn on the fossil fuel wheel of samsara.  We are in the boom now, so all of the news is rosy.  We are told that the supply is massive and that prices will always be low.  But when the bust comes, as it inevitably will, the pain will be appreciable, as it always is.  Renewables have one hugely underappreciated advantage: you know exactly what you are getting and for how much up front.  This knowledge has huge value.

Policies that promote renewable energy development, such as renewable portfolio standards and feed-in-tariffs, create substantial downward pressure on prices for other electricity sources.  Offsetting thirty-three percent of demand for fossil or nuclear fueled electricity in California, one of the world’s largest economies in and of itself, will certainly have an impact on the demand for these other sources.  In Nevada, our twenty five percent by 2025 renewable portfolio standard will lessen demand for electricity from non-renewable sources by about 500 megawatts.  A 500-megawatt natural gas plant costs somewhere in the neighborhood of $700 million dollars to build, not including the price of the gas to make it run.

The low prices we are currently seeing in natural gas and coal could be in part a consequence of this pressure.  This is the clearly the experience with the German wholesale electricity market, which experienced significant price and demand declines as a direct result of Germany’s aggressive feed-in-tariff.  The motivation for the Germans to become energy independent is largely driven by the geopolitical subtleties of Europe. Since much of its natural gas comes from Russia, strains in that relationship can cause major energy headaches in Germany.

Subsidization of renewables is working to lower prices for renewables, as indicated by the decline in prices for photovoltaic solar over the past ten years.  Should subsidies for renewables decline as the prices decline?  Of course they should.  But pulling the rug out from underneath the industry now belies all of the substantial investments made so far in building it up. Moreover, it makes much more sense to build a renewable energy infrastructure while we still have time to make an orderly transition from fossil fuels, than to wait until we’ve reached a crisis point of fossil fuel scarcity. With China and other countries investing heavily in renewable technology, we could find ourselves hopelessly behind and at the mercy of foreign manufacturers.

CFR’s article does a disservice by providing ammunition for incomplete analysis of such complex issues.  Comparing oil and gas to renewables in terms of one denominator is simplistic and uninformative.

Luke Busby is a lobbyist and attorney in Nevada. His practice includes representing clients before the Public Utilities Commission, the Courts, and local governments. He wishes to thank Kevin Pedraja of Seattle for his assistance on this article.