Thursday, June 25, 2009

The pain in Spain

President Obama at this week's press conference:
Now, the second issue I want to address is our ongoing effort to build a clean energy economy.

This week, the House of Representatives is moving ahead on historic legislation that will transform the way we produce and use energy in America. This legislation will spark a clean energy transformation that will reduce our dependence on foreign oil and confront the carbon pollution that threatens our planet.

This energy bill will create a set of incentives that will spur the development of new sources of energy, including wind, solar, and geothermal power. It will also spur new energy savings, like efficient windows and other materials that reduce heating costs in the winter and cooling costs in the summer.

These incentives will finally make clean energy the profitable kind of energy. And that will lead to the development of new technologies that lead to new industries that could create millions of new jobs in America -- jobs that can't be shipped overseas.

...We all know why this is so important. The nation that leads in the creation of a clean energy economy will be the nation that leads the 21st century's global economy. That's what this legislation seeks to achieve -- it's a bill that will open the door to a better future for this nation. And that's why I urge members of Congress to come together and pass it.
There are both good theoretical and philosophical arguments against this legislation:
  • The government shouldn't be in the business of picking winners in losers in the private sector. Rather, it should take a neutral stance with the marketplace deciding which companies and technologies rise to the fore.
  • The government has no special or innate ability to predict which companies or industries are likely to produce high returns on investment, and such efforts are likely to waste money by transferring resources from productive sectors (taxes from profit generating companies) to unproductive sectors (companies that can't survive without public largess).
But let's dispense with ideological arguments and look at actual examples of how this approach has played out. George Will notes that perhaps no country has invested more in "green energy" than Spain and cites a report from a Spanish academic about the dismal results such public assistance has generated. Mark Perry provides some highlights from the report:
We find that for every renewable energy job that the State manages to finance, Spain’s experience cited by President Obama as a model reveals with high confidence, by two different methods, that the U.S. should expect a loss of at least 2.2 jobs on average, or about 9 jobs lost for every 4 created, to which we have to add those jobs that non-subsidized investments with the same resources would have created.

The study calculates that since 2000 Spain spent €571,138 ($800,000) to create each “green job”, including subsidies of more than €1 million ($1.4 million) per wind industry job. The study calculates that the programs creating those jobs also resulted in the destruction of nearly 110,500 jobs elsewhere in the economy, or 2.2 jobs destroyed for every “green job” created.
Rather than clean energy serving as the green jobs machine some have touted, Spain's unemployment rate is currently the highest in the European Union at 18.1 percent. Both theoretically and practically the notion that green energy can be used to promote jobs and economic growth seems unfounded.

You can see a previous post on Spain's renewable energy efforts here.

Update: Clean/renewable energy may still be worthwhile, but only to the extent it solves a problem. Solar power might succeed in reducing pollution, but there might be an even better solution out there. It therefore seems that the superior approach is to tax the problems -- which are relatively simply to identify -- and leave the market to figure out the solutions, which are typically very difficult to identify.

Update: A case for using taxes to take care of problems is made here.

1 comment:

ruizdequerol said...

George Will's article has been published in the Spanish press today.

There are positive and not-so-positive sides of Spanish push in renewable energies. That would deserve a long discussion.

Best regards