Tuesday, January 6, 2009

It is (sometimes) easy being green

President-elect Obama is facing many tough challenges, not the least of which is how to spend a roughly $700 billion stimulus package. Yes, it's harder than it seems.

On a basic level, anything that spurs the economy is worthwhile. The government could buy $700 billion worth of Hannah Montana merchandise or buy every US citizen a haircut. But many people want to see the money spent to further other long-term policy goals. In particular, there has been a strong push to use the stimulus to jump-start "green" industries through the creation of "green-collar jobs". We can call it "green stimulus".

The appeal of green stimulus is understandable: we need to create jobs and we need to become more energy efficient. Why not use this as an opportunity to do both?

Unfortunately, it's not that simple, especially in the case of subsidizing green energy production. As John Whitehead, writing at Environmental Economics, says:
Unless consumers decide to increase their overall use of energy products (and they might ...) then the demand for brown energy (i.e., coal and oil) will decrease resulting in a decrease in price and a decrease in quantity (see the second figure to the right). The number of brown jobs in the energy sector falls as a result of the reduction in quantity produced and consumed.
When we talk about the jobs created from green energy production, we forget the jobs lost at coal plants. In the long-term, technological changes in green technology will likely create new jobs. But in the short-term, stimulus spending on green energy will likely just change the composition of jobs, not create new ones. Of course, spending on green energy is still good for the environment and should be justifiably on those grounds alone.

The good news is that there are some ways for green stimulus to work. In particular, the Obama administration has been talking about using stimulus money to make homes more energy efficient, and Congress added $250 million to the budget in October to weatherize 140,000 houses. This plan has several advantages. First, rather than subsidize the energy usage of low-income individuals, this strategy will reduce energy consumption. Second, weatherizing 140,000 homes would create 8,000 new jobs at a cost-effective $31,250 per job. The Obama administration wants to expand the program to 1,000,000 houses, which will create 78,000 jobs.

So there you have it. With the right policies, it can be easy being green.

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