Friday, May 1, 2009

Trying not to oversell it

Wouldn't it be great if "green jobs" could simultaneously end the recession and prevent global warming? Of course it would. But before you sit down to your free lunch, Paul Krugman reminds us that it's not quite that simple:
"...limiting emissions would have its costs. As a card-carrying economist, I cringe when 'green economy' enthusiasts insist that protecting the environment would be all gain, no pain."
UCLA economist Matthew Kahn explains why most economists feel this way:
"Many of these ideas are very much worth pursuing for environmental reasons. But it’s doubtful they offer a double dividend of helping to jump-start the economy. For one thing, the global financial crisis is fundamentally about different issues: the popping of housing and credit bubbles from St. Petersburg to San Francisco, the associated implosion of a highly leveraged international banking sector, and the resulting fallout on real economies. These pressing problems won’t be solved by switching to hydrogen-powered cars or installing solar panels on every roof.

Second, let’s be honest: Anti-carbon regulations will simultaneously create and destroy jobs. Take the United States: Given the country’s current reliance on cheap, coal-fired power plants, carbon caps will translate into higher electricity prices. (How much higher remains an open question.) Older manufacturing firms—especially in energy-intensive industries such as petroleum and coal products, paper, cement, and primary metals—will face higher costs of doing business, and this may lead them to shut down or seek international locations where electricity prices are lower and carbon regulation is less stringent.

In the long run, a little creative destruction will likely be a good thing. The same regulations that might kill jobs in smokestack industries will act to stimulate a host of new manufacturing opportunities, ranging from energy-efficient household appliances to solar panels to energy-efficient vehicles. Even former U.S. Vice President Dick Cheney might consider buying a fuel-efficient vehicle if gas prices rose enough.

But don’t count on clean technology to pull us out of the doldrums. The green revolution won’t happen overnight."
The obvious, but important lesson to remember here is that tradeoffs are everywhere. A "green revolution" is a long-term project, and in the mean time investments in alternative energy divert investment from other projects.

But it's not all bad news. Just because green policies aren't free, we can still afford them:
"Even with stringent limits, says the M.I.T. group, Americans would consume only 2 percent less in 2050 than they would have in the absence of emission limits. That would still leave room for a large rise in the standard of living, shaving only one-twentieth of a percentage point off the average annual growth rate."
So while there are no free lunches in life, there are some cheap meals, if you know where to look.

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