Air Date: Week of November 6, 2009

Workers install solar panels at a facility in Wayne National Forest. (Courtesy of: Wayne National Forest)

The climate bill working its way through Congress right now will have major impacts on our economy, especially on employment rates. There’s a lot of conversation as to whether the bill would help or harm our economy, with Democrats saying one thing and Republicans often saying another. To put these conversations into context and to try and make sense of the climate bill’s potential economic impacts, we turn to the source of the numbers. Host Jeff Young talks with Dr. David Montgomery, vice president of the global economic consulting firm Charles River Associates and Dr. Robert Pollin, Economics Professor and founding co-director of the Political Economy Research Institute at University of Massachusetts/Amherst.

Transcript

YOUNG: It’s Living on Earth, I’m Jeff Young. Now, get out your spreadsheets we’re going to talk about the dollars and cents of dealing with climate change. The bill before the US Senate could have major impacts on our economy, whether positive or negative depends on who’s talking. Industry groups tout studies warning of steep jobs losses due to higher energy prices. Environmental groups counter with analyses that should a bonanza of new, green jobs.

To put those predictions in context, we called on economists on either side of the debate. We start with University of Massachusetts Amherst Professor Robert Pollin. His Political Economy Research Institute produced a study that predicted one point seven million new, clean energy jobs. Mr. Pollin, how did you arrive at that figure?

POLLIN: Well, the basic factors generating the net expansion of jobs is very straight forward. There’s two considerations: one, in moving from a fossil fuel-based economy to a clean energy economy, we need to hire more people. There’s more people involved in building the clean energy economy as opposed to maintaining the fossil fuel economy – that’s number one; and number two is the economic activity that takes place in constructing a new clean energy economy is concentrated in the U.S., as opposed to spending a lot of our money on energy abroad as we do now, by importing oil.

YOUNG: So, the money spent is domestically spent, and therefore is going to have more cyclical spinoff effect on the economy.

POLLIN: We’ll have more cyclical spin off and more long-term spin off. The model that we have is a snapshot, it says in today’s economy if you take a million dollars and you take it out of the fossil fuel economy and put it into clean energy activities – in today’s economy – what would happen, and the results are straight forward, the results say that it’s more spending on jobs and more spending on the domestic economy. That it couldn’t be more simple.

YOUNG: So, what sort of assumptions go into your model? Assumptions about what our energy future will look like?

POLLIN: Well, 70 percent of the spending we’re assuming in clean energy is for energy efficiency. Every time you spend for energy efficiency you’re actually reducing greenhouse gas emissions and you’re actually lowering – not raising – you’re lowering energy costs because that’s the very definition of energy efficiency. If we can lower our home heating bills by making homes more energy efficient, we’re lowering energy costs, we’re reducing greenhouse gas emissions and we’re creating a lot of jobs.

YOUNG: I want to hear what you think of the analysis from the Congressional Budget Office. Here’s what the CBO director Douglas Elmendorf told a Senate panel last month:

ELMENDORF: Aggregate performance, the fact that jobs turn up somewhere else for some people, does not mean that there aren’t substantial costs born by people, communities, firms, and effected industries in effected areas.

YOUNG: So, what do you make of that, this CBO director saying there will be significant job losses here?

POLLIN: Absolutely, I couldn’t agree more. There’s three and a half million, more or less, people whose jobs are somehow connected right now with the fossil fuel sector of the economy. So, there’s millions of jobs, there’s billions of dollars, if we’re talking about transferring money out of that industry, of course there are going to be costs.

Now, given that, it’s very important that the Waxman-Markey bill that passed the House of Representatives and the equivalent measure that’s being considered now in the Senate includes quite considerable funds to support communities and workers that are going to have to go through a transition out of fossil fuels and into something else. Now, having said that while there are going to certainly be losses, the point that I’m making overall is that there is going to be a transition, but overall there’s going more employment in the end, and in the transition.

YOUNG: What advice do you have for us lay people as we listen to the debate around the climate bill? When we hear these competing studies, numbers about job losses, numbers about job gains – what should we be keeping in mind? What’s going to give us context to properly interpret this?

POLLIN: Well, first of all, lets keep in mind that the ultimate aim here, the first aim, is to address the potential ecological catastrophes of not reducing our greenhouse gas emissions.

YOUNG: In other words, the cost of doing nothing at all?

POLLIN: Yeah, we have to do this. So, given that then the question is how do we do that in the most beneficial way for the economy? And it turns out that this transition will move us toward an economy where we spend more money on jobs in the U.S. for working people in the U.S.

YOUNG: Economics Professor Robert Pollin. He says even the pessimistic studies still show no significant decline in economic growth in the long-term. But, David Montgomery is one of those pessimists, as Vice President of Charles River Associates, he’s done economic analyses of climate legislation for industry and business groups.

MONTGOMERY: When we looked at the climate bills, we found that they are likely to have a cost to the U.S. economy, that the cost could be substantial, in the range in 2020 between $600 per household and $1,600 per household, growing after that, but also that those costs are very uncertain.

YOUNG: And, did you look at job growth or job losses?

MONTGOMERY: We concluded that there would be a loss of about two million jobs, ten or 15 years into the program compared to what the economy would be performing at otherwise.

YOUNG: And, how is it that your study finds about two million jobs lost, when other folks who look at this find one point seven million jobs gained?

MONTGOMERY: In order to come up with the large numbers for net job creation, you have to assume that there is a huge pool of people out there who are capable and ready to work and just are missing jobs because of the kind of short-run contraction of the economy. None of these long-term investments that energy bill would create are going to happen quickly enough to deal with the people who are out of work today. They are going to be happening, as usually happens with stimulus, fiscal stimulus, after the economy has gotten back to close to full employment.

YOUNG: So, you don’t see the possibility that after the jobs are lost in, lets say the fossil fuel dependent industries, that there would be a net gain overall? You don’t see that happening?

MONTGOMERY: No. Ultimately, the economy will make a transition to a different structure of employment with lower wages than there would have been otherwise and with opportunities for people to get back to work, but even after that transition they will be earning lower incomes than they were to begin with. And there will not be more jobs, there will be fewer jobs.

YOUNG: What about this notion that if we switch to domestic sources of cleaner energy, then we’ll be sending less of our money overseas to import other forms of fossil fuel energy?

MONTGOMERY: That’s absolutely correct. But, if all we’re doing is substituting more expensive domestic energy for cheaper imported energy we don’t end up ahead.

YOUNG: So, another big variable here is this notion of carbon offsets – that instead of reducing emissions, companies can pay someone else to do some forestry or agriculture that’s going to keep carbon locked up. How big a factor is that in determining the cost of the bill?

MONTGOMERY: It’s huge. Our estimates and those of the Environmental Protection Agency estimate that about half of the emission reductions will come from offsets. So, some of them in the United States would come from conservation practices in agriculture, or growing trees, which sequester carbon. A lot of them would be coming from overseas, again mostly from rewarding countries for reducing the rate at which they are basically tearing down their tropical forests. If you assume, as we did, that all of the offsets actually materialize, you get a price of carbon around $20 a ton in 2020. If you assume that just none of the international offsets materialize – and there are good reasons for thinking they might not – the cost doubles.

YOUNG: So, more readily available offsets, pretty much lower cost; tougher offsets, higher cost?

MONTGOMERY: Yes.

YOUNG: I’m wondering, have you given any thought to the cost of inaction? If we do not manage to come up with some way to address greenhouse gasses – what’s the cost of that?

MONTGOMERY: I’ve given it a great deal of thought, and I think we really need to focus on what inaction means. This is gonna cost us something – is it worth what it’s gonna cost, how much do we want to do in order to gain the benefits from doing something?

YOUNG: David Montgomery is Vice President of Charles River Associates. Thanks very much for your time.

MONTGOMERY: Thank you, it’s good to talk to you.

YOUNG: Charles River Associates has come under fire for exaggerating costs of climate legislation. Reports showing large green job growth, like Robert Pollin’s draw criticism for an oversimplified economic model. But these economists did reach one interesting area of agreement. First, David Montgomery:

MONTGOMERY: The fact is that what a cap and trade bill is going to costs us is something that policymakers cannot know when they vote for it. Because it all depends on future developments in technology, on future developments in the economy, on what other countries decide to do, and there is no way we can predict all of those things.

YOUNG: And, here’s Robert Pollin:

POLLIN: Nobody forecasted this recession, even after the recession had already started the best econometric models still weren’t even forecasting a recession while we were in the recession. So, that shows you that forecasting models have got a long way to go before they can even be as good as forecasting the weather, for example.

YOUNG: So, no matter how many economic projections lawmakers get, the will eventually have to decide climate change policy in the face of uncertainty. That, at least, is certain.

 

Links

The Economic Benefits of Investing in Clean Energy, a PERI publication

Impact on the Economy of the American Clean Energy and Security Act of 2009, a CRA publication