Congress is wrestling with the issue of extending the financial subsidies for "green energy" in the form of renewing the production tax credit or investment tax credit primarily for wind and solar projects.
An adjunct to this debate is the question of the success of the Section 1603 program created under the American Reinvestment and Recovery Act, or the "stimulus" plan enacted in response to the 2008 financial crisis. Section 1603 was created under the stimulus plan as a grant program administered by the Department of Treasury and the Department of Energy. The plan offered cash payments to renewable energy projects in lieu of the tax credits.
Through March 15, 2012, $8.2 billion of the total amount in Section 1603 grants awarded went to wind projects (74.7% of the total) and another $2.0 billion went for solar (17.4%). The remaining 8% of funds granted went to technologies such as geothermal electricity, biomass, solar thermal and small wind.
The stimulus was claimed by President Barack Obama to be a jobs program. Energy Secretary Steven Chu testified before the Committee on Energy and Commerce ("Committee") on March 16, 2011, saying, "the Section 1603 tax grant program has created tens of thousands of jobs in industries such as wind and solar by providing up-front incentives to thousands of projects."
An investigation by the Subcommittee on Oversight and Investigations ("Subcommittee") of the Committee reported its findings a couple of weeks ago and concluded that most of the current methods of calculating the green jobs created by Section 1603 are "largely unreliable." They found the jobs data that exists shows the grants produced "very few long-term jobs." Additionally, the Subcommittee found the Section 1603 program "resulted in higher costs to the taxpayer than previously anticipated." Fewer jobs, more costs -- sounds like a successful government-run program!
The need for more jobs in this country cannot be understated given that the nation is in its 41st straight month of greater than 8% unemployment (8.2% in June). The unemployment situation is actually worse than suggested by the published rate as the methodology by which it is calculated has been distorted to eliminate long-term discouraged workers who have left the labor force. If the rate were calculated using the pre-1994 methodology that includes those long-term discouraged workers, the unemployment rate would be 22.8%.
The analytical work to revise the government's economic and labor data to be consistent with historical presentations is conducted by economist John Williams and is published on his Shadow Government Statistics web site. Exhibit 1 shows Mr. Williams' unemployment rate estimate including the long-term discouraged workers and part-time workers through the latest June data compared to the federal government's published unemployment rate and its broader unemployment rate that includes part-time workers as determined by the Bureau of Labor Statistics.
To address the high unemployment due to the financial crisis and the resulting recession, the Obama administration began pushing investments in green energy businesses both because it was perceived that the country needed to wean itself off "dirty" fossil fuels to combat growing carbon emissions and global warming fears while also boosting green jobs to help drive the economic recovery. Those goals led to the stimulus plan.
The problem with this government push is that it has failed to produce any of the benefits initially claimed. The lack of a consistent and accurate measurement of these claimed benefits has made it nearly impossible to question the spending decisions and their benefits. Most of us are familiar with the high-profile failures of the solar panel manufacturers Solyndra and Abound Solar. There are other bankrupt solar companies and numerous struggling battery technology companies that were backed by taxpayer money. These troubled green energy companies have not only failed to create the number of green jobs they claimed they would when they requested government funding, but most of them have been forced to lay off those few employees they did hire. The concerns created by these spectacular failures stimulated the Committee to question the benefits, in particular the green jobs claims.
The biggest challenge for green jobs is to determine what they are. It wasn't until late 2012 that the Bureau of Labor Statistics defined what jobs could be counted as green jobs. Their definition published in "Measuring Green Jobs" was that "Green jobs are either: A. Jobs in businesses that produce goods or provide services that benefit the environment or conserve natural resources. B. Jobs in which workers' duties involve making their establishment's production processes more environmentally friendly or use fewer natural resources." The problem is that "green" remains a subjective term and is defined quite differently in studies of green jobs.
According to the "U.S. Metro Economies: Current and Potential Green Jobs in the U.S. Economy" issued by the United States Conference of Mayors (Mayors) in 2008, green jobs consisted of: "Any activity that generates electricity using renewable or nuclear fuels, agriculture jobs supplying corn or soy for transportation fuels, manufacturing jobs producing goods used in renewable power generation, equipment dealers and wholesalers specializing in renewable energy or energy-efficiency products, construction and installation of energy and pollution management systems, government administration of environmental programs, and supporting jobs in the engineering, legal, research and consulting fields." Interestingly, the Mayors' report counts current nuclear power generation jobs as green jobs but not future jobs in nuclear power.
Another major green jobs study, "Green Jobs: Towards Decent Work in a Sustainable, Low-Carbon World," prepared by the United Nations Environment Programme (UNEP) in 2008 uses a more restrictive definition of green jobs in some cases and a more expansive one in others. It defined green jobs as: "Work in agricultural, manufacturing, research and development (R&D), administrative, and service activities that contribute substantially to preserving or restoring environmental quality. Specifically, but not exclusively, this includes jobs that help to protect ecosystems and biodiversity; reduce energy, materials, and water consumption through high-efficiency strategies; de-carbonize the economy; and minimize or altogether avoid generation of all forms of waste and pollution."
The UNEP study excluded all nuclear power jobs and many recycling jobs, but it allowed to be included a substantial number of supply chain jobs that "contribute to preserving or restoring environmental quality." For example, if a product is green, then all the jobs associated with producing the material that the product is made from can be considered green jobs.
How does this work? Wind turbine towers are made from steel. Since wind turbines create green power then the steel-making jobs that produced the steel used in the turbine tower can be called "green jobs."
When the definitions of green jobs used by these two major studies are examined and their differences highlighted, it becomes clear how studies can arrive a very different estimates of green jobs. Readers may remember an article we wrote about a Brookings Institute study on green jobs claiming millions of jobs had been created, but they stated that if a single driver for a company drove a bus powered by green-energy then all the company's bus drivers would be considered as filling green jobs, regardless of the number of green-powered buses the company operated.
The Subcommittee requested that the Department of Energy and the Treasury Department report on the number of green jobs actually created by Section 1603. The Treasury stated it does not consider job creation when awarding the Section 1603 payments. The Energy Department echoed Treasury, but also referenced green job estimates contained in a National Renewable Energy Laboratory (NREL) report. According to that study, during the construction phase of these green energy projects (2009-2011), they supported 52,000-75,000 direct and indirect jobs per year of construction. During the operation and maintenance of solar and wind energy projects, the study estimates they supported between 5,100 and 5,500 direct and indirect jobs per year on an ongoing basis over the 20- to 30-year estimated life of the systems. When the indirect jobs were removed, the estimate of direct green jobs falls to "910 annually for the lifetime of the systems," of which 770 are jobs for large wind projects with solar accounting for 140. Furthermore, when the Subcommittee examined the green jobs and the Section 1603 payments, the NREL admitted that many of the projects financed might have gone ahead without those payments.
Other studies, notably those conducted by The New York Times and Lawrence Berkeley National Laboratory, show many of the Section 1603 payments went to projects already underway. Even then, the green energy projects failed to create meaningful numbers of jobs. A New York Times article in October 2011 showed that projects receiving the largest Section 1603 grants produced, on average, 15 to 20 permanent jobs each, or even sometimes fewer. That conclusion was slightly better than a Wall Street Journal February 2012 study of 36 wind farms that received 40% of the Section 1603 funding, or about $4.3 billion, employed about 300 workers at the time of the article, or slightly less than 10 jobs per project.
These jobs estimates were substantially below recipient-reported jobs estimates as of April 20, 2012, which were supplied to the Committee by the Treasury Department in an email exchange. According to these estimates, 150,000 full-time and 205,000 part-time jobs were created or retained. However, the Congressional Research Service stated that the Treasury Department has generally avoided releasing these estimates due to inconsistencies in the self-reported job creation statistics. Likewise, the NREL study maintains that because the government funding plan did not provide guidance on the types of jobs that should be included or the methodology that should be employed in estimating the number of green jobs to be created, the estimates provide little value as reference points for the analysis it prepared.
We also know that the NREL prepared its estimates utilizing a computer model. Since NREL couldn't use the self-reported jobs estimates to verify its model's conclusions, they recognize that their estimates could prove to be optimistic. In testifying before the Committee on April 19, 2012, Dr. Michael Pacheco, a vice president at NREL, observed that the 910 annual jobs estimate was fairly consistent with the results of the other studies of permanent green jobs created.
After studying the differences in green job definitions and the resulting outcomes from computer models and the self-reported job creation estimates compared to actual employment data, all the claims about investments in green energy creating significant new jobs should be viewed skeptically.
At one time, President Obama claimed that his administration and its green energy programs would create five million green jobs over 10 years. His administration even committed $500 million to a Labor Department program designed to train 124,893 people and put 79,854 in green jobs. Seventeen months later, only 8,035 green jobs were created. These numbers were substantiated by an audit of the program conducted by the Department of Labor's Inspector General who called the program a "dismal failure." He recommended that the remaining $327 million be returned to the Treasury. The result from this program was that we spent $173 million to create 8,035 green jobs, or $21,500 per position.
Another problem with green jobs is the willingness to include nonproductive employees in the definition of green jobs. For example, in the Mayors study, the top two cities in green jobs were New York City (25,021 jobs) and Washington, D.C. (24,287). As there is little manufacturing or biomass farming in these cities, most of the green jobs are overhead positions. The report pointed out that "engineering, legal, research and consulting positions play a major role in the Green Economy, as they account for 56% of current Green Jobs. They have also grown faster than direct Green Jobs since 1990, expanding 52% compared with 38% growth in direct jobs."
This contrasts with the results of a study undertaken by the primary consultant on an American Solar Energy Society report, Management Information Services (MIS). It found that the single biggest increase is in secretarial positions followed by management analysts, then bookkeepers and janitors. When MIS examined green jobs created in Michigan in 2003, it found that the largest number of positions created was for garbage collectors, next were water and sewage treatment workers and then office clerks. These were followed by janitors, secretaries, customer service representatives and truck drivers. These results certainly clash with the Mayors' conclusion that green-collar professional jobs will be the fastest growing positions created.
It is certainly true as the UNEP study states, "not all green jobs are equally green." It further said that some positions are "lighter shades of green" than other jobs. In concept, these statements are true. In practice these views are ignored by most of the green job studies because the studies are driven by political goals. We have seen these politically-motivated jobs estimates used by green-energy project developers to argue for government funding, tax breaks, approval of above-market power purchase price agreements and project permit awards when the data and regulatory filings fail to substantiate the claims.
As the Subcommittee found in its report on green jobs, when money is the primary motivator truth may be the biggest loser.
G. Allen Brooks is Managing Director of Houston-based investment banking firm Parks Paton Hoepfl & Brown. This article originally appeared in the July 17, 2012, issue of PPHB's newsletter "Musings from the Oil Patch."