Think Again: The Green Economy

Going green has finally gone mainstream, and politicians from London to Seoul are spending billions on clean technologies they say will create jobs. But unless we are all willing to risk a little more pain, the green revolution could founder before it ever really starts.

BY MATTHEW E. KAHN | APRIL 15, 2009

"Going Green Will End the Recession."

No way. Vowing to pump $150 billion into green technology over the next decade, U.S. President Barack Obama has made big promises about his environmental agenda. "It will also help us transform our industries and steer our country out of this economic crisis by generating 5 million new green jobs that pay well and can’t be outsourced," he said in November.

British Prime Minister Gordon Brown has similarly called for an international "Green New Deal" to create a "low-carbon recovery." The United Nations wants a full 1 percent of global GDP to go to environmental initiatives. Rich countries such as Canada, Japan, and South Korea are obliging, spending billions to promote ecofriendly projects and green businesses.

Even the U.S. Congress is considering a range of measures to reduce greenhouse gases -- from regulatory mandates, such as raising vehicle fuel economy or requiring electric utilities to produce more of their power from renewable sources, to carbon taxes and a cap-and-trade system for electric utilities.

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.

 

Matthew E. Kahn is professor of economics at the University of California, Los Angeles, and author of Green Cities: Urban Growth and the Environment.