The clear political failure of the Lieberman-Warner bill last
spring shows that support for global-warming legislation wanes
considerably when the extraordinary costs are compared to the
almost insignificant benefits. In response, those pushing
restrictions on carbon dioxide (CO2) have tried to repackage
global-warming legislation as jobs bills.
As appealing as the repackaging seems on the surface (lots of
high-paid, high-tech workers in lab coats), the support for these
claims collapses once it is examined. A little thought experiment
helps give perspective.
Suppose Jones used 1,000 kilowatt-hours (kW-h) when the price of
electricity was $0.10 per kW-h. He spent $100 on electricity (1,000
kW-h x $0.10 = $100). Now suppose the price rises to $0.15 per
kW-h. Responding to the higher price, Jones cuts his electricity
consumption to 700 kW-h. How much better off is Jones with the
higher price? Most would say, since he is now spending $105 for
less electricity (700 kW-h x $0.15 = $105), he is worse off.
However, those promoting restrictions on CO2 turn economics,
logic, and math upside down. In their world, the answer is: Jones
consumes 300 kW-h less and, at $0.15 per kW-h, he saves $45 (300
kW-h x $0.15 = $45). Then he spends this "extra" money and creates
Everybody else correctly thinks that since Jones now spends $105
for 30 percent less electricity, he is $5 poorer and has to get by
with less energy. He has less to spend, not more. Thus there will
be less employment, not more. This is especially true since one of
the ways Jones cuts energy consumption is to use more expensive
energy-conserving products, making his loss greater than $5.
Phantom Job Creation
The topsy-turvy, we-save-with-higher-prices way of thinking
undergirds a recent well-publicized University of California study
that claims restricting access to energy creates more income and
more employment. The study notes that per capita electricity
use in California is 40 percent less than the national average and
attributes this reduction to efficiencies brought on by state
But Californians pay 36 percent more for their electricity, have
watched manufacturing's share of state output drop by 15 percent
since 1980, need less electricity for heating and cooling than the
rest of the nation, live in smaller houses than the national
average, and pay billions of dollars to generate electricity using
The 40 percent cut in per capita energy use is not free
"efficiency," but it is treated as such. And it is projected to get
1 percent more "efficient" every year without cost. The job
creation in this study is as fallacious as the reasoning on which
it is based. But the silliness does not end there.
Another much-publicized study, done for the Center for American
Progress, makes an even more fundamental error. The authors of this
study fall prey to the classic "broken windows" fallacy whereby
spending money creates jobs as the expenditure multiplies
throughout the economy. The fallacy comes from ignoring the equally
large destruction of jobs (actually larger because of something
called "deadweight loss") from taxing the $100 billion, which
eliminates a similar cascade of job creation elsewhere.
A third, less-well-publicized study from the University of
Tennessee is also based on the broken-windows fallacy. Here
the authors calculate the jobs created by forcing renewable energy
to 25 percent of total energy nationwide. But they neglect to
account for the cost (and lost jobs) of the taxes needed so the
government could subsidize all that inefficient energy.
In a recent study of the economic impacts of restricting CO2
emissions, researchers at the Center for Data Analysis at The
Heritage Foundation did not find an increase in employment; to the
contrary, such restrictions resulted in rather significant job
losses. In some years, employment losses from the
Lieberman-Warner restrictions would be 900,000 jobs. These job
losses are net of any "green" jobs that are created.
"Green Collar" Jobs
When energy prices rise (whether due to changes in market
conditions or regulation and taxes), markets will adjust in many
ways. Consumers reduce consumption and buy more energy-efficient
products. Producers economize on the use of energy by cutting
production and purchasing more energy-efficient machinery.
Of course, some producers will see an increase in sales when
energy prices rise. For example, manufacturers of heating and
cooling equipment may increase sales as firms and households
replace older air conditioners and furnaces with newer more
efficient ones. This will increase the demand for labor, material,
and capital used by the heating and cooling manufacturers. Those
changes will induce yet other changes elsewhere in the economy as
suppliers to the heating and cooling industry adjust their
production. These sorts of responses have happened in the past and
have been estimated using real data and are incorporated into the
hundreds of equations built into the macroeconomic model used by
the Center for Data Analysis.
Energy is a valuable input to the modern economy. Cutting CO2
makes less energy available, and when the impacts are traced
through the economy, some jobs are created but more are lost.
Counting only the jobs that are created distorts the analysis and
invalidates the conclusions.
When all is said and done, restricting CO2 cuts energy, income,
and jobs. Pretending that breaking windows creates employment may
make choosing among alternatives easier, but it leads to bad
David W. Kreutzer,
Ph.D., is Senior Policy Analyst for Energy Economics and
Climate Change in the Center for Data Analysis at The Heritage
David Rolan-Holst, "Energy Efficiency, Innovation, and Job Creation
in California," Center for Energy, Resources, and Economic
Sustainability, University of California, Berkley, October, 2008,
(October 22, 2008).
Beach et al., "The Economic Costs of the Lieberman-Warner