A full-page ad appearing in today's New York Times, Wall Street Journal, and Washington Post reminded me of a topic I've meant to cover for some time. Frequently during this election campaign, including the primaries, we have heard candidates extol the employment benefits of a switch to renewable energy. In Tuesday night's debate, Senator Obama suggested a figure of "5 million new jobs" from clean energy, and Senator McCain also mentioned "millions of jobs" in this context. It sounds alluring. A rapidly-growing energy sector providing good jobs here in the US is just what the economy could use at the moment. But while recognizing the potential benefits, we should also examine these claims critically. What would 5 million green energy jobs imply about future US energy costs and competitiveness?
The ad in today's papers is entitled, "The Unshaken Pillar", and it describes the US energy sector as a solid foundation for the whole economy at a time of great uncertainty, emphasizing the need for improved energy efficiency and conservation, along with expanded production of both oil & gas and alternatives. Signed by the CEOs of Chevron, AEP, FedEx, and Dow Chemical, it cites employment as an example of the domestic energy industry's benefits. This suggests a basis for putting those hypothetical 5 million green jobs into perspective. As of last year, the US oil and gas industry employed 1,772,000 workers in all categories, spanning exploration & production, refining, transportation and distribution. Nor are they all engineers and highly-paid drilling specialists. Nearly half this figure was associated with employment in service stations. Collectively, these 1.8 million people produced, processed and delivered fuels carrying 33 quadrillion BTUs of energy, or "quads", to US consumers and businesses. That's a third of total US energy consumption and 46% of US energy production. On average, it equates to 18.6 billion BTUs per worker, or 3,100 barrels of oil equivalent each, annually.
In order to come up with a comparable productivity metric for renewable energy, we need to make some assumptions about how much this sector will produce when it reaches its anticipated employment of 5 million Americans. It must be a lot more than the 1% or so of electricity and 7% of gasoline currently supplied by wind, solar power and ethanol. If we combine the 36 billion gallons per year of biofuel targeted for 2022 under the federally-mandated Renewable Fuel Standard with the 20% of net electricity generation from wind by 2030 posited by a recent DOE study, as a proxy for all new renewable electricity, the total equates to roughly 14 quads per year. And that's giving the kilowatt-hours from renewable electricity the benefit of a gas-fired turbine heat rate, rather than the normal engineering conversion, which is 2/3 lower. The resulting productivity figure works out to 2.8 billion BTUs per green energy worker, or 470 barrels of oil equivalent per year.
On that basis, we should expect that the average energy productivity of this huge new renewable energy sector would only be about 15% of the productivity of the current oil and gas industry. To understand the implications of that for the economy and for US international competitiveness, we must translate these figures into dollars. If the average "green-collar" job envisioned by those emphasizing the employment benefits of renewable energy pays the current average US wage of $47,000 per year, then the result is an effective energy cost of $100 per barrel, before considering capital expenses--and renewable energy is still at least as capital-intensive as conventional energy. Using the above figures, the comparable calculated labor expense for oil & gas is around $15 per barrel.
There are many good reasons for the US to pursue renewable and other alternative energy technologies aggressively, including addressing climate change, improving our energy security, and reducing the influence of petro-authoritarian states. Adding good jobs would belong on this list, too, as long as we keep our eye on productivity. In order to remain competitive, we shouldn't desire the largest energy sector possible, but rather the smallest one that does the job of providing the clean energy needed by the rest of the economy, where the vast majority of the goods and services we consume are created. With that in mind, let's all hope that the 5 million green jobs we keep hearing about are merely another example of election-year pie-in-the-sky, and not a realistic estimate.