Green Jobs and a Renewable Electricity Standard

With a full-blown climate bill off the table at least for this year, a coalition of renewable energy project developers, trade associations, investors and technology providers is apparently rallying around a simpler energy bill that has been on the back burner since last year. The group's arguments in favor of the bill's key provision of a national "renewable electricity standard" (RES) focus on "green jobs" and concerns that China is passing us by. There is merit in both of these themes, though not to the extent that the RES Alliance for Jobs suggests. A national RES, which would require utilities to source a growing proportion of electricity supplies from renewable energy might help project developers and investors, but its impact on cleantech manufacturing--which is at the heart of the employment and competitiveness issues--looks much less direct.

When I examined a draft of the American Clean Energy Leadership Act of 2009 (ACELA) last summer, I found it preferable to the bloated Waxman-Markey bill that the House had just passed. ACELA was more genuinely bi-partisan, coming out of the Senate Energy and Natural Resources Committee chaired by Senator Bingaman (D-NM), and it took a more realistic view of the continuing importance of a broad spectrum of energy resources, not just renewables. However, along with various other energy measures over the last year, it was overshadowed by other legislative priorities and the Macondo oil leak. In the event that this bill gets another chance before the new Congress takes office next January, we should understand what an RES can and can't do.

The industry is doubtless correct that expected demand for renewable energy hardware plays a key role when companies decide whether to begin or expand production of such gear in the US. An RES would likely boost demand for this equipment. However, as the reports earlier this year and late last year concerning the share of the Treasury's renewable energy grants awarded to non-US firms and projects using non-US equipment made clear, this is a necessary but not sufficient condition for a healthy US cleantech manufacturing sector. Absent a concerted effort to make US manufacturing more globally competitive, much of the benefit--including many of the associated "green jobs"--would accrue to other countries. An RES, like other measures emphasizing deployment, rather than manufacturing, would be a weak domestic job creator, at best. And that's without factoring in the job losses in energy-intensive sectors resulting from the higher electricity prices that a national RES would impose, as the costs of compliance get passed on to ratepayers.

Another reason that an RES, at least at the modest levels contemplated under the ACELA bill, probably wouldn't spark a huge wave of renewable energy development and manufacturing is that most of the states with significant wind, solar, or geothermal resources already have their own RPS mandates in place, generally at levels well above those that would be set by the national RES. So at least one likely short-term result would be inflation in the prices of the renewable energy credits (RECs) that make these standards work, as the states without much reliable wind or sunlight, or easily accessible hydrothermal reservoirs, scrambled to cover their new quotas from out-of-state providers. This would be a real boon for REC traders, at the expense of regulated utilities and their ratepayers.

As for being beaten by China in clean energy technology, this is a serious concern, particularly in light of recent reports that some Chinese support for cleantech might violate World Trade Organization rules. At the same time, we must factor in the reality that China has become the "workshop of the world", not just for cleantech hardware but for many other products, as well. If we wonder why China makes 40% of the world's photovoltaic cells and 30% of the world's wind turbines, the answer has a lot in common with why they also make so many of the world's laptops, PCs and flat-screen TVs. It also helps that China has one of the world's fastest-growing electricity markets, creating enormous internal demand for a wide variety of generating technologies, including renewables. Since US electricity demand has been growing much more slowly, and has recently declined, renewables here can't simply capture their fair share of growth; they must squeeze something else out--typically something that produces electricity more reliably or cheaply.

As I noted in last Monday's posting, renewable energy still needs help to compete with conventional energy. Finding the right means of providing that help is complicated by the aftermath of the financial crisis and recession. A national RES comes off second-best to a lot of other approaches that don't seem very feasible right now, and in any case it won't solve our unemployment and global competitiveness challenges. Perhaps it's the least-bad comprehensive support we can realistically provide renewables today, if we are truly convinced we must provide extra assistance beyond the federal tax credits and state-level policies already in place--and which its implementation would render somewhat redundant. That's a far cry from the expansive claims being made for it by a number of entities that stand to gain if it were enacted.