Wednesday, October 27, 2010

Green Jobs Aren't Renewable Energy's Value Proposition

The recession and its aftermath have been simply awful for the emerging renewable energy industry, even though governments have tried hard to insulate the industry from the worst effects of the slowdown. Not only did the recession make it much harder for renewable energy projects and technologies to secure financing, due to weak demand and the hangover from the financial crisis, but it has focused the industry's management on a counterproductive metric: green jobs. Factories and projects are pitched on the basis, not of their efficiency and profitability, but of adding jobs that "can never be outsourced." Tell that to the 3,000 Danes who are being laid off by wind turbine maker Vestas, or the Scots whose jobs are in jeopardy due to the financial problems of a smaller wind supplier, Skykon. This problem isn't unique to renewables, but the misplaced emphasis on green jobs makes them particularly vulnerable to the collision of this aspiration with the realities of global energy markets.

I don't blame the industry for picking up on this theme. Politicians hit on it first as a way to justify continuing to invest taxpayer money in the subsidies required to keep renewables growing. That included the large infusions that became necessary when the "tax equity" market upon which project developers had depended to convert future tax credits into current cash became frozen after the bankruptcy of Lehman Brothers. As of this month, the US government has spent $5.4 billion on these renewable energy grants to fill this gap, with nearly half of that awarded in the second, third and fourth quarters (to date) of this year, even though tax equity transactions are showing signs of life again. Without a compelling story linking this money to employment, which understandably remains one of the primary economic concerns of voters, this would have been an even harder sell than it was.

One problem with this rationale is that the world has changed a lot since most of the current members of Congress came to Washington. Supply chains for practically every industry have become globalized, and renewables are no exception. If anything, as renewables increasingly become a global industry--growing out of their localized roots in places like Denmark and Silicon Valley--that trend will accelerate. The lion's share of future demand will likely be focused on Asia and Latin America, because of their higher economic growth rates and the related need to add enormous amounts of new energy infrastructure. That's a very different proposition than replacing existing energy infrastructure in the mature, developed economies because we don't like its emissions or its dependence on unsustainable fuels. Vestas understands that to serve the market in China, it needs more factories in China, and fewer in Denmark.

An even bigger problem is that making renewable energy more, rather than less labor-intensive works against it in the long run, by increasing its costs relative to conventional energy. In a recent analysis on green jobs the Geothermal Energy Association (GEA) touted its finding that geothermal power plants create more than 10 times as many person-years of employment per megawatt of capacity as equivalent natural gas-fired power plants. Unfortunately for the GEA, outside the Washington beltway and the state capitals where this message might play well that counts as a disadvantage, not an edge, because it translates into higher construction and operating & maintenance expenses. In order to arrive at the point at which they can compete without subsidies that look increasingly unsustainable in light of the large fiscal deficits in the developed economies, renewables must focus on driving down these costs and improving their productivity.

I am sympathetic to the plight of the millions of unemployed workers in this country and elsewhere in the developed world, and cognizant of their effect on the overall economy. However, energy is by its nature a capital-intensive business, and not a particularly labor-intensive one. To the extent its capacity to provide low-cost energy to the rest of the economy is influenced by the number of workers it takes to produce a megawatt-hour of electricity or a barrel of oil, fewer are generally better. Without diminishing the value of the jobs involved, I can only hope that once the economy resumes creating many kinds of jobs at a decent rate the renewable energy industry will return its focus to its primary value proposition for consumers and investors: providing low-emission, diverse and secure--and hopefully someday cost-effective--sources of energy for the economy, rather than putting more people to work.

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