Posted by: Dr Pano Kroko Churchill | March 29, 2012

Green Jobs in America

The Obama administration approved long-overdue environmental regulations requiring US power plants to reduce emissions of mercury, arsenic and other toxic metals. The Mercury and Air Toxics Standards, or air toxics rule, is expected to prevent up to 11,000 premature deaths a year and have many other health benefits. The EPA is starting to regulate and manage the largest of the CO2 emission plants. And the overall effect is a positive for the US economy as Cass Sunstein and other behavioral economists note.

Take as an example these two pieces of good economic news: For the first time since the start of the Great Recession, Vermont’s unemployment rate had dropped below 5 percent because Vermont has the highest percentage of “green jobs” in the country.

As announced by the US and Vermont Labor departments, the recently readjusted statewide unemployment rate for February was 4.9 percent, two-tenths of a percent lower than the January rate. That gives the state the fourth lowest unemployment rate in the country, well below the 8.3 percent nationwide rate.

At the same time, the federal Bureau of Labor Statistics found that almost 13,000 Vermont residents, or 4.4 percent of the state’s workers, were engaged in producing “green goods and services” as the bureau defines them, a higher percentage than in any other state. And all that stems from the strictest environmental regulations in the nation that Vermont enjoys and apparently profits from in both job creation and economic growth.

And we can learn from their example and go on to emulate these positive job creation growth statistics in every state that goes towards green and renewable energy as well as Clean tech and  green finance. Because Green Job creation seems to be a no-brainer, and when coupled with government regulation as is the case in Vermont, it primes the pump to create elaborate Green Jobs growth along with plentiful economic growth. A win-win right?

Yet many conservative members of Congress oppose it on purely ideological grounds.

Why?

Because illogically and unthinking, they say it will “kill jobs” instead.

Of course, this is a familiar fear generating tactic, used by politicians opposed to any sort of regulation.

Conservatives have been scarily disciplined in appending the job-killing label to all regulations, both old and new.

As somebody who has been on the front line of this particular battle, I’m afraid to say that the tactic seems to have resonance with the voters and pundits alike. That’s what fear does. It enters the heart and makes one immobile. Of course, also is a disaster for those interested in a true assessment of environmental regulation’s impacts on the economy.

The rationale for attaching the job-killing label to nearly all mentions of regulation is pretty clear: even 32 months after the official end of the recession, the US continues to have a joblessness crisis. While the overall unemployment rate has fallen from its 10 per cent peak in October 2009 to 8.3 per cent last month, the large majority of this decline was explained not by increased job creation, but by a drop in people classifying themselves as actively looking for work.

Conservatives are, in short, hoping to convert the public’s justifiable concern about joblessness into support for their decades-long battle against robust environmental, labour and financial regulations.

Voters who might normally be sceptical of efforts to halt regulations that would protect them from mercury and arsenic spewed into the atmosphere could be more receptive to arguments that they should be postponed so as not to threaten an already fragile economic recovery.

These arguments are of a macroeconomic nature and thus we can know easily what does and does not impact overall job growth. Textbook macroeconomics indicates that, from the perspective of job creation, the best time to enact regulations that may require costly investments is precisely when the economy is depressed.

The reasoning is fairly straightforward. When the economy is functioning well, the impact of new environmental regulation on job growth is roughly neutral, for two reasons. First, the direct effects of regulatory changes generally cut in opposing directions. Take the economic impact of the air toxics rule. The rule requires investment in equipment to abate and control pollution, which will directly create jobs – people must be hired to manufacture and install the scrubbers, filters and baghouses that will reduce toxic emissions. But this extra investment adds to the cost of producing energy. These costs are passed on to energy-using industries, which pass them on to consumers in the form of higher prices. That reduces demand for goods and services, and so destroys jobs.

Generally, these direct influences cancel each other out. Even if they don’t, the second reason for regulation’s neutral effect on jobs comes into play: the central bank. In an effort to hit its overall inflation and unemployment targets, a nation’s central bank – in the US, the Federal Reserve – will simply sterilise any change in job growth stemming from regulatory changes by adjusting interest rates to spur or slow economic activity.

So when the economy is behaving well, environmental regulatory changes are generally irrelevant to job growth. But when the economy is not functioning well, regulatory changes are very likely to create jobs.

There are three reasons for this. First, investments in pollution abatement and control do not threaten to crowd out other investments by monopolising scarce financial capital and hence pushing up interest rates. Financial capital is not scarce during recessions, but opportunities to undertake real investment projects are.

Second, increases in energy costs following the implementation of new rules are unlikely to be passed on to consumers. With lots of excess supply around, firms are not in the position to raise the price of their goods without worrying about the effects on demand. Further, profit margins in the US corporate sector are at a 45-year high, meaning that increased costs can easily be absorbed by companies through reduced profits. Empirical research shows that high profit margins do indeed provide such buffers against price increases.

Lastly, the boost to employment provided by new investments accompanied by muted price responses will not be neutralised by the Federal Reserve, at least not in the next few years, as it has committed to holding interest rates low until unemployment returns to more normal levels.

In the specific case of the air toxics rule, research indicates that the net impact of the regulations will be to add about 100,000 jobs to the US economy by the end of 2015.

It should be clear that this would not make a large dent in the unemployment figures. But the toxics rule isn’t meant to be a job creation programme – it is meant to provide improvements to health and quality of life. And in this primary purpose the research is undeniable that it will hit its target. Holding up its enactment based on fearmongering about jobs is exactly wrong. In fact, pushing forward with it while the economy is depressed would add a modest knock-on benefit of job growth to the much larger benefits it will provide to health and quality of life.

Yours,

Pano

PS:

All claims that environmental regulations will worsen unemployment are false, because when the economy is struggling, the opposite is true, since jobs are generated from the new sector focus on renewable Energy production and all Clean technologies…


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