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Cap-and-trade: “Green Jobs” or Job Killer?

Government energy economists predict job growth would likely slow, but how much is uncertain.


Summary

A TV ad sponsored by business groups claims a bill to curb carbon emissions "will cost up to 2.4 million U.S. jobs" if enacted. That directly contradicts claims by President Obama and his allies who say the bill would create jobs – 1.7 million of them according to one TV spot.

Who’s right?

It’s true that limiting carbon emissions would create some jobs – building wind turbines or insulating homes and businesses, for example. But it’s equally true that raising the cost of burning coal and oil would act as a drag on the entire economy, slowing down job creation in other industries.

According to projections by the Energy Information Administration and the nonpartisan Congressional Budget Office, the net effect of the House cap-and-trade bill will likely be to slow future job growth. Using 11 different possible future scenarios, EIA projects that future job growth might be constrained by something between 388,000 (under the most optimistic assumptions) and 2.3 million (assuming everything goes badly) 20 years from now. CBO also says employment would likely be lower than it would without the legislation – but only "a little."

So claims that the bill would create hundreds of thousands of "green jobs" are misleading, at best. The government’s own official economic projections indicate more jobs will be lost than created.

The National Association of Manufacturers ad gets the trend line right by predicting job losses, but strains the evidence as to the magnitude. The 2.4 million figure might turn out to be true – but only under the most negative set of assumptions. And EIA says those assumptions are "inherently less likely" than other scenarios.

Analysis

Opponents of the American Clean Energy and Security Act (H.R. 2454), which passed the House in June, and the Clean Energy Jobs and American Power Act (S. 1733), which was introduced in the Senate in September, say the bills would lead to significant job losses. Supporters, on the other hand, say the bills would actually create a lot of new jobs.

The claims that hundreds of thousands of "green jobs" lie at the end of the cap-and-trade rainbow were a staple of President Obama’s 2008 presidential campaign, and they’ve continued to appear in TV ads sponsored by former Vice President Al Gore’s "Repower America" campaign as well as those of other groups. More recently, business interests have begun a counter-attack.

A Job "Killer"

The National Association of Manufacturers, with the National Federation of Independent Business and several small local business associations, launched an advertising campaign in August that painted the House bill as a job killer that "will cost up to 2.4 million U.S. jobs." That figure was based on a report commissioned by NAM and the American Council for Capital Formation which estimated that the bill could cause between 1.8 million and 2.4 million job losses by 2030.

[TET ]

National Association of Manufacturers TV Ad

On screen: What happens when people in Indiana find out Congress’ cap-and-trade program is a tax that will cost up to 2.4 million U.S. jobs … force more businesses to close their doors … that will raise electric bills up to 60 percent and a gallon of gasoline up to 26 percent.

Announcer: More taxes. What is Congress thinking? Call Sens. Evan Bayh and Dick Lugar today and tell them to support Hoosiers by saying no to new energy taxes. [/TET]

More recently, EnergyCitizens.org, an alliance of mostly conservative and business groups including NAM and the American Petroleum Institute, has run a TV ad and full-page print ads in The Washington Post warning that the "unfortunate truth about Congress’s climate bill" is that it could result in "2 million jobs lost." That figure comes from a report prepared by the consulting group Charles River Associations (formerly CRA International) for the National Black Chamber of Commerce, which does not support the House legislation.

[TET ]

EnergyCitizens.org TV Ad

Announcer: Two million jobs lost. Yet another unfortunate truth about Congress’s climate bill.

Make your voice heard now. Go to energycitizens.org.[/TET]

Similarly, the conservative Heritage Foundation think tank also says the House bill could cause a net decrease of 2.5 million jobs by 2035.

But supporters of the House and Senate bills have made the creation of "green jobs" a major selling point.

A Job "Creator"

Rep. Henry Waxman of California, who cosponsored H.R. 2454 along with Democratic Rep. Ed Markey of Massachusetts, claimed the House bill would "create millions of clean energy jobs that will drive our economic recovery and long-term growth."

Similarly, Democratic Sens. Barbara Boxer of California and John Kerry of Massachusetts said that the bill they introduced in the Senate in September would "stimulate the economy by creating millions of jobs in the clean energy sector." And President Obama has also hailed the passing of the House bill and the introduction of the Senate bill both in part for their potential to create "millions" of new jobs.


[TET ]

Clean Energy Works TV Ad: "Waste"

Announcer: When we spend $1 billion a day buying foreign oil, we don’t just waste our money, we put our economy in the hands of hositle nations. We let big oil make record profits while we struggle. And we lose new energy jobs that go overseas.

But we can take charge of our economy by passing strong clean energy legislation — 1.7 million new American jobs, less carbon pollution, and a cleaner American for our children. It’s time for clean American Energy. [/TET]

Clean Energy Works, a coalition of "grassroots organizations" including the National Wildlife Federation and League of Women Voters, ran a TV ad in September saying that the House bill would create 1.7 million new jobs. That figure is based on a study from the liberal Center for American Progress, the group headed by former Clinton White House Chief of Staff John Podesta. It concluded that many net jobs could be created if $150 billion is committed annually to clean energy investments.

Likewise, the American Council for an Energy-Efficient Economy, a nonprofit group "dedicated to advancing energy efficiency," says that the legislation could create between 400,000 and 600,000 jobs by 2020 and between 600,000 and a million-plus jobs (under an "enhanced efficiency" scenario) by 2030.

Who’s Right?

Gary Yohe, Woodhouse/Sysco Professor of Economics at Wesleyan University in Connecticut, told FactCheck.org that "job loss estimates are very difficult to interpret." He added: "The partisan estimates bracket the range of possibility, I suppose, but neither can really be believed."

Both sides have a point, however.

The effect of any government program to limit carbon emissions would be to raise the price of burning carbon-based fuel, particularly coal and petroleum. That’s likely to cost jobs of coal miners and refinery workers, but that’s just a start. Any increase in energy costs acts as a drag on the overall economy, indirectly costing jobs in all sorts of other industries.

On the other hand, there’s little doubt that carbon limits would increase demand for "clean" energy produced by wind turbines and solar panels, and also for energy-conserving products such as insulation and services such as energy audits and weatherization of homes and businesses.

The question then becomes, will the losses outnumber the gains?

The Official Projections

The sponsors of the House bill, Reps. Waxman and Markey, asked the government’s Energy Information Administration to provide an analysis in a letter last March. The EIA, which is the independent statistical agency within the Department of Energy, released the analysis in August, and posted detailed spreadsheets on its Web site. These contradict Waxman and Markey’s earlier claim (made June 28, two days after the bill passed) that "[t]his landmark bill will revitalize our economy by creating millions of new jobs." EIA projected that over time, the bill would likely become a drag on the economy and reduce job creation by hundreds of thousands of jobs under any of the 11 different sets of assumptions that it analyzed.

Finding this information took a little digging on our part. The EIA did not provide direct predictions of job gains or losses. Rather, it generated year-by-year projections for the total number of jobs in the economy over the next 20 years for each of a dozen "cases," one of which was the "reference case" – a "business as usual" projection of what might happen without the bill. We have compared the job projections for each of the 11 other cases with the "reference" case. And that comparison shows fewer jobs predicted in 2030 with a cap-and-trade bill than without, under any of the 11 different sets of assumptions EIA analyzed. (These projections don’t attempt to assess any job loss due to climate change, but more about that later.)

Only the most severely pessimistic set of assumptions produces a predicted job loss similar to the "up to 2.4 million" figure in the NAM’s ad, however. The EIA figures that there might be 2.3 million fewer jobs in 2030 if the Waxman-Markey bill went into effect, but things went badly wrong; that amounts to 1.4 percent fewer jobs than under the no-change-in-law-or-policy baseline. Specifically, this worst-case scenario assumes that government officials would be "severely limited" in implementing a key cost-saving feature of the bill known as "international offsets." These are supposed to allow U.S. companies to avoid having to reduce their own carbon emissions by paying others to plant trees or avoid deforestation in developing countries, for example. This worst-case future also assumes that nuclear power and "clean coal" technologies don’t advance any faster than currently projected.

But this everything-goes-wrong analysis was only one of 11 different possibilities. And EIA said that while it cannot say how probable any of them are, "both theory and common sense suggest that cases that reflect an unbroken chain of either failures or successes in a series of independent factors are inherently less likely than cases that do not assume that everything goes either wrong or right." Assuming that the only thing that goes wrong is that international offsets fail to materialize, for example, EIA projects the job loss would fall to just over 1 million. And under EIA’s "basic" case, in which offsets are not severely constrained and nuclear, wind, solar and other clean energy technologies are "deployed on a large scale," EIA projects 597,000 fewer jobs in 2030 than under current policy. EIA’s most optimistic projection, a "high technology" case that assumes "more aggressive assumptions about technological improvements" to reduce greenhouse gas emissions, would lead to job reductions of only 388,000, or 0.2 percent.

We should note that under some of the scenarios analyzed, EIA projected that total employment might increase by a small amount during the early years of a cap-and-trade program. For example, in the "basic" case, EIA found that employment might increase by about 96,000 jobs in 2012, 42,000 jobs in 2019 and 266,000 jobs in 2024, before ending with a loss of 597,000 in 2030.

CBO’s Take

The EIA’s view is echoed by the CBO. In a report released in September CBO noted that the House bill would create both winners and losers. And on Oct. 14, CBO Director Douglas Elmendorf testified before the Senate Energy and Natural Resources Committee and said that total employment would likely decline by only "a little" as labor markets adjusted.

"[C]limate legislation would cause permanent shifts in production and employment away from industries that produce carbon-based energy and energy-intensive goods and services and toward industries that produce alternative energy sources and less energy-intensive goods and services," Elmendorf said. "While those shifts were occurring, total employment would probably be reduced a little compared with what it would have been without such a policy, because labor markets would most likely not adjust as quickly as would the composition of demand for final outputs."

Elmendorf, Oct. 14: In terms of the employment … there is certainly a decline in employment in fossil fuel intensive parts of the economy. There is an increase in employment in non-fossil fuel intensive parts of the economy.

The net effect of that, we think, would likely be some decline in employment during that transition because labor markets do not move that fluidly. Workers live in certain places with particular skills, and they can’t immediately turn out living in some other place with a different set of skills.

We got a similar view from John Reilly at the Joint Program on the Science and Policy of Global Change at the Massachusetts Institute of Technology, which has run a number of independent projections on the effect of cap-and-trade programs on the economy. He said MIT’s modeling shows that the House bill would cause a "small net reduction in total employment – but quite small."

An important caveat: None of these economic projections attempt to assess the effects of climate change on jobs or the economy. But CBO says it expects there will be major economic consequences should Congress do nothing to control carbon emissions.

CBO, September 2009: A strong consensus has developed in the expert community that, if allowed to continue unabated, the accumulation of greenhouse gases in the atmosphere will have extensive, highly uncertain, but potentially serious and costly impacts on regional climates throughout the world. Those impacts are expected to include widespread changes in the physical environment, changes in biological systems (including agriculture), and changes in the viability of some economic sectors.

— by D’Angelo Gore

Sources

U.S. House. "H.R. 2454, The American Clean Energy and Security Act of 2009." (as passed by the House 26 Jun 2009.)

U.S. Senate. "S. 1733, The Clean Energy Jobs and American Power Act of 2009." (as introduced by the Senate 30 Sep 2009.)

Senate Committee on Environment and Public Works. "Boxer Releases Chairman’s Mark of Clean Energy Jobs and American Power Act." 23 Oct 2009, accessed 27 Oct 2009.

House Committee on Energy and Commerce. Summary of the American Clean Energy and Security Act. July 2009, accessed 20 Oct 2009.

U.S. Senate. Summary of the Clean Energy Jobs and American Power Act of 2009 (as introduced). Accessed 20 Oct 2009.

Energy Information Administration. "Energy Market and Economic Impacts of H.R. 2454, the American Clean Energy and Security Act of 2009." 4 Aug 2009.

Congressional Budget Office. "The Economic Effects of Legislation to Reduce Greenhouse-Gas Emissions." Sep 2009.

Elmendorf, Douglas. "The Economic Effects of Legislation to Reduce Greenhouse-Gas Emissions." Written Testimony before the U.S. Senate Energy and Natural Resources Committee." 14 Oct 2009.

Senate Committee on Energy and Natural Resources. Hearing on Energy and Related Economic Effects of Global Climate Change Legislation. Transcript. 14 Oct 2009, accessed via Lexis-Nexis.

Yohe, Gary. Woodhouse/Sysco Professor of Economics at Wesleyan University. E-mail sent to FactCheck.org. 23 Oct 2009.

Whitten, Daniel. "Climate Legislation Would Cost U.S. Jobs, CBO’s Elmendorf Says." Bloomberg.com. 14 Oct 2009, accessed 20 Oct 2009.

Congressional Budget Office. Cost Estimate of American Clean Energy and Security Act of 2009. 5 Jun 2009.

CRA International ."Impact on the Economy of the American Clean Energy and Security Act of 2009 (H.R.2454)." Prepared for the National Black Chamber of Commerce. May 2009

Political Economy Research Institute. "The Economic Benefits of Investing in Clean Energy." Prepared for the Center for American Progress. Jun 2009.

Reilly, John. MIT Joint Program on the Science and Policy of Global Change. Interview with FactCheck.org. 22 Oct 2009.

American Council for an Energy-Efficient Economy. "Importance of Energy Efficiency in Climate Legislation." Briefing. 9 Sep 2009.

Heritage Foundation. "The Economic Consequences of Waxman-Markey: An Analysis of the American Clean Energy and Security Act of 2009." 6 Aug 2009.

National Association of Manufacturers and American Council for Capital Formation. "Economic Impact of the Waxman-Markey Bill, H.R. 2454 Proposed Legislation to Reduce Greenhouse Gas Emissions." Aug 2009.

Pew Center on Climate Change. "Myths about the Waxman-Markey Clean Energy Bill." June 2009, accessed 19 Oct 2009