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April 5, 2011

Renewables Supporters Miss the Point of Scotland Study

April 5, 2011
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A recent study found that each renewable job “created” in Scotland as the result of government support came at the expense of 3.7 jobs elsewhere in the economy. Sadly, even in the homeland of Adam Smith, the critics of the study don’t even understand the economic problems involved with subsidies and preferential treatment. They simply repeat their mantra that green is good, oblivious that their preferred programs destroy jobs and lead to lower wages.

The Verso Study

The opening salvo in the skirmish was a paper by Verso Economics entitled, “Worth the Candle? The Economic Impact of Renewable Energy Policy in Scotland and the UK.” The study found that government subsidies and set asides aren’t free—they come at a cost. According to the Executive Summary [.pdf] (the full report is available here for purchase):

I. This report examines the costs and benefits of government policy to support the renewable energy industry in Scotland and the UK. The Scottish Government in particular is promoting the renewables sector as an economic opportunity, and the purpose of this report is to assess whether this is justified. The report therefore does not investigate measures designed to reduce carbon emissions directly, nor does it consider the merits of renewable technology as part of the attempts to slow climate change.

II. The report’s key finding is that for every job created in the UK in renewable energy, 3.7 jobs are lost. In Scotland there is no net benefit from government support for the sector, and probably a small net loss of jobs.

III. The lower level of job displacement in Scotland is because of the greater concentration of renewable energy generation in Scotland….

IV. The main policy tool used to promote renewable energy generation is the Renewables Obligation, which effectively raises the market price paid for electricity from renewable sources. This scheme cost electricity consumers £1.1bn in the UK and around £100m in Scotland in 2009/10. The UK government plans similar schemes to promote renewable heat and renewable fuels.

V. In addition, both the UK and Scottish Governments have introduced a wide range of grants and subsidies for the renewables industry. These are estimated at £188m UK wide and an additional £22m in Scotland in 2009/10. Further, an exemption from the Climate Change Levy for renewable generation costs HMRC £77m UK wide and £25m in Scotland in lost tax revenue. [Bold in original.]

Although the Executive Report doesn’t spell out the exact method for generating the job estimates, the study presumably looks at how much consumers and taxpayers have to pay to support the renewables jobs actually “created” by the Scottish and UK policies, and compares those figures to private-sector requirements for job creation. (This is what the famous Calzada et al. Spanish study [.pdf] did.)

Critics can quibble with the accounting. Iindeed it’s true that in the long run, the economy can adapt to inefficient government policies, but the adaptation comes at a price. The ultimate impact of these types of energy interventions is to lower our material standard of living, or the average wage that workers can earn. Yet because President Obama continues to tout the “job creating” benefits of his so-called “clean energy” policies, it’s important to rebut this economic nonsense. These policies destroy jobs (on net) in the short-term, and in the longer term the economy can only recover by keeping wages and salaries lower than they otherwise would be.

The Critics Respond to Verso

So how have the government and renewables spokespeople responded to the Verso study? Why, they simply ignored the argument that there are costs of government subsidies and set asides. Instead they argue that the government promotion of renewables is a free lunch:

A spokesman for the Scottish government said other studies had shown Scotland’s natural resources and low carbon opportunities could bring “significant” economic benefits.

He said: “This report is misleading.

“Investment in energy by the private sector, which is ultimately paid for by consumers, has absolutely no impact on public services or public sector budgets – in fact, it is likely that investment leads to increased tax revenue.

“We are in no doubt about the positive impact that investment in low carbon technologies can have and nor are major international companies like Mitsubishi that are investing £100m in offshore wind in Scotland or domestic companies like Scottish and Southern Energy who are investing £100m in sustainable energy in Glasgow.”

He denied the suggestion that UK consumers subsidised Scotland.

He added: “Our abundant renewable resources assist all UK suppliers with their obligation to source a percentage of their sales from renewable generation – without this, the costs to deliver renewable ambitions and obligations across the UK and Europe would be significantly higher.”

Niall Stuart of Scottish Renewables, which represents the industry in Scotland, also criticised the report.

He said: “It is meaningless to look at renewable energy in isolation without looking at the complex interplay within the energy sector.

“The report completely overlooks the economic impact of climate change, the fact that wind and nuclear have almost identical costs and the ongoing spike in oil and gas prices as a result of the unrest in North Africa, all of which undermines the authors’ conclusions.

Virtually everything that the government official and representative of the Scottish Renewables say in the above criticisms are in fact supportive of the Verso study’s conclusions. For example, it’s not surprising that private companies invest in renewable technology—when government policies artificially create a market for it. Note also that the government official admits that the renewables mandates have a tendency to push electricity prices higher, which is only restrained (he claims) by other government subsidies.

As for Niall Stuart’s remarks, he too misses the point completely on climate change. The Verso report stressed upfront that it was not dealing with the issue of climate change. Rather, it was trying to determine the conventional economic losses of carbon mitigation policies, so that policymakers could rationally compare costs and benefits.

This is a very simple point that most of the “green” supporters miss. As I explain in this short video clip below, people favoring carbon legislation often try to have their cake and eat it too. They want to claim that revamping the energy sector will not only mitigate the damages from climate change, but that it will also create jobs and boost the economy even in conventional terms.

Yet if that’s the case, why does the government need to shove it down the consumer’s throat? If it makes sense, even on narrow grounds of profit and loss, to switch away from fossil fuels and greatly expand solar and wind capacity, why do we need government mandates and tax incentives to achieve the result?

Conclusion

A r

ecent study finds that each renewables jobs “created” in Scotland as the result of government support, came at the expense of 3.7 jobs elsewhere in the economy. The response of critics demonstrates that they don’t even understand the basic point that their policies are inefficient and carry real costs. Until they admit this, we should be suspicious of their confident assertions that the policies are justified in the context of climate change.


View Comments
  • http://www.facebook.com/people/Ronald-Patrick-Marriott/1830794149 Ronald Patrick Marriott

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  • http://www.facebook.com/people/Derek-Satnik/100002872932608 Derek Satnik

    http://www.actionforrenewables.org/blog/archive/201103/employing-truth. The author of this article missed a few things.

  • http://www.facebook.com/people/Derek-Satnik/100002872932608 Derek Satnik

    http://www.actionforrenewables.org/blog/archive/201103/employing-truth. The author of this article missed some things. Read this link. The jobs numbers here are all wrong.

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