This is part of a series of short posts in which RFF scholars will analyze the environmental plank of the Republican and Democratic Party platforms. This week we’re looking at the Democratic platform. Previous posts analyzed the Republican platform. As with all posts on Common Resources, this and other posts in this series reflect the opinions of the authors alone, not Resources for the Future.
I’ll confess up front that I agree with the Obama administration that the fiscal policy has a role in job creation when faced with a persistent recession. I’m less comfortable with the claim that policies to promote clean energy and energy efficiency are part of the solution. That doesn’t mean we shouldn’t adopt such policies, only that we do so with a clear sense that the environmental benefits they bring are not a free lunch.
A primary reason we need policy to promote clean energy is that it still costs more than energy produced using fossil fuels. Clean energy might not cost more if we had a carbon tax or cap-and-trade program to reflect the environmental costs of using fossil fuels. But with or without such a policy, the upshot is that doing something about the environment through either a fossil fuel tax or using clean sources means increasing the cost to the economy of procuring energy.
And, fundamentally, one does not make an economy bigger by increasing what we have to pay for its basic inputs, including energy. Taken at face value, the “clean energy promotes economic development” claim implies that the government should raise the cost of energy even if doing so produced no environmental benefits. If such a policy sounds absurd, it is because the only reason to impose this cost on ourselves is because environmental benefit exceeds that cost—not because there are no costs.
Recessions are different, of course. Policies that might not pass a cost-benefit test in good times might be worth undertaking to boost employment during bad times. But then the question is how “green jobs” compare to other stimulus programs focusing on infrastructure repair, home construction, or local government retention of police and teachers. “Green jobs” may do well compared to those others, but the opposite wouldn’t surprise me.
The energy efficiency version of the “free lunch” argument could be a closer call. It has wider support among those who believe that households and businesses fail to act in their own best interest by spending more up front on more efficient appliances, equipment, and cars. But unless households and business are really so mistake-prone, policies to promote energy efficiency may well drain rather than boost the economy.
Policies to promote clean energy and energy efficiency make sense as Plans C and D when Plans A and B of a carbon tax or cap and trade program are politically impossible. And even if we did price fossil fuels appropriately, government has a role in supporting research and development into improving energy technologies, just as it does in other fields. How to design such policies remains an important question facing policy makers, business leaders, and the public. But getting those policies right may not be well served by suggesting that clean energy and energy efficiency are without cost.