Doing the Recovery Right

For most of the past generation, the aims of environmental
sustainability and social justice were seen as equally worthy, yet
painfully and unavoidably in conflict. Tree huggers and spotted owls
were pitted against loggers and hard hats. Fighting global warming was
held to inevitably worsen global poverty and vice versa. Indeed, the
competing demands of the environmental and social justice agendas were
frequently cited as a classic example of how public policy choices were
fraught with trade-offs and unintended consequences--how you could end
up doing harm while seeking only to do good.

Over the past couple of years, there has been a dramatic reversal of
thinking: the idea has emerged that protecting the environment--in
particular, defeating global warming--can also be an effective engine of
economic growth, job creation and even poverty reduction. A small band
of determined activist organizations, including the Apollo Alliance,
Green For All and 1Sky, deserve credit for pushing this idea into the
mainstream. Labor and environmental organizations like the Steelworkers
and the Natural Resources Defense Council were open to persuasion. By
the time the presidential campaign began, Hillary Clinton and Barack
Obama had both incorporated variations on this idea as major planks in
their platforms.

Now, under President Obama, the idea of a green recovery--an investment
program to promote energy efficiency and the development of renewable
energy--is a central feature of his $825 billion program to defeat the
most severe financial crash and recession since the 1930s.

Of course, arguments about trade-offs and unintended consequences have
not disappeared. Robert Stavins, chair of the Environment and Natural
Resources Faculty Group at Harvard, recently offered this analogy:
"Let's say I want to have a dinner party. It's important that I cook
dinner, and I'd also like to take a shower before the guests arrive. You
might think, Well, it would be really efficient for me to cook dinner in
the shower. But it turns out that if I try that I'm not going to get
very clean and it's not going to be a very good dinner."

A weighty intellectual pedigree does undergird the Stavins story. This
is a proposition developed by Jan Tinbergen, co-recipient of the first
Nobel Prize in Economics and a lifelong leftist. Tinbergen held that you
need separate policy tools to address distinct policy aims--that, in
other words, trying to kill two birds with one stone is not likely to
succeed. As the Obama administration begins spending in the range of
$150 billion to create jobs and fight global warming through a single
tool of green investments, it is clearly an appropriate time to examine
how much Tinbergen's law might actually apply to our current situation.

What Is the Green Investment Agenda?

The transformation of our fossil fuel driven economy into a clean energy
economy will be the work of a generation, engaging a huge range of
people and activities. But focusing on essentials, there are only three
interrelated projects that will drive the entire enterprise:
dramatically increasing energy efficiency; equally dramatically lowering
the cost of supplying energy from such renewable sources as solar, wind
and geothermal power; and mandating limits and raising prices on the
burning of oil, coal and natural gas.

In the preliminary version of the stimulus program drafted by House
Democrats in mid-January, the green recovery components of the overall
$825 billion measure include about $45 billion for retrofitting
buildings to increase their energy efficiency significantly; $20 billion
to upgrade the public transportation system; $32 billion for building
"smart grid" electrical transmissions systems that can, among other
things, efficiently use power from renewable sources; and $8 billion for
renewable energy research and commercialization (allowing that the exact
allocations for various purposes are not yet entirely clear).

The piece that's missing is some mechanism for limiting the burning of
fossil fuels. One option is to raise taxes on purchasing oil, coal and
natural gas. Congress has also considered "cap and trade" proposals for
the past few years, which would set increasing limits on total carbon
emissions and require corporations to pay the government for rights to
produce fossil fuels. A significant bloc in Congress, including some
liberal Democrats like Senator Sherrod Brown of Ohio, has opposed such
measures because they would impose higher energy prices on businesses
and individuals. But some version of this proposal will have to be
implemented--if not amid the recession itself, soon thereafter--to
advance a successful environmental agenda.

Success in combining the three projects--energy efficiency, renewable
energy and limits on fossil fuel consumption--could produce a decisive
environmental victory. It could also serve social justice in several
ways, by lessening the risks of extreme weather patterns like Hurricane
Katrina, allowing us to breathe clean air and breaking our dependence on
oil companies and foreign oil oligarchies. But these achievements still
do not tell us how a green investment project could also advance a
broader social justice agenda, to promote good jobs and economic
security, and to fight poverty. Are these connections real?

Green Investments and Full Employment

First and foremost, the green investment project is a social justice
agenda to the degree it promotes full employment at decent wages. For a
generation coming out of the Great Depression, the goal of full
employment was the moral centerpiece of economic policy around the
world. But full employment has been off the radar screen since the
elections of Margaret Thatcher in 1979 and Ronald Reagan in 1980. It has
been easy to forget its transformative power as a policy goal.

Whether you can get a job--and if so, whether the job offers decent pay,
a clean and safe environment and fair treatment for you and your
co-workers--matters a lot to almost everyone. Correspondingly,
unemployment can have a devastating impact on families, even with two
wage earners. A full employment economy also means greater business
opportunities for small and large firms and strong incentives for
private businesses to increase their level of investment.

Since World War II, the closest we have come to full employment was in
the late 1960s and late 1990s to 2000, when the unemployment rate fell
to 4 percent and below. In both periods, low unemployment increased
workers' bargaining power, which brought rising wages. Poverty fell as
businesses were forced to hire people who had been left out. But in the
1960s the engine of employment expansion was spending on Vietnam, an
immoral war. In the 1990s to 2000 job growth was driven by the
irrational Wall Street dot-com frenzy. By contrast, a green investment
program can underwrite a durable full employment economy precisely
because it is environmentally sustainable and morally just.

The green investment project can advance a full employment agenda
because it will create about seventeen jobs for every $1 million in
outlays, whereas spending the same $1 million in the oil and coal
industries creates about 5.5 jobs--i.e., the job-creation effect of
green investments is more than three times larger than that for fossil
fuel production. The main reasons for this disparity have nothing to do
with whether the investments are green. Rather, there are two primary
factors at play. The first is the higher "labor intensity" of spending
on green projects--more money is spent on hiring people and less on
machines, supplies and consuming energy. This becomes obvious if we
imagine hiring construction workers to retrofit buildings or install
solar panels, or bus drivers to expand public transportation offerings,
as opposed to drilling for oil off the coasts of Florida, California and
Alaska. The second factor is the "domestic content" of spending--how
much money is staying within the US economy as opposed to buying imports
or spending abroad. When we retrofit public buildings and private homes
to raise their energy efficiency, or improve our public transportation
systems, virtually every dollar is spent within the US economy. By
contrast, only 80 cents of every dollar spent in the oil industry
remains in the United States.

As a tool for fighting the recession, the green recovery project has as
its first purpose injecting more money into the economy as quickly as
possible. In this way, a $100 billion green investment program would
create on the order of 1.7 million new jobs.

Over the longer term, though, the green investment agenda will not
simply entail expansion in energy efficiency and renewable investment
spending but also a corresponding decline in spending on oil, coal and
natural gas. Yet this longer-term agenda can still promote a full
employment economy. If we allow that every $1 million in new green
investments will be matched by an equal fall in spending within the
fossil fuel industry, we will still net about 11.5 jobs each time $1
million transfers from fossil fuels to clean energy (i.e., seventeen
jobs for green investments minus 5.5 lost in oil, natural gas and coal).
We spend about $600 billion a year in the oil, natural gas and coal
sectors. Transferring, for example, 25 percent of those funds into
energy efficiency and renewable energy projects would therefore yield
about 1.7 million new jobs.

The importance of pursuing this agenda is underscored by the long-term
effects of globalization on the US labor market. Over time,
globalization is making more and more US jobs vulnerable to outsourcing
to low-wage economies. In a widely discussed article in Foreign
Affairs in 2006, Princeton economist Alan Blinder argued that
increasingly services that can be carried over the Internet--including
the telephone operators in India with whom we are familiar, but also
back-office accountants, lawyers, engineers and laboratory technicians
as well as their support staffs--can be supplied by employees in poor
countries who work for, say, one-fifth the wages of their US
counterparts. These would be in addition to the manufacturing jobs that
have long been forced to compete with China and other low-wage
countries. Blinder's conclusion is that something like 20 to 30 percent
of all US jobs--in the range of 30 million to 40 million in all--are
vulnerable to these outsourcing pressures. The only way to counter these
pressures is for employment creation to be made a centerpiece of our
public policy. The green investment agenda cannot fulfill this role on
its own, but it can move us a good distance in the right direction.

Devil in the Details

Of course, there will be excellent, good, bad and disastrous ways to
execute the particulars of advancing a unified program for green
investments and full employment. Among the most important considerations
are regional fairness, cushioning the negative impact on workers and
communities tied to the fossil fuel industries, and making the best of
the opportunities and challenges posed by the construction industry.

Regional equity. Although all regions can gain significantly from
this green recovery program, their ability to capture the benefits of
specific technologies like solar or wind power varies according to their
climate and geography. But all regions are equally capable of making
investments to improve energy efficiency dramatically through
retrofitting buildings, expanding public transportation systems and
increasing the efficiency and stability of the electric grid. Similarly,
all areas of the country have renewable energy resources (for example,
underground heat for geothermal energy or nonfood agricultural products
to generate biomass fuels) and the ability to produce goods and services
(research on biofuel refining or even accounting support) that will be
demanded during the clean energy transition. Government support for
green investment should therefore be allocated on an equitable basis by
region; for example, based on a combination of population levels and
proportion of GDP.

Fossil fuel jobs and communities. About 3.5 million Americans are
either employed in producing oil, natural gas and coal, or their jobs
are linked to the traditional energy suppliers. These jobs will
obviously dry up as we reduce fossil fuel dependence. Communities tied
to these industries--coal-mining towns throughout much of Appalachia and
the oil-rich areas of Texas, Oklahoma, Louisiana and Alaska--will
obviously be hurt. But it is important to remember that the green
investment agenda will create far more jobs overall, including for
people now employed in the traditional fossil fuel sectors. Some of
these jobs will be in specialized areas, such as installing solar panels
and researching new building material technologies. But the vast
majority of jobs will be in the same employment areas in which people
already work, in every region and state.

Constructing wind farms, for example, creates jobs for sheet metal
workers, machinists and truck drivers, among many others. Increasing the
energy efficiency of buildings through retrofitting requires roofers,
insulators and building inspectors. Expanding mass-transit systems
employs civil engineers, electricians and dispatchers. In addition, all
these green energy investment strategies engage a normal range of
service and support activities--including accountants, lawyers, office
clerks, human resources managers, cashiers and retail salespeople. That
said, some significant part of the spending on the clean energy
transformation will have to be directed to assist the communities that
will be most negatively affected by the contraction of the fossil fuel
industries.

Construction jobs. Roughly 30 percent of the job creation
generated by the green investment agenda will be in the construction
industry, although construction accounts for only about 6 percent of US
employment. In the short term, construction has been hit severely by the
housing bubble collapse, with nearly 900,000 jobs lost since September
2006. The Obama green recovery agenda can bring back most of these jobs.

Construction jobs cannot be outsourced. Retrofitting a home in Maryland
can be done only in Maryland. The public transportation in Los Angeles
can be upgraded only in Los Angeles. On average, construction jobs pay
decently, because unions still have a strong presence in the industry.
Construction unions have also frequently created job ladders for those
in low-paying entry-level positions. These opportunities for low-level
workers in construction are far more favorable than, for example, those
facing workers in the restaurant, hotel or nursing fields.

On the other hand, employment in construction has long been dominated by
white males. The industry has a history of hiring discrimination against
women and racial minorities, and even now, nearly 60 percent of
construction jobs are held by white non-Hispanic males. Women who try to
enter construction trades also face sexual harassment and work schedules
that are not family-friendly. It is essential that the green investment
agenda include strong measures to break down the employment barriers in
these trades. It would be an important first step for Hilda Solis,
Obama's pick for labor secretary, a Hispanic with a strong record of
supporting the rights of all working people, to revive the Labor
Department's long dormant Federal Contract Compliance programs. If
enforced, these measures would go far toward providing women and
minorities a fair share of the construction jobs generated by the green
investment agenda.

Beyond this, the green investment program cannot be seen as sole driver
of a social justice agenda, either as a short-term stimulus or a
long-run program for equitable and sustainable economic growth. Two
other obvious investment targets are healthcare and educational services
(i.e., spending on teachers, administrators, scholarships, hot lunch
programs and bus drivers, as opposed to constructing new school
buildings). In terms of promoting productivity and public well-being,
investments in health and education are at least as important as public
transportation and the energy grid. In addition, the employment impact
of investing in healthcare is roughly equal to the average for green
investments, while educational services investments generate about 40
percent more jobs. Jobs in education and healthcare are also divided
much more evenly by gender and race than those in construction (white
non-Hispanic males make up only 15 percent of the overall workforce in
healthcare and 22 percent in education).

Green Investments Lower Energy Costs

If government policy aims to discourage fossil fuel consumption either
through a cap-and-trade mandate or a carbon tax--as it must--this will
raise the price of oil, coal and natural gas. However, this does not
have to bring a fall in living standards. One simple solution, as
proposed by California businessman Peter Barnes and my University of
Massachusetts colleague James Boyce, is to rebate the government
revenues generated by a carbon tax or the auctioning of cap-and-trade
permits back to all energy consumers according to a fair set of
principles. The most important aim would be at least to help
lower-income families to meet the fossil fuel price increases.

Beyond this, the green investment agenda, especially in the area of
energy efficiency, should lead to significantly lower energy costs,
which will benefit lower-income households. The two basic ways to do
this are through improving access to public transportation and
increasing the energy efficiency of residential buildings.

Public transportation accounts for an abysmally low share of travel in
the United States, even though ridership rose over the past two years,
following the oil price spike. As of 2007, automobile travel accounted
for 99 percent of transportation spending even for the least well-off 20
percent of households, despite the fact that public transportation is
about 60 percent cheaper per mile. The reasons most Americans, including
those with less money, do not use public transportation are
straightforward: access is bad, off-peak service is limited and
transferring is difficult. If the average lower-income household were to
increase its public transportation use to just 25 percent of its
transportation budget, it would save nearly $500 a year, raising its
living standard about 2.4 percent. [For more on the need for public
transit investment, see Ben Adler, "Ticket to Ride"]

In terms of residential energy efficiency, for the average individual
family residence, a one-time $2,500 investment in retrofitting--caulking
air leaks and windows, improving insulation and buying more efficient
appliances--can reduce annual energy consumption by 30 percent. This
would produce an average saving in home energy costs of about $900 a
year. Of course, low-income families are much more likely to be renters
than homeowners. The green residential retrofit program must therefore
stipulate ways to pass along the savings to tenants through rent
reductions.

Two Birds With One Stone?

In undertaking a project as massive as the one I am outlining--to
replace our current fossil fuel driven economy with a clean energy
economy and to concurrently establish full employment as a central
policy aim--we obviously cannot proceed flippantly. If serious critics
are explaining why it cannot be done, we need to be confident we can
answer them. If a thinker of the stature of Jan Tinbergen says you
cannot--at least most of the time--kill two birds with one stone, we
need to consider finding another stone or allowing one of the birds to
fly away unscathed. Pursuing complementary large-scale investment
programs in healthcare and education, which, among other benefits, will
spread the expansion of employment opportunities fairly across gender
and racial lines, is one critical example where another stone is surely
necessary.

But all sides also need to be open to evidence. The central facts here
are irrefutable: spending the same amount of money on building a clean
energy economy will create three times more jobs within the United
States than would spending on our existing fossil fuel infrastructure.
The transformation to a clean energy economy can therefore serve as a
major long-term engine of job creation. If managed correctly, it can
also become a cornerstone of a long-term full employment program in this
country, which in turn will be the most effective tool for moving people
out of poverty and into productive working lives. In short, the
transition to a clean energy economy has the capacity to merge the aims
of environmental protection and social justice to a degree that is
unprecedented. It is an opportunity that must not be lost.