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What’s the Deal with the Green New Deal?

The economics of the emerging platform

I’ve heard a lot about the Green New Deal since the midterm elections. And, it’s not just me – Alexandria Ocasio-Cortez, the freshwoman Representative from the Bronx, posted this graph of the number of tweets on the phrase through mid-December. In honor of the 4-day-old, Democratic-controlled House, I figured I would try to dig into it.

 

Maybe you’ve seen some of the headlines, e.g. about Ocasio-Cortez’s decision to join a sit-in at Chairwoman Pelosi’s office to promote the Green New Deal or how 40 members of Congress, including 3 Senators whom some believe will run for President, have endorsed Ocasio-Cortez’s proposal. The proposal is posted as a Google Doc.

There’s not yet a ton of meat, but enough to understand some broad parameters.

(Source: The Intercept)

 

What Is It?

Several journalists have written detailed pieces about the Green New Deal – GND for short – including Vox, The Atlantic and The Intercept. A lot of the coverage focuses on the political machinations, such as the proposal to form a new House select committee – ultimately nixed by the Democratic leadership.

Here’s what I’ve been able to understand about the economics. With the requisite analogies to the original New Deal, the space race and World War II, the GND calls for a massive mobilization of government (US Federal, given the provenance) spending and policies to, “significantly draw down greenhouse gases from the atmosphere and oceans and to promote economic and environmental justice and equality.” Ocasio-Cortez’s Google Doc lays out some specific goals, including 100% renewable electricity, a national “smart” grid, energy efficiency investments, eliminating GHGs from transportations and other sectors, and a lot of investment in infrastructure.

It’s also pretty clear what the Green New Deal is not. The Google Doc explicitly states that simply relying on something like a carbon tax won’t do the job: “Given the magnitude of the current challenge, the tools of regulation and taxation, used in isolation, will not be enough to quickly and smoothly accomplish the transformation that we need to see.” While it certainly does not rule out carbon pricing, it also calls for more direct government interventions, such as mandates and spending.

Is the Green New Deal About Green Jobs?

The Green New Deal plan is also heavy on creating economic opportunities, “to make prosperity, wealth and economic security available to everyone participating in the transformation.” To my read, this is a lot more expansive, and thus plausibly more economically defensible, than green jobs.

Severin has critiqued the notion of green jobs in a previous blog post. In a nutshell, his point is that counting jobs in one sector misses the overall impact of a policy. For example, if promoting renewables makes electricity more expensive, that can lead to lost jobs in electricity-dependent industries. He also reiterates the point that we should be tackling climate change due to its costs, not as a way to create jobs.

I think the GND plan is about more than green jobs. At best, it’s recognizing that tackling climate change is going to be disruptive and paying attention to people who might be hurt by it. It calls for things like training, education and improved workplace safety, and singles out areas with fossil-fuel dependent economies. Yes, it also calls for a job guarantee program that ensures a living wage. This is certainly radical and may lead to its own set of economic distortions, but it’s not claiming that every coal miner can reinvent himself as a solar panel installer. (See Andy’s related post on green jobs.)

There are certainly versions of a Green New Deal that sound like a rehashing of the green jobs ground. For example, the Sierra Club GND write-up is all about weatherization—a highly dubious strategy as my co-authors and I have shown in previous research (here and here). Instead, I see the Google Doc as pairing two distinct goals – (A) address climate change and (B) support workers, but not necessarily claiming that (A) is going to do (B). I’m not an expert, but this strikes me as a savvy move politically.

Bold Government Action vs. Mobilizing the Masses

Fundamentally, how you feel about the economics of the GND hinges on what you think the government’s role should be in mobilizing activity to address climate change. You have to work hard to get a mainstream economist to agree that anything bests a global carbon tax. With a carbon tax, the government, informed by calculations of the benefits of avoiding climate change (the social cost of carbon that Meredith has blogged about), sets the level of the tax and then steps back and lets a thousand flowers bloom.

And, the beauty of a carbon tax is that it mobilizes everyone. The government doesn’t need to decide how to decarbonize the economy – private companies responding to the tax will figure out the best way.

But, is there anything to the claim that a carbon tax won’t work quickly enough? This has made me think that basic economic models don’t say much about the timing of activities. And, I can concoct reasons that the impacts of a carbon tax would be slower than those from direct government spending.

For example, companies may delay investment in GHG-reducing measures to make sure that the carbon tax will stick. And, empirically, there are plenty of examples of policy reversals. Australia enacted a carbon tax in 2012 and got rid of it 2 years later. And, US companies are likely counting their blessings that they didn’t make major investments on the assumption the Clean Power Plan would still be in force.

Protesting coal in Australia, 2016. (Source: The Herald)

For this reason, I can imagine that there can in fact be complementarities between government and private sector investments, so it could make sense to have both a carbon tax and some more direct government spending or other policies.

The disadvantage of having the government doing a lot is that they’re unlikely to minimize costs. For example, the Google Doc calls for both 100% renewable electricity and making “state-of-the-art” energy efficiency investments in every residential and commercial building. To an economist, this doesn’t make sense. If the electricity is already 100% decarbonized, why spend a lot of money making sure that we’re using as few of those squeaky-clean electrons as possible? This will just raise costs unnecessarily. The cost-minimizing approach is likely to be some combination of almost clean electricity and some additional energy efficiency investments.

I am also disappointed that the existing GND discussions pay very little attention to the role of the government in supporting research and development of new technologies. It would be much easier to encourage emerging economies to, for instance, run their electricity sectors on 100% renewables if we could get some dramatic breakthroughs in storage or renewable generation technologies. (As an aside, I have seen no mention of nuclear power in any of the GND discussions.)

In general, though, I’m very sympathetic to the idea that the US government needs to do a lot more to address climate change, and the GND’s first steps aren’t totally whacky from an economics perspective. I hope Ocasio-Cortez and others succeed in mobilizing interest and putting climate change back in the political spotlight. And, I hope this is the first of many posts we’ll do on the GND.

Catherine Wolfram View All

Catherine Wolfram is the Cora Jane Flood Professor of Business Administration at the Haas School of Business, University of California, Berkeley. ​During Academic year 2018-19, she will serve as the Acting Associate Dean for Academic Affairs at Berkeley Haas. She is the Program Director of the National Bureau of Economic Research's Environment and Energy Economics Program, Faculty Director of The E2e Project, a research organization focused on energy efficiency and a research affiliate at the Energy Institute at Haas. She is also an affiliated faculty member of in the Agriculture and Resource Economics department and the Energy and Resources Group at Berkeley.

Wolfram has published extensively on the economics of energy markets. Her work has analyzed rural electrification programs in the developing world, energy efficiency programs in the US, the effects of environmental regulation on energy markets and the impact of privatization and restructuring in the US and UK. She is currently implementing several randomized controlled trials to evaluate energy programs in the U.S., Ghana, and Kenya.

She received a PhD in Economics from MIT in 1996 and an AB from Harvard in 1989. Before joining the faculty at UC Berkeley, she was an Assistant Professor of Economics at Harvard.

23 thoughts on “What’s the Deal with the Green New Deal? Leave a comment

  1. Let us be clear there are a lot of loose thoughts here.
    1) Low income weatherization is not the same as well implemented energy efficiency. For example
    https://goo.gl/wTqosb
    2) Attempts to monetize the “Carbon” effects (short and long term) are weak and frankly impossible to know
    3) Similarly monetizing the other effects of improved residential energy efficiency is quite a guessing game. If you want to make EE look good the $ are big, if you want it to look bad the $ are small.
    4) What is the value of increased comfort?
    5) The most effective area of energy efficiency application is in the buildings with the highest energy use per square foot. You may have noticed that that is not where low income weatherization is applied. Targeted community wide programs concentrating on what we now know to be effective is very different from doing the old things (sometimes very poorly) that are hardwired into the low income weatherization bureaucracy.

  2. Since I’m not a mainstream economist (nor an economist at all, for that matter) I can think of lots of reasons why a carbon tax is chimerical at worst and way too slow and ‘noisy’ at best – especially if one believes that what we do in the next decade or two is essential to heading off the growth in climate change – as a means of signaling the ‘way out’ of fossil fuel dependence. I think the big challenge is to create and adopt nimble policies and (mostly economically viable) incentives – which could include a carbon tax as one element – that will quickly move us away from fossil fuel use (based on CO2 and CH4 as the two most important GHG issues). I’m happy to see that Prof. Wolfram doesn’t see the GND as an economic non-starter and that there is a role (a strong one, I believe) for government in addressing climate change. I think – and AOC (since we are using initials) said as much in the 60-min interview on Sunday – that the GND is intended to be mostly aspirational/visionary and isn’t necessarily a detailed blue-print for going forward. Its a little disappointing that the new House leadership didn’t appoint a GND select committee that could have provided additional political momentum to its cause.

    Just to unpack and comment on two other points – first energy efficiency and renewable energy sources are both part of the solution. One of the reasons we have made a lot of progress (much still to do) in CA is the rapid addition of solar (and some wind) on the supply side (both utility-scale and, much to the Haas folks’ chagrin, the residential/commercial scale) AND the Rosenfeld effect on the demand side (per capita electricity consumption in CA has been essentially flat since ~1973). Even green electrons have some environmental costs – such as the land use issues associated with large scale arrays and transmission corridors. So efficiency still makes environmental (and economic) sense.

    The reason there is no mention of nuclear power in the GND is probably obvious (I have no special insight) – first that there is certainly no agreement within the larger environmental (and associated) movement about what role – if any – nuclear power should have going forward (I won’t further litigate that here). Second, the reason it should not be mentioned is that it is flat-out uneconomic and utilities across the country (not just in CA) are voting with their feet and walking away from projects with already accrued huge sunk costs. In 2012, South Caroline Electric and Gas obtained an NRC license for units 2 and 3 at Summer and started construction. In July 2017, the utility cancelled the project as construction costs ballooned (stimulated in part by Toshiba/Westinghouse filing for chapter 11). Units 3 and 4 at Vogtle (GA power) are still under construction but costs have almost doubled since the $14B projection in 2010 (again, partly due to the Westinghouse bankruptcy). Hard to see how those busbar costs will compete with new renewables.

  3. Still trashing all weatherization by using the data on the WAP? For shame.

    Low-income weatherization requires lots of repairs to substandard housing and is not always justified by the energy savings.

    Weatherizing housing that is in reasonably good shape does not have those costs, and is much more cost-effective.

    The misuse of the WAP report constitutes propaganda and disinformation.

  4. With respect to research and the policy debate over the use of nuclear, renewable and fossil energy sources, the emission policy goal for any energy source should be performance based; i.e. policy should mandate a life-cycle carbon emission goal within the boundaries of any given energy system. The assumption that the global emission goals can be met by conversion to renewable energy sources alone is an assumption that ignores reality. Renewable energy sources are but one component of 22nd Century energy systems needed to stop a runaway greenhouse effect.

    It is a fact that it is technically feasible to convert any energy source into a zero-carbon energy carrier (aka a fuel), such as electricity or hydrogen. This includes fossil energy sources that can be processed to sequester pollution from release into the atmosphere. The barrier to universal production, distribution and end use of zero-carbon fuels is scale and cost within the bounds of the geographic markets for such fuels. Carbon policy and emission goals should recognize this reality and encourage the fossil fuel industry to invest in the Research, Development, Demonstration & Deployment necessary for the widespread transition to net zero-carbon energy systems. The fossil fuel industry MUST become part of the solution.

  5. Nice post, Catherine. Unfortunately, I fear you’re confusing politics and common sense here. All the limitations of a GND you list are legitimate, but none are going to spark a political movement, and we all recognize the dismal prospects for a carbon tax. To achieve a major policy shift, there just has to be a appealing rallying cry, no matter it be simplistic, economically inefficient, or even unrealistic. I only came to accept this reality late in life as zero net energy buildings moved from a silly aspirational goal to a California building code requirement starting next year. On the one hand, this is not a good way to attack the problem, but you can’t argue with the results. Maybe GND can get us as far?

  6. Great analysis. One disagreement I have is that efficiency will help achieve the transition to 100% renewable energy cost effectively. By reducing the amount of energy we use, less renewable energy generation and storage facilities are needed than if we attempted a 100% switch based on current, inefficient energy consumption. So it does make cost-effective sense to pursue both state-of-the-art efficiency and the transition to renewable energy.

  7. Policies based on the Green New Deal can be implemented at all levels of government immediately. Physical science demands action now to jump start emission reductions. Climate-sensitive communities cannot tolerate dithering by political scientists, economists, politicians and diplomats over the “best” comprehensive global solutions, such as a global carbon tax. The political / behavioral concept that works at all levels of government in these United States, regardless of political ideology, is “Lead by Example” to jump start immediate emission reductions with available technologies and business models.

    The most powerful tenet of the Green New Deal is that it is based on achieving emission reduction goals established by physical scientists, not political scientists.

    Regarding your concerns about cost minimization, transition policies and investment must encourage both renewable electricity sources and energy efficiency simultaneously because energy systems are NOT homogenous and owners / operators of each building, vehicle, ship, airplane, or industrial activity, must be empowered to achieve carbon emission reduction goals consistent with their unique circumstances. Adam Smith himself informs us that the “Sovereign” must empower the consumer take action consistent with protecting “the Commons.”

  8. To follow up your point on complementarities between the government and the private sector, Michael Grubb’s book “Planetary Economics” (co-written with Jean-Charles Hourcade and Karsten Neuhoff) is a masterly account of how a range of policies is needed to spur decisions that are made in different ways. Efficiency labels tell us which types of refrigerator are a false economy and help us make smarter choices; carbon pricing changes market incentives, and support for innovation helps bring through the new technologies we’ll need. There’s a short description at https://blogs.ucl.ac.uk/lancet-commission/2015/06/23/what-policies-do-we-need-to-deliver-decarbonisation/

  9. Great post Catherine! Curious about your thoughts on the differing job intensity of renewables versus fossil generation. The figures I’ve seen suggest there is actually quite a dramatic difference – for the same amount of energy, many more are employed in renewables. So if the policy goal really is jobs, rather than economic efficiency, is there an argument to be made on that front?

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