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.
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.
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 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.