Dr. Gabriel Alvarez from King Juan Carlos University authored a May 2009 study entitled “Study of the effects on employment of public aid to renewable energy sources” (KJCU Study). Dr. Alvarez has tried repeatedly to correlate the Spanish investment and experience with Renewable Energy technologies (RETs) with that of the U.S. However, even cursory analyses of the Spanish public policies that have been employed over the past decade reveal significant and dramatic differences from the current and proposed domestic (U.S.) approach to RET deployment, and thereby obviate any implied correlation between the negative conclusions of the KJCU Study and the impact of the domestic RET investment. Additionally, included within the KJCU Study are several assumptions with respect to the economics of the U.S. investment in RETs that are fundamentally incorrect.

I have outlined a few of the most critical issues affecting the relevance of the KJCU Study to current and potential U.S. RET investments below:

Incorrect Assumption #1: The US is following the Spanish model…

Response #1: Dr. Alvarez claims that statements by President Obama indicate that U.S. domestic investment in RETs is being modeled after Spanish activities, yet this is patently untrue. Since 1997 Spanish incentives in support of RET has been in the form of Feed In Tariffs (FITs) that have reached levels up to $0.60/kWh of energy produced. This varies markedly from the typical U.S. approach of employing Producer Tax Credits (PTCs) to stimulate growth, which are typically on the order of $0.02/kWh. One can easily see that Spanish RET subsidies peaked at values roughly 30 times greater than those typically employed in domestic U.S. energy policy.

Additionally, the dissimilarities between the FIT (Spanish) and PTC (U.S.) mechanisms for encouraging RET deployment cannot be overstated. Without digressing into an esoteric public policy debate, the simple explanation of the difference is that the very high Spanish FIT guarantees a substantial and dramatic return on investment for many years to come, while the U.S. PTC harnesses the power of the market by providing only a minimal subsidy above the market rate for electricity. Therefore, if the market for renewable energy saturates and electricity prices drop, U.S. domestic investment in RETs will slow due to reduced profits whereas the Spanish investment in RETs continues unabated due to the guaranteed very high profits. The dissimilarities between these approaches along with the order of magnitude differences in the levels of government subsidy obviate any attempted correlation between the current U.S. approach to RET investment and the Spanish situation since 1997.

Incorrect Assumption #2: The U.S. should expect the same impacts as the Spanish experience…

Response #2: There has not been a single model of the U.S. energy market that has corroborated Dr. Alvarez’s conclusion that the impacts of U.S. policies encouraging RET deployment will mirror those of Spain’s policies since 1997. In fact, many recent models refute his claims outright.

One claim of Dr. Alvarez’s is that the U.S. should expect increases in residential electricity rates of 31%, similar to those experienced by Spain. The Energy Information Administration (EIA) recently completed an analysis of the potential impacts of the 25% Renewable Electricity Standard currently proposed in the American Clean Energy and Security Act (EIA Report #: SR-OIAF/2009-04, April 2009), in which electricity prices are predicted to exceed those of the reference case by no more than 6% even in the most costly regions, but should actually fall below the reference case in more renewable-resource-rich regions of the country. Again, even the most expensive price increases are predicted to be 80% less than those experienced in Spain.

Another claim of Dr. Alvarez’s is that the U.S. economy should expect a boom and bust cycle. Again, the different U.S. subsidy mechanism that harnesses the power of the market to guide investment is expected to result in a very different scenario. In the Department of Energy’s 20% Wind Energy by 2030 report (July 2008), the modeled scenario results not in a boom/bust cycle but instead a steady and consistent buildout of wind energy capacity that eventually sustains the manufacturing base due to required end of lifetime asset replacement.

Incorrect Assumption #3: Dr. Alvarez’s job-loss calculation is applicable to U.S. Recovery Act investments…

Response #3: There are a host of issues with the approach to quantification of job loss employed in the KJCU Study. From the lack of actual verification of jobs lost to the assumption that public subsidies for RETs would otherwise have been used to create average salary jobs, there is little support for any relevance of the KJCU Study conclusion that 2.2 jobs will be lost for every 1 created through investment in RETs. In truth, the fundamental assumption that money spent on RETs would otherwise be spent to generate average jobs is counterfactual within the context of the Recovery Act, as the Recovery Act is not solely targeted at RETs but is in fact a broad investment across the economy which in turn will create jobs economy wide.

To build on this point, there is no support for the principal assumption of the KJCU Study that in the current economy $1 of government spending (creating RET jobs) replaces $1 of private sector spending (creating “average” jobs). In a recent article by Heintz and Light (Tall Tales from Spain – May 7, 2009), the authors reveal that this simplistic approach to economic modeling that was used to reach the main conclusion of the KJCU Study applies only to extreme situations when a nation’s workers or financial resources (e.g. bank loans) are being used to their fullest extent, or in a situation where any level of public spending would have no effect on the productive capacity of an economy. None of these situations exist in modern economies, including those of both Spain and the U.S.

Conclusion:

Despite the claims of Dr. Alvarez and his coauthors, their conclusion that jobs are lost by investment in RET holds absolutely no relevance to current U.S. policy or RET investments as outlined in the Recovery Act. Correlations outlined between the Spanish and U.S. approaches to energy subsidies are counterfactual from both public policy and market perspectives, and peer reviewed analysis outlining the projected price impacts of pending U.S. renewable energy legislation indicate economic scenarios that differ greatly from those experienced in Spain over the past decade.

Dr. Alvarez is gaining international media coverage for his study through erroneous claims relating the KJCU Study to U.S. investment in alternative and renewable energy technologies. It is time that the energy, policy, and scientific communities identify the failures of the corollary argument, and recognize these claims for what they are: exceptionable attempts to gain unwarranted prominence for one’s work. Hopefully this analysis can serve as an informed rebuttal to the claimed relevance of the KJCU Study to U.S. policy, and can help stop the promulgation of the KJCU Study within domestic energy and policy circles.

The preceding analysis was written by Avi Gopstein.  We spoke with Avi and obtained his permission to reprint these statements that were originally posted on the Wall Street Journal comments section of the article “Green Jobs: President Clinton and Spain’s Clean-Energy Bill“.  These are his personal views.

© 2009, Agopstein. All rights reserved. Do not republish.

President Obama has framed part of his recovery plan around the creation of new jobs.  He has used Spain and other European countries’ green jobs creation endeavors as inspiration (not necessarily models).  However, a  study , entitled “Study of the effects on employment of public aid to renewable energy sources,” by researchers at Spain’s King Juan Carlos University questions whether “green jobs” are worth the public investments.  Lead author, Gabriel Calzada Alvarez, uses Spain’s investments in such jobs during the past decade as a case study to demonstrate that sustainable energy investment destroys jobs and the economy.  I think there are numerous flaws in Calzada’s study.  For one, he deviates from the traditional research peer-reviewed methodologies used to estimate jobs impacts, which tend to yield more accurate results.

In this update, we have Spain’s response to his claims, proof that his data was falsified, an explanation of how the renewable energy investment did not have the major negative impact on business that Calzada claims, that his analysis was too simplistic to be applied in any real world model,  and what most economists believe is the cause of Spain’s high unemployment rate.  I will also bring to light extremely relevant facts, that Calzada fails to mention or factor in to the study.  I will also review the US’s history and results from renewable energy investments.  That’s right we have been investing in renewable energy for years.   However, before I go into what is wrong with the study, lets review his conclusions.

Key Points from The Study

The author argues that a huge price has been paid for Spain’s broad support to the construction and production of electricity through renewable sources and  says the U.S. will lose about nine jobs for every four green jobs created.  The study surmises that  only one out of ten green jobs has been created at the more permanent level of actual operation and maintenance of the renewable sources of electricity and that green jobs actually destroyed other types of jobs elsewhere in the economy. The author also claims that the programs creating green jobs also resulted in the destruction of nearly 110,000 jobs elsewhere in the economy, or 2.2 jobs destroyed for every “green job” created.  The study asserts that jobs were lost in metallurgy, non-metallic mining and food processing, beverage and tobacco. Calzada also says that Spanish citizens must cope with either an increase of electricity rates or increased taxes (and public deficit)–consumes enormous taxpayer resources, and the US is about to repeat the same mistake.  He also claims that green jobs programs chase energy intensive companies and industries away, and argues that sustainable energy is expensive, inefficient energy and not feasible.

Scary huh?….. I dunno.  Let’s back up a bit and take a look at the FACTS…all of them.

Let’s Look at How Calzada Reached His Conclusions

When you look at a complex issue, with many variables, and do not take into consideration those variables, you almost always inevitably end up with extremely skewed results.  For instance, applying Spain’s experience to the United States, might be a faulty approach because the US does not have the same incentive structures that were instituted by Spain.  Spanish incentives in support of Renewable Energy technologies has been in the form of Feed In Tariffs (FITs) that have reached levels up to $0.60/kWh of energy produced. This varies markedly from the typical U.S. approach of employing Producer Tax Credits (PTCs) to stimulate growth, which are typically on the order of $0.02/kWh.

Getting skewed results are even more likely if the numbers used are incorrect.  Brad Johnson of the Work Room has pointed out that the number of green jobs cited in the study as resulting from Spain’s renewable energy program are way off.  According to the United Nations, official estimates are 188,000, yet Calzada only lists green jobs 50,000 jobs ?? and does not explain why he uses those dramatically different numbers.

The study works from the assumption that public spending crowds out private spending.  Most economists believe, and history has proven that public spending increases demand for resources, not decrease it.  For example, after the Great Depression in the 1930’s spending to create roads, bridges and other infrastructure increased demand for labor, equipment and materials.   Green jobs should not crowd out other types of jobs because the public investments are supporting the private sector.  There is a great deal of historical data available that demonstrates that public investment in the nation’s physical economic infrastructure improves private-sector performance by raising average productivity and contributing to private-sector growth.

Looking at The Results of Past US Government Green Investment Programs and The Study’s Relevance

The study does not provide an analysis of the full range of the types of jobs that are being funding in the Recovery Act.  The study limits its analysis to just cleantech jobs that are focused on in Spain.  It ignores any inclusion of analysis of the jobs created as a result of jobs programs dealing with energy efficiency, conservation, light rail, or mass transit. Historically,  these types of public investments have demonstrated to pay a high rate of return in a relatively short period of time.   These jobs also create a large number of jobs in sectors of the economy that have been hit hard by the current crisis, such as manufacturing and construction.  So instead of causing a loss of jobs, they are likely to do what they have done in the past… creates jobs for those who do not have jobs.

(See National Renewable Energy Laboratory Response to the Report Study of the Effects on Employment of Public Aid to Renewable Energy Sources from King Juan Carlos University (Spain)

The majority of the public investment in renewable energy in the United states is going toward the private sector in the form of tax credits, loans and similar tools that are designed to encourage investment.  For example, the U.S. is establishing a Clean Energy Investment Agency.  So, how is that going to cause job loss and business retraction, when businesses are receiving assistance?

Public Investment in Renewable Energy in the Renewable Energy Sector in The US is Not New – It’s Been going On For Years

The United States has been investing in renewable energy since the late 1970s in the form of production tax credits and investment tax credits, at both the federal and state level. As a result, according to the Annual Energy Outlook 2009, the wind power industry has grown more than 25% a year and employs more people than the coal industry.  However, there is no data available that I’m aware of that shows that wind jobs impacted on coal jobs.  The Recovery Act extended these pre-existing business incentives.  The Energy Information Administration estimates that based on past performance, these public investments will create $24 billion in new private investment  and 32,000 new jobs sustained over the decade.  That is just the wind energy sector. There are similar projections for solar and geothermal power.  (See An Analysis of Three Myths Regarding The Green Jobs Programs of Spain and The US )

Gas, petroleum and coal also receive incentives from the government.  If you apply Calzada’s model using existing data from the Department of Energy to those industries, similar investment in coal would yield 18,500 jobs and  13,000 jobs would be gained by  natural gas and petroleum. This shows that you get more bang for your buck from wind power investments and that a shift to wind power would yield a net employment gain.

According to a recent study by PricewaterhouseCoopers, entitled “CleanTech Comes of Age”, when the government spends in a sector, private investments increase.  This has proven to be truth for biotech, agriculture, pharmaceuticals and …you guessed it…renewable energy.  These policies provide more certainty for investors leading to larger investments in renewable energy technologies. This assessment is supported by numerous private sector studies based on investment activity within the past ten years.

Spain’s Current High Employment Level is Still Lower Than It Was Before The Green Jobs Programs Were Implemented

It seems possible that Caldaza is not presenting the numbers in a relevant and accurate way.  In addition to using inaccurate numbers and omitting several sectors from his analysis, he fails to factor in that Spain historically has had very high unemployment rates since the restoration of democracy thirty years ago, (source: International Monetary Fund), while the US has not.   In fact, since the green jobs program has been initiated in Spain, unemployment has been  much lower than before it was put in place.  At the time the study was conducted, unemployment was lower then it was before the green jobs program was launched.  Before the green jobs program was put in place, going back to 1980, there are eighteen years when unemployment was higher in Spain than it is now, with unemployment rates ranging between (24% and 15%).  The highest years were  between 1993 and 1997 with employment ranging between  24% and 20%.  However  between 2001 and 2007, unemployment has ranged between 10.5 and 8.5%) still pretty high,but historically low for Spain.  The current US unemployment numbers at its highest levels in decades, is lower than Spain’s lowest unemployment numbers.  Let me state that, while I think the public investments in renewable energy helped to lower the unemployment rate,  I think much of the jobs growth in Spain was due to its real estate bubble.

Additionally, the author never identifies which jobs are destroyed by green jobs, or how that process of job destruction occurs.   To attribute recent unemployment numbers only to green jobs promotion, seems to me to be a questionable approach.  The study fails to establish any type of cause and effect.   Spain might have lost those jobs even if they did not have a green jobs program;  or it is possible that the green jobs program may have prevented even more jobs from being lost.

Two weeks ago, José María Roig Aldasoro, Regional Minister of Innovation, Enterprise and Employment Government of Navarre rebutted Calzada’s claims in a letter arguing that that green investment “has created wealth, employment and technological development” in Spain.  Navarre is a small region of Spain that is  well-known throughout the world for its development in renewable energies. After 20 years of development, 65% of the electrical energy consumed in Navarre originates from renewable energies.

Aldasoro breaks down the actual history of green job creation in Navarre:

– 1994: Unemployment at 12.8%, first wind farm erected.
– 1998: Unemployment at 10%, 100 installed megawatts of wind power.
– 2001: Unemployment at 6.8%, two R&D and worker-training centers are opened.
– 2007: Unemployment of 4.76%, total of 100 new renewable-energy companies created, representing 5% of total GDP.”

An article in The Brattleboro Reformer has pointed out a flaw in Calzada’s heavy use of the idea of “opportunity cost.”  Opportunity cost is the true cost of something is what you give up to get it— or as The Brattleboro Reformer  explains it…” that a dollar spent on green jobs is a dollar that can’t be consumed or invested by the private sector. Thus, a job that depends on consumption might disappear or not be created.” As the Brattlebore Reformer points out, this doesn’t apply in Spains’s case.

Spain’s Bursting Real Estate Bubble is Likely The Major Cause of Job Loss

Most economists attribute much of Spain’s job losses to the bursting of its real estate bubble. As recently as two years ago, Spain was creating a third of all new jobs in the European Union.  Most of these jobs were a result of its booming construction sector.    (Sound eerily familiar?) Real estate accounted for almost 18% of Spain’s gross domestic product last year, contributing to 3.6% annual growth. Once interest rates rose,  the housing bubble burst, and the jobs disappeared.   Canada, the UK, Ireland, and the US also experienced a bursting of their real estate bubble which led to rising unemployment.    If green jobs caused job losses in Spain and not the real estate bubble bursting as occurred in the US, the UK, Canada and other places, then he needs to explain how Spain is different than other countries with real estate bubbles that burst, and how green job creation impacts the real estate and construction industries that initially contributed to job growth.     He does not do that.  Economists predicted the outcomes of these real estate bubbles a few years ago.  None of them cited green jobs policy as a major factor.

The Two-Tiered Labor Market Is a Secondary Cause of Job Loss in Spain

Another cause of the job losses in Spain is its two-tiered labor market.   Young people in  Spain have fixed term contracts, so it’s easy to fire them, whereas older people have contracts worded so that it is very difficult to fire them.  As a result, one in three adults under 25 are unemployed.    These short-term contract legalities and their impact on firing was not addressed in Calzada’s study, however, a number of economists have cited it as a factor in the job losses.

No Additional Taxes Were Levied Against Business To Finance The Green Jobs Program

Keith Johnson, lead writer of  The Wall Street Journal Blog, Environmental Capital points out that that Spain’s support for renewable energy came out of existing tax revenues and that the Spanish government has reduced corporate income-tax rates (Source: KPMG), most recently this past January.  While renewable energy spending might have prevented spending in other areas, the author does not explain how government spending prevented or discouraged industry from spending.  He also explains that the Study doesn’t actually identify those jobs allegedly destroyed by renewable-energy spending, but simply tells you what the Spanish government is spending.

In in the comments below, Nuno Cardoso pointed out another issue not previously raised.“For all the renewable energy sources (solar, wind, wave), the initial investment is upwards of 95% of the total costs, whereas maintenance and operational costs are residual. In this respect, renewables are similar to nuclear power, and unlike coal or oil-based power plants, where a large portion of the costs is the fuel itself. This explains much of the enormous costs per green job: the benefits for the investing country only start to become visible many years after the investment has been made. Also, was the value of the produced energy, being the primary goal of the investment, taken into account?  Another thing that certainly wasn’t mentioned in the study was that Spain reached a peak of 40% in wind power this last March.

An Example Of Green Jobs Lowering Unemployment Rates

If you look at Germany’s efforts with using renewable energy investment to create jobs, renewable energy jobs in Germany shot up to 249,300 in 2007, almost double the 160,500 green jobs in Germany in 2004. This was due to massive investment in the renewable sector.  There are over countries in Europe, in addition to Germany that have seen employment growth as a result of investment in renewable energy.  Calzada does not even acknowledge them, so it is not surprising that he provides no comparison of their green jobs programs, to Spain’s.  Nor does he explain why those countries did not lose jobs as a result of investment in renewable energy.

Eternal Hope on the Conservatism is Dead blog, raises three additional salient points: While his blog has an obvious anti-conservative slant,  I think the points he raises are valid.

“1. The problem with their entire line of reasoning here is that they are caught in short-term thinking as opposed to long-term thinking. In the short term, coal may well be the best alternative.  But in the long term, given the alarming studies that show that man-made global warming is a major problem, we can’t afford not to switch to a carbon neutral economy.  So, the solution here is clear — combine antipoverty problems with efforts to become carbon neutral.”

2. The study fails to take into consideration the benefits that would happen when renewable energy is brought into the equation.

3. The study then suggests that renewable energy is subject to boom and bust. But the problems with Spain’s boom and bust cycles have nothing to do with renewable energy in and of itself, but with the boom and bust mentality that was part of the Bush years.    If the US government creates a sound financial basis for renewable growth that is not based on out of control debt and which rewards people who live within their means, then we can avoid the problems of boom and bust that have plagued previous efforts.”

Who is Calzada – His Conclusions Were Reached Before The Study Was Conducted

Let look at the author of the study.  Who is Calzada.  Gabriel Calzada is a founding member of the Prague Network, an international grouping of institutions aimed at countering panic connected with global warming.  He is also a fellow at the Centre for the New Europe, a Brussels-based libertarian think tank that in recent years has accepted funding from ExxonMobil.  ExxonMobil has a history of funding groups that have misrepresented the science of climate change by outright denial of the evidence.   According to a study conducted by the Union of Concerned Scientists in 2007, ExxonMobil had spent over $16 million to fund climate change skeptic groups as part of a “tobacco-like disinformation campaign on global warming science.” They have continued to channel money to these groups.  Since the study was publish, Calzada has become a popular speaker at the events sponsored by these groups and has appeared frequently on Cable news shows in which the hosts and producers are opposed to green jobs.  He has yet to appear on any show that has made any inquiry about his methodology.

Calzada is also the founder and president of the Fundacion Juan de Mariana, another libertarian think tank.   The libertarian movement in  Spain does not believe in taxes, so it is my guess that they would not support many programs paid for with tax dollars.  Calzada is also an admitted climate change skeptic and recently spoke at the International Conference on Climate Change (2009) hosted by the conservative think tank, the Heartland Institute. The Heartland Institute is another well-known hub of climate science denial. This year’s conference was its second effort on climate change, and attracted representatives from conservative and free enterprise groups around the world; many of their members and supporters deny climate change and work aggressively against renewable energy and environmental endeavors.  A large number of the attendees also came from bodies funded by ExxonMobil and other fossil-fuel companies.  Other big oil funded groups that have promoted the study include: The Institute for Energy Research (IER), Americans for Prosperity, and the American Energy Alliance (AEA),

In a recent interview, (in Spanish)  Calzada asserts that scientists are deeply divided as to the cause of global warming.  He claims  that solar and water vapor activity from the earth have a large impact on global warming and that human activity is minor in comparison.  He questions if this small creation of ‘gases’ by human activity would have an impact compared to other natural activity.  He also does not believe in the kyoto protocol and claims that the green economy is a way to to ‘ration’ economic activity. My understanding is that the vast majority of scientists (specifically those not paid by oil companies) are not divided over the causes of global warming.

A Strange Target Audience

Something else that stood out is that Calzada wrote the study to specifically speak to the US.    That is an odd choice of audience to me.  It seems that this cautionary tale would normally apply to Spain and its policy makers–speaking to their issues, so that they could perhaps adjust course by reshaping their energy policy.  As we speak, Spain is investing even more money into green programs, as part of their stimulus. If Calzada truly intended to to use this case study to warn others, why not also warn other countries in the European Union,  of which Spain is a part of; or Canada and China, who are also poised to start a green initiative.

Considering Calzada’s strong views against the realities of fossil fuels and climate change,  his affiliations with groups who are known for denying climate change, his willingness to accept funding from an organization who is notorious for funding studies to serve as propaganda, and his audience focus,  it would be wise to at least closely examine and question the conclusions he reaches.    This background would explain why Calzada failed to address factors that other economists considered.  If he reached his conclusion before doing the study, there would be no reason to address issues like cause and effect.  Considering all of the above, I think Calzada has serious credibility issues.

So while it is possible that Spain’s investment in green jobs has cost it twice as many jobs in non-green sectors, we have yet to see a study that provides the empirical data to prove it.   If this is true, we need to know it, so we can figure out where the Spanish went wrong and identify alternative solutions.   Calzada did neither.  Since he does not recognize that there is a climate crisis or that fossil fuels  will eventually run out,  he seems to take short-term view in his approach to conducting the study.    With so much data proving otherwise and so much at stake, I do not think that we have the luxury of taking a  possibly politically motivated, incomplete, study seriously.

I do not think the purpose of the study was to point out flaws in Spain’s economic policy, but to raise doubt and shut down support for similar policies in the US.   The oil industry and climate deniers swill continue to use this study for nefarious purposed and others will pop up to lend credence to these theories.  The media will continue to treat these studies seriously without investigating the credibility of the claims made.

So now that we know that this likely flawed propaganda designed to protect the financial interests of the oil companies and possibly to support the views of Spain’s Libritarian movement, as well as those who deny climate change, lets get back to the work of protecting the environment,  creating renewable forms of energy, and creating green jobs.

© 2009 – 2010, Tracey de Morsella. All rights reserved. Do not republish.