Will Fighting Climate Change Create Jobs?

Democratic presidential candidates have sweetened their plans to fight climate change with promises of economic growth and job creation. Bernie Sanders most recently said his plan would create 20 million jobs while Tom Steyer says his would create 46 million new jobs. Can this be possible? Or would we benefit from a more realistic discussion? Let’s try to be fact-based and rational.

 First, a theoretical look at the promise of new job creation. The logic that underlies these statements is simple and intuitively attractive, but like many such things, is not entirely correct. It ignores the differences between a job that is defined as “new” simply because it didn’t exist before and one that is “net new” because it resulted from the invention of a product or service that didn’t exist before. For example, when an entrepreneur invents a new product where none existed, the jobs created to provide that product are not just new, they are “net new.” However, if you quit your job building wood fences and take a new job building vinyl fences, statistically a “new” job has been created. It is likely, however, that the consumer shifted from buying wood fences to buying vinyl ones, and hence the job shifted but was not “net new.” The same is generally true on a macroeconomic level with renewables. In America there are an estimated 3.3 million jobs in the renewables industry (including hydroelectric). These jobs are “new” given that they did not exist before the invention of renewables. But there are now fewer jobs in the fossil fuel industry. Many of these jobs have been shifted but are not necessarily “net new.”

Returning to the subject of climate change, as discussed in our Climate Change Research, the risk to our way of life is real and immediate. The cost of addressing it will be enormous and no doubt borne by everyone, meaning taxpayers, companies, and individuals. In essence, we are collectively facing a massive and unavoidable tax, no matter what form it takes. Unfortunately, it is unlikely that many of these investments will result in productivity gains or increases in wealth, i.e., “net new” jobs. Rather, they are required to protect what we have. 

For example, the mayor of New York City has proposed a $10 billion expenditure to fortify Manhattan from rising storm surge levels. Taxes will fund the effort. When the project is over, New York will be safer but no richer, and arguably poorer. It will have spent $10 billion to protect what it already has. Labor, meaning jobs, will be required to complete the project, and in this sense a “new” job has been created—no job had existed for this particular project before. But, is it really new, or has it simply been shifted? The companies hired were surely building walls or something similar somewhere else when they won the bid for this one. 

The same is true of private companies. When a utility invests to convert to renewables and away from carbon, that investment will result in the same electricity being generated and sold at the same price, generating the same revenue. Nothing new has been created. (In fact, the shift from fossil fuel generation will result in significant cost in the form of abandoned assets as fossil-fuel generating plants are retired—a loss to owners and consumers.) Furthermore, in the process the utility will need to shift its workforce from carbon expertise to renewable expertise. In this sense the job is “new,” but it is not “net new” to the economy.

 As for individuals, those who own homes in areas subject to increased flooding, wildfires, drought, and other climate change implications will be forced to move. Abandoned residential assets will result. Their first cost will be in the form of increased insurance premiums. The cost of this dislocation will not add value or wealth—it simply replaces what already exists.

 In this respect the cost of climate change will make us poorer, not richer. We will spend an enormous amount of our wealth preserving what we have. Furthermore, we will incur large structural challenges in retraining workers whose jobs will need to transition from the carbon industry where jobs will be lost to “new” jobs in the renewables industry. This part of the transition will likely be met with some opposition. Even at this early stage one of the issues at play in the UAW strike at General Motors is the potential for labor reductions as GM transitions to electric vehicles. Because electric vehicles have fewer parts, they are expected to require one-third fewer labor hours in assembly time, hence less demand for labor.

While it is enticing to sugarcoat climate change proposals, the public would be better served by a more realistic assessment, and discussion, of what lies ahead.