The Subcommittee on Oversight and Investigations recently released a scathing memo on Section 1603 of the Obama stimulus plan. The grant program, administered by the Department of Energy, was frequently touted as a way to create “green jobs” while simultaneously benefiting the environment. Yet the new memo documents that the program was a complete flop on the jobs front, which should come as no surprise.
The Scope and Alleged Benefits of the Program
Section 1603 offered cash payments in lieu of tax credits to qualifying renewable energy projects. Since it’s always better to get cash sooner rather than later, the idea was to provide an even greater incentive for firms to invest in so-called clean energy technologies. Through March 15, 2012, more than $11 billion had been awarded to 34,140 separate projects. Of this total, $8.2 billion in grants had been awarded to wind projects, $2.0 billion went to solar, and about $920 million went to geothermal, biomass, and other alternative technologies.
When the Obama Administration pushed through the American Reinvestment and Recovery Act (aka “the stimulus package”), it was typical for proponents to claim that the measures killed two birds with one stone. On the one hand, federal incentives for renewable energy projects were supposed to be good policy because of the threat of climate change. Yet at the same time, supporters promised Americans that these policies also made sense on a purely economic level, since the new investments would fuel growth in sustainable “green jobs” and help pull the nation out of its terrible slump.
Even after the lackluster performance of the stimulus package, officials touted this familiar line. For example, on March 16, 2011 Secretary of Energy Steven Chu claimed “the Section 1603 tax grant program has created tens of thousands of jobs in industries such as wind and solar by providing up-front incentives to thousands of projects.”
Memo Uncovers the Truth on Job Creation
In this context we can see just how explosive the new memo’s findings are. For example, in contrast to the self-reported estimates of job creation from the grant recipients, the memo reports the results of an April 2012 NREL study. If we focus just on the direct jobs created by Section 1603, the study finds that the large wind and photovoltaic projects—which account for 92 percent of Section 1603’s awards—will “account for approximately 910 jobs annually for the lifetime of the systems,” where the lifetime is 20 to 30 years.
Simple arithmetic shows that these estimates are simply shocking. Even using the long-term estimate of 30 years for the lifetime of a renewables project, the price tag of $8 billion, divided by 910 jobs in an average year, works out to $293,000 in taxpayer money given per job-year.
These types of results are not surprising to those familiar with government efforts to “create jobs.” The free market tends to allocate resources efficiently, taking into account resource constraints, technology, and consumer preferences. When the government arbitrarily uses the tax code and regulatory mandates to alter the market outcome, efficiency is reduced. The same amount of resources lead to less total output, or—what is the same thing—a desired amount of output takes more resources to produce.
The new memo uncovers other problems. For example, even the above figures—dismal as they are—can’t be taken at face value. This is because some of the projects that received cash grants under Section 1603 would have occurred anyway. Therefore, it inflates the estimates of “jobs created” to include such projects, since these particular jobs actually can’t be attributed to the program. A similar problem is that many of the projects received other federal incentives, in addition to Section 1603. Thus, when trying to tally “jobs created per dollar of cash grants,” not only should the numerator be smaller, but the denominator should be larger.
As the Subcommittee on Oversight and Investigations’ new memo indicates, the federal government has a terrible track record when it comes to job creation, whether green, red, or orange. If policymakers want to provide incentives for truly sustainable job creation, as well as economic growth and energy security, the answer is staring them in the face: Remove federal obstacles to the development of domestic energy deposits.