Meet the “renewables bubble”, the successor to the dotcom and other bubbles that have popped in recent years, demolishing the dreams and job prospects of a large swathe of the world’s population.
At least, that is the term coined by a research team from Spain’s Rey Juan Carlos University, which has produced the first in-depth study of the effects of government green-energy subsidies on employment.
The researchers analysed Spain’s experience with renewable energy, which encompasses solar and wind power, and small-scale hydroelectricity. Strictly speaking, their findings pertain to a local phenomenon they have termed “the Spanish renewables bubble”.
Yet some US economic thinkers are drawing parallels with their own country’s situation and with the green energy policies adopted by the governments of other developed nations.
The authors of the Spanish study, headed by Dr Gabriel Calzada Alvarez, intended this. “Europe’s current policy and strategy for supporting so-called green jobs or renewable energy dates back to 1997 and has become one of the principal justifications for the US green jobs proposals,” they wrote.
Unfortunately for “green jobs” lobbyists in the US and elsewhere, the study also found the “European model” for renewable energy development, which Spain has adopted more aggressively than any other EU nation, to be economically counterproductive.
It found that for every job created in the country’s renewable energy sector, 2.2 had been lost in industries that were harmed by higher electricity costs. Moreover, Spain had spent €571,138 (Dh2.9 million) to create each green job.
“These costs do not appear to be unique to Spain’s approach, but instead are largely inherent in schemes to promote renewable energy,” the authors wrote. They argued this left the industry vulnerable to bubble-like collapse during an economic crisis, characterised by loss of capital, facilities closures and mass staff cuts.
That is now happening in Spain, where unemployment at nearly 18 per cent is the highest in Europe. The problem is with viewing green technology principally as a jobs creation programme rather than one meant to achieve long-term social and economic good.
The development in Spain has clear implications for countries such as the US that are considering adopting the European model as a template for their own energy-security and climate change policies.
“Cut off the flow of massive public subsidies and the alternative energy industrial revolution would grind to a halt tomorrow – as the European experience already bears out,” write Michael Economides and Peter Glover, the editor-in-chief and European associate editor of the magazine Energy Tribune.
Those authors contend that “green politicians and eco-lobbyists” expect to create a green jobs revolution based on an industry sector that is “appallingly inefficient” and will probably remain so, precisely because it is subsidised.
Of course, it has often been argued that subsidies are needed only during the early, “incubator” stage of deployment, and that as the technology improves it can be phased out.
The trouble is, subsidies become entrenched in the cultures that adopt them. They come to be regarded as a right rather than a temporary bridge to a greater good, and end up harming the constituencies they were supposed to strengthen.
Another problem is that too many countries, including the US, most western European nations, Australia, Japan, China and South Korea, are competing for what may remain a limited global supply of green collar jobs. The renewable-energy employment pie may be growing, but not fast enough for all the hungry diners now rushing to the table to grab a big slice. Some early comers could even find their customary slices diminished.
It is likely, for instance, that most of the manufacturing jobs in solar panel and wind turbine factories will end up in China, which has the lowest production costs and is closest to the world’s biggest market for renewable energy equipment and services – its own. For a while, manufacturing pioneers such as Germany may hold an edge in quality and reliability, but even that will be eroded over time.
It is already happening.
Another recent study, by Samuel Sherraden and Jason Peuquet of the New America Foundation, a public policy institute in Washington found that America’s balance of trade in “green goods” had swung from a US$14.4 billion (Dh52.85bn) surplus in 1997 to an $8.9bn deficit last year, with an especially pronounced deterioration in the renewable energy trade balance since 2004.
“With Asia, we run a large and growing deficit in wind generating sets and photovoltaic cells,” the US study said.
That trend has caught the attention of Jeff Immelt, the chairman and chief executive of General Electric, the US technology and services conglomerate that has recently formed a partnership with the UAE’s clean energy flagship company, Masdar.
“Do we [the US] want to win the race to lead the next great global industry, clean energy?” he asked in a recent article with the venture capitalist John Doerr in The Washington Post. “We are clearly not in the lead today. That position is held by China.”
It is interesting that Mr Immelt refers to a “race”, which must have winners and losers.
One of the risks for US and European clean energy companies is that they could be forced to occupy niches – prestigious niches, but niches all the same. That will not replace the millions of jobs already lost in their manufacturing sectors.
China, on the other hand, shows what the winning formula might be.
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