The Unfulfilled Assurances of Green Occupations

Joe Biden has declared that when he thinks of climate, he pictures good-paying, union jobs. Ursula von der Leyen, the European Commission's leader, states that the "Green Deal" will provide not only a clean environment for future generations, but also good jobs and assurance that no one will be left out. Sir Keir Starmer has promised to support a new energy company that will use British clean power to generate quality British jobs. So, the government will intervene, the planet will be safeguarded, and the jobs will be great.

 Politicians from the wealthiest countries generally concur that industrial policy, which aims to modify the economy by amplifying certain sectors, should make a resurgence. All of them appear to be in agreement that the renewed policy should prioritize climate change. But is there any sensible reason for bringing the two together? Industrial policy is geared towards economic growth and job creation; climate policy, on the other hand, is focused on reducing emissions and preventing global warming. Combining the two goals frequently results in neither being executed efficiently. As governments invest huge sums of money into green industrial policy, they will have to pick between the two objectives more and more frequently.

 Proponents of climate-change initiatives begin by considering externalities (costs or benefits not associated with producers). As there is no marketplace for pollution, and the release of greenhouse gases is free, it is overproduced regardless of its harm to others. To combat this, many nations have put a price tag on carbon. However, this could potentially lead to more investment in creating more efficient dirty technologies, thus increasing the gap between fossil fuels and clean technology.

 Acemoglu and his colleagues, as published in 2016, suggest that a combination of carbon pricing and subsidies for clean-tech studies are necessary. They propose that the majority of the effort should go towards redirecting research and progress towards clean energy sources. Only after these alternatives become more cost-effective and efficient would the carbon pricing become a factor to stimulate the usage of these technologies.

 Would a regime of this type, although it may be prudent, meet the political demand for green jobs? Take the lithium-ion battery, which is used to power electric vehicles, as an example. In 2019, the Nobel Prize in Chemistry was awarded to three scientists for the development of this technology: John Goodenough from the University of Oxford in the United Kingdom; Stanley Whittingham from the U.S. oil company ExxonMobil; and Yoshino Akira from the Japanese chemical firm Asahi Kasei. However, none of these countries can be said to be the leader in the production of the batteries. It is China that has the upper hand. Research also creates externalities, as knowledge is often shared. Considering that companies generally prefer not to give their rivals an edge, that creates an undersupply.

 The most effective climate-change policy--levying carbon taxes and subsidising research--is altruistic. Harvard University's Dani Rodrik, a proponent of industrial policy, has pointed out that not only is the social result from investing in green research higher than the private return, but the international return is higher than the national one; this implies that both companies and governments tend to underfund it. Consequently, the greenest policies may not generate many jobs. On the other hand, greenish policies that create jobs may at least make climate action acceptable to people who are hesitant to spend money on items that benefit other countries.

 As the affluent nations continue down this path, challenges will arise. Economists have traditionally been critical of industrial policy, citing governments' inability to do it well. This deficiency comes in two forms. Firstly, politicians have difficulty determining which technology will eventually become successful. Although the US government in the late 2000s provided a loan guarantee to Tesla which later on became a prosperous electric car producer, it also gave financial aid to Solyndra, a solar energy firm which went bust. This lack of expertise amongst politicians leads to the second issue: rent-seeking. Industrial policy provides an avenue for companies to acquire public funds via lobbying. Governments fail to stop underperforming businesses as this would indicate that they wasted public funds in the first place.

 Reka Juhasz from the University of British Columbia, Nathan Lane from the University of Oxford and Mr Rodrik in their paper published this year, present the notion that industrial policy economics can solve or reduce the severity of certain issues. It is essential for governments to cut off bad investments to avoid waste. Moreover, they emphasize that having clear goals and being transparent will support politicians in avoiding businesses that are not successful.