How Governments Can Stimulate the Creation of Green Jobs

Recently a friend of mine asked me what the government could do to stimulate the creation of green jobs. He was meeting with state-level officials the next day. I told him that since we are in a free market economy, the first law governing us is the law of supply and demand. No demand, no supply; no supply, no jobs. So a sure way for a government (federal, state or local) to stimulate the creation of green jobs is to stimulate the demand for green products.

Can stimulation of supply work?

Of course, it is also possible to work on the supply side by helping manufacturers in the hope that prices will drop to stimulate demand, but that's a more risky proposition that can end up creating excess inventory, and business failures like the infamous Solyndra. The federal government and some states have attempted to stimulate the creation of green manufacturing jobs by introducing several financial aid programs for manufacturers such as tax breaks or loan guarantees (beneficiaries include Tesla Motors, Calera and BrightSource Energy.) But helping manufacturers boost production does not make consumers want to buy their products. The risk of theses financial aid tools is that production will increase, but inventories of unsold goods will increase also. For these financial programs to be successful, the manufacturers must use them either to lower their prices or become more competitive, which is now difficult in the solar PV industry because of China.

Lowering the price of manufactured goods will affect demand in some way, but the cost reduction must reach the consumer to be effective. It's difficult to achieve when they're intermediaries between manufacturers and consumers such as distributors, retailers, and installers. In addition, it would be hard, if not impossible, for the government to legally place obligations on the part of the manufacturers to use the financial aid programs to lower prices.

Stimulation of demand works much better

There are many ways for a government to stimulate demand, but the three that have been used with most success are consumer incentives, direct government purchases, and government mandates. Some indirect means have been used as well, such as the mandatory reduction of carbon emissions by cars, trucks, power plants and factories, and alternative energy production minimums.

  • Consumer Incentives
    Consumer incentives have been used extensively in the past few years, and especially the past 3 years. They range from popular tax breaks to allowing hybrid car owners to use high-occupancy vehicle lanes regardless of the number of passengers in the car. The cash-for-clunkers and first-time home buyer programs were some of the most successful. There's currently federal and state-level incentives for all sorts of home improvements that reduce electricity consumption (insulation, windows, doors). The federal government and most states also offer tax rebates to home owners who purchase wind turbines or solar panels and these tax rebates make the purchase of wind turbines or solar panels very attractive (sometimes reaching 50% of the total cost).

    We really hope that Congress will act to continue these subsidies, and strongly encourage you to call your representative!

  • Direct Government Purchases
    Governments (federal, state and local) can purchase all sorts of green products for their own use, such as hybrid cars for their fleets, and solar panels or wind turbines for government buildings. Substantial works have also started to make government buildings LEED compliant. There is a great article on GreenTechMedia showing Ten Ways the Feds Are Leading the Green Charge.

    The US military has also embarked in a significant move to renewable energy and higher gas mileage for economic, strategic and tactical reasons.

  • Government Mandates
    Government mandates fall into 2 main categories:
    • Governments can stimulate the production of clean energy by mandating that energy/electric production within a state or county includes a minimum of energy produced from clean or renewable sources.
    • Governments can also mandate that contractors that bid on state or county jobs utilize some minimum level of renewable energy, or that their truck or car fleets include a minimum of hybrids. A great example of this kind of mandate is the city of Cleveland, OH.

In conclusion, I have to say that as a taxpayer and consumer, I prefer tax incentives to households; that's a great way for my tax dollars to come back to me. Mandates are fine too, but their effects are indirect and can be hard to measure. Government purchases of green products can be controversial, especially when they increase spending.