The Unrealistic Economics of the Green New Deal

Saving planet, creating jobs are noble ideas—but by combining them, Green New Deal exacts too high a cost

The Green New Deal that Democrats unveiled last week is actually two deals: one to combat global warming, another to create millions of well-paid jobs for targeted groups.

Individually, both goals have their merits. But by combining them, the Green New Deal promises to make climate mitigation both absurdly expensive and deeply partisan and is thus more likely to set back than advance the climate cause.

The premise behind the Green New Deal is right. While the world may not spontaneously combust in 10 years, global carbon-dioxide emissions need to start dropping soon, by a lot, to keep temperatures from rising more than 1.5 degrees Celsius from 1800s levels, according to the Intergovernmental Panel on Climate Change. Increases beyond that raise the probability of extreme weather, deadly heat and rising sea levels.

Because the private market has no incentive to reduce carbon emissions, government intervention is necessary. But not all interventions are created equal, and the Green New Deal’s seem engineered to be as expensive as possible.

Consider its goal of massive public investment to achieve 100% renewable energy in as little as 10 years. Kevin Book, head of research at ClearView Energy Partners, a research firm, estimates replacing the 83% of current U.S. generation that is not renewable with solar photovoltaic, wind and biomass would cost $2.9 trillion—nearly a full year’s tax revenue.

This excludes any cost for interest, operations, maintenance, new transmission lines or compensation to private investors for writing off natural-gas and coal plants with plenty of useful life left. It assumes cheap battery storage that doesn’t yet exist. Even so, this works out to $83 to avoid one metric ton of carbon dioxide.

The Green New Deal’s plan to upgrade every building in the U.S. to “maximum energy efficiency” is even more questionable. A study by Meredith Fowlie, Michael Greenstone and Catherine Wolfram in the Quarterly Journal of Economics found the federal government paid an average of $4,585 each to weatherize homes in Michigan. Extrapolate that to 95 million homes nationwide, and the bill tops $400 billion. The cost of avoided carbon dioxide: up to $285 per ton.

To understand how high $83 to $285 per ton of carbon dioxide is, consider that Barack Obama’s economists put the economic harm of a ton of CO 2 at $50. Or that you can pay a power producer
just

  • $6 to reduce emissions by one ton in New England,
  • $15 in California, and
  • $25 in the European Union,

based on emission permit prices in those jurisdictions, notes Mr. Greenstone, an economist at the University of Chicago.

Yet in the Green New Deal, trillion-dollar price tags are a feature, not a bug. That is because its mission is to create “millions of good, high-wage jobs” in “front-line and vulnerable communities.” The higher the price tag, the more jobs it creates. How to pay for it? Its Democratic sponsors would raise taxes on the rich and borrow the rest, including from the Federal Reserve, just as the U.S. did during World War II, dramatically boosting output and employment.

But in 1941, the U.S. had plenty of unused resources to mobilize: just 28% of prime-aged women had jobs. By 1945, 35% did and today, 74% do. (The data aren’t strictly comparable due to changing definitions.) The war effort still spurred intensive inflation pressure, contained only with wage and price controls. The U.S. is now close to full employment and its debts are far higher. Even in today’s world of low inflation and low interest rates, the scale of deficit spending the Green New Deal implies would likely push both higher.

Republicans and business groups have long fought even modest costs to mitigate climate change. Jacking up the price to finance left-wing Democratic priorities will only intensify their opposition. Indeed, Republicans and President Trump are itching to run against the Green New Deal. This guarantees inaction on climate unless Democrats win the White House, House of Representatives and 60 Senate seats.

What the U.S. needs is the Green New Deal’s sense of urgency combined with market mechanisms that incentivize carbon reduction at the lowest price, such as a carbon tax, carbon credits or tradable emission permits. This will also spur innovation that other countries can adopt to tackle their own emissions, which will be 88% of the global total by 2040.

Germany’s experience is illustrative. In 2000 it began targeting subsidies to renewable power and by 2017, renewables’ share of power consumption had risen fivefold to 38%. Because renewable generation was initially so small, the subsidies weren’t that burdensome, says Michael Pahle of the Potsdam Institute for Climate Impact Research. The priority, he says, was spurring innovation to drive down costs. But, he says, as renewables became much larger, cost became much more worrisome.

In 2015 Germany introduced reverse auctions, in which producers bid to supply energy at the lowest possible subsidy. By attracting the lowest-cost supply, this has driven solar photovoltaic prices down by half. Some bids have required no subsidy at all.

Even so, because Germany is phasing out nuclear power and hasn’t targeted transport, industry and agriculture emissions, it is behind on its emissions reductions. This underlines the need for an economywide carbon price, Mr. Pahle says. That is a lesson Americans should learn now, not after they’ve spent trillions on a Green New Deal.

The $3 Billion Plan to Turn Hoover Dam Into a Giant Battery

.. Now it is the focus of a distinctly 21st-century challenge: turning the dam into a vast reservoir of excess electricity, fed by the solar farms and wind turbines that represent the power sources of the future.

.. wants to equip it with a $3 billion pipeline and a pump station powered by solar and wind energy. The pump station, downstream, would help regulate the water flow through the dam’s generators, sending water back to the top to help manage electricity at times of peak demand.

The net result would be a kind of energy storage — performing much the same function as the giant lithium-ion batteries being developed to absorb and release power.

.. The Hoover Dam project may help answer a looming question for the energy industry: how to come up with affordable and efficient power storage
.. when solar and wind farms produce more electricity than consumers need, California utilities have had to find ways to get rid of it — including giving it away to other states — or risk overloading the electric grid and causing blackouts.
.. The target for completion is 2028, and some say the effort could inspire similar innovations at other dams.
.. Using Hoover Dam to help manage the electricity grid has been mentioned informally over the last 15 years. But no one pursued the idea seriously until about a year ago, as California began grappling with the need to better manage its soaring alternative-electricity production — part of weaning itself from coal-fired and nuclear power plants.
.. estimated that utility-scale lithium-ion batteries cost 26 cents a kilowatt-hour, compared with 15 cents for a pumped-storage hydroelectric project. The typical household pays about 12.5 cents a kilowatt-hour for electricity.
.. engineers propose building a pump station about 20 miles downstream from the main reservoir, Lake Mead
.. “Hoover Dam is ideal for this,” said Kelly Sanders, an assistant professor of civil and environmental engineering at the University of Southern California. “It’s a gigantic plant. We don’t have anything on the horizon as far as batteries of that magnitude.”
.. “With lithium-ion batteries, you have durability issues,” Mr. Narayan said. “If they last five to 10 years, that would be a stretch, especially because we expect to use these facilities at full capacity. It has to be 10 times more durable than it is today.”
.. its proposal would increase the productivity of the dam, which operates at just 20 percent of its potential, to avoid releasing too much water at once and flooding towns downstream.

Breaking from GOP orthodoxy, Trump increasingly deciding winners and losers in the economy

President Trump is increasingly intervening in the economy, making decisions about corporate winners and losers in ways that Republicans for decades have insisted should be left to free markets — not the government.

.. On Friday, citing national security, Trump ordered the Energy Department to compel power-grid operators to buy from ailing coal and nuclear plants that otherwise would be forced to shut down because of competition from cheaper sources.

.. The order came one day after the president imposed historic metals tariffs on some of the country’s strongest allies and trading partners. Now the Commerce Department is further picking winners and losers as it weighs thousands of requests from companies for waivers from the import taxes.

“It replaces the invisible hand with the government hand,” said Mary Lovely, a Syracuse University economist. “You’re replacing the market with government fiat.”

.. The president has chastised individual companies, second-guessed the U.S. Postal Service’s business arrangement with Amazon and put pressure on Boeing and Lockheed Martin over the cost of their products.

.. Of course, Trump isn’t the only one to tinker with market forces. President Barack Obama backed subsidies for wind and solar power. And about 30 states have adopted laws mandating minimum purchases of renewable energy.

Obama also won passage of a health-care reform package that created winners and losers. Republicans criticized the Affordable Care Act at the time for forcing people to make purchases through the individual mandate.

.. Sen. Patrick J. Toomey (R-Pa.) said that he and Sen. Mike Lee (R-Utah) would co-sponsor legislation “to rein in the executive branch’s power to impose unilateral tax increases like these.”

.. “One of the reasons tariffs are not good policy in general is that it is a form of corporate welfare,” said Stephen Moore, an economist at the Heritage Foundation. “You’re saying consumers will have to pay more so this auto company or steel company or aluminum company stays in business. It’s the ultimate form of picking winners and losers.”

U.S. allies see Trump’s steel tariffs as an insult

No world leader has tried harder to get on President Trump’s good side than Japanese Prime Minister Shinzo Abe. Whether racing to New York the day after the 2016 election and presenting Trump with a $3,755 gold-plated golf driver, or taking him out on the golf course and serving hamburgers for lunch, Abe has cultivated a close personal relationship with his American counterpart.

.. But now, Japan, which is not just led by a friendly politician but also is a key security ally of the United States, looks likely to be slapped with tariffs on its steel exports to the United States. And to add insult to injury, the reason, Trump says, is rooted in national security.

“The U.S. is suddenly treating Japan as a target,” said Tsuyoshi Kawase, a professor of international trade policy at Sophia University in Tokyo. “The Japanese side is bewildered and confused.”

.. countries that figured, no matter the bumps in relations with Washington, they would wind up on the same side against China in any dispute over steel or unfair trade practices. And yet suddenly there is talk of a trade war between the United States and its supposed friends.

.. Even those leaders who have grown accustomed to the zigs and zags of the Trump White House say this could be different. The consequences of Trump’s targeting other priorities — the Paris climate agreement and the Iran nuclear deal chief among them — have not had an immediate, concrete effect. But the tariffs could soon put citizens in ally nations out of work, and if a trade war escalates, all sides could feel the pain, officials from Brasília to Brussels to Seoul say.“The impulsiveness of the decision caught us by surprise,” said Diego Bonomo, the head of foreign trade at the National Trade Association of Brazil. His country is the second-largest exporter of steel to the United States.

“It’s an economic shot in the foot,” he said. “When they impose tariffs to hurt Brazilian steel, they hurt their own coal exports and exports of products that use steel.”

.. Trump’s order came hours after Japan and 10 other countries formalized a new Pacific free-trade agreement

.. The announcement also upended a Saturday meeting of the top U.S., E.U. and Japanese trade negotiators, who were originally scheduled to convene to talk about how to take on what they say is China’s unfair support for its steel industry. Instead, officials say, the meeting may turn out to be the first salvo in an unfolding and escalating trade skirmish.

.. The frustration is compounded by Trump’s national security rationale. In fact, say U.S. allies, there is no national security risk to importing steel and aluminum from one’s closest military partners. And any move that damages their own industries also hits at overall NATO readiness and hurts trust among allies, they say.

.. But that response could backfire, some analysts say. If the WTO rules against the White House, and Trump chooses to ignore the ruling, that could effectively spell the end of the organization.

.. “To be honest, everyone kind of agrees with us,” said the official, who spoke on the condition of anonymity to discuss closed-door European efforts. “I haven’t found anyone who says, ‘No no, the president is right.’ ”

.. The prospect of steel tariffs follows on the heels of similar levies on solar panels and washing machines. But it comes at a sensitive time on the front of North Korean diplomacy.

..  tariffs could have a “negative impact on South Korea-U.S. relations,”

.. Many in Japan worry that Trump’s effort may ultimately undermine global security, not bolster it.

“When trade friction grows between allies, the alliance is weakened,” Watanabe said. “But it’s unclear if Trump understands that.”