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Renewable Energy Study Using ‘Job-Years’ Likely Overstates Employment Gains

Economist says industry-sponsored report discounts impact on consumers of renewable mandate

Mar. 21st, 2013
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RALEIGH — Economic researchers say a study claiming more than 20,000 job-years were created in North Carolina as a result of legislation mandating the purchase of renewable energy likely exaggerates that outcome while downplaying job losses resulting from that mandate.

Paul Bachman, director of research at the Boston-based Beacon Hill Institute at Suffolk University, said the job-years measure used by renewable energy advocates is a somewhat deceptive way to tally employment. He adds that many of the jobs that proponents say have been created by the mandate are likely to be temporary positions in construction-related fields as new capacity (such as solar arrays and biofuel plants) is built to handle a different type of energy. He also notes that the study fails to account for job losses that occur inevitably when investment is shifted from productive uses the market supports to higher-cost alternatives such as renewable energy.

State Rep. Mike Hager, R-Rutherford, said such criticism does not surprise him, and that he is optimistic House Bill 298, which would repeal the renewable energy purchase mandate, will pass in the House.

“I’ve got at least 63 members of my caucus lined up and some Democrats willing to vote on this, which gives us a clear majority,” Hager said on Tuesday. There are 120 House members, so Hager would need 61 votes to send his measure to the Senate.

The intent of H.B. 298 is to claw back the portion of Senate Bill 3 passed in 2007 that requires periodically scheduled increases in the cost of renewable energy to be purchased by utilities, which pass on the higher costs to consumers.

While there has been growth in the heavily subsidized solar energy market, other mandated renewable sources such as swine and poultry waste and biomass have not caught on even as ratepayers’ bills have risen.

The North Carolina Sustainable Energy Association is urging lawmakers to oppose Hager’s bill. The Raleigh-based trade group recently released a study claiming 21,163 job-years have been created through S.B. 3, with $1.7 billion in economic impact since 2007.

But one passage in the study, “The Economic, Utility Portfolio, and Rate Impact of Clean Energy Development in North Carolina”, produced by RTI International in Research Triangle Park and Boston-based La Capra Associates, appears to contradict the claim of job growth. It reads:

"Although the economic output and fiscal impacts are estimated to be positive, we estimated that the substitution of renewable energy for conventional energy is a slight negative to employment over the study period, primarily because of reduced consumer spending from the REPS [Renewable Energy and Energy Efficiency Portfolio Standard] rider."

Betsy McCorkle, director of government affairs for the North Carolina Sustainable Energy Association, said that statement does not suggest overall employment went down because of the renewable energy mandates.

“Clean energy development in the state led to the loss of 807 job-years. It has also led to the creation of 21,970 job-years for a net positive of 21,163 job-years,” McCorkle said. The “slight negative to employment” occurred from consumer spending shifting from other sectors of the economy to renewable energy, she said.

The study does not break out where those losses have occurred, instead capturing them in a cumulative “secondary economic impact” category, she said.

Beacon Hill's Bachman questioned the study results and called them “typical of your standard Keynesian analysis.”

In an August 2009 study the Beacon Hill Institute conducted for the John Locke Foundation to determine the economic impact of S.B. 3, researchers concluded that a net 3,078 jobs would be lost by 2012 and 3,592 jobs by 2021.

Bachman called into question the RTI/La Capra study’s explanation that the 807 job-years loss is attributable to a $171 million renewable energy rider tax collected from ratepayers’ bills.

“That’s a million dollars per job. That seems a bit low if they’re talking job-years,” Bachman said.

"Job-years" is a metric developed by the Obama administration to sell its $787-billion stimulus plan to the public. It is not recognized by the federal Bureau of Labor Statistics, the N.C. Division of Employment Security, or any other impartial job-market analysts.

Bachman said the use of job-years to measure employment is a bad tool because “a job year is however many years you’re counting a job as existing.”

If a single job exists for five years, that is considered five job-years, and “you’re five times double counting the job. It makes no sense,” Bachman said.

Another sentence in the study seems to acknowledge the discrepancy, mentioning that “an average [of] 4,233 jobs,” not job-years, are associated with clean energy development over the six years since passage of S.B. 3.

“I believe job-years is a way of counting temporary jobs to make them look permanent,” Bachman said. For example, much of the employment generated as a result of S.B. 3 likely was construction jobs to build infrastructure for the new renewable market, he said. Those jobs pop up for a while and go away.

“And, of course, they have all of these secondary induced jobs and that’s standard Keynesian applications,” he said.

“What they don’t measure is the opportunity costs of that investment,” Bachman said. Opportunity cost is a standard tool used by economists to compare how much benefit could have been gained if the money would have been placed in an alternative investment.

“This is forced investment," Bachman said of the state’s renewable energy mandates. "This would not have taken place unless it was otherwise mandated by the government.

“This money would have gone elsewhere. Some of that comes out of the consumer’s budget in this rider and it diverts investment from other more productive uses,” he said. “If this was the most productive use of resources, the government wouldn’t need to mandate it, it would have happened anyhow.”

And that’s one of the primary reasons Hager wants to do away with what he views as the use of tax subsidies to prop up an industry that cannot pay for itself.

People have to choose how to spend their incomes, Hager said. “The money that my constituents have is really scarce these days, so either they’re spending it on their mortgage and groceries or they’re spending it on renewable energy,” Hager said.

Dan E. Way (@danway_carolina) is an associate editor of Carolina Journal.