Brainstorm Green: The Home Edition

FORTUNE’s third annual Brainstorm Green conference about business and the environment starts today (Monday), and one new twist this year is that you can play along at home.

BstormGreenHorizonta2B4F8FFor the next three days, many of the plenary sessions at the event, which is being held at the Ritz Carlton in Dana Point, Ca., will be shown on the web. People who sign up to attend online will be able to ask questions, I’m told. This is an experiment, an effort to see how a virtual conference will work and, of course, to expand FORTUNE’s business. (Hint: You can tune in for free this year, but that may not be the case in the future.)

As the co-chair and creator of Brainstorm Green, I’m obviously biased but I think we’ve got a great lineup again this year. I’m going to take a break from blogging for a few days to focus on the conference. Here are some  highlights:

Today (Monday) at 3:05 p.m. (all times are listed as Pacific Time, so this is  6:05 in the East), Lee Scott, the former CEO of Wal-Mart who is now chair of the executive committee of the Wal-Mart board, will talk about Wal-Mart’s sustainability efforts with John Huey, the editor in chief of Time Inc. John is a great interviewer who once wrote a book about Sam Walton, so this session should be a treat.

Following that session, at about 3:50 p.m.,  I’ll be asking some of America’s most important environmental leaders: What Do Environmentalists Want? Joining me will be Frances Beinecke of the Natural Resources Defense Council, Mark Tercek of The Nature Conservancy, David Yarnold of the Environmental Defense Fund and Mike Brune, the new head of the Sierra Club. We’ll talk about the outlook for climate legislation in Washington, as well as such hot topics as nuclear power and geoengineering.

Later Monday, I’ll talk to Sally Jewell, the CEO of REI, about “sustainability as a team sport.” [click to continue…]

The Great Wall embraces Wall Street

Here comes a new carbon finance market, this one with Chinese characteristics.

In the latest sign that China takes the threat of global warming seriously, Chinese business executives with close ties to the government have launched a voluntary market in Beijing to buy and sell carbon credits.

Just don’t call it cap-and-trade, which is the regulatory approach embodied in the climate legislation pending in the U.S. Congress. The “cap” part of cap-and-trade remains anathema in China. As a developing country where billions of people earn less than $3,000 a year, China simply won’t accept mandatory limits on its emissions of greenhouse gases.

David Yarnold, Environmental Defense Fund
David Yarnold, Environmental Defense Fund

But the Chinese have enlisted western partners to build a market that will, as they put it, “limit and incentivize.” The theory is that a voluntary market in carbon credits will limit emissions by providing financial incentives to Chinese companies to develop renewable energy, promote energy efficiency and, above all, find environmentally-friendly ways to burn coal. Some of that money would come from outside China and would would come from within.

This could lay the groundwork for a mandatory market in the not-too-distant future.

That, at least, was my takeaway from a Low Carbon Conference held today in New York that brought together leaders of the world’s big stock exchanges, energy industry executives, environmentalists and experts in carbon finance. [Disclosure: I hosted the event for BlueNext, a French company that recently announced a partnership with the China Beijing Environmental Exchange to develop carbon trading in China.] [click to continue…]

Second thoughts on green jobs (and economists)

Here’s how page one of Saturday’s Wall Street Journal covered the big climate news from the EPA:

The Obama administration declared Friday that carbon dioxide and five other industrial emissions threaten the planet. The landmark decision lays the groundwork for federal efforts to cap carbon emissions—at a potential cost of billions of dollars to businesses and government.

The question of cost will dominate the climate debate in the weeks and months ahead. We’re mostly done arguing about climate science, thank goodness. Climate change is real. It’s here. It’s probably worse than most people understand. (As the amazingly prolific blogger Joe Romm wrote last week.) The questions now are all about money. If we choose to curb emissions, what will it cost? Who will pay? What will mean for to gasoline and electricity prices? What about jobs? These questions will decide one of the biggest fights Washington has seen in years.

Last week, I offered a few thoughts on the jobs question in a blogpost called The phony green jobs debate that made its way around the Internet and caused a kerfluffle. I argued, essentially, that the claims of environmental groups that climate regulation would create a wave of green jobs (especially in a couple of 30-second TV ads) were overblown and that it would be both more honest and more effective to engage people in a discussion of the costs and benefits of climate regulation. David Yarnold of the Environmental Defense Fund responded with his own blogpost. Folks in NRDC ‘s climate operation were displeased, as was economist Bob Pollin of the Political Economy Research Institute (PERI) at the University of Massachusetts, who has written widely about green jobs. (Disclosure: I’ve done freelance work for EDF and NRDC.) Evidently, I touched a nerve.

In retrospect, I think I was unfair to EDF, NRDC and to Pollin in at least one respect and for that I’m sorry. I lumped together the EDF and NRDC 30-second ads and Pollin’s analysis with a study from the Heritage Foundation and a report called Green Jobs Myths from the University of Illinois College of Law. The fact is, the Heritage study has been discredited (which I noted) and Pollin himself wrote an extensive rebuttal to Illinois study (which I didn’t know, because I didn’t ask him about it). By email, Pollin said:

In my view, the role of good journalism is not simply to seek out a safe middle position between contending positions, and quote someone who presents that safe, if unsubstantiated middle position.  The real job of serious journalism is to try to figure out whether one of the positions is right.  I haven’t seen anyone, including you, refute the main findings of my research.

He also wrote:

building a clean energy economy is a big source of job creation relative to spending money on fossil fuels.  The reason has nothing to do with “green” anything in particular.  It rather has to do with the shift to relatively more labor intensive activities, and to activities that have a higher domestic content and lower import content.  These basic results from my research have nothing to do with forecasting per se.  They fall right out of the industrial surveys of U.S. businesses, as organized by the Department of Commerce in their input-output models.

Both points are well taken. Pollin’s work is carefully done and as best as I can tell (see-I’ve learned my lesson) he’s right that no one has refuted him. So it stands to reason that any climate policy that moves us away from fossil fuels and towards clean energy and efficiency will be a net creator of jobs. What’s more, to the degree that a stimulus package or cap-and-trade program promote energy efficiency, they will help companies and individuals become more productive and less wasteful. That, too, should help create jobs. Of course, jobs will also be lost along the way—just not as many, if Pollin is right. Some manufacturing could leave the U.S. for countries without carbon caps or taxes. Building more Priuses might mean building fewer Hummers. More solar jobs might mean less coal jobs. Or so we can hope.

Having said that, I’m going to stand by my two main arguments about climate change economics. The first is that we need to be mindful about how little we understand about the economy, and how hard it is to forecast the future. That’s because unlike, say, physics or medicine, economics is a “science” in which it is all but impossible to do controlled experiments on a grand scale. There are too many moving parts. Economists still can’t agree on how and why the Great Depression ended. No wonder they didn’t forecast the Great Recession. On even as “simple” a matter as forecasting the price of oil—where you can extrapolate demand and know a fair bit about supply–their track record is horrible.

Peter Coy of Business Week had a big story the other day with the headline “Hey Economic Geniuses! What happened?” Among other things it said:

The rap on economists, only somewhat exaggerated, is that they are overconfident, unrealistic, and political. They claim a precision that neither their raw material nor their skill warrants. Too many assume that people behave like the mythical homo economicus, who is hyperrational and omniscient….

Critics are scathing. Nassim Nicholas Taleb, the scholar of rare events who wrote Fooled by Randomness and The Black Swan, says: “We have to build a society that doesn’t depend on forecasts by idiotic economists.” Says Paul Wilmott, a quantitative finance expert: “Economists’ models are just awful. They completely forget how important the human element is.”

I’m not suggesting we ignore economists. Most of the ones I know are smart and well-intentioned. Some of my best friends….oh, never mind. But I am saying that we approach them with a skeptical mindset, especially on an issue as fiendishly complex as the economics of climate change.

Bob Pollin pointed me to an appendix (PDF available here and surprisingly interesting) of one of his jobs reports where he makes a similar point:

Conducting economic forecasts through formal econometric models can produce useful information and predictions. However, by necessity, all such models must work with strong simplifying assumptions, since the actual operations of the U.S. economy are far too complex to be represented in full by any model. The difficulties in working with such models are compounded by the attempt not merely to describe the economy as it functions at present, but to attempt to predict how its operations will evolve into the future. The reason this is so difficult is because basic features of the economy’s future growth path are simply un-knowable at the time the forecasts are produced.

He goes on to write that “these problems deepen in the case of attempting to forecast the effects of cap-and-trade legislation on the U.S. economy over time.” So beware of economists bearing forecasts!

I’m also sticking with my second argument: That it’s a mistake for environmental groups to suggest or imply that climate change regulation will be cost-free. Now hold your fire, NRDC and EDF—I’m aware that you do serious work that acknowledges the costs of climate regulation. I’m a regular reader and fan of NRDC’s Switchboard and EDF’S Climate 411 where I learn from people like Laurie Johnson and Andy Stevenson and Gernot Wagner.

But in their political communications—emails, press releases and 30-second ads—the rhetoric can get overheated. So much so that the environmental groups could be putting their credibility at risk. Some headlines  and excerpts from NRDC, EDF and the Blue Green Alliance, an enviro-labor coalition:

Green Investment Creates Enormous Economic Opportunities: New Report Says U.S. Can Create Two Million Jobs in Two Years with Green Investment

Capping carbon is … an investment in our economy that will transform our energy sources and create millions of new jobs.

The President’s plan [on auto emissions standards] —including the next step of a cap on carbon pollution—means more new jobs, a rebirth for the American auto industry, and less global warming pollution.

A rebirth for the American auto industry! What’s next? Cap-and-trade as a weight-loss aid?

Environmentalists like to say that cap-and-trade is a win-win-win. Reduce the threat of global warming. Create “green” jobs. And lessen our dependence on foreign oil.

All true, but it’s also true that cap-and-trade will raise the price of gasoline and electricity. That’s what people mean when they talk about “putting a price on carbon.” That’s a good thing. It will encourage people and companies to use less coal and oil, and it will make low-carbon energy sources like wind, solar and nuclear more competitive.

Maybe I’m sounding too much like a reporter here. I’m asking advocates for cap-and-trade to acknowledge that the policy will cost some people their jobs, require others to stretch their household budgets, runs the risk of putting U.S. companies at a disadvantage if China and India don’t go along and, worst of all, might not even do the job of avoiding the worst impacts of global warming.

Guess what? We should do cap-and-trade anyway because, whatever the costs of action, the costs of inaction will be higher. As economist Frank Ackerman of Tufts said the other day on an NRDC call, the question of whether we should spend money to fight global warming isn’t like the question of whether you should spend money to buy a new car this year or wait until next. It’s more like the question of whether you want to repair the ever-widening cracks in the foundation of your house. This is serious, folks, and delay or indecision will only raise our costs. You don’t have to be an economist to know that.

The phony green jobs debate

As the battle over climate change legislation heats up, several Big Green groups–the Environmental Defense Fund, the Natural Resources Defense Council and the Sierra Club–are rolling out TV and Internet ads designed to persuade voters that regulating greenhouse gas emissions will create green jobs. David Yarnold, the president of EDF’s Action Fund, sums up the message in an email: “Carbon Caps = Hard Hats.” Clever. Here’s an ad from EDF’s campaign, launched in partnership with the United Steelworkers union and the Blue Green alliance, a group of enviromental groups and unions.
Think of this ad, and the one below, as the “Harry and Louise” ads of the campaign to pass global warming legislation. You remember Harry and Louise, right? They were the couple who turned a devilishly complicated issue, health care reform, into a soundbite (“If we let the government choose, we lose”) and helped kill the 1994 Clinton health plan. These ads take what may be an even more devilishly complicated issue, climate change regulation, and use images of brawny construction workers to turn it into an even shorter soundbite: “Green jobs.” Take a look at this spot from The Blue Green Alliance:

Maybe I missed it, but did you hear an environmental message in either of those ads?

Of course, there’s research to support the claims about green jobs. In the interests of full disclosure, I need to say here that I’ve been doing some freelance work for EDF and NRDC—organizations I admire a great deal. But these claims about green jobs deserve greater scrutiny.

Last June, for example, the Blue Green Alliance, Sierra Club, NRDC and the steelworkers issued a green jobs report from the Political Economy Research Institute (PERI) at the University of Massachusetts, Amherst. It said:

…millions of U.S. workers—across a wide range of familiar occupations, states, and income and skill levels—will benefit from the project of defeating global warming and transforming the United States into a green economy.

A second report from PERI, issued last September under the auspices of the Center for American Progress, got more granular. In my home state of Maryland, for example, the authors project that a $100 billion green economic recovery program would create 36,739 jobs. They would be created in such industries as building retrofitting, mass transit and freight rail, smart grid, wind power, solar power and advanced biofuels.

It sounds great, doesn’t it?

Not according to the four lawyers and economists who produced “7 Myths About Green Jobs,” a 97-page report published by the University of Illinois College of Law.  They argue that “the green jobs literature is rife with internal contradictions, vague terminology, dubious science, and ignorance of basic economic principles.” Studies by conservative think tanks go further, claiming that climate legislation will destroy millions of jobs. A 2008 Heritage Foundation study claimed that passage of last year’s Lieberman-Warner bill would create “extraordinary perils for the American economy” and cause annual job losses of between 500,000 and 1,000,000 after a few years of job gains. (This report was pretty thoroughly discredited by NRDC.) The best thing I’ve read about this debate (and one of the most balanced) is this fine Slate article by Eric Pooley, my former editor at FORTUNE, who finds that there’s an emerging economic consensus that the costs of dealing with climate change are significant but manageable–and that given the risks, those costs are likely worth paying.

My point here is not that economists disagree. My point is that the climate change debate shouldn’t be about green jobs. It’s intellectually dishonest to pretend that we can forecast, with any degree of accuracy, the impact of a complicated government policy on a dynamic global economy decades into the future. Both sides know that their projections are based on a host of assumptions which may or may not come true. What if we decide as a nation to turn to nuclear energy as a source of low-carbon power? That probably won’t create many long-term jobs. What if there’s a breakthrough in the solar PV business in China? That may not bring green jobs here. Are farmers who grow corn for ethanol doing green jobs? That hasn’t turned out so well.

Let’s get real: We can’t predict oil prices 12 months out. Last spring, virtually no one anticipated the global financial crisis of last fall. And we are projecting the number of green jobs that will be created or lost on a state-by-state basis by a law that won’t take effect until 2012? Who are we kidding?

I called Russ Roberts, an economist at George Mason University who hosts the fine EconTalk podcast, for some guidance on how to think about green jobs and the economics of climate regulation.  “Creating green jobs is easy,” he told me. “We could employ millions of people picking up litter, and we could make them very good-paying jobs if we want. But of course that would make us poorer as a nation. There’s a cost to providing those jobs that would have to be borne by other people in the economy.”

It’s not just the cost of higher taxes that needs to be factored into the equation, he noted. To the degree that the government makes policy that favors, say, vast construction of wind turbines throughout the upper Midwest, the people doing those jobs will be drawn from somewhere else, maybe even from more productive work. If policy leads to the hiring of  thousands of contractors to do energy efficiency, the cost of building a new home or renovating your basement may go up because many of the good construction workers are busy.

“As voters and citizens and readers, what we want to think about is the big picture—are we moving in the right direction when it comes to environmental policy?” Roberts says. Put another way, are we spending enough money today to head off the threat of global warming in the future? Because if anyone tells you that we can deal with climate change at no cost, they probably shouldn’t be trusted.

Maybe that’s what bothers me about the green jobs ads. They’re like political campaign ads. They promise something for nothing. They treat the voters like children. They’re emotional and not educational. And they’re not helping to build a movement around climate change.

Other than that, they’re fine.

And I do hope they work.