Sunday, April 19, 2009

Beware green jobs, the new sub-prime

Beware green jobs, the new sub-prime. By Dominic Lawson
Sunday Times, April 19, 2009

When everybody seems to have the same big idea, you just know it can only mean trouble. Remember sub-prime mort-gages? Now universally excoriated as the spawn of the devil, the proximate cause of the credit crunch and all that followed, a few years back “sub-prime” was everyone’s darling. Financiers loved it because it generated sumptuously high-yielding debt instruments; governments, because it promised to make even the poor into proud property owners.

Now business lobbyists and governments on both sides of the Atlantic have got a new big idea. They call it “green jobs”. Leading the pack is, as you might expect, Barack Obama. The president recently defended a vast package of subsidies for renewable energy on the grounds that it would “create millions of additional jobs and entire new industries”.

In Britain, the business secretary, Lord Mandelson, promises billions in state aid for the same purpose. To add verisimilitude, last week he gave a royal wave from the inside of a prototype electric Mini. Mandelson’s chauffeur was a representative of the lower house: the transport secretary, Geoff Hoon.

The occasion for this photo opportunity was the government’s proposal to offer a £5,000 subsidy to anyone buying an electric car of a type not yet available: exact details to be given in Alistair Darling’s forthcoming budget. The idea is to create a “world-beating” British-based electric-car-manufacturing industry, while also attempting to meet Gordon Brown’s promise to have the nation converted to electric or hybrid cars by 2020.

That remarkable prime ministerial pledge predated the recession; its motive was to demonstrate that Britain was “leading the world in the battle against climate change”. We aren’t, as a matter of fact; but under new Labour we have certainly led the world at claiming to do so. Mandelson expressed this almost satirically last week when he declared that “Britain has taken a world lead in setting ambitious targets for carbon reduction”.

As ever, new Labour confuses announcements and newspaper headlines with real action. Whenever it becomes obvious even to ministers that Britain will not meet its current carbon reduction target, they replace it with a yet tougher target, only with an extended deadline.

It does not yet seem to have occurred to new Labour that this is making it look ridiculous, especially to the environmentalists whose support it is presumably trying to solicit. Or perhaps it has, but it would rather that than lose our “world leadership” in target-setting.

There is something almost comical in the government’s belief that the electric car, dependent as it is on the national grid, is a sort of magic recipe for reducing carbon emissions. Some months ago President Sarkozy of France had an identical idea and commissioned a report on the prospects for turning Renault and Citro├źn into producers of mass-market electric vehicles. The report concluded that “the traditional combustion engine still offers the most realistic prospect of developing cleaner vehicles simply by improving the performance and efficiency of traditional engines and limiting the top speed to 105mph. The overall cost of an electric car remains unfeasible at about double that of a conventional vehicle. Battery technology is still unsatisfactory, severely limiting performance”.

Note that this crushing verdict came in a country where electricity is for the most part generated by nuclear power, which produces . In this country, more than three-quarters of the grid’s power comes from theno CO2 fossil fuels of gas and coal.

Presumably it is the latter that accounts for the fact that when the London borough of Camden commissioned a study to see whether it should introduce electric vehicles for some of its services, it found that “EVs relying on the average UK mix of energy to charge them were responsible for significantly more particles of soot that lodge deeply in the lungs . . . than the average petrol-powered car”.

If all our electricity were to be generated by wind power, without any fossil-fuel back-up, this criticism would not apply. Then the cars could take days, rather than hours, to recharge (depending on the weather) and would be so expensive to run that driving would become the exclusive preserve of the rich.

A further absurdity is that electric cars are suitable only for short rides within urban areas – precisely where we are being encouraged to abandon cars and use public transport. Ken Livingstone exempted electric cars from his congestion charge as if, in addition to their suppositious environmental benefits, they also had the magical property of being incapable of contributing to congestion. As the Ecologist magazine has reported: “The focus on electric vehicles and the political love they get is totally misguided . . . to have that as the spearhead of government transport carbon-reduction policy is insane.”

The magazine is controlled by Zac Goldsmith, the prospective Conservative candidate for Richmond Park and team Cameron’s environmental guru. Last week his colleague George Osborne took a different tack, observing that the absence of plans for a national network of charging points meant that “the Labour plan is like giving people a grant to buy an internal combustion engine, without bothering to set up any petrol stations”. Osborne had his own suggested grant to create “green jobs”: “We will give every household a new entitlement to £6,500 of energy-saving technologies.”

I’m not sure how the Tories came up with the figure of £6,500. It is pointedly bigger than Labour’s proposed £5,000 electric car subsidy; but all these figures are preposterous. If you multiply £6,500 by the number of households in the land, you get to £160 billion, bigger on its own than the national debt that Osborne has repeatedly told us is unaffordable.

Electoral bribes apart, there is a more serious misconception behind the idea that ploughing subsidies into the “green economy” is a sure-fire way of boosting domestic employment. At best it will move people from one economic activity to another. Labour’s plans would subsidise car production workers to move from making conventional models to electric vehicles, which hardly anyone wants to buy. Osborne’s proposals would subsidise the double-glazing and home insulation industry and suck in many workers gainfully employed (without subsidy) elsewhere.

The key to a successful, wealth-generating economy is productivity. Saving energy is what businesses have done already, because it lowers their production costs. The problem with any form of subsidy is that it makes the consumer (through hidden taxes) pay to keep inherently uneconomic businesses “profitable”. Meanwhile, diversified energy companies such as Shell, with plenty of speculatively acquired wind-farm acreage, are salivating at the plans by Obama to introduce cap-and-trade carbon emissions targets for American industry.

Obama’s energy secretary, Steven Chu, had some soothing words for US manufacturing companies that complained that the new policy will make them even less competitive with Chinese exporters, since the people’s republic has indicated that it has no intention of inflicting a similar increase in energy costs on its own producers. He suggested that America might have to introduce some sort of “car-bon-intensive” tariff on Chinese goods. One of China’s envoys, Li Gao, immediately retorted that such a carbon tariff would be a “disaster”, since it could lead to global trade war.

Actually, Mr Li is right: and this is how an achingly fashionable and well-intentioned plan to create “millions of new green jobs” could instead end up making the global economy even sicker than it is already.

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