With voters punishing the Liberal Party in early October, it may beÂ time to rethink some of the policies in dispute. Chief among these is the green-energy policy, which apparently was responsible for the defeat of at least seven Liberal incumbents. Plans to erect industrial farms of wind turbines met resistance, mainly on health grounds and, surprisingly to some, environmental grounds (doesnâ€™t anyone think of the birds that will perish by the turbines?).
Although the motivationÂ for green-energy is not strictly economic, it does behoove us to recognize a key lesson of economics: individuals and communities face tradeoffs. Wind turbines are a case in point.
At the risk of vulgarity, permitÂ a simplisticÂ representation of the tradeoff. Wind energy is clean, but less efficient than alternatives. If the only goal was a clean environment, the decision might be clear. But we face a plethora of objectives. Most importantly, during this time of economic turmoil, the jobs picture is increasingly important. As the US slips deeper into recession, Canada runs the risk of falling with it.
A recent paper looks at the effect of energy taxes, commonly used to find clean energy projects, and employment. While the results are largely mixed between industries â€“ both in terms of size and sign of effect â€“ one result is unambiguous. A 1 percent increase in energy taxes impacts total employment negatively by an estimated 1.25 percent.
Energy taxes do correlate well with innovation increases, but the particular innovations donâ€™t seem to spur growth. In other words, one could favor a green-energy policy that looks at increasing innovation and investment in energy projects via tax increases, but at the same time they would not be pursuing policies that, on average, promote growth or employment.
Despite being born in Ontario, yours truly currently resides in Madrid Spain. The Spanish government has been one of the most progressive in terms of pushing green-energy policies over the past decade. Today one can drive through Spain and see countless thousands of windmills dotting the idyllic countryside. On the plus side it is easier to reenact Don Quixote chasing windmills. On the other hand, Spain is one of the sickest children of Europe. Tax increases (the sales tax on most goods increased from 16 to 18 percent in 2010) to pay for these energy projects have caused consumers to curtail spending and businesses to close their doors. Debt increases by the Spanish government to fund any shortfalls in these costly green projects have left the country with a burgeoning debt overhang, giving it a starring role in the European sovereign debt crisis.
Most notably, Spainâ€™s unemployment rate is the highest in Europe. At approximatelyÂ 22 percent, large swaths of Spaniards are unable to find jobs during its economic malaise. The effects that the green-energy policy has had on the country are hard to miss. And although one may be impressed by the â€œprogressivenessâ€ of the country as they take photos of these wind farms, tourists rarely get a glimpse of the life of the average Spaniard. For over one-fifth of the working population, this life involves trips to the unemployment office by day, and sleepless nights pondering how they will feed their families (or, with Christmas fast approaching, whether Santa will visit).
Leaving aside the other concerns that green-energy projects have, the potential adverse health effects, or fears for the birds, we should do well to just focus on the economic facts at hand. No one wants to see the potential for a future marred by climate change. At the same time, no one wants to sentence their country to a period of financial hardship in the present.
Recognizing the relevant tradeoff might not be fun, but it allows us to properly assess the possibilities before us. Given the choice, I would rather take an uncertain less-than-rosy future over a certainly painful present.