In 2009, I directed a study entitled “Study of the Effects on Employment of Public Aid to Renewable Energy Sources.” It focused on the Spanish government’s efforts to become the world leader in renewable energy by subsidizing selected energy sources favored by interest groups (and therefore politicians) but not private investors, unless politicians guaranteed their investments.
Its findings illuminated the failure of this policy to produce jobs, create a sustainable renewable energy industry or bring about a significant reduction in greenhouse gas emissions (Spain remains wildly above its targets for the Kyoto Protocol). Further, the study showed that subsidizing renewable energy companies hurt the Spanish economy.
Since its release, our study has been the subject of extensive criticism by groups seeking to advance renewable energy in the United States. They contend that our peer-reviewed study is flawed because we used an opportunity-cost model — the same model used by private economists making decisions to allocate scarce resources. Some even cite a U.S. Department of Energy white paper claiming our study “represents a significant divergence from traditional methodologies used to estimate employment impacts from renewable energy.”
One inconvenient fact these critics neglect to mention is that according to Freedom of Information Act requests, the U.S. Department of Energy collaborated with the American Wind Energy Association and an ideological activist group in a coordinated effort to discredit the study. Much work went to discredit findings that were ultimately recognized by the Spanish government and still ring true, as evidenced by recent events like the closure of Solyndra’s last solar cell facility in the United States.
In short, despite aggressive efforts to discredit its findings, our study has been proven correct. Our only mistake was to underestimate the debt and economic harms that these policies produced in Spain, the country whose energy policies President Obama once praised.
However, instead of rehashing an old debate, I want to warn American policymakers not to go further down Spain’s path. The U.S. can learn from Spain’s costly example only by paying attention to it.
After thorough review, using two different research methods and data from both European Commission-financed research and the Spanish government, the trend is clear: Government support of renewable energy production does not provide long-term employment and in fact destroys jobs.
In the Spanish example, we found that each renewable job cost the Spanish taxpayer between $752,000 and $800,000. Even more troubling is the fact that diverting these critical resources cost the Spanish economy 2.2 jobs for every job created. Further, the jobs created in Spain were temporary — two-thirds of them were in installation.
All signs point to a fatally flawed idea. Developing these jobs on a reliable and consistent basis requires ever-more subsidies. It’s a never-ending cycle to keep a bubble inflated, which as Spain discovered costs billions in public funds. Even before Spain’s investment bubble began bursting, the massive investments in renewable energy companies were producing disappointing results.
What’s more, the subsidization of these inefficient sources of energy has led to significant economic hardship on the macro and micro levels. As of 2008, when our study was conducted, the Spanish government had committed approximately $36 billion to renewable energy subsidies; since then the resources committed have grown exponentially and are now well over $100 billion, an amount equivalent to more than 10% of Spanish GDP.
This is debt that must be repaid by Spanish citizens.
Moreover, since 2004 private households have seen their electricity rates jump by 50% while industrial electricity prices have risen by 110%. In fact, thanks to this program, Spain went from having one of the lowest average electricity costs in Europe to having the third highest. The rising electricity costs have decreased families’ purchasing power and made our country less economically competitive, resulting in more lost jobs and lost opportunities.
This is a high price to pay for a program that, by any reasonable metric, never accomplished its goals.
Renewable sources of energy can be part of a nation’s energy supply. They just cannot do what politicians now get carried away demanding they to do. Experience shows that government efforts to artificially advance renewable energy development through taxpayer-funded subsidies will end in failure.
The subsidies lead to temporary jobs (created at enormous per-job costs), massive debt, high electricity prices and a net loss of jobs. Please, “Think about what’s happening in countries like Spain,” as your president used to say so often.
As the United States looks for ways to reinvigorate its economy, I urge American policymakers to learn from the Spanish example and be critical of any claim that government support for renewable energy — or, for that matter, for any inefficient process of production — will bring jobs and prosperity. This is simply not true. Spain is just one of many examples that prove this point. It just happened to be President Obama’s example.
Dr. Gabriel Calzada is an associate professor of economics at King Juan Carlos University (Spain) and IE University (Spain).