GREEN RECOVERY A Program to Create Good Jobs and Start Building a Low-Carbon Economy Robert Pollin, Heidi Garrett-Peltier, James Heintz, and Helen Scharber Department of Economics and Political Economy Research Institute (PERI) University of Massachusetts-Amherst Kit Batten and Bracken Hendricks Project Managers, Center for American Progress September 2008 Prepared under commission with the Center for American Progress Center for American Progress Political Economy Research Institute Introduction and summary or the past year, the U.S. economy has suffered through a serious economic slowdown caused by the collapse of the housing market bubble, the destabilizing Feffects of the housing implosion on financial markets, and the sharp rise in oil prices. The resulting increase in unemployment—reaching 5.7 percent in July 2008—is in fact even worse when taking into account a labor market where people are working fewer hours than they wish, taking pay cuts, or becoming discouraged from looking for work. What’s more, most evidence suggests the slowdown will continue for at least another year, extending in exaggerated form an eight-year pattern of economic perfor- mance that has done little for most Americans. This report outlines a green economic recovery program to strengthen the U.S. econ- omy over the next two years and leave it in a better position for sustainable prosperity. In the pages that follow, we detail how to expand job opportunities by stimulating eco- nomic growth, stabilizing the price of oil, and making significant strides toward fight- ing global warming and building a green, low-carbon economy. This green economic recovery program would be a down payment on a 10-year policy program recom- mended by the Center for American Progress in its 2007 “Progressive Growth” series, which lays out an economic strategy for the next administration and includes the report, “Capturing the Energy Opportunity: Creating a Low-Carbon Economy,” by John D. Podesta, Todd Stern, and Kit Batten. That report details how the transformation to a low-carbon economy would result in sustainable economic growth. (See Appendix 4 on page 28 for details of this plan). By accelerating the implementation of these polices, we address our immediate need to boost a struggling economy and jumpstart our long-term transformation to a low- carbon economy. This green economic recovery program would spend $100 billion dollars over two years in six green infrastructure investment areas. These are all areas that the CAP report outlined as key to transitioning to a low-carbon economy to create new green jobs—particularly in the struggling construction and manufacturing sectors. They are also all central to securing America’s energy security and combat global warming. This $100 billion initiative is part of a comprehensive low-carbon energy strategy and could be paid for with proceeds from auctions of carbon permits under a greenhouse gas cap-and-trade program. This fiscal expansion would create 2 million jobs by investing in six energy efficiency and renewable energy strategies: 1 Center for American Progress • Political Economy Research Institute Retrofitting buildings to improve Lower unemployment. If this energy efficiency green economic recovery program Expanding mass transit and freight rail were fully implemented in early 2009 Constructing “smart” electrical grid and unemployment still stood at July transmission systems1 2008 levels, it would reduce the num- Wind power ber of unemployed people to 6.8 mil- Solar power lion, down from 8.8 million, with the Next-generation biofuels unemployment rate falling to 4.4 per- cent from 5.7 percent. This economic recovery program com- bines the $100 billion fiscal stimulus with Renewed construction and manu- an additional credit stimulus—through a facturing work. Employment in federal loan guarantee program to boost construction fell to 7.2 million in July private-sector investment in energy effi- 2008, down from 8 million in July 2006. ciency and renewable energy. Most of the A green economic recovery program federal spending would be in the form would replace, at least, those 800,000 of public infrastructure investments in lost construction jobs over the next public building retrofits, public transpor- two years, and could result in renewed tation, and building smart grid systems investment in the housing sector that because the money to support these activ- is at the root of the current economic ities can be delivered relatively quickly slump. This green recovery provides a by the federal government, and through needed transfusion of new credit and the federal government to state and local investment into the construction indus- governments. Investments in renewable try, which could rapidly provide job energy and energy efficiency are also opportunities that are badly needed. central to this proposal, and would be Our program would have similar, if funded through a combination of public somewhat smaller, effects in supporting funds, tax credits, and loan guarantees to U.S. manufacturing. spur private-sector investment. Together, this $100 billion green energy stimulus More stable oil prices. Expanding package would result in: investments in energy efficiency and renewable energy sources would help Widespread employment gains. stabilize demand for oil, which in turn Investments in these areas will produce could slow the long-term rise in oil employment opportunities across a prices. No one can accurately predict broad range of familiar occupations— the price of oil over the next two years, roofers, welders, electricians, truck but if U.S. demand for oil were less drivers, accountants, and research than it would be otherwise because of scientists. It will also strengthen career increased U.S. investment in renew- ladders by providing pathways for able energy and energy efficiency, then workers to move up from lower-paying the price of oil would also fall. Reduc- to higher-paying green jobs that can ing demand by providing real energy be created on a geographically equi- alternatives and transportation choices table basis throughout all regions of is one of the only effective long-term the country. options for offering consumers sus- tained relief from rising gas prices. 2 www.americanprogress.org • www.peri.umass.edu Self-financing energy efficiency. report, which calls for a balanced mix Public and private investment in of private and public funding, the lat- energy efficiency reduces energy ter financed with revenue from a carbon demand and lowers energy costs, cap-and-trade program. Under a cap- which in turn means that money spent and-trade system, there will be a revenue now on energy efficiency will pay for stream dedicated to paying back the $100 itself through lower energy bills over billion to be spent on the green recovery the long term. Lowering energy costs program. An economic analysis of CAP’s for educational buildings eventually comprehensive energy strategy will be means more funds for teachers, books, released later this year. and scholarships. Retrofitting hospitals over time releases money for better All states and regions of the country can patient care. And providing incentives gain significantly from this green eco- for investment in more private-sector nomic recovery program. Of course, due energy savings at commercial buildings, to climate and geography, not all areas factories, and residential homes helps of the country are equally capable of American businesses and consumers capturing the benefits of specific technol- save and invest money over the long ogies—for example, solar or wind power. term and improve our quality of life. But they are all equally capable of mak- ing investments to dramatically improve This $100 billion green recovery pro- energy efficiency through retrofitting gram is roughly the same level of invest- buildings, expanding public transporta- ment as the portion of the April 2008 tion systems, and increasing the efficiency federal government-directed economic and stability of the electric grid. stimulus package used for sending rebate checks back to taxpayers to boost house- Similarly, all areas of the country have hold consumer spending. In the analysis significant renewable energy resources that follows, we demonstrate that spend- or the ability to participate in the work ing $100 billion on green infrastructure of producing the goods and services investment would be an effective engine that will be demanded by a transition for job creation—and thus stronger to clean energy. Thus in Appendix 3 we economic growth— and would have the show how many jobs would be created added benefit of preparing the way for on a state-by-state basis by examining 34 the urgently needed long-term U.S. tran- representative states to see how the full sition to a low-carbon economy. $100 billion budgeted would be equitably distributed among all states.2 This $100 billion fiscal expansion, respon- sibly deployed, would frontload federal It is important to note that this recovery spending to launch a green energy eco- program does not replace the possible nomic development program based on need for more immediate action to boost all of the renewable energy and energy the economy. The nature of the invest- efficiency proposals contained in CAP’s ments described in this paper precludes “Energy Opportunity” report. This initial their full implementation in the three to boost in direct government spending four months that are usually expected of would be financed as part of the