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Brooks Wilson's Economics Blog: Glaeser on Green Energy

Thursday, September 8, 2011

Glaeser on Green Energy

Yesterday, I linked to Daron Acemoglu’s article “The Real Solution Is Growth” in which he suggested that policy should focus

ON green technology, the next area that has the best promise of creating a platform for more innovation…The United States is lagging behind other countries in these activities. To regain leadership, we need both more and smarter subsidies to research in green technologies and a carbon tax that naturally encourages the use of cleaner technologies and triggers more research to seek such technologies.

Another exceptional economist from a nearby institution, Edward Glaeser, explains why green technology is not an engine for job creation, why it increases productivity, and what types of activities should be subsidized in “Why Green Energy Can’t Power a Job Engine.”

He uses Evergreen Solar which had a factory that received $40 million in subsidies and recently announced that it was moving production from Massachusetts to China as a case study.  Evergreen’s comparative advantage was its proximity to one of America’s foremost centers of engineering, Boston, and its principles worked with MIT profession Emanuel Sachs who invented the “string ribbon” process for producing solar cells. 

The new company’s innovative product brought international partners willing to finance the company’s expansion.  When the time came to begin commercial production, the lure of cheap labor enticed Evergreen to move production to China.

Glaeser conclusion expounds on Acemoglu’s recommended policy that government funds research in green technologies.

Failed public investments, like the money spent in Devens, reflect the fact that public officials are rarely skilled venture capitalists and that governments pursue many objectives that lead them away from solid investments. It’s easy to see why any governor would be excited about a green-energy manufacturing plant in a less prosperous area of his or her state. But the same forces that made Devens political catnip meant that it was unlikely to be a long-term success…

Massachusetts’s edge lies in ideas, not products. Those ideas are best produced in creative clusters, built around cities, where knowledge moves easily from inventor to entrepreneur. The only production that really needs to occur in greater Boston is the early-stage manufacturing that can be an important part of the research process. Mature companies, like Evergreen Solar, naturally move their factories to lower-cost areas…

As long as solar panels are getting cheaper, we shouldn’t worry about where they are being produced. We should continue financing research on solar technology as long as that research continues to produce cost-cutting breakthroughs, like “string ribbon” technology, but we shouldn’t pretend that cheaper solar energy will end up employing millions of our less-skilled citizens.

For decades, local economic success has come from entrepreneurship and education, not large-scale manufacturing. The Devens closing doesn’t imply that there is anything wrong with clean energy, but it does suggest the difficulties inherent in trying to beat China at cheap manufacturing. In the long run, America will be richer than China only by having smarter citizens, and that requires the skills that come from schools and cities, not dispersed factories.

If this post is of interest, read Glaeser’s entire article linked above.  If the article leaves you wanting more, read his book, Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier.

1 comment:

  1. Nicole Miller8/9/11 1:20 PM

    What are your thoughts on 'green technology,' or more specifically, its ability to create jobs? Last night I was weatching the news, and they were discussing the amount of money the government had granted California to puruse green companies. Each company was given somewhere in the neighborhood of 10-20 million (if i remember correctly), but had only produced a few hundred jobs a piece. Do you think that in time subsidies like this will pay off? Or do you think they're a waste of time and money?