Economy:

Spanish economist Calzada discusses use of subsidies to create 'green' jobs

How has the Spanish government's "green" jobs program affected the country's economy? As a model for the United States' "green" jobs plan, how can the United States alter Spain's program to produce more positive economic gains? During today's OnPoint, Gabriel Calzada Alvarez, an economics professor at King Juan Carlos University in Madrid, and author of a new study on Spain's green jobs program, explains why government subsidies geared towards green job development have yielded net job losses. Calzada discusses how the United States can alter Spain's modeling in order to avoid negative economic impacts. He also explains how a green energy mandate could affect economic growth.

Transcript

Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. Joining me today is Dr. Gabriel Calzada, an economics professor at Rey Juan Carlos University in Madrid and author of a recent green job study coming out of Spain. Dr. Calzada, it's great to have you on the show.

Gabriel Calzada: Thank you for the invitation.

Monica Trauzzi: Dr. Calzada, this new report focuses on the impact of government subsidies on the creation of new green jobs and the subsequent effects that these subsidies have on the economy. What are the bottom-line numbers coming out this report that you've seen in Spain as a result of the government's program to create green jobs?

Gabriel Calzada: Well, the bottom-line number is that in order to sustain these jobs, since you have really a sort of bubble, because you are creating jobs that can be only maintained in case you continue putting money into the bubble. And on top of this, many of these jobs, most of the jobs are in installation of new fields. So in case you want to maintain them, you have to, again, increase the size of the money you put inside this scheme to increase the number of plans you are starting. This produced that we have spent and committed $37 billion in the subsidies and that the yearly subsidy has been growing until this point where we have spent, until the end of 2008, 37 billion and we have created 50,200 jobs. So you do the math and you have that every green job has cost around $770,000 per job. Then all these resources that have been taken from other parts of the economy and put into the creation of these jobs or into the subsidy of renewable energies, if you look at how many jobs this amount of money creates in the rest of the economy you see that for every job that you have been creating, subsidizing, you would have created 2.2 jobs in the rest of the economy. And these are probably the most important numbers. Also this is not a number of our study, but we took the number of the government, the government is recognizing now in Spain that if we want to pay for the debt that we have accumulated because of this feeding tariff or these subsidies we would have to increase the electricity bill to the consumers by 31 percent.

Monica Trauzzi: So, why is this of particular relevance to the U.S., because we're trying to do this now, we're trying to essentially subsidize the growth of the green jobs market. So what do you see happening here and how can you apply what happening in Spain to what might happen in the U.S.?

Gabriel Calzada: Well, in fact, this is relevant because the U.S. has decided to follow the Spanish model, at least according to President Obama. In the last four months he's saying that the model that has to be followed is a Spanish model. This Spanish model consists in a feeding tariff where the price of electricity produced by renewable companies is being set by the government at a higher level than the market price in a system where the distributors of energy are obliged to buy it as energy at this price. And this is the way the U.S. seems to want to implement this. So this is the reason why it's read about and since the technology is the same technology and the scheme is supposed to be the same, the results should be very similar.

Monica Trauzzi: So, would you classify the Spanish model as a failure?

Gabriel Calzada: Yes, certainly, I would classify it as a failure, yes.

Monica Trauzzi: And so why do you think politicians in the U.S. and President Obama are highlighting the Spanish model as one that the U.S. wants to follow? I mean where is the disconnect?

Gabriel Calzada: I think they want to highlight it because it has been the country that has been pushing more than any other country for it. But maybe they have not been looking at the results, at the consequences, because even the Spanish government, one thing is the rhetoric always in politics and another thing is the science or the reality. If you look at what the Spanish government says they say everything is okay, but if you look at what they are doing, in September of last year they decided to reduce the subsidy. And they declared that they were reducing the subsidy because we had to recognize that green energies were clean, but very, very costly and we could not continue pumping more and more money into the bubble, into the system. At that point the whole system collapsed and all the companies have been closing down and only by a reduction of 30 percent of the subsidy given in this case to the solar energy.

Monica Trauzzi: So then is it possible, do you see away where we can promote clean energy and create green jobs and not have negative impacts on the economy?

Gabriel Calzada: It would have to be without subsidies probably and ways, well, probably removing some barriers to some ways of energy, renewable for example. Hydro electricity is a clean way of reducing energy and there are many barriers. If you remove all these barriers, probable you will have a larger amount of electricity produced by many hydros or hydro in general, hydro electricity. There is a huge discussion is not clear is clean or not because of the CO2 emissions and you might think about this, but certainly if you start taking money away from some sectors of the economy and put it into a way of producing that is not efficient, the problem that you have is that you will have to continue supplying this pile of money until this technology can work alone. But we don't know when this is going to be possible. In fact, in the 90s in Europe they started subsidizing this technology. They say it is going to be probably four or five to 10 years, but the reality has been totally different. Now they are saying it's going to be probably for 20 to 30 years. So the technology didn't arrive, the new technology, and they have to continue supplying taxpayer's money until this new technology appears that we don't know if it's really going to appear or not.

Monica Trauzzi: Final question here. One thing that's getting a lot of attention in the U.S. is the development of a renewable electricity standard and you talk about green energy mandates in the report. From what you've seen in Spain, how would this type of mandate impact the economy?

Gabriel Calzada: What kind of mandate are you trying to implement here?

Monica Trauzzi: Renewable electricity, mandating a certain percentage of electricity to come from renewables.

Gabriel Calzada: Yes, I see, I see. Well, in Europe we have this 20 percent mandate and until now was not a compulsory mandate. Right now it's a compulsory mandate and the thing is that in order to accomplish these sort of mandates you need to come up with a way to do it and one is the feeding tariff system that we already saw. There are many, many problems with this. And the other way is directly taxing, putting taxes into place, and giving direct subsidies to whoever produced in this way. But you don't know the cost, you don't know the cost, and politicians do not like this second scheme because you don't know how many taxes you're going to have to put and voters and consumers do not like schemes where you don't know anything about the costs that you are going to be paying for this. This is the problem.

Monica Trauzzi: All right. A lot left to be discussed then. We'll end it right there. Thank you for coming on the show.

Gabriel Calzada: Thank you.

Monica Trauzzi: And thanks for watching, we'll see you back here tomorrow.

[End of Audio]

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