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Here's what Obama's big carbon pollution plan would mean for jobs


Opponents of President Obama's Clean Power Plan (CPP) — the EPA's proposed rule to reduce carbon emissions from the power sector — tend to discuss it in apocalyptic language, particularly regarding its effects on employment. To pluck an example from a hat: when he was running for Senate last year, Ed Gillespie warned that EPA carbon regulations would destroy "244,000 jobs a year." (Yes, that is ludicrous.)

So it should set everyone's mind at ease that, according to a new study, the CPP will yield a small net gain in employment.

Before getting to those details, it's worth emphasizing a broader point that gets lost in these debates: the net effect of the CPP on employment, like the net effect of past air-pollution regulations, is likely to be small. Performance standards on energy technologies simply do not create or destroy enough jobs to matter much in the larger debate over economic health. Other structural factors, like whether the Fed prematurely raises interest rates, will likely have much more macroeconomic employment effect than EPA's rule.

So debate over the CPP is not really about "jobs" as the national level. It's about who gains and who loses. There will be costs imposed, and some jobs lost, in industries that emit a lot of carbon (like coal). In exchange, other industries will benefit and hire more people. And climate change will be ameliorated somewhat. It's that balance of costs and benefits that ought to drive the debate.

That said, while the number of jobs at stake is not large enough to matter macroeconomically, it is enough to matter microeconomically, to certain industries and regions. So let's take a look.

Effects of the CPP on employment

Josh Bivens at the Economic Policy Institute, who has done lots of smart analysis of EPA rules in the past, has done a deep dive on the employment effects of the CPP. His methodology is fairly simple. He takes the effects of the CPP on electrical generation (as projected by EPA in its Regulatory Impact Analysis) and calculates their employment effects. More specifically, he calculates their direct effects, indirect effects, and price effects on employment.

The direct effects are changes in employment in industries directly involved in electricity, which EPA already calculates in its RIA. Bivens then takes those numbers and calculates their indirect effects on "supplier jobs, induced (or re-spending) jobs, and public-sector jobs." The sum of these three is the "multiplier effect" of the direct employment changes. The price effects trace the impact of higher electricity prices.

The short version of the results:

  • The direct effects yield a net increase in jobs (thanks in large part to investments in energy efficiency, which represent more than half the jobs created by 2020).
  • The indirect effects yield a net decrease in jobs (mainly because the jobs that are lost have, on average, a larger multiplier effect). Correction: Oops, this is not quite right. Indirect effects actually yield a net jobs increase of 360,000 in 2020 (see table below). The higher multiplier effect of lost jobs reduces that number in 2025 and 2030, but it remains positive; it does, however, reduce the net jobs produced in 2030 to beneath EPA's estimate.
  • The price effect yields a net decrease in jobs (an effect that is expected to disappear relatively quickly).

When these three effects are tallied up, the overall net job effects are positive. Bottom line:

In 2020, net employment changes resulting from the rule total to an employment gain of more than 285,000 jobs. This net gain drops off rapidly in 2025 and 2030 but remains positive, assuming that price effects are no longer significantly affecting employment in 2025 and 2030.

Here's a table for you nerds, showing numbers for the different effects:

Taking care of those who lose jobs

Bivens also dug into what kind of workers benefit and lose from CPP. Here's his summary:

Losing industries tend to have fewer workers with a four-year college degree or more education (20.8 percent versus 29.8 percent in gaining industries) and yet have fewer low-wage and more middle-wage jobs. This is likely in part because jobs in Iosing industries are significantly more unionized than in gaining industries (19.8 percent versus 9.0 percent). Jobs in both gaining and losing industries have higher shares of male workers and white workers than economy-wide averages.

This is somewhat grim news. The people losing jobs — mainly in coal mining and coal-fired power plants, as well as (through price effects) some heavy manufacturing industries — are paid above-average wages despite having less education and fewer formal credentials. And they also skew older. That does not speak well to their reemployment prospects; it means they can probably expect substantial wage loss. What's more, the job losses are concentrated in poorer states.

Bivens argues that the concentrated job losses argue for some kind of federal response, a program or fund to aid in worker transition. (Obama has, in fact, proposed such a thing.) In particular, he says the government should focus on "ensuring the viability of the health and pension funds of coal companies" and securing international climate agreements so that American heavy manufacturers are not alone in paying for carbon (or, absent that, charging some kind of carbon "border adjustment" on imports).

In conclusion, quit with the jobs stuff

When it comes to CPP and other air pollution regulations, focusing the debate on jobs is most often an attempt to distract the public's attention from the larger question of costs and benefits. Federal air regulations — indeed, federal regulations generally — don't typically have very large effects on employment. Job losses tend to be modest but concentrated, while benefits tend to be substantial but diffuse. Such is the nature of virtually any public policy addressed at improving public health and safety.

But for those who can't get past the jobs thing, fine, here's your analysis. The CPP will create a modest number of jobs. Now let's move on.