A Green Recovery? Assessing US Economic Stimulus and the Prospects for International Coordination

Trevor Houser (PIIE), Shashank Mohan (Rhodium Group) and Robert Heilmayr (World Resources Institute )
Policy Brief
09-3
February 2009

 

Trevor Houser
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As the new Congress and President Obama take office, enacting a fiscal stimulus program is at the top of the legislative agenda. Because the size of this program may limit the scope for other legislative priorities and because US consumers' new-found propensity to save makes government spending a more attractive approach for economic recovery, policymakers are hoping to direct government spending in a way that not only generates short-term economic growth and employment but also addresses long-term policy goals. Energy security and greenhouse gas emissions (GHG) reductions are chief among these goals, and smart government investment in these areas can both create jobs today and lower the future cost of implementing long-term policies such as a cap-and-trade program or carbon tax.

Trevor Houser, Shashank Mohan, and Robert Heilmayr consider twelve proposed "green" stimulus programs and examine the economic, environmental, and energy-security costs and benefits of these proposals using the Energy Information Administration's National Energy Modeling System and the Bureau of Economic Analysis's RIMS II multipliers. These proposals fall into three basic categories: energy efficiency investments, such as programs to refit federal buildings and weatherize homes; power generation programs, including extension of the production tax credit for renewable energy and the installation of "smart" meters; and transportation proposals, such as hybrid tax credits, funding for battery research and development, and mass transit expansion. They find that their twelve programs create an average of 30,100 job-years per $1 billion in government spending, comparing favorably with an average of 7000 job-years for every $1 billion in temporary tax cuts or 25,200 job-years per $1 billion in traditional infrastructure investment. These proposals also have a favorable impact on US GHG emissions and reduce US imports of oil and natural gas, but these effects are not significant enough to replace long-term policies in these areas. Rather, these policies can lay the groundwork for long-term policy goals, reducing the cost of implementing such policies down the road while at the same time spurring employment and helping to reverse the continuing economic downturn.

As the new Congress and President Obama take office, enacting a fiscal stimulus program is at the top of the legislative agenda. Because the size of this program may limit the scope for other legislative priorities and because US consumers' new-found propensity to save makes government spending a more attractive approach for economic recovery, policymakers are hoping to direct government spending in a way that not only generates short-term economic growth and employment but also addresses long-term policy goals. Energy security and greenhouse gas emissions (GHG) reductions are chief among these goals, and smart government investment in these areas can both create jobs today and lower the future cost of implementing long-term policies such as a cap-and-trade program or carbon tax.

Trevor Houser, Shashank Mohan, and Robert Heilmayr consider twelve proposed "green" stimulus programs and examine the economic, environmental, and energy-security costs and benefits of these proposals using the Energy Information Administration's National Energy Modeling System and the Bureau of Economic Analysis's RIMS II multipliers. These proposals fall into three basic categories: energy efficiency investments, such as programs to refit federal buildings and weatherize homes; power generation programs, including extension of the production tax credit for renewable energy and the installation of "smart" meters; and transportation proposals, such as hybrid tax credits, funding for battery research and development, and mass transit expansion. They find that their twelve programs create an average of 30,100 job-years per $1 billion in government spending, comparing favorably with an average of 7000 job-years for every $1 billion in temporary tax cuts or 25,200 job-years per $1 billion in traditional infrastructure investment. These proposals also have a favorable impact on US GHG emissions and reduce US imports of oil and natural gas, but these effects are not significant enough to replace long-term policies in these areas. Rather, these policies can lay the groundwork for long-term policy goals, reducing the cost of implementing such policies down the road while at the same time spurring employment and helping to reverse the continuing economic downturn.