Henry Lee on the transition to a low carbon economy and job creation

November 2015. GrowthPolicy contributor Marzena Rogalska interviewed Harvard Kennedy School Professor Henry Lee, focusing on the impact of the transition to a low carbon economy on job creation. Below is an edited version of Professor Lee’s comments.

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Q: Europeans look at sustainability and the transition to a low carbon economy as main sources of growth and jobs for Europe. Is it the same for the U.S.?

A: There is still a lot of ideology surrounding the climate debate. Saying bluntly that the low carbon transition will be expensive is not popular and can cost politicians their jobs. On the other hand, as long as this debate is emotionally driven it is difficult to discuss the most cost-effective options both for the final outcome (decarbonisation) and the transition period.

We need to significantly reduce carbon emissions. However, it will cost money and it will take time. There is no prescribed way how to best go about it. We will need to develop new energy technologies. Governments will play a critical role in this process. But we will need to be careful not to overinvest in deploying technologies that will be superseded by better versions several years from now. For example, signing twenty year purchase agreements for technologies that will be outdated in five years can lock-in inefficient systems. Our goal must be to develop a mix of low carbon technologies that are cost competitive with the cheapest fossil fuel technologies.

On a global scale, all energy sources (conventional and unconventional fossil fuels as well as renewable energies and nuclear power) will still play an important role for some decades to come. Governments should focus on (1) putting a price on carbon and (2) increasing the funding for research, demonstration and deployment of new technologies that use less energy and emit less greenhouse gases. It is essential to get the incentives right and to keep our eye on the true goal –a zero to low carbon energy system that is cost competitive.

Communication between policy makers and corporations needs to be improved. For starters, governments should stop promising a free or low cost transition to a low carbon world. If we had 100 years to make this transition, the costs might be low. But we have only 30-40 years. While the economic costs will be manageable, they will be measurable. Second, governments should demand a more rigorous assessment of the comparative costs of different options. If governments choose to invest in offshore wind instead of carbon capture and sequestration, the public should know that the former is three times more costly than the latter.

Energy efficiency measures are important but they often are accompanied by transaction costs. The availability of a highly energy efficient refrigerator, for example, does not mean that an individual homeowner is ready to part with her well-functioning, but less energy efficient refrigerator, which may end up in the basement or garage. Thus innovation in energy efficient improvements and demand side management can play a major role but it is complex, gradual and depends on changing consumer behavior patterns.

As for jobs, the transition to low carbon energy options and away from fossil fuels will create more jobs. But these will be lower quality jobs without pensions and in many cases without health care benefits. While governments like to boast that the transition to renewables will create hundreds of jobs, one must remember that we are making this transition to reduce the threat of climate disruption, not simply to create new jobs. If the latter was our goal then there are more cost-effective options to achieve it.