The President's press conference: climate change

In his press conference yesterday, the President’s opening statement covered Iran, climate change, and health care. Here he is on climate change:

This energy bill will create a set of incentives that will spur the development of new sources of energy, including wind, solar, and geothermal power. It will also spur new energy savings, like efficient windows and other materials that reduce heating costs in the winter and cooling costs in the summer.

These incentives will finally make clean energy the profitable kind of energy. And that will lead to the development of new technologies that lead to new industries that could create millions of new jobs in America — jobs that can’t be shipped overseas.

He is still not referring to it as a “climate change bill,” nor does he ever say “cap-and-trade.” He refers once to “the carbon pollution that threatens our planet,” but continues to rhetorically frame this cap-and-trade legislation as a clean energy technology bill. He has been doing this consistently since his first press conference, and it reaffirms for me that his political and communications advisors think that addressing climate change is less popular than promoting clean energy technology.

Also, his last sentence is misleading. Raising the price of energy would lower U.S. GDP. We would produce less carbon and would have lower incomes. While the President did not say that this bill would help the economy by creating a net increase in jobs, he creates that impression by saying “that lead to new industries that could create millions of new jobs in America.” It is misleading to suggest that cap-and-trade legislation, such as that being considered this week by the House of Representatives, will not harm the economy. You can argue that the environmental benefits are worth the economic cost, but not that this will increase U.S. economic growth.

I don’t understand why he thinks that jobs that could be created in clean energy technologies would necessarily be created in America, or why they could not be shipped overseas. I can see why the windmill maintenance guy and the solar cell installation firm would have to be based in America (like the classic economics course example of not being able to outsource haircuts).But solar cells and windmill parts, as well as batteries, new building materials, and nuclear power plant components can all be designed, developed, and manufactured anywhere in the world. The U.S. clearly has an R&D head start on the rest of the world, but I don’t see why the President thinks these jobs “can’t be shipped overseas.”

This Presidential statement is a rhetorical flourish, but I’d be interested to see CEA Chair Dr. Christina Romer try to defend it in front of an audience of her academic colleagues. I think it’s indefensible:

The nation that leads in the creation of a clean energy economy will be the nation that leads the 21st century’s global economy.

This statement is true but incomplete:

At a time of great fiscal challenges, this legislation is paid for by the polluters who currently emit the dangerous carbon emissions that contaminate the water we drink and pollute the air that we breathe.

Thanks to a grad school professor, I have forever imprinted the question-and-answered, “Who pays taxes? PEOPLE pay taxes.” The President is correct that the costs of a cap-and-trade system would be directly imposed on those who produce power and fuel from carbon-based energy sources. But power companies, like all firms, are aggregations of economic interests. They would pass these costs through to their owners, employees, and customers. So one could even more accurately say that “This legislation is paid for by anyone who uses electricity from a coal-fired or nautral gas-fired power plant, who drives, or who buys anything that has power or fuel as an input.” It is also paid for by the hard-working employees of those companies, and by those who own stock in those companies.

Finally, I wish he would mention nuclear power when he talks about new sources of low-carbon energy. Not doing so suggests a political calculation, because nuclear power is the one non-carbon power source that many on the far left oppose.

(photo credit:

I escaped Washington, DC and now teach at Stanford's Graduate School of Business.

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16 comments on “The President's press conference: climate change
  1. Prakhar Goel says:

    “Finally, I wish he would mention nuclear power when he talks about new sources of low-carbon energy. Not doing so suggests a political calculation, because nuclear power is the one non-carbon power source that many on the far left oppose.”

    Sad as nuclear power is pretty much the only power source which could actually displace fossil fuels efficiently (if the insane government regulations surrounding it are removed).

  2. Sam Peters says:

    Words are easy intent is not.

  3. anonymous says:

    Thanks for your great work on your blog. I take slight issue with letting the President get away with saying carbon dioxide pollutes our air and water.

    The President said the following about carbon dioxide emissions.

    “[T]his legislation is paid for by the polluters who currently emit the dangerous carbon emissions that contaminate the water we drink and pollute the air we breathe.”

    Clearly he is reading from the new talking points recommended by pollsters. See for an example:

    “In Lakoff’s view, the best way to sell a cap on greenhouse gases is to get across the idea of ‘ownership of the air.’ He recommended that the administration make the argument that ‘polluters’ have been releasing carbon dioxide for a long period of time and should have to pay ‘dumping fees.’”

    Rather than polluting the water we drink and the air we breathe, carbon dioxide emissions actually happen naturally as explained well in this Congressional Research Service report: “The Carbon Cycle: Implications for Climate Change and Congress,” (RL 34059) found here:

    “Huge quantities of carbon are actively exchanged between the atmosphere and other storage pools, including the oceans, vegetation, and soils on the land surface. The exchange, or flux, of carbon among the atmosphere, oceans, and land surface is called the global carbon cycle. Comparatively, human activities contribute a relatively small amount of carbon, primarily as carbon dioxide (CO2), to the global carbon cycle.”

    The concern about carbon dioxide emissions is not that they inherently pollute our air or our water. It is that the carbon released by human sources (which is small compared to the natural release) is contributing to climate change. For an administration that pledges to follow science, you would think they could be a little more careful with their rhetoric.

  4. […] The President’s Press Conference: Climate Change – Keith – Hennessey is a good economist, but he should be more careful when he takes President Obama to task for saying that efforts to reverse climate change “will lead to the development of new technologies that lead to new industries that could create millions of new jobs in America.” In fairness to Hennessey, his revulsion to this sort of language is not unwarranted. Politicians make these sort of claims all the time with little understanding of the economic implications of their policies. Hennessey is right to point out that the President does not guarantee a NET increase of jobs. But his counterargument, that taxing carbon necessarily implies a net decrease of jobs, is incorrect. If the government taxes the private sector and invests that money in projects that yield a higher return on investment than that money would otherwise have generated in the private sector, then it can easily lead to a net increase in jobs and GDP. The most likely time for this to happen is a recession, i.e. now. […]

  5. Terry says:

    Unfortunately we are far behind in R&D for many forms of renewable energy – most of the design and engineering is being done in Europe. And as for nuclear: Harry Reid doesn’t like Yucca Mountain. Therefore, we have no nuclear industry. Quite a shame.

  6. Mark H. says:

    I have to disagree with Trading 8’s. Hennessey’s implied counterarguement that cap and trade will most likely create a net job loss is accurate. Taxing necessarily incurs deadweight losses. Moreover, taxing in the form of cap and trade is a highly inefficient form of carbon taxation (see Nordhaus DIME papers)and this particular initiative in Congress almost certainly flunks a cost-benefit test.

    It is always possible that government would find something to invest in that the private market might have missed, something that would not crowd out private investiment and would yield an increased rate of return, AND that the government would then invest in it – however I don’t see what in public choice theory or empirical experience that would suggest that would happen. Far more likely any revenue gained as an “investment” would be used to satisfy interest group projects, welfare state crusades, or local pork for votes.

    I know that many of the “command and control” devotional can imagine a world in which “if they were in charge” such and such would be accomplished…but such is not reality. The reality is that the market is far more likely to invest for greater ROI than governments. That is why we have a captialist system.

  7. kbh says:

    I think I could have eliminated Trading Eights’ counterargument had I been a bit more precise. Still, I agree with Mark H. on both counts. The deadweight loss point is almost always ignored in policy debates, and I am hard-pressed to think of examples of Congress spending taxpayer funds in a manner that yields a higher return than if those dollars had been left in private hands.

  8. TerryO says:

    The reason that issues such as deadweight loss are excluded from policy discussions is the same as the reason that corruption is not mentioned. While germane and inescapable, it’s inconvenient and dissolves the argument for these proposals.

  9. The real question is whether we’re facing an abyss of the same magnitude in regard to the climate crunch as we were 18 month ago with the credit crunch. If so, will a cap & trade policy to mitigate climate change play a similar role to the “systemic regulator” for the financial industry?

    Lawrence Goulder from Stanford University suggests that in order to create a politically viable carbon emissions plan, the government should auction off a majority of carbon dioxide emissions permits.

    It’s time that we consider the opportunity cost of not doing anything about the growing “systemic risk” threatening the earth’s climate – before it’s too late to do anything about it.

    Laurent Pacalin
    Co-Founder Clean Tech Open

  10. Peter says:


    Isn’t it also correct to note that whatever jobs are created by the mandates in this bill are rightly categorized as a cost and not a benefit?

  11. Mark_0454 says:

    Maybe someone can second this, but I believe Spain has gone about as green as you can go. Their unemployment is now nearly 20%.

  12. Mikel says:

    Yes, Spain has gone the government supported clean energy route and paid the price. The following is from an article by Georg Will:
    Calzada (Gabriel Calzada, an economics professor at Spain’s Universidad Rey Juan Carlos) says Spain’s torrential spending — no other nation has so aggressively supported production of electricity from renewable sources — on wind farms and other forms of alternative energy has indeed created jobs. But Calzada’s report concludes that they often are temporary and have received $752,000 to $800,000 each in subsidies — wind industry jobs cost even more, $1.4 million each. And each new job entails the loss of 2.2 other jobs that are either lost or not created in other industries because of the political allocation — sub-optimum in terms of economic efficiency — of capital. (European media regularly report “eco-corruption” leaving a “footprint of sleaze” — gaming the subsidy systems, profiteering from land sales for wind farms, etc.) Calzada says the creation of jobs in alternative energy has subtracted about 110,000 jobs elsewhere in Spain’s economy.

  13. […] Hennessey, an economist who served in the second Bush administration, called the President out for violating truth-in-advertising. I thought the language he used was a bit too strong, and I said […]

  14. detoxdietguy says:

    recently, there has been some massive flooding in the Philippines and Vietnam which i think is also due to Climate Change. the tropical storms in asia are somewhat getting stronger stronger each year.

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