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Green Prosperity: How Clean-Energy Policies Can Fight Poverty and Raise Living Standards in the United States

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This study, co-commissioned by Natural Resources Defense Council and Green For All, considers the employment and other policy effects of a $150 billion annual investment in clean-energy specifically in terms of its ability to raise living standards for lower-income workers and families. This report shows that investments in clean energy can benefit lower-income families first by expanding job opportunities, and also by lowering household utility bills through energy efficiency investments and transportation costs by making public transportation more accessible. >> Read more about the study and download state and regional fact sheets here
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Robert Pollin
Jeannette Wicks-Lim
& Heidi Garrett-Peltier
Department of Economics and
Political Economy Research Institute
University of Massachusetts, Amherst
Prepared under commission from the
Natural Resources Defense Council
& Green For All
June 2009
GREEN
PROSPERITY:
How Clean-Energy
Policies Can Fight
Poverty and
Raise Living
Standards in the
United States
GREEN PROSPERITY
How Clean-Energy Policies
Can Fight Poverty and Raise Living
Standards in the United States
Robert Pollin
Jeannette Wicks-Lim
& Heidi Garrett-Peltier
Department of Economics and
Political Economy Research Institute (PERI) ,
University of Massachusetts, Amherst
Prepared under commission from the
Natural Resources Defense Council
& Green For All
June 2009
GREEN PROSPERITY / PAGE 2
GREEN PROSPERITY / PAGE 3
TABLE OF CONTENTS
Acknowledgements 1
Summary 2
Introduction 4
Expanding Employment Opportunities
through Clean-Energy Investments 8
Home Retrofits for Low-Income Households 22
Public Transportation 26
Conclusion 30
Technical Appendix 32
References 43
LIST OF TABLES AND FIGURES
Table 1. Employment conditions and job credentials for adults
in lower versus higher-income households, 2008 8
Table 2. Occupations with large growth potential through
clean-energy investments 11
Table 3. Breakdown of job creation by formal
educational credential levels 12
Table 4. Training requirements among ‘high school
or less’ jobs 14
Table 5. Impact of $150 billion clean-energy
investments on U.S. labor market 16
Table 6. Breakdown of job creation through $150 billion
energy investments by educational levels 17
Table 7. Case 1: Construction worker is unemployed,
then employed, then promoted 19
Table 8. Case 2: Mother/homemaker becomes a bus driver 20
Table 9. Annual savings from investment in home retrofit 23
Table 10. Energy cost savings for low-income households 23
Table 11. Financing arrangement for low-income
homeowner retrofit 24
Table 12. Household spending on public and
private transportation in the United States 27
Table 13. Public transportation use for work
commutes, 2005-07 29
Table 14. Summary of benefits from clean-energy
investment program for low-income households 30
Table A1. Industry employment shares by energy sector 36
Table A2. Estimating labor force figures for
Arkansas Congressional District 4 41
Figure 1. Job creation through $1 million in spending 10
GREEN PROSPERITY / PAGE 4
ACKNOWLEDGEMENTS
This project has been a top-to-bottom collaboration
between ourselves and our colleagues at the Natural
Resources Defense Council and Green For All. We
are most grateful for this collaboration and support
from the NRDC and Green For All at all stages in the
preparation of this work. In particular, we wish to
acknowledge the contributions of Pete Altman,
Laurie Johnson, and Dan Lashof at NRDC and Jason
Walsh at Green For All. They, along with several other
colleagues at both organizations, including James
Barrett, Lane Burt, David Goldstein, and Justin
Horner, continually offered us new ways of thinking
about important questions, and challenged us to
rethink, again and again, many of our own initial
ideas. In other words, they held our feet to the fire at
all stages of our research and writing. The outcome
is a substantially better piece of work than we would
have produced otherwise.
We also wish to acknowledge our PERI collaborators
James Heintz and Debbie Zeidenberg. James has
made basic contributions to the overall approach we
take to understanding the broad economic impacts
of building a clean-energy economy. His ideas are
thoroughly integrated into this study. Debbie has
made crucial contributions in terms of layout, editing,
and perhaps most challenging, managing the project
for PERI. These challenges turned out to have been
quite significant, and Debbie maintained her aplomb
and sense of humor throughout.
This study is being released concurrently with The
Economic Benefits of Investing in Clean Energy: How
the Economic Stimulus Program and New Legislation
will Boost U.S. Employment and Economic Growth, a
project commissioned by the Center for American
Progress. We authors are grateful to the Center for
American Progress for both their substantive and
financial contributions in producing that companion
paper to this one. We specifically note that the
discussion in this paper on overall employment
estimates through clean-energy investments benefit-
ted significantly from extensive discussions over the
course of a year with colleagues at CAP, including
especially Kit Batten, Michael Ettlinger, and Bracken
Hendricks. We are grateful to Kit, Michael, and
Bracken for helping us to develop these ideas.
—Bob Pollin, Jeannette Wicks-Lim
& Heidi Garrett-Peltier
GREEN PROSPERITY / PAGE 1
SUMMARY
The United States today faces a formidable
generation-long challenge: to transform the economy
from being driven primarily by fossil fuel sources of
energy, which are the major cause of global climate
change, to becoming an economy that can function
effectively through renewable energy sources and by
achieving high levels of energy efficiency.
The project of building a clean-energy economy will
become a powerful engine of expanding employment
opportunities throughout the U.S. economy. Accord-
ing to a study that PERI recently completed with the
Center for American Progress (CAP),
1
clean-energy
investments at the level of about $150 billion per
year—i.e. around one percent of U.S. GDP—can
generate about 1.7 million net new jobs throughout
the U.S. economy.
This level of annual new clean-energy investments in
the U.S. will be strongly encouraged through the
combination of direct government spending, along
with the subsidies and incentives for private
business investors that would result from the
American Recovery and Reinvestment Act (the
February 2009 Obama stimulus program) and the
American Clean Energy and Security Act (ACESA—the
Waxman-Markey bill) now being debated in
Congress. Within this strongly supportive policy
framework, the advance of clean-energy techno-
logies will accelerate and markets supporting these
technologies will mature. This will create a self-
reinforcing dynamic of rising private-sector clean-
energy investment opportunities, which in turn will
mean expanding job opportunities.
The building of a clean-energy economy in the United
States can also serve another purpose: to create
new ‘pathways out of poverty’ for the 78 million
people in this country (roughly 25 percent of the
population) who are presently poor or near-poor, and
raise living standards more generally for low-income
people in the United States. How the project of
building a clean-energy economy can benefit low-
income people in the U.S. is the focus of this study.
1
See Pollin, Heintz, and Garrett-Peltier (2009).
In the discussions that follow, we examine how
investments in clean energy—including energy effici-
ency measures such as residential and commercial
building retrofits, public transportation and a smart
grid electrical transmission system, along with
renewable energy sources such as wind, solar, and
biomass power—create major new employment
opportunities in comparison with spending equiva-
lent amounts of money within the traditional fossil
fuel sectors, i.e. oil, natural gas and coal. We then
assess the impact on low-income families of seeing
their household energy bills go down as a result of
investments in energy efficiency retrofits. We finally
also consider how investments in improving public
transportation systems can reduce transportation
costs for low-income families.
Clean-Energy Investments Create Job Opportunities
In general, our findings show that clean-energy in-
vestments create more job opportunities than spend-
ing on fossil fuels, across all levels of skill and edu-
cation. The largest benefits will accrue to workers
with relatively low educational credentials.
We further find that a high proportion of the jobs
generated by clean-energy investments should offer
good opportunities for advancement through training
programs, and more generally, that newly employed
low-income workers will see new opportunities to lift
themselves and their families out of poverty.
Considering a $150 billion annual level of clean-
energy investments in the U.S. economy, some of our
major specific findings include the following:
EXPANDING EMPLOYMENT OPPORTUNITIES FOR
LOWER
-INCOME WORKING PEOPLE
Out of the 1.7 million net increase in job creation,
roughly 870,000 of the newly available jobs would
be accessible to workers with high school degrees
or less.
GREEN PROSPERITY / PAGE 2
GREEN PROSPERITY / PAGE 3
Roughly 614,000 of the newly expanded number
of jobs available for workers with high school
degrees or less will offer decent opportunities for
promotions and rising wages over time. The job
creation within this category is seven times larger
than the number of jobs that would be created in
this category by spending the same amount of
money within the fossil fuel industry.
To maximize opportunities for decent job
opportunities, clean-energy investment poli-
cies need to operate in tandem with high-
quality and widely-accessible training pro-
grams; minimum wage laws that set a ‘living
wage’ standard throughout the country; and a
more favorable environment for union or-
ganizing among low-wage workers.
The net increase of 1.7 million jobs will
generate roughly a one percentage point fall
in the unemployment rate. This in turn should
raise earnings for low-income workers by
about 2 percent.
MORE JOBS ACROSS ALL EDUCATIONAL LEVELS
3.2 times more jobs overall than fossil-fuel in-
vestments
3.6 times more jobs requiring high school degrees
or less
2.6 times more jobs requiring college degrees or
more
3.0 times more jobs requiring some college
ENERGY EFFICIENCY RETROFITS LOWER HOME
HEATING AND UTILITY BILLS
Retrofits could reduce living costs by an average
of 3-4 percent for low-income households.
Achieving these benefits will require well-designed
policies to expand the market for retrofits.
The markets to provide retrofitting services must
be targeted to benefit low-income renters as well
as homeowners.
IMPROVING PUBLIC TRANSIT REDUCES
TRANSPORTATION EXPENSES
Improving public transportation in urban centers
to about 25–50 percent of total transportation
could lower costs and raise living standards for
low-income households by an average of 1–4
percent.
The largest benefits will accrue to households
that can replace a car with public transit.
These households would see their annual trans-
portation expenditures fall by roughly $2,000.
This would represent a reduction in total expen-
ditures for these families of about 10 percent.
These findings are particularly significant in the con-
text of the current energy debate because they turn
upside-down a common objection from opponents of
clean-energy policies: that environmental policies will
be harmful for the poor. We show that, to the con-
trary, with effective policies in place, investing in
clean energy can provide significant new opportuni-
ties at all levels of the U.S. economy, and especially
for families who are poor or near-poor.
INTRODUCTION
The transformation of our fossil-fuel driven economy
into a clean-energy economy will be the work of a
generation, engaging a huge range of people and
activities. But, focusing on essentials, there are three
interrelated projects that will define the entire enter-
prise: dramatically increasing energy efficiency;
equally dramatically lowering the cost of supplying
energy from such renewable sources as solar, wind
and biofuels; and mandating limits on pollution from
burning oil, coal, and natural gas.
Success in combining the three projects—energy effi-
ciency, renewable energy and limits on fossil fuel
pollution—could produce a decisive environmental
and economic victory. It could also advance eco-
nomic opportunity in the U.S. in several specific
ways, by lessening the risks of extreme weather pat-
terns such as Hurricane Katrina, allowing us to
breathe clean air and breaking our dependence on
oil companies and foreign oil oligarchies. But can a
clean-energy investment project also promote
broader gains in economic opportunity, by expanding
job opportunities and income security, and thereby
fighting poverty in the United States?
These are the questions we explore in this study. We
examine them both in terms of the overall U.S. econ-
omy, and by focusing specifically on conditions in 41
distinct areas throughout the country. Our conclu-
sions are clear.
We find that a clean-energy investment agenda can
indeed serve as a tool for expanding economic oppor-
tunity broadly throughout the country—to ‘create
pathways out of poverty,’ as the term is frequently
used. There are three basic channels through which
we observe major connections between the environ-
mental agenda and a program to fight poverty
in the United States: by significantly expanding em-
ployment opportunities, especially for people with
relatively low formal educational credentials; by low-
ering heating and utility bills through building retro-
fits; and by increasing access to public transportation.
Job Creation and Poverty Reduction. The most pow-
erful way in which clean-energy investments will ex-
pand economic opportunities is through the channel
of job creation, especially by increasing the availabil-
ity of jobs for people with relatively low formal cre-
dentials. Considering the country as a whole,
expanding overall clean-energy investments by both
the public and private sectors by a total of about
$150 billion per year—with the private sector ac-
counting for the bulk of new spending—can create
about 2.5 million new jobs in the economy, as we
have shown in the Center for American Progress
study.
2
Even if we assume that a $150 billion ex-
pansion in clean-energy investments is basically
matched by a reduction in spending in fossil fuel sec-
tors—i.e. oil, natural gas, and coal—the clean-energy
investments will still generate a net increase in new
employment of about 1.7 million jobs. Moreover,
about 870,000 of net new jobs created—through the
expansion of clean-energy investments and corre-
sponding reduction in fossil fuel spending—will be in
jobs with relatively low educational requirements, i.e.
a high school degree or less. This means major new
job opportunities for people who have faced unem-
ployment or other difficulties establishing them-
selves in the labor market. The majority of these jobs
also include good prospects for training and promo-
tions that can lead to stable, higher-paying positions
over time. To the extent that an expansion in em-
ployment also leads to a reduction in the unemploy-
ment rate, this increases workers’ bargaining power.
Workers should be able to gain increased wages as a
result. Finally, these will not simply be short-term job
opportunities, but will continue to be available as
long as the clean-energy investment agenda pro-
ceeds over time. For example, the construction jobs
that will open up through clean-energy investments
will not be tied only to one or two specific projects.
These positions will rather be sustained as long as
construction activity is needed to build a clean-
energy economy.
Building Retrofits for Lowering Heating and Utility
Bills. Retrofitting the country’s existing housing stock
could generate major reductions in the consumption
of fossil fuels and greenhouse gas emissions. It is
reasonable to expect that both individual-family
homes and apartment buildings could be weather-
2
Ibid.
GREEN PROSPERITY / PAGE 4
ized such that savings on energy could amount to up
to 4 percent of a low-income family’s annual income.
But to achieve this level of energy efficiency in
homes will require careful attention to making retro-
fits affordable and convenient for low-income home-
owners. Programs must also be designed so that the
economic benefits of lowered energy costs can be
shared equitably between renters and landlords.
Increasing Access to Public Transportation. At pre-
sent, low-income households spend about 95 per-
cent of their transportation budget on private cars.
This is the case even though, on a per mile basis,
traveling by private car is more than twice as expen-
sive as public transportation. Auto travel per mile
also generates greenhouse gas emissions at roughly
twice the level of public transportation. Low-income
people do not travel heavily by public transportation
for many of the same reasons as those in higher in-
come brackets—i.e. throughout most of the country,
public transportation is under-developed and under-
supported financially. It can also be expensive for
poor people. As we discuss in detail below, well-
designed expansions of public transportation sys-
tems should be able to increase ridership by low-
income people in urban areas such that their public
transportation use rises to between 25 and 50 per-
cent of their households’ total travel. Shifting toward
this level of public transit use is capable of raising
the living standards among low-income households
by between 1 and 4 percent. The savings could be as
much as 10 percent of total living costs if families
are able to give up one car.
Falling Fossil Fuel Production and Rising Prices
As noted above, we are assuming that the fossil fuel
sectors—oil, natural gas and coal—will contract at ap-
proximately the same rate that the clean-energy in-
vestment agenda expands. We recognize this is a
worst-case scenario, and proceed deliberately from this
most negative prospective situation regarding the fossil
fuel industry. In fact, some emission reduction projects,
such as installing carbon dioxide capture systems at
coal-fired power plants and reducing methane leaks
from natural gas pipelines, will increase, rather than
reduce, employment in the fossil fuel sector. Nonethe-
less, we can anticipate that the benefits of clean-energy
investments will, to some extent, be offset by job losses
for workers in the fossil fuel sectors and harmful effects
on communities that depend heavily on fossil fuels to
generate employment and income.
At present, about 4 million people in the United
States owe their jobs to the fossil fuel industries,
many of them in low-income families. Certainly a sig-
nificant share of these people will face difficult ad-
justments as the fossil fuel industry contracts. It is
therefore crucial that we examine the benefits of the
clean-energy investment agenda relative to the costs
that will be faced by people and communities
throughout the country as the United States reduces
its dependence on fossil fuels. In the discussion that
follows—just as we noted briefly above—we will be
clear on the net effects on low-income households of
the expansion of a clean-energy investment agenda
alongside the concurrent decline of fossil fuel-related
economic activities.
It is precisely through recognizing the adjustments
that will be faced by individual workers, families, and
communities connected to the fossil fuel industries
that policymakers can pursue effective interventions
to counteract them. The American Clean Energy and
Security Act (ACESA) as reported by the Energy and
Commerce Committee includes a viable framework
for addressing these concerns. ACESA includes a
new worker transition program that provides workers
who are laid off from energy-intensive industries an
allowance that will cover 70 percent of their wages.
These payments would continue for three years.
Workers facing these circumstances will also receive
health, training, and relocation benefits.
The ACESA also includes further initiatives for pro-
tecting the well-being of low-income households. A
major provision of the ACESA is to establish a man-
dated cap on carbon emissions. This measure is ex-
pected to raise the price of using oil, coal and natural
gas. Unless low-income households are protected
against the effects of these price increases, the im-
pact of the higher prices will reduce their living stan-
dards more than would be the case for higher-
income households. This is because energy-related
expenditures represent a larger share of overall con-
sumption spending for these households.
However, any such negative impacts can be effec-
tively counteracted by policies directed at shielding
GREEN PROSPERITY / PAGE 5
low-income households from rising fossil fuel prices.
The basic solution is included in the ACESA as re-
ported out of committee. This is to rebate the pro-
ceeds that result from the sale of 15 percent of the
emissions credits associated with the carbon cap to
low-income households through two mechanisms, a
refundable ‘energy tax credit’ and an ‘energy refund.’
The most important aim would be to at least hold
lower-income families harmless against any price
increases for energy or energy-intensive goods gen-
erated by the cap. In evaluating these specific fea-
tures of the ACESA, the Center on Budget and Policy
Priorities concluded in a letter written to Chairmen
Waxman and Markey that: “Our estimate is that set-
ting aside 15 percent of the allowance value for re-
funds and tax credits for consumers, together with
other provisions in the bill . . . would ensure that the
average household in the bottom 20 percent of the
population would not experience any reduction in the
purchasing power of its budget” (emphasis added).
3
For the purposes of our discussion, we assume that
this important provision will be included in any car-
bon cap that is implemented in the U.S.
4
We will
therefore proceed with our discussion assuming
there are no negative effects from a carbon cap itself
on the living standards of low-income households.
Clean Energy Benefits for the Poor
To understand how a clean-energy investment
agenda can create ‘pathways out of poverty,’ we first
need to establish what we mean by ‘poverty’ and for
whom, specifically, we are seeking to create new op-
portunities. As a starting point, we begin with the
official definition of poverty established by the U.S.
Census Bureau, which is the basis for all funding pro-
grams in the United States tied to poverty lines.
Since 1963, the U.S. Census Bureau has set detailed
poverty income thresholds for families of different
3
The full analysis by the Center on Budget and Policy Priorities on this
issue is presented in Stone, Parrott, and Rosenbaum (2009). See
http://www.cbpp.org/files/5-20-09climate.pdf.
4
We recognize that a range of challenging technical questions
emerges in designing the most efficient and equitable approach to
upholding the basic principle that lower-income households be held
harmless due to a carbon cap policy. Two excellent discussions, offer-
ing somewhat different perspectives, of the issues at stake are Boyce
and Riddle (2008) and Parrott, Rosenbaum, and Stone (2009).
sizes. For example, the poverty threshold in 2008 for
a family of two (one adult and one child) was
$14,840 and for a family of four with two children
was $21,834. The family living at this threshold is
expected to subsist on what the Department of Agri-
culture terms the ‘thrifty food plan,’ which is the
amount of food needed for each family member to
receive the basic caloric minimum.
The government's methodology then assumes that
poor families spend approximately one-third of their
budget on food. Thus, to generate the dollar figures
for the poverty threshold, the government simply
multiples the dollar value of the ‘thrifty food plan’
by three.
Over many years, researchers and government offi-
cials have questioned the adequacy of this method
for establishing poverty thresholds. The most exten-
sive scientific survey of these issues was that spon-
sored by the National Research Council (hereafter
NRC; Citro and Michael 1995). According to the NRC
study, establishing overall poverty thresholds on the
basis of food costs alone presents many problems.
For one thing, there are large variations in housing
and medical care costs by region and population
groups. In addition, food prices have fallen relative to
those for housing. Child care costs have also not
been adequately accounted for. This consideration
has become increasingly important as rising propor-
tions of women from low-income families—due to the
decline in support for traditional welfare programs,
among other factors—have entered the labor force.
The NRC study reports on six alternative methodologies
to the current official method for measuring absolute
poverty for a two adult/two child family.5 The thresh-
olds generated by these alternative methodologies are
all higher than the official threshold, ranging between
23.7 and 53.2 percent above the official threshold. The
average value of these alternative estimates is 41.7
percent higher than the official threshold.
5
The NRC study includes consideration of “relative” as well as “abso-
lute” measures of poverty. Relative poverty, as the term suggests,
takes account of problems resulting from pronounced inequality in a
society, even if that society’s average living standard is relatively high.
However, we focus here only on absolute poverty measures. For an
insightful overview on these themes as well as current poverty trends
throughout the world, see Keith Griffin, “Problems of Poverty and
Marginalization” (2000).
GREEN PROSPERITY / PAGE 6
An alternative approach to establishing living stan-
dard thresholds is reflected in the ‘basic family
budgets’ developed by researchers at the Economic
Policy Institute. This basic budget line is significantly
higher than the official U.S. poverty line. It is a meas-
ure that, according to James Lin and Jared Bernstein
(2008), “represents the annual family income re-
quired to maintain a safe and comfortable, but mod-
est standard of living.” Under this basic family
budget, a family will be renting their home, with the
rent set at the lower 40th percentile level of the mar-
ket price in their community. The family’s food ex-
penses are based on the U.S. Department of
Commerce’s ‘low cost plan,’ which is a basic diet that
assumes almost all food is prepared in the home.
Similarly modest allocations are also made for health
care, child care, and transportation. Expenditures on
clothing, entertainment, personal care, reading ma-
terials, educational materials, and other miscellane-
ous items equal, in total, only 24 percent of the
family’s housing and food budgets. In comparing the
EPI ‘basic budget line’ to the official poverty line, the
EPI line ranges between about 200 and 300 percent
of the official poverty line.
Considering the results of the NRC study and the EPI
line, we think a rough, usable target group for our
study—the low-income group for whom we consider
whether the clean-energy investment agenda will
create expanded economic opportunities—will be all
households in the United States living at or below
200 percent of the official government poverty line.
According to that low-income standard, as of 2007,
there were about 34 million households living be-
neath this standard, 31 percent of all households in
the country. There were also 78 million people living
in these households, 26 percent of the total U.S.
population.
6
Given these figures, it is clear that any
set of policy initiatives that can substantially improve
living conditions for so large a proportion of the U.S.
population—or even offer this result as a serious
possibility—deserves our serious attention.
6
Households include family and non-family households. Figures are
based on authors’ analysis of the 2008 CPS ASEC data and 2007
American Community Survey.
GREEN PROSPERITY / PAGE 7
EXPANDING EMPLOYMENT
OPPORTUNITIES THROUGH
CLEAN-ENERGY INVESTMENTS
Basic Employment Conditions for Low-Income
Households
In Table 1, we show the basic employment situation
for workers living in low-income households, i.e. be-
low 200 percent of the official poverty line, versus
those living above 200 percent of the official
poverty line. A few striking things stand out from
these figures.
TABLE 1. EMPLOYMENT CONDITIONS AND JOB CREDENTIALS FOR
ADULTS IN LOWER VERSUS HIGHER
-INCOME HOUSEHOLDS, 2008
(Adults includes only those between ages 25-54)
Households
below 200% of
the poverty line
Households
above 200% of
the poverty line
Median educational
attainment level for household
adults
12 years
(high school
graduate)
14 years
(two years of
college)
Households with at least one
unemployed adult
8.5% 4.0%
Households with at least one
under-employed adult
4.6% 1.6%
Median hourly wage for
employed adults
$10.10 $19.00
Households with any adults in
the labor force
71.3% 95.6%
Households with all adults in
the labor force
55.1% 82.6%
Source: U.S. Current Population Survey 2008
To begin with, the average level of educational cre-
dentials is two full years lower for workers in low-
income households. This makes it more difficult for
them to compete on the job market. It also empha-
sizes the point that, for the clean-energy investment
agenda to serve well as an anti-poverty agenda, it will
be crucial to generate not merely an abundance of
new jobs, but, in particular, new job opportunities for
people with relatively low educational credentials.
As for the employment situations themselves for
adults in low-income households, the first key result
is that there is a much higher rate of unemployment
for workers in low-income households—8.5 percent
of low-income households include at least one un-
employed adult member, whereas only 4.0 percent
of higher-income households include at least one
unemployed adult. We see a similar result in consid-
ering adults in low-income households that are ‘un-
deremployed.’ Among ‘underemployed’ workers, we
include those working part-time who would prefer
working full-time. We also include ‘discouraged’
workers—people who consider themselves still in the
labor force, but who have been discouraged from
looking for a job over the past two weeks. We see in
Table 1 that the number of low-income households
with at least one underemployed adult is triple that
for higher-income households—i.e. 4.6 percent with
low-income households versus only 1.6 percent with
higher-income households.
In terms of wages, we see, not surprisingly, that the
average wage earned by adults in low-income
households, at $10.10 an hour, is about half the
median wage for non-poor households of $19.00 an
hour. At a wage of $10.10 per hour, a worker would
earn roughly $20,000 for a full year of full-time work.
This is nearly $24,000 below the amount needed to
bring a family of four to 200 percent of the official
poverty line.
Lower-income households are also characterized by
a much lower percentage of adults participating in
the labor force—either having a job or being unem-
ployed but looking for work. As we see, with low-
income households, about 70 percent have at least
one member in the labor force and about 55 percent
with all adults in the labor force. By contrast, fully 96
percent of all higher-income households have at
least one adult in the labor force, and 83 percent
have all adults as labor market participants.
Why don’t lower-income adults participate at higher
rates in the labor force, going out, at least, to look for
a job even if they do not succeed in obtaining one?
According to a range of research, more people do
enter the labor force when they see that their
chances of gaining employment are rising. For adults
in low-income households with substantial unem-
ployment and underemployment rates, they are re-
ceiving a strong message that their chances of
finding a job are not high. Their low rate of labor
force participation reflects this difficult reality. Fur-
GREEN PROSPERITY / PAGE 8
ther research also shows that labor force participa-
tion rates rise when pay levels rise. Again, the low
average wage of $10.10 serves to discourage low-
income adults from entering the labor force.
7
Overall then, to significantly improve job opportuni-
ties for people in low-income households, the most
basic factors would be to: 1) raise the number of jobs
that are readily available for lower-credentialed
workers, and 2) improve the wages for these lower-
credentialed workers. Expanding the number of jobs
that include opportunities for advancement through
training provides one important path for raising
wages. Establishing both living wage standards and
fair opportunities for workers to join unions will also
be crucial for improving wages.
We now consider the extent to which a clean-
energy investment agenda can contribute toward
these aims.
How a Clean-Energy Investment
Program Creates Jobs
Spending money in any area of the U.S. economy will
create jobs, since people are needed to produce any
good or service that the economy supplies. This is
true regardless of whether the spending is done by
private businesses, households, or a government
entity. However, spending directed toward a clean-
7
For example, Bartik (2002) finds evidence that when the chances of
getting a job improve (i.e., the unemployment rate falls), not only do
more people obtain jobs but more people who dropped out of the labor
force begin to look for work. In particular, he finds that when the un-
employment rate declines by one-percent among single mothers, their
labor force participation rate increases by 0.3%. This estimate meas-
ures the impact of a fall in unemployment on their labor force partici-
pation rate after five years of adjustment, taking into account the fact
that a rise in labor force participation may subsequently raise unem-
ployment somewhat if those entering the labor force do not find jobs
immediately. With respect to rising incomes and labor force participa-
tion, a classic study of the impact of the Earned Income Tax Credit
(EITC)—the federal program that subsidizes the earnings of low-income
workers—finds that more generous EITC benefits increases the labor
force participation among low-income single mothers (Eissa and Lieb-
man 1996). Pollin et al. (2008, Chapter 13) also shows that when
Santa Fe, NM established a citywide living wage of $8.50 in 2004-05,
which represented a 65 percent raise over the then statewide mini-
mum wage of $5.15, this produced a nearly seven percentage point
rise in the labor force participation rate among those with a high
school degree or less.
energy investment program will have a much larger
positive impact on jobs than spending in other areas,
including, for example, within the oil industry—
including all phases of oil production, refining, trans-
portation, and marketing—or coal industry. Again, this
is true regardless of whether the spending—on clean
energy or fossil fuel energy—is done by households,
private businesses or the government. As such, a
clean-energy investment program will be a net
source of job creation in the United States relative to
spending the same amount of money on fossil fuels.
There are three sources of job creation associated
with any expansion of spending—direct, indirect, and
induced effects. For purposes of illustration, consider
these categories in terms of investments in home
retrofitting or building wind turbines:
1. Direct effects: the jobs created, for example, by
retrofitting homes to make them more energy effi-
cient or building wind turbines;
2. Indirect effects: the jobs associated with indus-
tries that supply intermediate goods for the building
retrofits or wind turbines, such as lumber, steel, and
transportation;
3. Induced effects: the expansion of employment
that results when people who are paid in the con-
struction or steel industries spend the money they
have earned on other products in the economy.
Figure 1 shows the total number of jobs—direct, indi-
rect, and induced—that we estimate would be cre-
ated from spending $1 million in a combination of six
clean-energy investment areas—three energy effi-
ciency investment areas, building retrofits, public
transportation and freight rail, and smart grid electri-
cal transmission systems; and three renewable en-
ergy areas, solar power, wind power, and biomass
fuels.
8
As we see, this combination of clean-energy
8
The allocation of total investment funds that we are working with is:
40 percent retrofits; 20 percent mass transit/freight rail; and 10
percent each for smart grid, wind power, solar power and biomass
fuels. Adjusting the budgetary allocations would affect the job total
estimates, but not by a dramatic extent. These proportions are closely
aligned with the clean-energy investment spending priorities of the
government ARRA program. The appendix discusses briefly how we
derived the job figures. In sum, we worked with the U.S. input-output
model to generate direct and indirect employment effects. We then
assumed an induced effect as a 40 percent increment above the
direct and indirect effects, working from our model that estimates
GREEN PROSPERITY / PAGE 9
investments will generate about 16.7 jobs per $1
million in spending.
By contrast, we can use our same estimating model
to generate figures for the total job creation by
spending $1 million within the fossil fuel industries,
i.e., oil, natural gas and coal. As Figure 1 also shows,
the total job creation in this case is 5.3 jobs per $1
million in spending on fossil fuels.
9
In short, spend-
ing a given amount of money on a clean-energy in-
vestment agenda generates more than three times
the number of jobs within the U.S. as does spending
the same amount of money within the fossil fuel sec-
tors.
FIGURE 1. JOB CREATION THROUGH $1 MILLION IN SPENDING:
CLEAN-ENERGY INVESTMENTS VERSUS FOSSIL FUELS
Source: U.S. Commerce Department input-output tables and IMPLAN
Note: Employment estimates include direct, indirect and induced
jobs. Details of calculations presented in the technical appendix.
Why does the clean-energy investment program cre-
ate more jobs than spending within the fossil fuels
industry? Three factors are at work:
Relative labor intensity. Relative to spending within
the fossil fuel industries, the clean-energy program
utilizes far more of its overall investment budget on
hiring people, and relatively less on acquiring ma-
chines, supplies, land (either on- or offshore), and
energy itself.
induced effects relative to the expansion of direct and indirect job
creation. For a fuller discussion of these issues, see Pollin, Heintz,
and Garrett-Peltier (2009).
9
This figure is based on the output shares represented by oil/natural
gas and coal in the overall fossil fuel industry as of 2007. Those
shares are 95 percent oil/natural gas and 5 percent coal.
Domestic content. The clean-energy investment pro-
gram relies much more on products made within the
U.S. economy and less on imports than spending
within the fossil fuel sectors. About 97 percent of
total spending on public transportation and building
retrofits will remain within the U.S. economy, while,
for the oil and gas industries, about 83 percent is
domestic and 17 percent purchases imports.
Pay levels. Clean-energy investments produce far
more jobs at all pay levels—higher as well as
lower-paying jobs than the fossil fuel industry. Clean-
energy investments also produce more jobs per
dollar of expenditure, since the average pay for
these jobs is less than the average for fossil-fuel
industry jobs. Workers thus benefit through the ex-
pansion of job opportunities at all levels within the
U.S. labor market.
2
4
6
8
10
12
14
16
18
20
in :
16.7 jobs
in s:
Range of Jobs Generated by Clean-Energy
Investments
clean-energy
vestments
To obtain a fuller sense of the range of job opportuni-
ties generated by clean-energy investments, we pre-
sent in Table 2 a listing of a representative sample of
jobs that are likely to expand significantly through
the clean-energy investment agenda. Given our focus
on how the clean-energy agenda can create job op-
portunities for low-income people, it is important to
consider the profile of jobs created according to the
range of educational credential levels required to
move into any given job type. As such, we have
sorted our set of representative occupations accord-
ing to three educational credential categories—
’college degree jobs,’ requiring at least a BA degree;
‘some college jobs,’ requiring some college but not a
BA; and ‘high school or less jobs,’ requiring a high
school degree or less. We also include as a final sub-
category the ‘high school or less’ jobs that offer de-
cent opportunities for advancement and higher
wages over time. As we will discuss in some detail
below, these are jobs primarily in construction,
manufacturing and transportation, where, among
other factors, opportunities for job training are more
widely available.
Considering this listing of occupations as a whole,
some of the jobs associated with the clean-energy
investment agenda will be in specialized areas, such
0
oil/natural
gas/coal
vestment
5.3 jobs
umber of jobs created n
GREEN PROSPERITY / PAGE 10
as installing solar panels and researching new build-
ing material technologies. Moreover many of these
jobs fall within the ‘college degree’ job category. But
others will be available to people with fewer educa-
tional credentials. More generally, the majority of
jobs will be in the same areas of employment that
people already work in today, in every region and
state of the country, and in all three of our educa-
tional credential categories. Constructing wind farms,
for example, creates jobs for sheet metal workers,
machinists and truck drivers, among many others.
Some of these workers will have received some col-
lege education, while other occupations will require
less formal education. Increasing the energy effi-
ciency of buildings through retrofitting requires roof-
ers, insulators and architects—again, jobs that entail
different levels of formal educational requirements.
Expanding mass transit systems employs civil engi-
neers, electricians, and dispatchers. In addition, all
of these clean-energy investment strategies engage
the normal range of service and support activities—
including accountants, lawyers, office clerks, human
resource managers, cashiers and retail sales people.
Here again, these are occupations that span across
the range of formal educational requirements.
TABLE 2. OCCUPATIONS WITH LARGE GROWTH POTENTIAL THROUGH
CLEAN
-ENERGY INVESTMENTS
COUNTING NEW JOB OPPORTUNITIES BY EDUCATIONAL LEVELS
College degree jobs
Operations managers
Human resource managers
Sales managers
Lawyers
Accountants
Architects
Civil engineers
Electrical engineers
Mechanical engineers
Computer programmers
Some college jobs
Construction managers
Farmers and ranchers
First-line supervisors of office workers
First-line supervisors of production workers
Engineering technicians
Computer support specialists
Accounting clerks
Payroll clerks
Secretaries
Paralegals
High school or less jobs
Agricultural workers
Janitors
Machinery assemblers
Grounds maintenance workers
Material movers
Cashiers
Customer service representatives
Retail salespersons
Shipping clerks
Stock clerks
High school or less jobs with decent earnings potential
Carpenters
Construction laborers
Electricians
Insulation workers
Roofers
Machinists
Sheet metal workers
Bus drivers
Industrial truck drivers
Truck and bus dispatchers
We differentiate jobs using categories of ‘education credentials’
as opposed to the more traditional skill-level categories for two
reasons. First, we want to focus attention on the entry require-
ments of jobs in order to distinguish which jobs are more likely to
provide employment opportunities for low-income workers. For
many jobs, such as those in construction, education credentials
more accurately reflect their entry requirements for employment,
even though such jobs can require significant training to become
fully qualified. Such training, however, is frequently obtained on-
the-job or through an employer- or employer/union-sponsored
apprenticeship program. For this reason many of our high school
or less’ jobs are classified by researchers Harry Holzer and
Robert Lerman (2007) as ‘middle-skilled’ jobs: such jobs do not
require college experience, but do require significant training. In
addition, we believe the terms we are using more accurately
reflects the actual distinctions between job categories. Many
jobs are referred to as ‘low-skilled’ only because they do not
require high education credentials or formal training even while
such jobs frequently require operating at a high skill level to
deliver a satisfactory product or service. Jobs in needle trades,
child care and elderly care provide a few cases in point.
Source: U.S. Current Population Survey 2008
Note: These occupations are selected from the top 100 occupations
with the largest growth potential within each educational category.
GREEN PROSPERITY / PAGE 11
Clean-Energy Investments Expand Job
Opportunities across All Job Categories
In Table 3, we now consider the breakdown of jobs
created by both clean-energy investments and the
fossil fuel industry according to our three educational
credential categories. To begin with, we can see in
Table 3 that the net job creation is substantially
higher with clean-energy investments than fossil fu-
els across all three credential categories.
Compared to investments in fossil-fuel energy, clean-
energy investments create 2.6 times more college
degree jobs; 3.0 times more ‘some-college’ jobs; and
3.6 times more ‘high school or less’ jobs. This is true,
even while the proportions of jobs created in the dif-
ferent categories differ. For example, about 23 per-
cent of the total clean-energy investment jobs are
‘college degree jobs,’ while, with fossil fuel spending,
28 percent of the jobs generally require a college
degree. Likewise, the proportion of ‘some-college’
jobs in fossil-fuels is 30.2 percent, higher than with
clean-energy investments. The most substantial dif-
ference is with ‘high school or less’ jobs.
Differences in Employment Opportunities across
Low-Credentialed Sectors
In considering employment conditions for people
with high school degrees or less, it is important to
recognize that there are large variations across dif-
ferent sectors of the economy in opportunities both
to obtain jobs and to receive rising wages and better
conditions over time.
To begin with, we need to give special consideration
to conditions in the construction industry. Roughly 30
percent of all the job creation generated by the
clean-energy investment agenda will be in the con-
struction industry, whereas construction accounts for
only about 6 percent of total US employment. There
are important advantages to expanding the construc-
tion sector as a major feature of the clean-energy
investment agenda. In the short term, construction
has been hit severely by the housing bubble col-
lapse, with nearly 1.6 million jobs having been lost
since September 2006.
10
10
See http://www.bls.gov/ces/#data.
TABLE 3. BREAKDOWN OF JOB CREATION BY FORMAL EDUCATIONAL
CREDENTIAL LEVELS
1) Clean-
energy In-
vestments
2) Fossil
Fuels
3) Difference
in Job Creation
(column 1 – 2)
Total job creation
16.7 5.3 11.4
College degree
jobs
B.A. or above
• $24.50
average wage
3.9
(23.3% of
clean-energy
investment
jobs)
1.5
(28.3% of
fossil fuel
jobs)
2.4
Some college
jobs
• some college
but not
B.A.
• $14.60
average wage
4.8
(28.7% of
clean-energy
investment
jobs)
1.6
(30.2% of
fossil fuel
jobs)
3.2
High school or
less jobs
• high school
degree or less
• $12.00
average wage
8.0
(47.9% of
clean-energy
investment
jobs
2.2
(41.5% of
fossil fuel
jobs)
5.8
High school or
less jobs with
decent earnings
potential
• $15.00
average wage
4.8
(28.7% of
clean-energy
investment
jobs)
0.7
(13.2% of
fossil fuel
jobs)
4.1
Source: 2008 Current Population Survey, IMPLAN
Note: Average wage is the median wage for all workers across all
industries within each of the credential categories listed above.
Also, construction jobs cannot be outsourced. Retro-
fitting a home in Maryland can only be done in Mary-
land. The public transportation system in Los Angeles
can be upgraded only in Los Angeles. On average,
construction jobs also pay decently, in part because
unions still have a strong presence in the industry. In
2008, union membership among construction work-
ers employed in the private sector was 16.2 percent.
This compares to the 8.4 percent among all private
sector workers.
11
Recent studies suggest that construction workers
who join unions typically earn 25 percent more than
11
“Union membership in 2008,” Bureau of Labor Statistics News
Release, January 28, 2009.
GREEN PROSPERITY / PAGE 12
non-union construction workers.
12
This is even
higher than the average 15 percent union wage
premium for workers across all industries. Aside from
the bargaining power that these workers gain
through union representation, unions also raise the
pay and benefits of construction workers by providing
apprenticeship training. This type of training greatly
improves the ability of entry-level workers to estab-
lish themselves over time in relatively well-paid and
stable construction-industry positions. More gener-
ally, as we discuss further below the opportunities for
entry-level workers in construction are far more fa-
vorable than, for example, those facing workers in
the restaurant, hotel or personal service occupations
such as cleaning services.
On the other hand, employment in construction has
long been dominated by white males. The industry
has a history of hiring discrimination against women
and racial minorities and even now, nearly 60 percent
of all construction jobs are held by white non-Hispanic
males. Women who try to enter construction trades
face sexual harassment and work schedules that are
not family-friendly. It is essential that the clean-energy
investment agenda include strong measures to break
down the employment barriers in these trades. An
important first step would be for the Department of
Labor to revive its long-dormant Federal Contract
Compliance programs. If enforced, these measures
would go far toward providing women and minorities
a fair share of the construction jobs generated by the
clean-energy investment agenda.
Beyond the situation in construction, it is more gen-
erally the case that there are significant differences
among low-credentialed jobs in terms of their possi-
bilities for advancement. In their 2005 book, Moving
Up or Moving On: Who Advances in the Labor Mar-
ket? Andersson, Holzer and Lane provide a system-
atic examination of what kinds of jobs provide low-
income workers with decent earnings growth. By
their definition, low-income workers will have made
the initial steps toward moving beyond poorly-paid
jobs when they are able to raise their initial earnings
of about $16,000 per year (in 2008 dollars) to above
$20,000 per year after about three years. According
to their study, industries in which low-income work-
12
See Belman and Voos (2006).
ers are better able to achieve decent earnings
growth include construction first of all, but also dura-
ble goods manufacturing, employment services (i.e.,
temporary employment agencies), health services,
public administration, social services, transportation
and utilities, and wholesale trade. Workers employed
in industries such as apparel and textile manufactur-
ing, hotels, personal services such as dry cleaning,
and restaurants and bars have far less opportunity to
improve their earnings over time.
13
In the final row of Table 3, we show data comparing
the clean-energy investment agenda with fossil fuel
spending in terms of the numbers of high school or
less jobs they create that have decent longer-term
employment opportunities. These are jobs in the in-
dustries identified by Andersson, Holzer, and Lane as
offering relatively good opportunities for improved
wages over time. As we see in the table, the differ-
ence between the clean-energy investment agenda
and fossil fuels is particularly sharp in this category.
Here we see that clean-energy investments will cre-
ate 4.8 jobs per $1 million in spending, while fossil
fuel investments produce only 0.7 jobs in this cate-
gory. That is, clean-energy investments generate
nearly seven times more jobs here than do fossil-fuel
investments. This is in the job category that will cer-
tainly be crucial for generating decent new employ-
ment opportunities for low-income people through a
clean-energy investment agenda.
Expanding Good Job Opportunities
through Training
Why do some jobs available to people with relatively
low formal educational credentials provide better
opportunities for advancement? One key factor ap-
pears to be how much training workers need to un-
dergo before becoming fully qualified for their job. In
their examination of how low-wage workers escape
poverty, Andersson et al. speculate that the reason
some firms pay more and provide better raises is
because they invest more in training their workforce
(2005, p. 117).
13
Their findings are also broadly consistent with the research of Can-
cian and Meyer (2000) who studied the rate at which women improve
their wages in different occupations after they stopped receiving
government welfare support.
GREEN PROSPERITY / PAGE 13
Employers have an incentive to pay their workers
decent wages if their workers require moderate to
high levels of training. Workers not only become
more valuable to the firm because they become
more productive once trained, but also because re-
placing such workers can be costly for the employer.
If a trained worker leaves the firm, the employer
cannot reap the benefits of the time and resources
they invested in their now former employee’s skills.
Moreover, the firm must then hire and train a new
worker. Decent entry-level wages and the promise of
higher wages over time can help retain workers. In
effect, because it is costly to replace workers with a
meaningful amount of training, these workers can
bargain for higher wages than workers competing for
jobs with minimal training requirements.
14
The ‘high school or less’ jobs with decent earnings
potential we presented in Table 3, in fact, do require
significant levels of on-the-job training relative to jobs
in this category offering lesser opportunities for ad-
vancement. In Table 4, we illustrate this by compar-
ing the training requirements of two sets of jobs with
low formal educational credentials. The first set in-
cludes five representative occupations among the
‘high school or less’ jobs with decent earnings poten-
tial. These occupations include carpenters, construc-
tion laborers, construction painters, bus drivers, and
truck drivers. The second grouping of jobs in Table 4
includes five representative occupations among the
industries that Andersson et al. identified as having
relatively poor earnings potential (hotels, restau-
rants, and personal services). These occupations
include cooks, waiters/waitresses, cashiers, food
preparation workers, and maids/housekeeping
cleaners.
We use Bureau of Labor Statistics categories of “the
most significant source of education or training
needed to become qualified in an occupation” to
characterize the training requirements of these two
sets of occupations (U.S. Bureau of Labor Statistics
2008). In the upper panel of Table 4, we can see
that the five representative occupations require at
least moderate-term on-the-job training. These jobs
require
skills that at minimum “can be acquired dur-
14
For a review of the theories and evidence of the relationship be-
tween training and earnings see Frazis and Spletzer 2005.
TABLE 4. TRAINING REQUIREMENTS AMONG HIGH SCHOOL OR
LESS
JOBS
Representative occupations with decent earnings potential
Occupation Most significant source of education or
training
Carpenters Long-term on-the-job training
Construction laborers Moderate-term on-the-job training
Construction painters Moderate-term on-the-job training
Bus drivers Moderate-term on-the-job training
Industrial truck drivers Moderate-term on-the-job training
Representative occupations with poor earnings potential
Occupation Most significant source of
education or training
Cooks Short-, moderate, and long-term
on-the-job training
Waiters/waitresses Short-term on-the-job training
Cashiers Short-term on-the-job training
Food preparation workers Short-term on-the-job training
Maids/house cleaners Short-term on-the-job training
Source: BLS, 2008; CPS 2008
ing 1 to 12 months of combined on-the-job experi-
ence and informal training.” For example, most con-
struction laborers acquire their skills on the job by
assisting other more experienced workers and then
may also get some classroom training. Some con-
struction laborer jobs require more formal training,
such as 2 to 4 year apprenticeships, particularly
those involved in nonresidential construction. By
contrast, four of the five representative occupations
with poor earnings potential require one month or
less on-the-job training. Only cooks may require more
than one month of training, depending on the spe-
cific type of establishment they work in, such as fast-
food or full-service restaurants.
Overall then, significant levels of on-the-job training
are clearly an important resource that will enable
workers with low formal educational credentials to
be promoted into jobs that will pay good wages. As
such, to maximize the potential of the clean-energy
investment agenda to create pathways out of pov-
erty, it will be crucial to expand opportunities for ap-
GREEN PROSPERITY / PAGE 14
propriate job training as a key complement to the
overall growth in employment itself.
Here it is important to note that, as of our publication
date, the ACESA bill as reported out of committee,
does not include measures to assist unemployed
and underemployed workers with entry into the
clean-energy economy. This is a major gap in the pro-
posed legislation. It stands in sharp contrast to the
generous benefits, discussed above, that would be-
come available to workers who face layoffs in the
fossil fuel industries.
Living Wage Laws and Unions
As we have seen in Table 3, of the roughly 17 jobs
per $1 million in spending that would be generated
through the clean-energy investment agenda, about
five fall into the category of requiring high school de-
grees or less, while still offering decent earnings po-
tential. As we have just discussed, these are the jobs
where training opportunities can play a crucial role in
raising pay levels. But that still leaves about three
jobs per $1 million in spending out of the 17 total
that, based on current conditions, would not offer
decent pay opportunities for people with high school
degrees or less. As we have listed in Table 2, these
would be for people working in agriculture, retail, and
cleaning services, among others.
However, these jobs as well need to be supported by
policies to ensure that they will offer at least mini-
mally decent pay and working conditions. On its own,
the clean-energy investment agenda will generate an
expansion of employment opportunities in these job
categories. But it cannot in itself improve conditions
for such jobs. However, two complementary sets of
policies can serve this purpose. They are: 1) Mini-
mum wage laws that require a ‘living wage’ standard
throughout the country as the legal pay-level mini-
mum; and 2) A more favorable environment for union
organizing among low-wage workers, that would, in
turn, improve the bargaining power for workers hired
into low-paying occupations.
This is not the place to examine these issues in
depth. However, in other recent and forthcoming
work, we have addressed a range of the relevant is-
sues at hand, including how to establish living wage
standards around the country; how to most effec-
tively combine minimum wage laws and government
subsidy programs (especially the Earned Income Tax
Credit) to solidify a minimally decent income level for
low-income workers and their families; and how un-
ions can play a critical role in improving both wages
and the overall quality of work conditions among low-
paying occupations (see, for example, Pollin 2007,
Pollin et al. 2008, Wicks-Lim forthcoming 2009, and
Wicks-Lim and Pollin forthcoming 2009).
Employment Effects of $150 Billion Clean-Energy
investment Program
To consider how the clean-energy investment agenda
can generate impacts on an economy-wide scale, we
have to consider the investments not simply in terms
of $1 million in spending, but at a level appropriate
both to the size of the economy and to the problems
at hand. We therefore propose to examine a clean-
energy investment expansion operating at about
$150 billion in spending per year—i.e. $150 billion
more in clean-energy investments and, correspond-
ingly, $150 billion less than is now being spent on
fossil fuels. This $150 billion does not necessarily
come from government spending. Indeed, we antici-
pate that the most of the new spending on clean-
energy investments will be provided by private sector
investors, though many of these will be subsidized by
a range of government incentive programs.
15
Why $150 billion? Our study with Center for Ameri-
can Progress examines in depth the level of annual
new clean-energy investments that could be gener-
ated through the combination of subsidies, incen-
tives and regulations provided by the ACESA and the
Obama stimulus program—the American Recovery
and Reconstruction Act (ARRA). This level of invest-
ment would include both the direct public sector
15
This certainly is the aim of the clean-energy components of the
Obama stimulus program, the American Recovery and Reinvestment
Act (ARRA) of 2009. That measure includes $100 billion in federal
spending for environmental investments. But only about 25 percent
of the total amount is to be spent on directly through public-sector
programs alone. The rest supports a range of grants, tax incentives,
and loan guarantees aiming to subsidize private investors who will
undertake clean-energy investments. See Pollin, Heintz, and Garrett-
Peltier (2009) for an extensive discussion of this aspect of the ARRA
program. See also Pollin (2009) for a discussion of the broader issue
of combining public and private investments to advance the clean-
energy agenda.
GREEN PROSPERITY / PAGE 15
spending incorporated in the ARRA, but even more
importantly, the private sector investments encour-
aged by both the ARRA and the ACESA. A shift toward
clean-energy investments at this level would amount
to about 1.1 percent of GDP and about 8 percent
of total private investment in the economy as of
2007, the level before the severe economic down-
turn of 2008.
16
More important for our specific purposes, as we will
see, a $150 billion shift in spending from fossil fuels
to clean energy within the 2008 U.S. economy
will generate a reduction in unemployment of
around one percent. This seems like a desirable
benchmark, to the extent that the clean-energy in-
vestment agenda is concerned with job creation and
poverty reduction in addition to its underlying envi-
ronmental benefits.
17
In the upper panel of Table 5, we present the overall
figures on employment creation through $150 billion in
investment spending in clean energy and fossil fuels.
The basic result is that the clean-energy investment
agenda will generate about 2.5 million jobs. If one as-
sumes the worst-case scenario to be true—that $150
billion spent on clean energy means $150 billion not
spent on fossil-fuel energy—then shifting $150 billion
out of fossil fuels will, in turn, lead to about 790,000 in
job losses.
18
The net effect of the $150 billion clean-
16
See Pollin, Heintz, and Garrett-Peltier (2009).
17
Of course, we cannot know in advance at what point this level of
annual investments in clean energy will be reached within the U.S.
economy. The figure is probably higher than what is likely to occur
within the next year or two, especially given the severe recession and
disastrous conditions of our financial institutions. But this level of
annual investments is certainly attainable over the next several years,
especially if we allow that public policies such as the ACESA continue
to support these initiatives beyond the initial spending support pro-
vided by the ARRA. See Pollin, Heintz, and Garrett-Peltier (2009) for
further discussion on this point.
18
The job losses would occur across the variety of industries associated with the
production and distribution of gas, oil, and coal in this worst-case scenario.
These include activities such as oil and gas extraction, coal mining, oil refining,
pipeline transport, coal and petroleum product manufacturing, natural gas
distribution, and other support activities (see the technical appendix for details).
A small number of regions of the country have a high concentration of particular
fossil fuel-related activities, including crude oil production in Texas, oil refining
in Louisiana, and coal mining in Appalachia and Wyoming. However, other
fossil-fuel-related activities—including transporting fuels, converting fuels to
electricity, and retail delivery of fuel for cars and home heatingtake place in
every region of the country. Because these activities are geographically wide-
spread, so too would be the job losses resulting from the declining reliance on
energy investment agenda will therefore be to increase
overall employment by about 1.7 million.
TABLE 5. IMPACT OF $150 BILLION CLEAN-ENERGY INVESTMENTS
ON U
.S. LABOR MARKET
A) Overall employment expansion through $150 billion shift from
fossil fuels to clean energy
1) Job creation through $150 billion
spending on clean energy
2.5 million jobs
2) Job creation through $150 billion
spending on fossil fuels
788,557 jobs
3) Net job creation through shift to clean
energy (row 1 – 2)
1.7 million jobs
Source: U.S. Bureau of Labor Statistics and IMPLAN
B) Impact of clean-energy job expansion on 2008 U.S. labor market
1) Overall labor force 154.3 million
2) Total employed before
clean-energy investments
145.4 million
3) Total unemployed before
clean-energy investments
8.9 million
4) Unemployment rate before
clean-energy investments
(row 3 / row 1)
5.8%
(8.9 million/154.3 million)
5) Impact on total employment
of shift from fossil fuels to
clean energy
Employment rises by 1.72
million jobs:
1.2% increase to 147.1 million
6) Impact on unemployment
rate of shift from fossil fuels to
clean energy
(row 3 – row 5) / row 1)
Unemployment falls from 5.8%
to 4.7%
(7.18 million/154.3 million)
Source: U.S. Bureau of Labor Statistics and IMPLAN
In the lower panel of Table 5, we consider what the
impact would have been on the 2008 U.S. labor mar-
ket if there had been a net increase in employment of
1.7 million jobs. As we see, with 145.4 million em-
ployed and 8.9 million unemployed in 2008, this pro-
duced an average unemployment rate of 5.8 percent.
A net increase of 1.7 million new jobs would therefore
lower the unemployment rate to 4.7 percent.
This one percentage point reduction in the country’s
fossil fuels as an energy source. At the same time, we do need to emphasize
that this is a worst-case scenario. Under a more likely scenario, the increase in
clean-energy investments will proceed at a more rapid rate than the decline in
spending on fossil fuels.
GREEN PROSPERITY / PAGE 16
unemployment rate should generate a rise in wages,
across the board, and in particular for low-income
workers. This is because the fall in unemployment will
increase workers’ bargaining power, with businesses
willing to pay more to attract the workers they need.
According to the body of research surveyed by Bartik
(2001), a one percentage point fall in the unemploy-
ment rate—from, say, 6 percent to 5 percent, as could
be accomplished by a $150 billion shift from fossil fuel
spending to clean-energy investments—will in turn lead
to a rise in average earnings of about two percent.
19
Bartik notes that this positive wage effect is likely to be
somewhat stronger at the lower end of the labor mar-
ket. This is probably because, other than the falling un-
employment rate itself, those at the low end of the
labor market are not likely to have other tools to help
them raise their bargaining power.
20
Differential Employment Effects of $150 Billion
Clean-Energy investments
In Table 6, we now consider the differential employ-
ment effects of $150 billion in spending on fossil fuels
as against a $150 billion clean-energy investment pro-
gram. As we see, overall, a shift from fossil fuels to
clean-energy investments will yield a net increase in
U.S. employment of 1.7 million jobs—i.e. an increase in
2.5 million jobs through clean-energy investments and
a corresponding decline of about 790,000 jobs in fossil
fuels. Of the total jobs created through the clean-energy
19
A range of estimates exist on the impact of unemployment on earn-
ings. For example, Bartik’s 2001 survey of five studies (Bartik 1991,
1994, 2000; Blank and Card 1993; Card 1995) provides a range of a
1.5 to 3.5 percent increase in average real earnings when the unem-
ployment rate falls by 1 percent. Additionally, Bartik’s 2001 study
estimates that the average household experiences a 1.9 percent
increase in real earnings when the unemployment rate falls by one
percent. Finally, Hines, Hoynes, and Krueger (2001) estimate that the
average family earnings increases by 1.3 percent for one-percent fall
in the unemployment rate. A simple average of the seven estimates
produced by these various studies suggests that the impact of a 1
percent decline in the unemployment rate produces approximately a
2 percent rise in earnings.
20
Of course, if an employment expansion leads to a disproportionate
rise in the labor force participation rate, the subsequent dispropor-
tionate rise in the labor supply is likely to counteract positive bargain-
ing effects for low-income workers. The key factor is that, however
much the labor force participation rate rises, the unemployment rate
must still fall by one percentage point in order for workers to see
wage increases resulting through this channel.
investment agenda, we again see, as with the $1 mil-
lion program, that about 23 percent are ‘college de-
gree’ jobs, 29 percent are ‘some college’ jobs, and 48
percent are ‘high school or less’ jobs. And again, with
fossil fuels, while a higher proportion of the jobs cre-
ated entail higher educational credentials, the total
number of jobs generated through fossil fuel spending
is substantially smaller than clean-energy investments
across all job categories.
TABLE 6. BREAKDOWN OF JOB CREATION THROUGH $150 BILLION
ENERGY INVESTMENTS BY EDUCATIONAL CREDENTIAL LEVELS
1) Clean-
energy In-
vestments
2) Fossil
fuels
3) Difference
in job creation
(column 1 – 2)
Total job creation 2,505,732 788,557 1,717,175
College degree jobs
B.A. or above
• $24.50 average
wage
591,981
(23.3% of
clean-energy
investment
jobs)
229,185
(28.3% of
fossil fuel
jobs)
362,796
Some college jobs
• some college but
not
B.A.
• $14.60 average
wage
715,665
(28.7% of
clean-energy
investment
jobs)
232,067
(30.2% of
fossil fuel
jobs)
483,598
High school or less
jobs
• high school
degree or less
• $12.00 average
wage
1,198,086
(47.9% of
clean-energy
investment
jobs)
327,306
(41.5% of
fossil fuel
jobs)
870,781
High school or less
jobs with decent
earnings potential
• $15.00 average
wage
714,762
(28.7% of
clean-energy
investment
jobs)
100,483
(13.2% of
fossil fuel
jobs)
614,279
Source: 2008 Current Population Survey, IMPLAN
Note: Average wage is the median wage for all workers across all
industries within each of the credential categories listed above.
Of particular interest within the $150 billion clean-
energy investment program is the net expansion of
‘high school or less’ jobs, since these are jobs that low-
income people have the best chances to obtain. The
data in Table 6 reaffirm what we have already seen in
terms of the job effects of $1 million in spending on
alternative energy uses. But here, in the context of the
$150 billion rise in clean-energy investments, we see
that there will be an expansion of 870,000 ‘high school
GREEN PROSPERITY / PAGE 17
or less’ jobs, even after allowing for job losses in the
fossil fuel sectors. Moreover, with clean-energy invest-
ments, there is a net expansion of about 614,000 ‘high
school or less’ jobs that also offer decent possibilities
for rising wages over time, in many cases, as a result of
workers receiving additional training.
Additional Long-Term Considerations
Is there a difference in the duration of new clean-
energy jobs, compared to fossil-fuel jobs? As we have
seen, clean-energy investments will generate a dis-
proportionately large expansion of new jobs in the
construction industry. It will almost always be the
case that working on a single construction project
will entail a shorter time commitment than being
employed at a given coal mine or oil well. At the
same time, the high demand for construction work-
ers to build the clean-energy economy—not on any
single construction project but on many projects
throughout every community—will continue over the
full generation needed to complete this epoch-
defining project. In addition, as we have seen, the
demand for workers connected directly or indirectly
to clean-energy investments will be spread through-
out economy, in every job category, not simply in
construction. This source of demand for workers will
also continue through the full period required to
build a clean-energy economy.
21
There is a related long-term employment effect that
operates to enhance long-run job creation. That is,
when consumers are able to conserve on energy
through investments in various energy efficiency ar-
eas, this leaves consumers with more money in their
pockets to spend on everything else besides fossil
fuel energy. Now consider the full array of goods and
services that comprise an average basket of con-
sumer goods. It happens that to produce this con-
21
For example, as described in Pollin, Heintz, and Garrett-Peltier
(2009), to retrofit the entire U.S. building stock, including all residen-
tial and non-residential structures, would require something in the
range of $800 billion in new investment spending. If we were to con-
sider this as a 20-year project, that would mean $40 billion per year
in spending. This level of spending on retrofits would, in turn, gener-
ate about 670,000 jobs per year on its own. Moreover, these jobs
would be distributed fairly evenly throughout all communities in the
country, since, of course, all communities have buildings that would
benefit significantly through energy retrofits.
sumer basket requires activities—like clean-energy
investments themselves—that entail higher labor
intensity and domestic content as well as somewhat
lower wages than we see with fossil fuels. As such,
this factor will tend to strengthen the positive long-
term job effects of shifting out of fossil fuels.
22
Impact of Clean-Energy Investment Agenda on
Representative Workers
To provide a more concrete perspective of what it
would mean for low-income households to have an
adult in the household go from unemployment to
having a job, we consider two representative cases
drawn from the actual situations we observe with the
U.S. government’s household and labor market data.
For the first case, we consider the situation for a typi-
cal unemployed male construction laborer in his thir-
ties, living alone. About 27 percent of the 33.4
million low-income households are single-person
households, with men comprising about 54 percent
of these households and women 46 percent. In the
second case, we consider a four-person household,
with two adults and two children. This kind of house-
hold accounts for about nine percent of all low-
income households. In this household, we begin with
one adult member working. We assume that this
person is also a man employed as a construction
laborer. Initially, the woman in the family is engaged
in child-rearing and managing the household, but
does not have a paying job. But due to an expansion
of employment opportunities tied to the clean-energy
investment agenda, the woman takes a job as a bus
driver. In Tables 7 and 8, we consider the impact on
each household situation through one adult in the
household becoming newly employed.
Case 1:
Unemployed construction laborer lands a job
In this first case, an unemployed construction worker
with a high school degree or less, is initially living on
a range of small income sources. Typically, these will
include support from family and friends, savings, and
22
This source of net job creation through increasing energy efficiency
has been explored in depth by Skip Laitner of the American Council
for an Energy Efficient Economy. See, for example, Laitner and
McKinney (2008).
GREEN PROSPERITY / PAGE 18
government support such as food stamps. According
to government statistical surveys, men in this situa-
tion would typically live on about $8,870 per year.
This level of income places them well into the range
of the severely poor, even according to the official
government poverty thresholds.
TABLE 7. CASE 1: CONSTRUCTION WORKER IS UNEMPLOYED, THEN
EMPLOYED
, THEN PROMOTED
Situation for worker living alone
Income as
long-term
unemployed
worker
Income gain from
initial job as con-
struction laborer
Income gain
from promotion
to carpenter
1. Average
hourly wage
$0 $12.50 $16.00
2. Annual
hours worked
0 2080 (40 hours/
week x 52 weeks)
2080
4. Annual
earnings
$0 $26,000
($12.50 x 2080
hours)
$33,280
($16.00 x 2080
hours)
5. Total
income
$8,000 $26,000
$33,280
6. Federal
income tax
$0 -$2,153 -$3,428
7. Social
security tax
$0 -$1,989
($26,000 x
7.65%)
-$2,546
8. Earned
income tax
credit
$0 $0 $0
9. Child tax
credits
$0 $0 $0
10. Food
stamps
$870 $0 $0
Disposable
Income
(sum of rows
5 - 10)
$8,870 $21,858
(+$12,988;
a 146% increase)
$27,306
(+$18,436;
a 208% in-
crease)
Source: 2008 Current Population Survey
Notes: The new job is a representative construction-laborer job with
the average wages and hours of a worker with a high school degree
or less. The $8,000 in reported income among jobless single indi-
viduals could be coming from social security, supplemental security
income, interest income, financial assistance from people outside the
household, and financial aid for education.
We then allow that this person becomes employed
full-time as a construction laborer, earning the aver-
age wage of $12.50 an hour for this job among
those with a high school degree or less. As a result of
obtaining this job, the construction worker’s earnings
rise to $26,000 per year. We also assume that this
worker is no longer able to draw on his personal
sources of support providing him with the $8,000 he
was living on while he was unemployed. Because he
now is earning income, he also has to now pay both
income and social security taxes. He also loses his
food stamp eligibility. But as a single man living with
no children, he is not eligible for either Earned In-
come Tax Credit (EITC) support or, of course any form
of child tax credits.
Netting out all of these various factors, the effect for
the construction worker of moving from unemploy-
ment to having a job means that his disposable in-
come rises from $8,870 to $21,858. This is an
income increase of about $13,000.
One of the advantages of working as a construction
laborer is that it can lead to other better-paid occu-
pations in the construction industry. For example, by
assisting other craft workers, such as carpenters,
this construction laborer can gain on-the-job training
to become a carpenter himself over time. Alterna-
tively, the work experience he gains as a construc-
tion laborer can help get him into a carpenter
apprenticeship program. After completing a 3-4 year
apprenticeship program he can become a carpenter
through this route as well. In the last column of Table
7 we illustrate how the living standard of this worker
would change if he moved from his entry-level job as
a construction laborer to a position as a carpenter.
Thus, in the last column of Table 7, we allow the con-
struction laborer to advance to a job as a carpenter
earning the average carpenter wage of $16.00 an
hour. This higher wage increases the worker’s earn-
ings from $26,000 to $33,280, an increase of about
$7,000. This worker is now earning at a level that
well exceeds our poverty standard of twice the official
poverty line, or $20,652 for a single person under 65
years old.
23
Netting out the rise in his tax obligations,
the higher wage rate of $16.00 now represents an
23
Both the federal poverty income threshold and EPI’s basic budget
income thresholds (discussed earlier) are pre-tax measures. That is,
these income thresholds account taxes as among a family’s living
expenses.
GREEN PROSPERITY / PAGE 19
increase in disposable income to about $27,000.
This level of disposable income represents an im-
provement of $18,000 per year relative to his situa-
tion when he was unemployed. In this case, the clean
energy investment agenda has provided a clear
pathway out of poverty for this worker.
Case 2: Mom becomes a bus driver
In this case, we assume that the father in this house-
hold, like in the previous case, holds a job as a con-
struction laborer. But the mother, who had been
focused on childcare and running the household,
now accepts a position as a bus driver. This position
opens up as a result of the large expansion in public
transportation spending associated with clean-
energy investments. This woman’s wages will be
$13.70 per hour, which is the average wage for bus
drivers with a high school degree or less. She will be
employed for a full 52 weeks, but at 30 hours per
week, as opposed to a full-time position. This is
about the average number of hours that bus drivers
are now employed throughout the U.S.
We see in Table 8 the impact on the family’s living
standard of the mother becoming a bus driver. When
only the father working in paid labor, the family was
eligible for both the earned income tax credit of
$3,290 and child credits of $2,000. But these gov-
ernment subsidies are counterbalanced by both fed-
eral income and social security tax obligations.
Overall, when the father brought home the family’s
only paycheck, the family’s earnings were $26,000.
This places them at about $17,700 below our poverty
standard of 200 percent of the official poverty line of
$43,668 for this sized family. When the mother takes
a job as a bus driver, this means that the family’s to-
tal earnings rise to $47,372. Their income and social
security taxes now rise with this additional income
source. The family also now loses its EITC eligibility.
With both parents working, the family’s annual dis-
posable income now rises to more than $43,000.
This is a 48 percent increase over their situation
when only the father was employed in construction.
At the same time, because the mother is now in the
workforce, she now has much less time available for
child care. We therefore have to allow that the fam-
ily’s child care expenses will rise considerably. Based
on research underlying the EPI’s basic budget stan-
dard, we allow that child care costs will amount to
about
20 percent of the household’s earnings when
TABLE 8. CASE 2. MOTHER/HOMEMAKER BECOMES A BUS DRIVER
Change in family income when second adult in 4-person household
becomes employed
Family income
with just father as
construction
laborer
Family income
with both adults
working: mother
hired as bus driver
Father:
1. Hourly wage as
construction worker
$12.50 $12.50
2. Total hours of work
Full-time:
2080 hours (40
hours/week x 52
weeks)
Full-time:
2080 hours
3. Annual earnings $26,000
($12.50 x 40 x
52)
$26,000
Mother:
4. Hourly wage as bus
driver
— $13.70
5. Total hours of work 0 ¾ time:
1,560 hours (30
hours/week x 52
weeks)
6. Annual earnings 0 $21,372
Household:
7. Total household
income (rows 3 + 6)
$26,000 $47,372
(+82.2%)
8. Federal income tax -$111 -$2,569
9. Social security tax -$1,989 -$3,624
10. Earned income tax
credit
$3,290 $0
11. Child tax credits $2,000 $2,000
12. Food stamps $0 $0
13. Disposable income
without child care costs
(sum of rows 7 – 12)
$29,190 $43,179
(+47.9%)
14. Child care costs -$9,500
Disposable income with
child care costs
(row 13 + row 14)
$29,190 $33,679
(+15.4%)
Source: 2008 Current Population Survey
Notes: This household has two adults and two children. The new
employment is from a representative bus driver job with the average
wages and hours of a worker with a high school degree or less.
GREEN PROSPERITY / PAGE 20
both parents are at jobs close to full-time. This
means that child care expenses rise to about $9,500
per year. Even so, net of the increase in the family’s
child care costs, the family’s disposable income is
now about $34,000. Thus, even if we subtract the
new child care costs from the family’s disposable
income, the family still has about $4,000 more in
their budget. This is a 15 percent rise over their
situation when only the father was employed.
Thus, with this household as well, the new job oppor-
tunities generated by the clean energy investment
agenda has created a pathway out of poverty for this
family as well. They move from earning about
$17,700 below the 200 percent of poverty line stan-
dard to $3,700 over the 200 percent line. Even after
allowing for their increased tax obligations and
child care costs, the new job opportunities gener-
ated by the clean energy investment agenda will
lead to a substantial improvement in the family’s
living standard.
GREEN PROSPERITY / PAGE 21
HOME RETROFITS FOR
LOW-INCOME HOUSEHOLDS
Since 1977, the U.S. Department of Energy has
maintained a Weatherization Assistance Program
(WAP) for low-income families that provides support
for homeowners’ residential retrofits. Since its incep-
tion, 6.2 million households have received support
through this program. This amounts to about
200,000 low-income households a year getting as-
sistance to retrofit their homes. In more recent years,
the number of households served per year has
dipped significantly below this average rate, to
roughly 100,000 households per year.
24
The program is being expanded substantially through
the ARRA, with $5 billion being allocated over two
years to support retrofits for households whose in-
come is up to 200 percent of the official poverty
line, i.e. to the level we are using within this study as
our target group. Under this program, low-income
households could receive up to $6,500 to finance
their home retrofit. The ARRA also is providing an
additional $3.1 billion through the State Energy
Program and $3.2 billion through the Energy Effi-
ciency and Conservation Block Grant Program, which
are other potential sources of funding, both for retro-
fitting buildings and to support consumers making
additional energy-saving improvements in their
homes. Beyond the ARRA, additional measures, such
as the ACESA now before Congress, aim to create
further incentives to promote energy efficiency in
residential structures. In the ACESA, the primary pol-
icy tools to promote energy efficiency are: (1) a
national building code; (2) funding to states for build-
ing efficiency retrofit and low-income energy effi-
ciency programs; (3) a national energy efficient
appliances program.
25
Overall, these government initiatives recognize a
crucial point about residential building retrofits—that
they offer a major opportunity to deliver environ-
mental benefits as well as a higher living standard
for low-income households. We can see this both for
24
See apps1.eere.energy.gov/weatherization/prog_goals.cfm?print for
details
on the rate of service of the Weatherization Assistance Program.
25
See http://apps1.eere.energy.gov/weatherization for details on the
Weatherization Assistance Program.
low-income households composed of homeowners
as well as those who are renters. In all cases, the key
will be to develop adequate incentives and institu-
tional support networks to effectively deliver the
large benefits that are available.
To begin with, let us consider the possibilities avail-
able to homeowners through retrofitting an average
privately-owned home in the United States. We de-
velop this average case based on figures provided by
the U.S. Department of Energy, as well as through
the work of Prof. Paul Fisette, a leading authority
in the field. Fisette has found that for an average
home in the United States, an investment of about
$2,500 in a home retrofit could produce an energy
saving of about 30 percent per year. The $2,500
expenditure would cover an energy audit, sealing
air leaks with caulking, insulating attics and base-
ment ceilings, and purchasing energy-efficient light
bulbs.
26
As of 2007, the average household income was
around $60,000, and the average household spends
about five percent of its income on household energy
consumption. This means that the five percent of
total income going to household energy consumption
amounts to $3,000 per year. This means that
through a $2,500 investment for a retrofit—about 80
percent of the household’s annual energy budget—
the average household would save about $900 per
year in reduced energy costs. The $900 in savings
that this average household would enjoy each year
through the energy retrofit means that the $2,500
investment in home retrofitting will fully pay for itself
within three years. These figures are brought to-
gether in Table 9 below.
26
See http://www.umass.edu/bmatwt/faculty/PFisetteCV_2006.pdf
for Prof. Fisette’s publications on this issue. We are grateful to Prof.
Fisette for extensive personal discussion in addition to what we found
in his publications. In terms of the costs of retrofitting an average
home, Fisette explains that average household could raise energy
efficiency still more by spending another $2,500—for a total of
$5,000—on insulating or replacing windows, purchasing energy-
efficient appliances, and purchasing a thermostat reset, which can
control the amount of energy needed to maintain hot water in the
home’s boiler. A still more expensive retrofit, in the range of $8,000
would include putting more insulation into walls, putting new siding
on walls, and purchasing a more energy efficient furnace or boiler.
GREEN PROSPERITY / PAGE 22
TABLE 9. ANNUAL SAVINGS FROM INVESTMENT IN HOME RETROFIT
Example is for average household, $2,500 retrofit
Annual household income $60,000
Annual household energy expenditures
(5% of total income)
$3,000
Potential annual savings from $2,500 retrofit
(30% of current expenditure level)
$900
The proportional costs and savings attainable
through these relatively modest investments in retro-
fits could be achievable as well with both smaller
homes owned by low-income households as well as
with multi-unit residential buildings for renters. That
is, a savings in energy costs of around 30 percent
per year would be attainable through an initial in-
vestment which is roughly equal to about 80 percent
of one year’s annual energy bill.
In Table 10, we show the living circumstances for the
33.4 million household that live below 200 percent
of the poverty line. As we see, these households are
roughly evenly divided between homeowners (16.5
million households) and renters (16.9 million house-
holds). We have broken down renters further be-
tween those living, respectively, in unsubsidized
(12.5 million households) and subsidized (4.4 million
households) apartments. These differences will be
significant for establishing the appropriate arrange-
ments to enable the residents of these various dwell-
ing types to all benefit from the energy savings
resulting from retrofits.
The most straightforward situation is with the 16.5
million low-income households that are homeowners.
This household type could save about $630 per year
through a low-cost retrofit, costing about $1,800. As
we see in the table, savings at this level would repre-
sent a nearly four percent reduction in living costs
relative to the households’ income. In other words,
after the retrofit has been paid off, this investment
alone would raise the living standard of these
households by about four percent. By lowering their
demand for energy within the home, low-income
households would also reduce their vulnerability to
the severe swings in energy prices that we have ex-
perienced in recent years. These sharp price fluctua-
tions have produced insecurity among low-income
households as to their ability to cover their monthly
energy bills, especially in the winter. The benefits for
low-income households of raising their level of home
energy efficiency are, of course, in addition to the
environmental benefits of reducing energy consump-
tion and greenhouse gas emissions.
TABLE 10. ENERGY COST SAVINGS FOR LOW-INCOME HOUSEHOLDS
Type of
residence
# of
Units
Median
household income
(2007$)
Average annual energy
expenditure
Approximate
investment per unit for
low-cost retrofit
Approximate potential
cost savings
Energy savings as % of
household of income
Owner
occupied
16.5
million $16,564 $2,108
$1,800
$630 3.8%
Renter-
unsubsidized
12.5
million
$14,740 $1,648 $1,400
$500 3.4%
Renter-
subsidized
4.4
million $10,476 $1,648
$1,400
$500 4.7%
Sources: Median income comes from ASEC 2008; U.S. Department of
Housing and Urban Development (2008); U.S. Department of Health
and Human Services (2008).
Yet we do still need to consider how the initial up-
front investment of $1,800 will be financed. The
easiest answer is that the funds could come through
the $5 billion in Weatherization Assistance provided
by the ARRA. However, at most, these funds could
cover around 2.8 million owner-occupied homes
with $1,800 in support, i.e. about one-sixth of all
low-income households. This would represent a
major level of support for energy efficient homes
in the U.S., but would still leave close to 14 million
low-income households in need of financing through
other means.
Self-Financing?
As a more general case, it is clear from our numeri-
cal examples that, if low-income households could
cover the initial $1,800 up-front investment in the
retrofit, they would start seeing energy cost savings
immediately, and their full investment would be cov-
ered in three years. In subsequent years, the energy
savings would go directly into their pocketbooks. In
principle therefore, individual homeowners could
certainly choose to take on the retrofit project on
GREEN PROSPERITY / PAGE 23
their own, without a government subsidy, and still
come out ahead within about three years.
The drawback of this approach is that it relies on
millions of homeowners to take the initiative to get
the financing and manage the retrofit project. This
could create excessive levels of small-scale adminis-
trative efforts, which would slow down the forward
progress of any large-scale clean-energy investment
initiative. This is a problem especially to the extent
that one would want the program to be implemented
fairly quickly. It also places heavy demands on low-
income households to come up with the initial in-
vestment funds, take on financial risks and find extra
time to manage such a project.
As a way to make such projects broadly feasible for
low-income homeowners beyond the subsidies avail-
able from the Weatherization Assistance Program, it
will be necessary to introduce intermediaries of
some sort to serve as administrators and risk-
bearers. These intermediaries could be paid for their
services through the utility bills of building owners, or
some other pre-established mode of payment. In-
deed, a local utility company, or home heating oil
supplier could themselves possibly serve as the in-
termediaries administering the program. Non-profit
community organizations or stand-alone businesses
could equally serve this role.
27
The logistics of such an arrangement could be quite
straightforward. Let’s first consider a case within the
context of the Weatherization Assistance Program.
To begin with, in exchange for handling all the bu-
reaucratic matters associated with receiving support
from the Weatherization Assistance Program as well
as arranging all the logistics of the home retrofit, the
intermediary would receive, for example, the $630 in
energy savings from the first year subsequent to the
retrofit. These funds would come directly from the
homeowners’ heating or utility bills. The homeowners
would then see the benefits of reduced energy bills
one year later than they would have had they them-
selves arranged for the retrofit. Meanwhile, the in-
termediary would have a substantial incentive to
provide these cost savings as quickly as possible for
all low-income homeowners.
27
These issues are also explored well in Rogers (2007).
What about the majority of cases, when there is not
likely to be support available through the Weatheri-
zation Assistance Program? Of course, it would be
preferable to be able to extend the WAP to most, if
not all, low-income homeowners. Short of that, we
should at least allow low-income homeowners who
invest in retrofits to receive bank loans for the pro-
ject at a subsidized rate.
Table 11 illustrates a simple financing scheme for
retrofitting an average home for low-income house-
holds. Under this plan, the full amount of the $1,800
funding for the project is borrowed. The full loan pe-
riod is five years, with a simple interest rate at the
below-market subsidized rate of three percent.
TABLE 11. FINANCING ARRANGEMENT FOR LOW-INCOME
HOMEOWNER RETROFIT
Funds needed for retrofit $1,800
Loan principal $1,800
Subsidized interest rate
on loans
3 percent subsidized simple interest
Repayment schedule 1st year savings split between
homeowner and intermediary;
4 subsequent years, principal and
interest
Total annual debt
servicing for four years
$500/year
($450 principal; $50 interest)
Annual
savings
relative to
pre-retrofit
Annual
debt
servicing
Annual net savings
Year 1:
Retrofit year
$630 0 $630 (split between
homeowner and
intermediary)
Year 2 $630 $500 $130
Year 3 $630 $500 $130
Year 4 $630 $500 $130
Year 5 $630 $500 $130
All subsequent
years
$630 0 $630
GREEN PROSPERITY / PAGE 24
In the first year of the loan, we assume the $630 in
savings is shared between the homeowner and the
intermediary who arranged for the financing and con-
tracting out the project. The homeowner would then
make annual payments of $500 in four subsequent
years—$450 of principal and $50 in interest.
28
Dur-
ing these four years, the homeowner would still see
their energy bill reduced by $130 per year. They
would also make no out-of-pocket payments to their
lenders. The payments to lenders could rather come
directly from the homeowner’s utility bill. As we see
in the lower panel of Table 12, there is no period
over the life of the loan where the annual repayment
is greater than the annual energy savings of $630.
And of course, after the loan is repaid, the home-
owners will then receive the full net energy savings of
$630 every year thereafter.
29
Getting Benefits to Renters
This arrangement could not operate quite as straight-
forwardly in delivering benefits of retrofits to the
16.9 million low-income households that are renters.
But as a general principle, if the government is pro-
viding weatherization assistance for rental units as
well as owner-occupied dwellings, the condition un-
der which landlords could receive government assis-
tance could be that their tenants would have to
receive some significant share of the reduction in
energy costs. This could be handled in a straightfor-
ward way in cases where the renters themselves
cover their own utility bills. In this case, the renters
would see the utility bills reduced as a proportion
of the overall energy savings achieved through
the retrofit. We would also allow the landlords to re-
ceive a share of their energy savings. For example, if
we assume that the total energy savings is $500
28
At a three percent interest rate, the actual interest annual interest
payment would be $54, rather than $50. We have rounded to $50 to
keep the illustration as simple as possible.
29
In the case of a homeowner who wishes to sell their home before
having fully repaid their loan, the sale price of the house should, in
principle, be higher, to reflect that the house operates at a higher
level of energy efficiency. However, the U.S. housing market is not
likely to incorporate the benefits from retrofit investments in home
prices, if for no other reason than this would be unfamiliar territory for
them. It will therefore be important for government initiatives to
spread information as widely as possible as to the cost savings that
homeowners will receive after a house has been retrofitted.
per year for each rental unit, we could allow that
the tenant receives $450 in a reduced utility bill and
the landlord receives the remaining $50 per unit. In
this case, the tenant would still see their annual en-
ergy costs reduced by about four percent of their
annual income. Again, this means that effectively
their living standard would rise by four percent from
this measure alone.
It will be more difficult to implement such measures
when landlords rather than tenants are responsible
for paying utility bills. However, the landlords them-
selves would see their energy costs fall through the
retrofit. In a competitive housing market, this fall in
landlords’ costs should in turn lead to at least a par-
tial pass-through in terms of lower rents for tenants,
since landlords that do lower their rents will be more
likely to attract new tenants.
In the case of subsidized housing units, rents are
established based on formulas tied to renters’ ability
to pay. Here, we could simply incorporate the energy
savings into the formula, and reduce rent levels
commensurately, after allowing for the administra-
tion costs of arranging for the retrofits. We saw in
Table 11 that the average low-cost retrofit could
generate energy savings of about 4.7 percent of the
annual income for low-income families living in sub-
sidized housing. It is therefore reasonable to expect
that the retrofit could yield an improvement in these
families’ living standard in the range of four percent,
with the remaining cost savings being used to sup-
port the general administrative costs of the subsi-
dized housing program.
Overall, through advancing a series of institutional
innovations in the market for building retrofits in
combination with the existing and continued levels of
government support, it is reasonable to expect that a
large-scale residential retrofit program could reduce
living costs, and corresponding raise living stan-
dards, for low-income households by about 3 – 4
percent. And of course, these benefits would be in
addition to the environmental gains achieved
through operating our residential housing stock
much more efficiently than is done at present.
GREEN PROSPERITY / PAGE 25
PUBLIC TRANSPORTATION
Increasing use of public transportation, as against
private auto transportation, is an important element
in building a clean-energy economy. At present, burn-
ing fossil fuels for transportation purposes accounts
for about 34 percent of total carbon emissions emit-
ted within the United States, and private transporta-
tion accounts for about 61 percent of all
transportation emissions.
30
To transport people via
public transportation as opposed to private cars pro-
duces a net reduction in carbon emissions of about
45 percent per passenger mile. Thus, if we allowed
that the share of public transportation travel could
rise to about 25 percent as a share of total transpor-
tation, this, in turn, would alone generate a two per-
cent reduction in total greenhouse gas emissions.
31
Investing in public transportation is also a major
source of job creation, relative to spending on fossil
fuels. Spending $1 million on public transportation
will generate about 21 jobs, while, as we have seen,
spending the same $1 million on oil and coal will
generate about 5.3 jobs—i.e. spending a given
amount of money on mass transit generates about
4.4 more jobs than spending on fossil fuels.
32
Finally, traveling by public transportation is much
cheaper than traveling by private car. On average, it
costs about 22 cents to travel one mile by public
transportation, while a private car costs about 54
cents per mile.
33
That is, on average, public trans-
r.
30
American Public Transportation Authority, www.apta.com/research/
info/online/documents/climate_change.pdf.
31
Figures in this paragraph come from the Energy Information Ad-
ministration, www.eia.doe.gov/oiaf/1605/ggrpt/carbon.html; and the
American Public Transportation Authority, www.apta.com/research/
info/online/documents/climate_change.pdf. See technical appendix
for a description of how we estimated the reduction in emissions due
to increasing public transit use to 25 percent of total transportation.
Achieving a rate of public transit use this high or higher has been
achieved in dense urban areas such as the city of Chicago. In other
areas, such rates would likely be achieved only among households
close to urban centers. Given that 80 percent of the U.S. population
lives in urban areas (see U.S. Census Bureau, 2000 Census of Popu-
lation and Housing, Population and Housing Unit Counts PHC-3) an
estimate of 25 percent of public transit use seems like a reasonable
high end goal.
32
Pollin, Heintz, and Garrett-Peltier (2009).
33
Cost of public transportation is from 2008 Public Transportation
Fact Book, published by the American Public Transportation Associa-
portation is about 59 percent cheaper than traveling
by private ca
The Obama administration’s ARRA program clearly
recognized the importance of expanding the access
to public transportation, allocating $18 billion over
two years to a range of transportation projects. This
represents 18 percent of the clean-energy and envi-
ronmental budget within the ARRA. Some of the spe-
cific initiatives being supported by the ARRA include
purchases of electric buses, light rails, and high-
speed trains, to both expand public transportation
offerings and raise their energy efficiency. Given
our specific concern with job creation, it is important
to also note that the $18 billion expenditure—$9 bil-
lion per year—will generate about 190,000 jobs per
year within the U.S. economy. If the same level of
funding were instead allocated to expand activity in
the fossil fuel industry, the total job creation would
instead be about 50,000 jobs per year. Thus, moving
the funds into public transportation as opposed to
fossil fuels generates a net employment gain of
about 140,000 jobs.
Despite these major advantages of public over pri-
vate transportation, public transportation accounts
for an extremely low share of total travel in the
United States. We can see this from the figures
presented in the upper panel of Table 12. As the
table shows, as of 2007, the average U.S. household
spent about 94 percent of its total transportation
budget on private automobiles, and only six per-
cent on public transportation. The share of public
transportation spending by lower-income households
is even lower, with the lowest 20 percent income
group spending only 5 percent, and the 21-40
percent income group spending a still lower 4 per-
cent of their respective transportation budgets on
public transportation.
tion (June 2008), Table 2: National Totals, Fiscal Year 2006, and ad-
justed by the Bureau of Labor Statistics Consumer Price Index to re-
flect public transportation price increases between 2006 and 2007.
Cost of private car transportation is from the Bureau of Transportation
Statistics, National Transportation Statistics, Table 3-14: Average Cost
of Owning and Operating an Automobile. The latest figure is for 2007
http://www.bts.gov/publications/national_transportation_statistics/ht
ml/table_03_14.html.
GREEN PROSPERITY / PAGE 26
TABLE 12. HOUSEHOLD SPENDING ON PUBLIC AND PRIVATE
TRANSPORTATION IN THE UNITED STATES
, 2007
A) Public and private transport as share of total transport
Private
transportation
Public
transportation
Total transportation
spending
Amount of private
transportation
spending
Private transporta-
tion spending as
share of total
Amount of public
transportation
spending
Public transporta-
tion spending as
share of total
All U.S.
households
$8,758 $8,220 94% $538 6%
Lowest 20%
income
group
$3,240 $3,071 95% $169 5%
21-40%
income
group
$5,717 $5,475 96% $242 4%
B) Public and private transport as share of total household spending
Total
household
spending
Private transport
spending as share
of total household
spending
Public transport
as share of total
household
spending
All U.S.
households
$49,638 16.6%
1.1%
Lowest 20%
income group
$20,471 15.0% 0.8%
21-40%
income group
$31,150 17.6% 0.8%
Source: Consumer Expenditure Survey, 2007, “Table 1. Quintiles of
income before taxes: Average annual expenditures and characteris-
tics,” www.bls.gov/cex/2007/Standard/quintile.pdf
The broader importance of these figures becomes
clear from the lower panel of Table 12, where we
show transportation costs as a share of total family
spending. As we see, transportation constitutes a
very large share of a household’s total budget—
nearly 18 percent of the budget for an average
household, and between 15 and 18 percent for
lower-income households. As such, any initiative that
could succeed in shifting households toward using
public transportation would generate major benefits
both in terms of the environment and job creation. It
would also be a way to significantly reduce the costs
of living for low-income households.
34
34
Why do higher-income households spend a higher share of total
There has been a notable rise in public transporta-
tion ridership over the past two years, with, for ex-
ample, overall ridership rising by about four percent
in 2008 relative to 2007.
35
This increase in public
transportation use was initially sparked by the sharp
rise in oil prices. But even as oil prices fell beginning
in the fall of 2008, public transportation use contin-
ued to rise. The main factor here is almost certainly
that households are attempting to reduce costs dur-
ing the recession. Thus, automobile travel fell by 3.6
percent in 2008. It remains an open question
whether this shift in favor of public transportation will
be sustainable over time, depending primarily on
whether the quality of service can improve.
Beyond this experience of the past two years, the
broader question is why haven’t U.S. residents, es-
pecially those at low income levels, relied more on
public transportation over time? The answers pro-
vided in surveys are not surprising. According to a
2001 study by Giuliano, Hu and Lee, the main factor
is that public transportation is much less convenient
than driving—i.e. access is bad, off-peak hours ser-
vice is limited, and transferring is difficult. This
makes public transportation particularly difficult for
low-income people, who, as part of their regular rou-
tine, often need to commute between multiple jobs,
as well as transport children to child care and school.
Of those that do use public transportation, a signifi-
cant share say that it is also expensive.
Survey evidence also makes clear that if the public
transportation component of the clean-energy in-
vestment agenda could address these issues of in-
convenience and costs with reasonable success, the
payoff could be substantial for low-income house-
holds. For example, if the public transportation com-
ponent of the clean-energy investment agenda could
enable the average lower-income household to in-
household spending on public transportation? This is primarily because
higher-income households tend to travel longer distances (e.g., from a
suburb to the downtown of a nearby city) whereas lower-income house-
holds tend to travel short distances within central cities. Also, commuter
rail service attracts higher-income riders even though they own cars
because this service can provide a more dependable, less stressful,
and faster way to travel than driving (Pucher & Renne, 2003).
35
Data are from American Public Transportation Association March 9,
2009 quarterly report, www.apta.com/media/releases/documents/
090309_ridership.pdf.
GREEN PROSPERITY / PAGE 27
crease their use of public transportation to 25 per-
cent of their miles traveled, that alone would save the
household $260 to $500 per year, raising their living
standard through this one measure alone by 1 to 2
percent. Of course, a more ambitious target would
deliver proportionally greater benefits. For example,
raising the low-income household’s use of public
transportation to 50 percent of its total miles traveled
would save low-income families nearly $800 per year,
raising their living standard by nearly four percent.
How Public Transportation Raises Living Standards
This rise in living standards for lower-income house-
holds, in the range of one to four percent, actually
averages two distinct situations: large cost savings
that occur when households replace one of their ve-
hicles with public transit, and limited cost savings
when households use public transportation but do
not reduce the number of cars they own.
Consider the situation that applies to the roughly 75
percent of low-income households that own at least
one vehicle. An improved public transit system could
allow some of these households to reduce the num-
ber of cars that they own.
36
Households that replace
a car with public transit would see their annual
transportation expenses fall by roughly $2,000,
about 10 percent of their total household expendi-
tures.
37
This dramatic reduction in the household’s
transportation expenses occurs because fully 70
percent of the cost of owning a car are ‘fixed’—they
result because you own a car, regardless of how
much you drive the car. These fixed costs include the
sales price itself, including financing, insurance, reg-
istration fees, and taxes. Only 30 percent of costs
depend on how much one drives—i.e. variable costs,
including fuel and maintenance. Moreover, the costs
per mile on public transit are roughly equal to the
variable costs per mile of driving. As such, just re-
36
In fact, in large cities known for their effective public transit sys-
tems such as New York, Washington D.C., Boston, San Francisco, and
Chicago, the percentage of residents who own no cars is much higher
than the national average and roughly equal to the percent of resi-
dents that rely on public transportation for commuting (2005-2007
American Community Survey, U.S. Census Bureau). This pattern sug-
gests that when public transportation is accessible and convenient,
significant numbers of households choose to own fewer vehicles.
37
See technical appendix for details on the cost savings calculations.
placing the number of miles travelled by car with
public transit, while still owning the same number of
cars, does not yield any cost savings.
What about the 25 percent of low-income house-
holds that owns no vehicles? For these households,
an improved public transit system will deliver sav-
ings, but these will be lower than for the households
that could reduce their level of car ownership. These
savings for households who own no cars come from
reducing their use of other more expensive modes of
transportation, such as taxis, that they rely on when
they do not either own a car or have convenient pub-
lic transit service. Other available modes of transpor-
tation such as walking or biking, while less expensive
than public transit, can only be used to access areas
within a limited distance. By contrast, as we discuss
further below, better public transit can improve the
living standards of low-income people by i