Full Title: GDP, Consumption, Jobs, and Costs: Tracking the Effects of Energy Policy
Author(s): Alan J. Krupnick and David McLaughlin
Publisher(s): Resources for the Future
Publication Date: May 1, 2011
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Currently, politicians and the press are engaged in a national debate over the impacts of energy policy, and measure these impacts in new “green” jobs and by increases in gross domestic product (GDP). Economists are also engaged in this debate; however they use welfare costs to measure the impacts of energy policy on society as a whole. Policymakers and the media may be somewhat familiar with the term welfare cost, but otherwise have little insight into what it means and how it is used. However, they are aware of the high-stakes surrounding economic growth and job creation—and in the current political discourse, this is often linked to energy policy.
The purpose of this discussion paper is to inform this fractious and, in our view, often misleading debate about the effects of energy policies on macroeconomic metrics like employment and GDP. We do this first by defining what is meant and not meant by these metrics, then by showing how these metrics compare for a large number of energy policies, as modeled using the National Energy Modeling System with modifications by Resources for the Future (NEMS–RFF). We conclude that none of these metrics move reliably with welfare costs, and therefore these macroeconomic metrics (within the context of NEMS results) should not be considered reliable proxies for examining the true welfare cost of policies. This conclusion may well apply to results from other models, but that analysis is beyond the scope of this effort.