The Green New Deal is a stimulus plan for the economy: 3.7 billion euro a year for the next two to three years. We all wish Ireland had that sort of money for a stimulus.
Comhar proposes to finance the Green New Deal from the revenue of a carbon tax (400 million Euro a year), from the auctioning of carbon permits (which will not start before 2013), and with new borrowing (but with “green” bonds, so that’s alright).
The aim of the stimulus is not just to revive the economy but make it environmentally sustainable too. Most experts reckon that the transition to a low-carbon economy will take 50 years (give or take a few decades) but Comhar seems to think that 2.5 years is enough to make a dent.
The stimulus comes mostly in the form of subsidies for “green” investments. A carbon tax has the wonderful property of equalising marginal costs across all emitters, and being robust against special pleading. Subsidies break the principle of uniform pricing, and politicians have been tempted to pick winners. This is double regulation, and half of it is bad regulation.
The Green New Deal is meant to create jobs, just like the original New Deal. It would. The Green New Deal would create jobs a plenty in certain sectors, but these jobs would be at the mercy of state intervention. There would be more subsidy junkies. The Green New Deal would destroy market-based jobs in other sectors. Because the Green New Deal would raise the price of energy and keep labour taxes higher than needed, the economic recovery is slowed down and jobs are destroyed. Similar policies have been tried elsewhere, and there are natural experiments too. The empirical evidence is clear. A plan like the Green New Deal would destroy more jobs than it creates. Net unemployment would go up.
If there were money for a stimulus, then we should reduce VAT rates and labour taxes.
The Green New Deal does not stop there. The carbon tax revenue would be put into a National Decarbonisation Fund to be managed by the National Treasury Management Agency — as if absorbing NAMA isn’t enough. Anglo-Irish would be turned into a “green” bank. Anglo-Irish should maximise its return to the shareholders (aka the taxpayers), and placing constraints on the type of loans it can give and the type of investments it can make would reduce its profitability — higher taxes in the future, therefore. Comhar also argues that the pension funds should be forced to invest greenly. I would argue that pension funds should provide pensions, and to that end they need to invest in whatever gives the highest risk-adjusted return, regardless of whether it is green or blue or yellow.
In short, Comhar’s Green New Deal for Ireland is full of bad economics. It also has all the right buzzwords, so expect glowing endorsements from our dear leaders.