Spain's Not SO Good Green Economy

So everyone knows that Spain is facing the potential issue of an IMF bailout due to the growing economic crisis in the country. Spain's unemployment rate as of early May was around 21% and it continues to rise. This is absolutely absurd and the fact that it is spiraling out of control is the even scarier part. The Zapatero Administration admitted to making mistakes and Zapatero will not be running for another term as Prime Minister of Spain.

Part of the problem for Spain’s troubled economy obviously comes from the World Economic Crisis that has been occurring for the past two years. However, Spain used to be one of the strongest economies not only in the EU but the world. So what happened? How is it that Germany, Japan, and even the United States along with China and India, two emerging economies managed to come out of this Economic Crisis with some bumps and bruises but Spain is looking at an IMF bailout? (Yes I know the Spanish Economy cannot be compared to the US or Japan but at one point it was up there with Germany.)

So Spain’s answer to unemployment? Go green!
•As of 2009, Spain has already been a leader in renewable fuels through $30 billion in public support. 1 Million green jobs were supposed to be created from this.
•Spain generates about 24.5 percent of its electricity through renewable sources, compared with about 7 percent in the U.S. (Obama was quoted on numerous occasions for saying Spain was a model country to follow for creation of the Green Economy.)
•Spain has become the world’s third-largest country for installed wind energy capacity.

So what happened? It Sounds like Spain was getting off to a good start. Obviously something went wrong.

I would say that part of the problem is the Green Economy Initiative that was launched to help make Spain a leader in green technology and green jobs. That program went wrong somewhere along the way. In an internal assessment done by the Zapatero’s administration they determined that the program must be abandoned before Spain turned into another situation like Greece.

Some stats about the so called “green economy”:

•Spain’s “green economy” program cost the country 2.2 jobs for every 1 job that was “created”.
•The “green economy program” spiked the cost of electricity in Spain from below the EU average to above the average at 5% higher. (This essentially affects household welfare because Spanish households are now paying more for electricity which they can’t afford since most households in Spain only have on average 1 adult parent currently working.)

•The competitiveness of Spain’s industries is at risk as well since energy is a key input in the industrial production processes.
Basic industries have energy costs that are three times higher than labor costs.
•Spanish industry electrical costs are 17% higher than the EU average.
The Not So Good Green Economy:
•since 2000 Spain spent €571,138 to create each “green job”, including subsidies of more than €1 million per wind industry job.
•The programs creating those jobs also resulted in the destruction of nearly 110,500 jobs elsewhere in the economy, or 2.2 jobs destroyed for every “green job” created.
•Each “green” megawatt installed destroys 5.28 jobs on average elsewhere in the economy: 8.99 by photovoltaics, 4.27 by wind energy, 5.05 by mini-hydro.
•The Average subsidy in the 3 fields of renewable energy per worker was around more than half a million Euro to well over 1 million Euro for photovoltaic power.

Now obviously this leaves some major implications for the average Spaniard citizen. The average Spaniard would have to deal with higher rates for electricity or higher taxes (public deficit). Reducing emissions, a major rationale for “green jobs” or renewables regimes, hits the poorest hardest. A cap-and-trade system aimed at reducing greenhouse gas emissions by just 15% will cost the poorest quintile 3% of their annual household income, while benefiting the richest quintile. Since 2000, the renewable subsidies have created less than 50,200 jobs. (0.25% of Spain’s employed workforce)

Why did this all happen? From 1998-2007 low interests rates & easy credit allowed industries such as renewable energy to develop with great success. Between the credit bubble & the economic crisis that hit, crisis was bound to happen. From 2007, as heavily leveraged sectors (real estate, transportation & machinery) started to fall, renewable energy remained a preferred outlet for credit concessions. Specifically, photovoltaic power grew enormously from 2007 to 2008 due to economic distortions from government regulation. The purpose of “green economy” programs were to create more jobs; however the resources had to be pooled from other areas of the economy which couldn’t happen in a recession.

Critics of Spain's near economic collapse argue that the potential of an IMF bailout could lead to the collapse of the EuroZone. This has major implications on the future of the EU seeing as Spain, one of the EU's stronger economies who had unemployment rates in the 80's and 90's that were at times better than the EU average is now looking at IMF assistance. It will be a domino effect for sure on the EU countries that are also struggling in the midst of the economic crisis.

I love how Obama kept saying on at least 8 different occasions how Spain was a model country to follow as they lead the way in green economy and green job creation. So is this what Obama wants for America? Does he want the average American to see a huge spike in their electric bills? Does he want 2.2 jobs to be lost for every 1 created? Does he want to see the average American struggling more than they need to because a Green Economy Initiative looks ideal? Obama do not follow in Spain's footsteps!