Spain's Answer to Unemployment: Go Greener - washingtonpost.com

Leader in Renewable Energy Considers Subsidies, Mandates to Build Industry

By Anthony Faiola
Washington Post Foreign Service
Thursday, September 24, 2009

MADRID -- As world leaders converge in Pittsburgh for a major economic summit this week, one of the biggest questions they face is this: How do you begin to replace the millions of jobs destroyed by the Great Recession, now that the worst of the crisis has potentially passed?

Here on the sun-drenched and windy Iberian Peninsula, Spain thinks it has an answer: create new jobs and save the Earth at the same time.

Green jobs have become a mantra for many governments, including that of the United States. But few nations are better positioned -- or motivated -- to fuse the fight against recession and global warming than Spain. The country is already a leader in renewable fuels through $30 billion in public support and has been cited by the Obama administration as a model for the creation of a green economy. Spain generates about 24.5 percent of its electricity through renewable sources, compared with about 7 percent in the United States.

But with unemployment at 18.5 percent, the government here is preparing to take a dramatic next step. Through a combination of new laws and public and private investment, officials estimate that they can generate a million green jobs over the next decade. The plan would increase domestic demand for alternative energy by having the government help pay the bill -- but also by compelling millions of Spaniards to go green, whether they like it or not.

In the long term, the government envisions a new army of engineers and technicians nurturing windmills and solar farms amid the orange orchards and carnation fields of Andalusia and Galicia. In the short term, officials say, the renewable-energy projects and refurbishing of buildings and homes for energy efficiency could redeploy up to 80 percent of the million construction workers here who lost their jobs in 2008.

Spain's ambitious effort is being closely watched by the Obama administration and other governments forming their own green-job plans. The U.S. stimulus bill is dedicating billions in grants and loans to renewable-energy projects, marking a shift away from Washington's more passive approach to green growth, which relied largely on tax incentives.

But the bid for governments to take an ever larger role in creating jobs in the private sector -- which many leaders gathering in Pittsburgh see as their mission -- is also fraught with risks.

Though the Spanish government estimates that the alternative-energy sector generates about 200,000 jobs here, about double the number in 2000, critics contend they have cost taxpayers too much money.

In some instances, the government's good intentions have distorted the energy market.

Take, for example, the recent Spanish solar bubble.

Though wind power remains the dominant alternative energy here, the government introduced even more generous inducements in recent years to help develop photovoltaic solar power -- a technology that uses sun-heated cells to generate energy. Lured by the promise of vast new subsidies, energy companies erected the silvery silicone panels in record numbers. As a result, government subsides to the sector jumped from $321 million in 2007 to $1.6 billion in 2008.

When the government moved to curb excess production and scale back subsidies late last year, the solar bubble burst, sending panel prices dropping and sparking the loss of thousands of jobs, at least temporarily.

"What they're talking about now -- creating a new sustainable economic model through alternative energy -- is going to be exactly the opposite of sustainable," said Gabriel Calzada, a Spanish economist and critic of the government's alternative-energy policy. "You're only going to create more distortion, more bubbles. It isn't going to work."

Like Building the Internet

In 2007, only one in 20 working-age residents of advanced economies was without a job. By next year -- when the International Monetary Fund expects global unemployment to peak -- that number will have jumped to one in 10.

The job market is often the last to recover after a recession. But some economists predict a years-long stagnation in job creation and wages in developed countries, including the United States, Britain, Ireland and Spain.

At the same time, governments are trying to hash out a deal by December that would establish new cuts in emissions by 2020 in an effort to stem global warming. One of the most obvious ways for nations to meet their goals, experts say, is through alternative-energy projects.

"This is going to be like the building of the Internet," said Carlos Mulas-Granados, director general of the Ideas Foundation, a Spanish think tank associated with Prime Minister Jos? Luis Rodr?guez Zapatero's ruling Socialist Party. "We're going to use this crisis as an opportunity to rebuild the economy with clean, green growth."

The multibillion-dollar investment is a gamble Spain is willing to take because, more than any other nation hit by the crisis, it is desperate for jobs. The unemployment rate here is now one of the highest in the developed world.

The streets of Madrid and other cities are being dug up and repaved in a short-term government effort to offer temporary work to the unemployed. For most, the work will last only a few months.

"And what do we do when the roadwork runs out?" Jos? Luis Salazar Garc?a, 32, said as he installed terra-cotta tiles on a Madrid sidewalk in a government-funded job. "There are no other jobs in Spain."

The country's answer is to go greener.

Spain now exports more windmills and solar panels than wine. An armada of Spanish companies has invested heavily in the United States, with one buying up an old steel mill a few dozen miles from Pittsburgh and turning it into a wind turbine plant.

Though still undergoing final touches before being presented to parliament next month, Spain's new Economic Sustainability Law would effectively create more demand for renewable fuels. All new homes and commercial buildings would require higher levels of energy efficiency, including solar power sources, leaving their owners no choice but to adopt green habits.

Government-backed loans to green companies would allow them to offer generous terms to homeowners and corporations for the installation of solar and other alternative energies.

A Jump in Energy Costs?

A new $300 million thermo-solar plant in the arid mining town of Puertollano, about 100 miles south of Madrid in the Don Quixote country of Castile-La Mancha, offers a glimpse into Spanish hopes. The partnership between the large corporate utility Iberdrola and a national energy agency employed as many 650 workers to build the plant over the past two years. The huge plant was like manna from heaven for a host of companies stung by the recession. A maker of car mirrors retrofitted its assembly lines to produce the plant's massive reflective panels, for example.

But Calzada's recent study -- which has come under fire by green advocates here and abroad -- suggests that the government's cost to create one job in leading alternative-energy sectors has averaged $855,000. It notes that although hundreds may be temporarily employed to build plants, a far smaller number gain permanent positions.

Because alternative-energy plants are more expensive than traditional power plants that burn fossil fuels, the government here has made green generation profitable by promising big subsidies for years to come. Though most Spaniards have so far seen only modest increases in their electricity bills, even government officials are warning that prices might suddenly jump in the coming years as more of the real costs are passed on to consumers.

In the meantime, some power distributors in Spain have converted their government guarantees for higher-than-market energy prices into complex financial instruments, then sold them off to the highest bidders in a manner similar to the repackaging of subprime mortgages in the United States. If the government doesn't make good on those guarantees, critics fear, the securities could suddenly devalue, soaking the investors who hold them.

"There are going to be people who say we're doing this wrong or that wrong," said ?ngel Torres, Spain's secretary general of economic policy. "But the reality is that government needs to help create a critical mass in alternative energy to make it sustainable in the long run, and that's what Spain is doing.