More about jobs and energy policy

In last week's post on energy policy, I skipped over the effect of manufacturing efficiencies. If an information-intensive technology can be manufactured in a way that reaps large economies of scale, then the know-how used to create it can still be very cheap on a per unit basis.

Exhibit A for this effect is the integrated circuit industry. Each individual transistor is a small masterpiece of engineering. The intellectual property contained in a few square inches of silicon is enormous, but the industry spreads out the cost by making billions of them. Thin film solar manufacturers believe that manufacturing efficiency will allow them to reach a competitive price point. That would be very good news for me, my clients, and the world as a whole.

But still not necessarily for job creation.

The disconnect between information content and job creation is explored in more detail in this recent post at fivethirtyeight.com, analyzing the decline of manufacturing jobs in the US economy. It isn't due to "evil corporations shipping American manufacturing overseas." Until the start of the recent recession, US manufacturing output was at an all time high. Rather, it's due to massive improvements in productivity, which in this context means replacing humans with automation of various kinds.

If solar becomes cost competitive it will be through massive productivity improvements, achieved in part by automating every step that can be automated.

Still, merely looking at the need for productivity improvements does undervalue the job creation opportunity. Even if the number of jobs per GW goes down -- which I think is not only likely, but necessary -- the total number of jobs will still go up as the market size increases. The current world solar market is about 6 GW per year, but the world's total electricity consumption is in excess of 17 trillion kWh. That's a whole lot of room for growth.

Unfortunately, that also leaves us back where we started. Promoting use of a product through subsidies is not usually a good way to make the manufacturing of that product more efficient. The government can improve manufacturing -- for example by investing in research and development through organizations like NIST and NREL -- or it can create jobs, but it isn't really good at doing both at once.

Disclaimer: Though my past and present clients may like this post better, my opinions are still mine alone.

For best policy, first define the goal

Is the goal of energy policy to reduce the costs energy imposes on the US economy and/or the planet, or to create jobs?

As one of my favorite energy-oriented sites points out, the two goals don't necessarily have much to do with each other.

Thin film solar technology, for example, contains a lot of intellectual property. Lots of engineering expertise is required to build the deposition systems, optimize the processes, and keep the whole operation running. Add the skilled electricians who actually build solar farms and connect them to the grid, and you get a lot of high-skill jobs. You also get electricity that is substantially more expensive than that generated by plain old boring low-tech fossil fuel plants.

But if your goal is to reduce the world's (or America's) consumption of fossil fuels and generation of greenhouse gases, whatever alternative technology you pick needs to be as inexpensive as possible. Ideally, it should be simple enough for illiterate subsistence farmers to implement using locally available materials, perhaps with guidance from a handful of engineers.

Not that there's anything wrong with green jobs. I have one myself, since most of my current clients are in the solar space. And certainly the emergence of a renewable energy sector will benefit the communities where those jobs reside.

But the assumption that clean energy will both prevent climate change and revitalize the US manufacturing sector doesn't stand up to close examination. Energy is a commodity product, and as such will always tend to migrate to the lowest cost technologies and least expensive producers. The fewer high-skill manufacturing jobs an energy technology requires, the more likely it is to actually succeed in shifting the world's energy mix.

Disclaimer: My opinions are my own, and do not necessarily represent the views of any particular past or present client.

Let the good times roll?

How to decide if a blog entry is worth writing: you have more to say than will fit in a 140 character Twitter post. (For those interested, my Twitter ID is kewms.)

In this case, I'm celebrating the end of the recession. North American semiconductor equipment manufacturers booked more than a billion dollars in orders in January, for the first time since May, 2008. Though still a pretty weak number in historical terms, that probably does mean people are buying actual equipment, as opposed to consumables, service contracts, and so forth.

(In the depths of the recession, people joked that even a single package of O-rings would be enough to move the book-to-bill number.)

Equipment purchases are good news for a couple of reasons. First, they usually mean that the purchasing fab is running at 80-90% of capacity and the demand outlook is positive. Second, they mean that the customer is able to get financing on terms it considers reasonable.