How Policies to Reduce Greenhouse Gas Emissions Could Affect Employment

May 5, 2010

Human activities around the world are producing increasingly larger quantities of greenhouse gases, particularly carbon dioxide resulting from the use of fossil fuels and from deforestation. Adopting policies aimed at reducing emissions of green house gases would shift the demand for goods and services away from fossil fuels and products that require substantial amounts of those fuels to make or to use and toward alternative forms of energy and products that require lesser amounts of fossil fuels. Employment patterns would shift to mirror those changes in demand. Changes in employment in specific industries would reflect the amounts of greenhouse gases they emit (through production and use of their output) and the difficulty of reducing their emissions of those gases.

In a brief released this afternoon, CBO has analyzed the research on the effects that policies to reduce green house gases would have on employment and concluded that total employment during the next few decades would be slightly lower than would be the case in the absence of such policies. In particular, job losses in the industries that shrink would lower employment more than job gains in other industries would increase employment, thereby raising the overall unemployment rate. Eventually, however, most workers who lost jobs would find new ones. In the absence of policies to reduce emissions of greenhouse gases, changes to the climate also might affect employment; however, this brief does not address such changes because that effect would probably arise after the next few decades, and it has not been studied as carefully by researchers.

Various industries would be affected differently by policies to reduce greenhouse gas emissions:

  • Coal mining would probably see the largest percentage decline in employment. Among fossil fuels—coal, petroleum, and natural gas—coal, when it is burned, produces more greenhouse gases per unit of energy than do the others. Moreover, coal is widely used to generate electricity, and electric utilities have some ability to substitute other sources of energy for coal. A mitigating factor for the coal mining industry could be the development of technologies to capture and store emissions of coal-fired power plants.
  • Employment in oil and gas extraction and natural gas utilities would also be expected to decline as those fuels became more expensive and the demand for them declined. In percentage terms, the decline would be smaller than that in coal mining, though. Because oil is widely traded on international markets, continued demand for it in other countries that did not implement emission-reduction policies would lessen some of the effects of the decline in domestic demand. Because the use of natural gas to generate electricity produces smaller quantities of greenhouse gases than does the use of coal, demand would probably shift from coal to natural gas in some instances, offsetting some or all of the reduction in demand for natural gas that would otherwise occur.
  • Mining (for materials other than coal), construction, and the industries that produce metals, nonmetallic mineral products (such as glass), chemicals, and transportation services—all of which use relatively large amounts of energy directly or indirectly—would probably also experience reductions in employment, although the percentage declines would be relatively small.
  • Over time, employment would increase in industries and sectors (such as services) whose products are less emission-intensive to produce and result in fewer emissions when used. Employment also would increase in industries that manufacture equipment for the production of energy using low-emission technologies such as nuclear, solar, and wind power.

This brief was prepared by Bruce Arnold of CBO’s Microeconomic Studies Division, with contributions from Molly Dahl of CBO’s Health and Human Resources Division.