Austerity Versus Green Growth for Puerto Rico

Abstract

Well before Hurricane Maria wrought devastation on Puerto Rico, the island’s economy was in crisis. Puerto Rico’s economic output had already fallen sharply from its 2005 level. Even after what is hoped to be a successful recovery from the hurricane’s damage—no small task—proposals to reform the Puerto Rican economy being discussed by the government would make matters worse. The authors discuss how Puerto Rico descended into its prehurricane distress and offer a bold set of counterproposals based on green investments, a carbon tax, and debt forgiveness by Puerto Rico’s creditors.

Notes

SeePuerto Rico Climate Change Council Working Group 3 2013 for discussions on Puerto Rico specifically.

But in considering these impacts on Puerto Rico’s manufacturing sector specifically, we must again emphasize the limited and lopsided features of the island’s 936-led growth model. Thus, MacEwan (2017, 16) argues that “the Puerto Rican government’s devotion to manufacturing appears to have inhibited the development of economic activities that are more labour-intensive. The employment-generating examples of tourism and agriculture … demonstrate the point.”

The comparable ratio is lower when GDP, as opposed to GNP, is the denominator, following from our discussion above on the fact of Puerto Rico’s GNP having grown much more slowly than GDP during the 936 period. The comparable ratios when GDP is in the denominator are: 40.5 percent in 1997, 46.2 percent in 2006, and 64.2 percent in 2015.

It is notable that the EIA’s cost estimates for 2022 have fallen by more than half relative to their 2012 estimates for plants entering service in 2017. Thus, for plants entering service in 2017, the EIA had projected in 2012 that average prices would be 9.6 cents per kWh for onshore wind, 15.3 cents for solar PV, and 9.8 cents for geothermal (Pollin et al. 2014, 126–27).

The green-growth program can also be implemented successfully within a more slowly growing economy. Indeed, the challenges of building a 100 percent clean energy infrastructure are greater in many ways under more rapid economic-growth conditions, since this entails keeping up energy efficiency and renewable energy investments with the expansion of energy demand resulting from growth. One key point in considering a green-growth program within the context of a modestly healthy growth trajectory is to show that reducing, then eliminating altogether, the demand for fossil fuel energy supply is fully compatible with economic growth.

BTUs are the most convenient unit in which to measure energy, since they are a measure that can be readily applied across all energy sources. For purposes of scaling, burning a wood match to its end generates about 1 BTU of energy. As of 2016, the U.S. economy consumed a bit less than 100 Q-BTUs of energy, and the global economy consumed about 600 Q-BTUs.

Hereafter we drop the word “metric” in referring to tons. All figures reported in “tons” throughout the paper refer to metric tons.

We also assume that climate adaptation and resilience investments are integrated into the energy-efficiency and renewable-energy spending programs. The employment effects of these programs are thus reflected in the results that follow.

In the technical appendix, we show our full results on employment creation through energy import substitution. The figures we report in Table 6 provide a summary of our main results.

(Guzman and Stiglitz (2017) describe several aspects of the Fiscal Plan’s projections that are unrealistically optimistic.

This program is discussed in Pollin et al. (2014).

Additional information

Notes on contributors

Amanda Page-Hoongrajok

Amanda Page-Hoongrajok is a Ph.D. student in economics at the University of Massachusetts–Amherst and a research assistant at the Political Economy Research Institute (PERI).

Shouvik Chakraborty

Shouvik Chakraborty is research fellow at PERI.

Robert Pollin

Robert Pollin is Distinguished University Professor of Economics at U Mass–Amherst and codirector of PERI. We are grateful to Jeannette Wicks-Lim for research support and to Arthur MacEwan and Jeff Madrick for comments on a preliminary draft.