Decoding: The Green Jobs Revolution
The Link Between Skilled Labor and Decarbonizaton
The Inflation Reduction Act (“IRA”) and the Bipartisan Infrastructure Bill (“Infrastructure Act”) are game-changing pieces of legislation that will catalyze trillions of private-sector green energy and decarbonization investment in the United States. These bills will provide $370 billion in subsidies and tax credits for clean energy and $73 billion in power infrastructure spending, and together are expected to cut emissions almost in half by 2035.
Nonetheless, Congressional appropriation of funds is just the beginning of the green revolution: in order to expand utility-scale solar, wind, and other renewable energy sources, the country will need to expand its base of physical assets, especially since net power and electricity consumption are likely to occur in different regions of the country. In addition, other clean technologies, such as heat pumps, EV charging stations, and IoT-enabled manufacturing, will also require substantial new builds and installed base refreshes.
Figure 1: Renewables will largely be generated in Texas and the Plains, but electricity demand is largely concentrated on the coasts. Image Credit: Vox and Scott Madden
Thus, skilled labor in the trades, or individuals who work in a technical job that involves installation, maintenance, and management of complex hardware systems, is an essential input into decarbonization of the American economy. These professions can create high-quality jobs while reducing emissions: for example, the mean electrician salary is over $65,000, while the average plumber makes almost $60,000. However, the U.S. suffers from a major shortage of skilled trades talent, which will have substantial impacts on decarbonization efforts:
We will have 80,000 electrician openings each year, exacerbated by the retirement of current electricians (30% of union electricians are between the ages of 50 and 70). Electricians are essential to installing and maintaining grid systems, “built world” data devices, and industrial IoT devices, among other applications.
The U.S. is short about 65,000 HVAC technicians, which will affect the rate at which heat pumps and other energy efficient appliances can be installed.
America will have a shortage of over 550,000 plumbers in the next five years, which will impact maintenance of buildings and reduce building energy efficiency.
The country needs to train 400,000 welders and nearly 550,000 construction workers, many of whom will be employed in making or installing green technologies.
In addition, teams will need to be trained (or re-trained) on the next generation of clean technologies. These roles include EV technicians, solar installers, and roles to be defined, such as carbon capture facility maintenance.
These shortages show that workforce challenges come in a few forms: generational turnover due to an aging workforce in the skilled trades, reskilling for climate assets that have reached mass deployment scale, and future technological changes that will require new skills. High-quality training programs, administered by public, private, and social sector players, can help fill in the gaps.
Skilled Trades Training & Employment
Four-year degrees are not typically advantageous for skilled trades. Instead, apprenticeships and role-specific certifications are the standards by which skilled tradespeople are eligible for occupational licenses, which are granted at the state level. For instance, California requires electricians to pass a certification examination and complete 8,000 hours of work in order to install and maintain electrical systems. Similarly, Massachusetts requires 150 hours in a technical school to become an apprentice plumber and a further 550 hours of classroom training and 8,500 hours of work experience to sit for the plumbing licensure exam. These requirements are highly entrenched and are created alongside unions such as the International Brotherhood of Electrical Workers and the United Association.
As a result, bridging the skilled trades workforce gap will require substantial public-private sector coordination. The IRA’s apprenticeship requirements, which specifies a minimum percentage of labor from apprentices to qualify for tax credits, is a starting effort that does not adequately address skilled trades labor supply-side issues. One potential solution is to increase state and federal funding in high-needs areas, such as power line apprenticeships, expanding capacity for critical maintenance and repair services that reduce the risk of fire and improve transmission efficiency.
On the private sector side, utilities could pool their resources together to create joint apprenticeship programs, which have been successful in industries ranging from software and IT to automotive manufacturing. In addition to reducing costs, pooled apprenticeship programs could help companies achieve other critical targets, such as diversity goals, in collaboration with philanthropies and unions who possess tremendous funding and recruiting networks. These solutions can be applied throughout the “decarbonization industry”: for instance, one can imagine HVAC manufacturers such as Trane or Carrier investing in training programs, potentially making licensed plumbers more likely to use their products in the future.
Opportunities For Entrepreneurship and Innovation
While the public sector and major corporations are essential to alleviating the green skilled trades talent shortage, entrepreneurial companies can utilize their nimbleness to address gaps that larger organizations might struggle to serve. In particular, there are three promising areas for private equity (PE) and venture capital (VC) backed companies to explore.
Improving contractor productivity: There are nearly 150,000 HVAC contractors and over 220,000 electrical contractors in the U.S., many of whom operate with outdated tools, reducing their capacity to take on jobs. However, they serve as a key touchpoint for developers, homeowners, and property managers, putting them on the front lines of decarbonization. Digitally-enabled startups can work closely with contractors to provide software and financing that is modern and scalable (for instance, by improving construction workflows or automating loan processing). ServiceTitan has built an exceptional software layer for the skilled trades specifically, and we are also seeing greater digitization in the renewables space with VC-backed companies such as Quativa, Mosaic, and Banyan Infrastructure. The business models can be adapted to other point solutions, such as EV charging, home solar, and heat pumps.
Reskilling contractors towards green technologies: Given the fragmentation of contractor businesses, it’s not a surprise that private equity players of all sizes are interested in consolidation. A Pitchbook search for PE-backed HVAC companies turned up nearly 1,000 deals with $52.5 billion invested for an average capital deployment of around $55 million, with the largest at $3.8 billion. An impact-focused private equity fund could buy contracting businesses in promising regions where certain clean technologies are more likely to be installed and train the workforce accordingly (for example, heat pumps have sold quickly in Maine). This approach may also be promising for search fund buyers especially given the advancing ages of many electricians and skilled tradespeople, which may increase willingness to sell. In addition, upon receiving ownership of the contracting business, the new owners could implement digital technologies (including those discussed above) to drive sales and improve productivity.
Training to deployment models: For-profit schools generally have had a troubled track record in the U.S. due to poor outcomes and high student debts. Integrating the training and job placement components can eliminate this issue by aligning these incentives within one organization. In the tech industry, Multiverse works with Microsoft, Citi, and other large employers of data analytics and software engineering talent to provide Department of Labor certified apprenticeship programs. Similarly, Revature, which received an investment through workforce-focused private equity firm Achieve Partners and was later successfully sold to Investcorp, takes promising professionals and provides them on-the-job skills to get hired in full-time tech jobs. Skilled trades also require apprenticeships and substantial on-the-job training, making them a good fit for this approach. In fact, Upsmith raised a $3.3 million pre-seed to create a training to deployment model for the skilled trades. Given the nascency of the solution, there will be opportunities for many new players to emerge (including those that you might start yourself!).
It’s important to note that none of these solutions are silver bullets: for instance, greater software penetration will improve contractor productivity but will not fundamentally increase the number of electricians or plumbers, while skilled trades staffing models have very real issues around the hyperlocality of both labor supply and work (think about the many challenges that Uber faced in balancing its markets and reaching profitability). However, these approaches provide exciting potential solutions to solving the skilled trades shortage, which will in turn accelerate decarbonization.
Conclusion
Solving the green skilled trades labor gap lives at the intersection of two incredibly difficult challenges that require enormous cooperation between public, private, and social sector players of all sizes. Nonetheless, it is essential to solve this issue in order to resolve bottlenecks in the rollout of clean technologies. Whether your interest is in startups, large corporations, state and local government, federal government, or nonprofits, there will be ample opportunity to identify, train, and deploy skilled trades talent.
About the Author
Jan Jaro is an MBA / MPA dual degree candidate at Wharton and the Harvard Kennedy School. Previously, Jan was in consulting and private equity but has since pivoted towards early-stage startups focused on workforce and climate. In his free time, Jan enjoys running, hiking, skiing, playing any sport at a mediocre level, and reading history, economics, politics, and science fiction.