Green Economics
The city skyline is seen at dusk on Boston Harbor in Boston in this file photo. Does good urban planning lead to healthier residents? (Michael Dwyer/AP/File)
Can better urban planning make us healthier?
If public universities cap salaries for their Presidents, will they recruit less able leaders? The California State Universities may soon be running this experiment. The Chronicle also has an interesting article on my UCLA colleague Dick Jackson. Dr. Jackson is a leading scholar at UCLA's School of Public Health. Here is a quote from the Chronicle of Higher Education:
"His center had already been dealing with problems that he suspected had origins in the built environment—asthma caused by particulates from cars and trucks, water contamination from excessive runoff, lead poisoning from contaminated houses and soil, and obesity, heart conditions, and depression exacerbated by stressful living conditions, long commutes, lack of access to fresh food, and isolating, car-oriented communities. Treatments could come in the form of pills, inhalers, and insulin shots, but real solutions had bigger implications. "More and more, I came to the conclusion that this is about how we build the world that we live in," he recalls, speaking over the phone from San Francisco."
Can better urban design make us healthier?
This raises a fundamental selection versus treatment question. Put bluntly, do people with a proclivity to be sick self select to live in nasty neighborhoods featuring bad air quality, little access to good public transit and shopping opportunities? Or do, people who for random reasons choose to live in those areas subsequently become sick? The first is a selection effect while the second is a treatment effect.
Consider the example of smoking; if we observe that smokers tend to suffer from sickness --- again is this selection or treatment or both? Do the most impatient people in society smoke and such individuals tend to under invest in their health and subsequently are more likely to become sick or does smoking have an independent treatment effect on making you sicker? The answer is that both effects are likely to be playing out.
I find that public health researchers tend to ignore fundamental issues of self selection on unobserved attributes (one of Jim Heckman's early homeruns) and implicitly assume that households are randomly assigned across space so that any observed differences in outcomes are due to "treatment effects". In the absence of randomized trials (where residential locational choice is determined at random), this is a hard topic to work on.
Matthew Turner and co-authors have written an under-appreciated paper that was published in the Journal of Urban Economics. Here is the abstract of their paper titled "Fat City":
"
"We study the relationship between urban sprawl and obesity. Using data that tracks individuals over time, we find no evidence that urban sprawl causes obesity. We show that previous findings of a positive relationship most likely reflect a failure to properly control for the fact the individuals who are more likely to be obese choose to live in more sprawling neighborhoods. Our results indicate that current interest in changing the built environment to counter the rise in obesity is misguided."
Intuitively, Turner estimates a fixed effects regression using panel data where he tracks the same person over time for people who move from the center city to the suburbs or vice versa. If sprawl makes us fat, then the average person who moves from the center to the suburbs should be gaining more weight over time than the people who never leave the center city or never leave the suburbs. Turner rejects this hypothesis.
So, there is plenty of work to be done here but it remains an open question of how urban form affects our behavior. I've been especially interested in this question focused on our carbon footprint as a function of urban form.
This file photo shows a statue of Benjamin Franklin at the University of Pennsylvania in Philadelphia. Franklin may have been one of the first people to note the effect of weather events on climate. (Andy Nelson/The Christian Science Monitor/File)
Ben Franklin: Founding father, inventor, geo-engineer?
Do you miss the 1990s? Those were the days before field experiments and RCTs where the typical paper might start, "This paper exploits a natural experiment to study the effect of X on Y." I have just learned that Ben Franklin was way ahead of us. Back before the QJE existed, in 1784 to be precise, Franklin noted that after volcano eruptions that temperatures were lower. Geo-engineering has some empirical basis. How do I know this? I attended a Freshmen lecture at UCLA today.
To quote Scientific American and Karen Harp, "In 1784, Benjamin Franklin made what may have been the first connection between volcanoes and global climate while stationed in Paris as the first diplomatic representative of the United States of America. He observed that during the summer of 1783, the climate was abnormally cold, both in Europe and back in the U.S. The ground froze early, the first snow stayed on the ground without melting, the winter was more severe than usual, and there seemed to be "a constant fog over all Europe, and [a] great part of North America."
Now that empirical economists are working on climate change adaptation, what other research could be conducted on geo-engineering and its direct consequences and unintended consequences? Will a future James Bond movie plot focus on Bond having to help or kill a "geo-engineer"?
A protester stands outside a teleconference meeting of the Board of Regents regents of the University of California, on the campus at UCLA in this November 2011 file photo. All nine UC campuses have the same tuition rates. (Reed Saxon/AP/File)
How to fix California's college tuition problem
Students want an excellent education and low tuition but a "free lunch" is hard to find during these tough times. The LA Times has some choice quotes over the pain and frustration playing out in California. As I understand it, all nine UC Campuses charge the same tuition prices. This is the problem.
I suggest that each UC campus be allowed to set its own tuition and that the rules are such that 10% of the collected revenue is redistributed from the top 4 schools in terms of tuition is sent to the 5 campuses that charge less. If the UC feels innovative, it could charge different tuition prices by campus and by major. Such customization of tuition would generate more revenue, offer students more financing options. One definition of discrimination is to treat different UC campuses the same.
While people moan about rising UC tuition, they forget that the UC is much cheaper than Ivy League schools (our peers!) and that many students transfer into the UC from a community college. This means that their effective tuition is roughly 30% lower because the formula (assuming an interest rate of 0%) becomes .5*community college tuition + .5*UC in-state tuition.
Switching subjects: I would like to show my appreciation to my uncountable number of blog readers by revealing my blog royalties for the last 3 months.
Publication:
Environmental and Urban Economics
Earnings This Reporting Period:
$28.30
So, over the course of 3 months I post around 100 entries. If it takes me 10 minutes to write each of these then that's 1000 minutes or roughly 16 hours so $28/16 = $1.6 an hour ---- not bad for a big bad full prof at UCLA?
New York Gov. Andrew Cuomo delivers his second State of the State speech at the Empire State Plaza Convention Center in Albany, N.Y. Cuomo wants to shut down the state's Indian Point nuclear power plant. (Mike Groll/AP/File)
Should New York scrap its nuclear power plant?
Economists view products as bundles of attributes. Put simply, what is a car? If all cars are the same, why does a Mercedes cost 3 times as much as some Toyota? The answer is that the typical Mercedes has bundled into it high quality attributes and consumers are willing to pay a price premium for this bundle. In the case of electricity, is it a differentiated product or is a kilowatt a kilowatt? In the later case, buyers should just seek the lowest price.
But, as this article highlights , in New York City there is a deep debate about the electricity generation source. If its source is nuclear, is it bad? If Gov. Cuomo scraps the nuclear plant and its capacity is replaced by a higher polluting natural gas plant and if these emissions end up in Harlem, is that bad? The economic geography of where people live relative to where dirty power plants are has been a topic that I've written about. Don't forget this classic 2009 RSUE paper!
In case you are lazy, here is the abstract:
Coal fired power plants emit high levels of air pollution per unit of power generated. A comparison of emissions factors (pounds of emissions per megawatt hour of power generation) based on year 2004 data reveals that the average coal fired power plant emits six times as much nitrogen oxide and more than twelve times as much sulfur dioxide as the average non-coal fired power plant. This paper uses data on the population of all electric utilities in the United States and evidence on population growth across regions to document that; pollution levels are higher in counties with coal fired plants, and that the population is moving away from regions such as the Midwest where the dirtiest coal fired power plants are located. Population growth is taking place in the South and West. Especially in the Western region, the power plants are newer and cleaner and less likely to be coal fired. In the South and West, population growth has a smaller impact on power plant emissions growth than in the Northeast and Midwest.
China's CRH high-speed trains sit on tracks at a maintenance base in Wuhan, in central China's Hubei province, Wednesday Jan. 11, 2012. California's own high-speed rail project has hit a few snags, including a lack of financing and the recent resignation of California High Speed Rail authority CEO Roelof van Ark . (AP)
California's high speed rail hits a speed bump
The head of California's High Speed Rail project has resigned. You would think that a multi-billion dollar, 30 year project would offer some intellectual challenges for its leader but "Roelof van Ark, chief executive officer of the California High-Speed Rail Authority, announced this afternoon that he is quitting, the latest setback for the state's beleaguered campaign to build a nearly $100 billion rail network in California."
What is going on? We know that California and the Federal Government both have large fiscal deficits and this may be part of the issue but what happened to the momentum?
As a guy who flies to Northern California often, and who has traveled on a Chinese Bullet train, I haven't supported this train. I figure that for political reasons that it will stop too often between San Fran, LA and San Diego and thus never achieve the MPH that it has promised. I assume that its ridership will be too low to cover the enormous fixed cost of constructing it. Once people arrive in these cities, and get off the train --- they will still need a car to connect them with their ultimate destination --- so, the real issue here is what is wrong with air travel? I know that HSR has a smaller carbon footprint than air travel but what would have to be the value per ton of GHG emissions for HSR to be a wise investment? I would guess that it would have to be close to the $200 per ton that was calculated for the Cash for Clunkers program.
In the absence of Federal subsidies, how will California finance this train? $100 billion dollars in a state with 35 million people works out to $3,000 for each man, woman and child. Are we willing to pay that average cost?
In this file photo, a wind turbine is seen at the First Wind project in Sheffield, Vt. As state governments work to reduce emissions, companies are searching for ways to make a profit. (Toby Talbot/AP/File)
Is there money to be had in carbon restrictions?
Matthew Wald of the NY Times reports that two companies called SolarReserve and BrightSource are thinking ahead about profits they can earn when state electric utility commissions enact the combined policies of aggressive renewable portfolio standards (RPS) and time of day pricing. A RPS of 33% would mean that an electric utility must purchase 33% of its power from renewable sources such as wind and solar. If total demand peaks each day at around 3pm and then declines throughout the rest of day gradually , then the price of electricity could soar at around 6pm each day because the sun is no longer shining and solar won't be generating much electricity.
Anticipating that there could be serious profits to be earned by those generators who have capacity to sell at that hour, these companies are developing storage technologies that will allow them to sell at that hour.Note the key synergy here. Solar power becomes more "feasible" if there exists such a storage technology so there will be greater investment in solar. As there is greater investment in solar, this encourages more investment in storage technology. Similar to peanut butter and jelly, the two go together. Now is government $ needed here? The DOE is betting on SolarReserve. Will this be another Solyndra? In the absence of government $, would the private sector have funded this? Is VC capital aggressive or highly risk adverse?
Icicles cling to oranges in a small grove just after sunrise Wednesday Jan. 4, 2012, in Seffner, Fla. Kahn argues that rather than threatening our food supply, global warming will bring about innovations in food production. (Chris O'Meara/AP)
Will global warming wipe out our food supply?
Thanks to forward looking "doom and gloomers" such as the Asteroid Miner (see below) we have been warned about future threats to our food supply.
I quote this source:
- Asteroid Miner
- Illinois
Make it very short: If GW (Global Warming) is not stopped, there will be no food some time in the 2050s. Food production is already being impacted by GW.
- Dec. 25, 2011 at 9:08 a.m
In a world with 7 billion people, if some folks agree with AM (Asteroid Miner)'s forecast then they will have strong incentives over the next 38 years to seek out new ways to grow food. Such individuals would recognize that there is a chance that AM is wrong but that global warming raises the probability that he is right.
The funny thing is that the anticipation that he could be right raises the probability that his prediction will be wrong! If 1% of 1% of the world's 7 billion people get to work on this food scarcity problem, then we will have 700,000 people working on the problem. Could they all fail as venture capitalists and others with funding fund this group to come up with new ways to grow food in our hotter future? We don't need each of these 700,000 to succeed. A future farming Steve Jobs will emerge from this set and he will become quite rich and we will continue to eat and Asteroid Miner's kids will thank him for playing the role of Paul Revere.
Stanford quarterback Andrew Luck answers reporters' questions concerning Oklahoma State during a news conference Wednesday in Scottsdale, Ariz. Stanford will play Oklahoma State in the Fiesta Bowl Monday, Jan. 2. (Paul Connors/AP)
Andrew Luck, sustainability, and unsportsmanlike comments
In this morning's SF Chronicle, Scott Ostler writes about Stanford QB Andrew Luck's choice to take easy classes this semester as he focused on his Saturday games and his chance to win the Heisman Trophy. Here is the quote that caught my eye.
"Luck needs two more classes to graduate. He will skip the upcoming winter quarter to prep for an NFL career, then come back in the spring to pick up the classes.
Luck did dial it back a tad academically this past quarter, as he dealt with Heisman Trophy hoopla and Stanford football. But it's relative.A month ago he told me, "At this point you realize, 'I'm not going to take classes in school that are going to tax my time completely.' Which is not to say that I don't put the effort into the classes. But I'm not going to take the maximum amount of units, or a hard studio class for architecture."Luck said he took two art history classes and a course in urban sustainability, whatever that is. Easy courses?"I wouldn't call 'em easy," Luck said, uneasily, "but on the lighter workload side. I wouldn't want to disrespect the professors."You know how big-time football stars hate to disrespect their professors.Luck, due to some oversight, never received the College Superstar Athlete Manual. He attends classes, gets good grades (around a 3.5 GPA), rides his bicycle around campus and lived in the dorm his first three years."
So, Dr. Ostler --- you dare to mock "urban sustainability"? Allow me to offer you a short course on this subject.
You have a job at the SF Chronicle because there is a city called San Francisco. If there were no cities, you would be a farmer and would spend your days doing hard work just to make sure that your family has something to eat. You wouldn't have a tractor because such farming equipment is made in cities.Good luck using your hands and other primitive tools.
All over the world, billions of people are moving to cities and becoming richer because they are moving to cities. If everyone in India and China achieves the American Dream of earning a good wage and then buying a home and a car and consuming electricity, will we run out of oil and other natural resources? Will we unintentionally exacerbate the challenge of climate change because of the fossil fuels we use in powering our economy? Could we unintentionally kill off the golden goose because our cities are growing? These are some of the major themes of urban sustainability? You and Mr. Luck should pay more attention in class. This is an exciting field. If you would like to learn more, go to this webpage and start reading!
Now, maybe Stanford is to blame for not offering rigorous urban sustainability classes? I taught for one year at Stanford in 2003-2004 and was very happy with the students but I doubt that "urban sustainability" is taught by an economist. So, Mr. Luck's experience may be an example of why serious universities should be hiring more economists so that we can teach these classes. The rigorous tools of economics can be applied to many subjects that appear to be far removed from "supply and demand".
Dr. Ostler and Dr. Luck have both chosen to live in the San Francisco metropolitan area. It is well known to be a "Green City". Do they believe that this status was simply caused by god giving it good temperate climate and some topographical beauty? This is surely part of the equation but don't forget the human aspect. The area self selects liberal, educated, sophisticated people (think of Berkeley) and these folks vote for policies that further "green" the area.
This in a nutshell is "urban sustainability". When Andrew Luck is playing for the Colts in Indy, he may want to go back to his notes to think about how to make that city nicer. Don't simply blame the cold weather. Chicago is "green" these days. Why? Take a course in urban sustainability and stay awake this time!
This file photo shows a wind turbine near Arlington, Ore. According to new legislation, By 2020, 33 percent of the state of California's power must come from renewable resources, like wind and solar. (Rick Bowmer/AP/File)
Can California meet its lofty energy goals?
Today, California's electricity is mainly generated using natural gas. By the year 2020, AB32 legislation requires that 33% of the state's power come from renewables such as wind and solar. This is the renewable portfolio standard (RPS). For years, I have wondered what will be the cost of achieving this ambitious goal.
In recent days, the CEC has released documents from a recent conference on the RPS. As usual, I see lots of talented engineers presenting stuff but unless I'm mistaken I don't see any economic analysis. Is that puzzling? Why should economists be involved? I would think that economists could model the likely impact on electricity pricing from substituting to renewables. I would think that residential, industrial and commercial consumers will care about such a prediction. In terms of formal economics, what does the state's supply curve for power look like? How binding a constraint is the 33% RPS? In english, what would be the price per kWh if we continue to use natural gas as the energy source versus what would the price be under the 33% RPS? For an optimistic opinion on this issue read this.
From an economic science point of view, this big green push offers an excellent test of the "learning by doing" hypothesis. Does the average cost per kWh of renewable power decline with more cumulative production? As the industry matures, is there more investment in renewables? Is Adam Smith's pin factory of specialization taking place here?
Also don't forget about international trade and globalization. As the United States imports renewables equipment from India and China, our costs of installing such completed systems decline. MIT's Technology Review has published a nice piece on this. For some facts about recent international trade patterns, read my paper joint with Aparna Sawhney.
Here is our sexy abstract:
We track US imports of advanced technology wind and solar power-generation equipment from a panel of countries during 1989-2010, and examine the determining factors including sector-specific US FDI outflow, country size, and domestic wind and solar power generation. Differentiating between the core high-tech and the balance of system equipment, we find US imports of the both categories have grown at significantly higher rate from the relatively poorer countries, particularly China and India. US FDI is found to play a significant positive role in the exports of high-tech equipment from both rich and poor countries, especially for the balance of system equipment. For the core wind and solar equipment, we find domestic renewable power generation played a significant positive role, and the effect is more pronounced for the rich countries as well as China compared to other poor countries.
and here is a well written paragraph from the paper's introduction:
There is a certain irony that trade with developing countries is accelerating the development of the “green economy”. The trade and environment literature has studied the conditions such that poor nations would be pollution havens for rich countries as dirty factories could escape tight regulation in rich countries by re-locating to poorer nations (Copeland and Taylor 2003, 2004). This literature emphasizes that the location of dirty economic activity will be determined by both factor endowments and regulatory intensity. In the case of “green energy” trade, the poorer South is emerging as a key provider of cheap equipment for renewable-power generation to the rich North for its production and consumption of clean energy. If clean energy prices decline then they are more likely to induce a composition shift as nations choose to substitute them for fossil fuel generated electricity (i.e coal and natural gas). Such a composition shift could significantly reduce national greenhouse gas emissions associated with power generation.
I hope you agree that I should teach less so that I can devote more time to writing such witty prose?
On an unrelated note, I will soon be in Berkeley, CA to restore my liberal/green street credibility. If you want to see me, look for me at Strada.
Seen through falling snow, the dried leaves of a sawtooth oak tree cling to branches in Salina, Kan. As cold weather approaches, cities are preparing by stocking up on snow plows and other winter equipment. (Tom Dorsey/Salina Journal/AP/File)
Cities adapt to wacky weather
Optimists of the world unite. This article talks about cities making capital investments in "winter weather equipment, which will help better prepare the roads for travel when the weather hits. Dallas, Atlanta and Chicago have all readied themselves for the upcoming season by purchasing new snow plows and other equipment. "
Doesn't this sound like learning from experience and investment under uncertainty? This is the "small ball" of adaptation. Now, will London's airports buy some snow plows? I believe that the answer is "yes". Capitalism offers many products for adapting to new weather patterns. Where there is demand, supply will follow.
Economic theory predicts that we do not make the same mistake twice. We learn from past mistakes and change our behavior to protect ourselves from scenarios such as wacky weather that become more likely because of climate change. When we know "that we do not know" what extreme weather will be, we purchase certain types of "insurance" such as having extra plowing equipment in case an extreme snow storm takes place. Be prepared! While adaptation is not costless, this forward looking approach (armed with the financial resources to finance the equipment purchases) helps to protect us.
Doom and gloomers are implicitly adherents of behavioral economics. If we are myopic and we do not update our prior probability assessments then we can certainly be blindsided by climate change but as this Wacky Weather example highlights, investment patterns are changing in anticipation of the "new normal". Again, this is the logic of Climatopolis!
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