Tuesday, January 15, 2013

Air Pollution in Beijing the 2013 Version

Before I talk about Beijing, here is a link to a NY Post article about "sugar daddies" helping undergraduates finance their high tuition bills.    Do you view this as gross?  Or do you celebrate how capitalism evolves to help people adapt to new financial challenges?  Are you happy that the 1% and the 99% are interacting in the big city?   Cities do foster social interactions.

Turning to Beijing, recent air quality levels have been horrible.  This has been a cold winter in Beijing and the authorities have increased their coal use for creating heat to keep the people warm.  Throughout Beijing, there are these strange cones belching out smoke during winter.

Why hasn't this growing, rich city moved up the energy ladder from coal to cleaner natural gas for providing winter heat?  Yes, it would take money to make this conversion but if there are 10 million people in Beijing and if each person suffers $200 in health damage each year (I'm making up this number) due to coal use, then the total annual externality from exposure to this coal induced pollution is $1 billion.  At a 2% interest rate (and I pick this interest rate to reflect the likely faster growth of the Beijing economy and so the $200 number will rise over time),  the Present Discounted Value of benefits of this transition is $50 billion dollars and this must be greater than the 1 time cost of making this transition.

What is slowing down the authorities from doing this?  A coal to natural gas transition would also create jobs in Beijing!  Green Jobs!  The Beijing government could easily finance this by not buying a few U.S bonds.

Economics gets interesting when economists identify a pareto improvement that hasn't been embraced yet. Another urban example is road pricing.