Research

Project Number:
SP 06-01

Project:
A Computable General Equilibrium Model of the Southern California Economy: The Ports, Transportation and the Environment

Abstract:
The contribution of the ports of Los Angeles and Long Beach to the economy of Southern California is extensive. The direct and indirect employment opportunities created at the ports help to generate a relatively high standard of living for many individuals in the region. Experts predict that the economic activity at the ports on the west coast will continue to expand with the volume of containers handled expected to double by 2010 compared to 2000. Unfortunately, there is a negative side-effect from this increased economic activity that must be explicitly considered in order to determine the optimal level of economic activity at the ports. The primary objective of this project is to develop a computable general equilibrium model (CGE) that will capture the linkages between economic sectors and various environmental policy proposals. A CGE model will allow us to consider the economic impact of emissions reductions policies on all sectors of the economy simultaneously.

The very nature of the economic activity at the ports implies that regulations affecting the emissions of pollutants related to the movement of the goods shipped at the ports will have a significant affect on all sectors of the regional economy. Vehicles calling at the ports of Los Angeles and Long Beach (ships, trucks, and trains) emitted 2.3 tons of particulate matter per day to the region in 2001 (Barringer, 2005). The California legislature has begun to consider regulations on diesel trucks that pick up and deliver containers at the ports (AB 2650). These trucks, left running while queued at the ports, contribute to emissions while adding nothing to the final value of the delivered product (Broderick at al., 2002). A recent study found that health effects from particulate matter in Los Angeles and its surrounding areas are two to three times previously thought indicating that the economic effects on the health care sector are significantly higher than previously identified (Jerrett et al, 2005). A CGE model would be able to analyze the effects on this sector of regulations on the transportation sector.

There has been no shortage of calls for regulatory action to address the environmental emissions resulting from the economic activity at the ports. The Governor and the ports of Los Angeles and Long Beach have reacted to this by pledging to reduce emissions generated from port activity. The new director of the Port of Los Angeles has announced his goal to cut pollution by 80 percent (Sterngold, 2005). The Port of Long Beach has been touting itself as a “Green Port,” spending $1 million to make alternative maritime power available at one of its terminals. Governor Schwarzenegger, in Executive Order S-3-05, stated his objective for the state of California is to reduce emissions of greenhouse gases to “less than those … produced in 2000 by 2010.” Although this EO was not directed at the ports, the economic impact of meeting such a target will undoubtedly be significant, particularly since the Air Quality Management District has responded that this goal is inadequate. State Senator Alan Lowenthal, author of prior legislation intended to penalize terminal operators for truck idling, has stated that ports should “set a goal of zero emissions.” (Mongelluzzo, 11/21/2005).

What is missing from the public health studies and the environmental impact reports is an analysis of the economic consequences of meeting these emissions targets. Estimating the impacts of meeting these environmental targets for each sector of the economy in a partial equilibrium framework is inadequate. Cost calculations cannot just focus on the direct costs of pollution mitigation such as AMP, retrofitting trucks, and improving rail infrastructure. The spillover effects from one sector of the economy to another require a general equilibrium context for the analysis.