How COVID-19 Has Powered Down the US Economy, with Steve Cicala

Notable quotes

• Working from home might be increasing electricity demand: “It was in the past couple of weeks where it looked like there was this sudden miraculous recovery in the US economy. [Electricity demand had] been down by about 7 percent, and then within the course of two weeks … shot up to basically back to normal … It's looking like this is because people are working from home. It's really just in those two weeks that anyone has really started firing up their air conditioners in any meaningful way.” (7:37)
• Declining energy consumption has catalyzed a transition to renewables: “I think [this shock] has foreshadowed what running a grid with higher renewable penetration is going to look like … The reduction in electricity consumption that we saw happened right in the heart of when electricity consumption was already low … I think [this] gave a lot of system operators a preview of how it's going to be managing a grid, because … you're getting all of this power from renewable sources, and there really isn't too much consumption to soak that up, and really less room to be firing up coal-fired and gas-fired plants to meet demand.” (19:56)
• Consumer confidence can affect demand more than lockdowns: “In Europe, they've eased many of these restrictions, but electricity consumption is still down. I think that as contact-tracing apps [become more prominent], you'll start to really see economic behavior following the confidence that the virus is under control.” (31:54)

Top of the Stack

• "Another Way to See the Recession: Power Usage Is Way Down" by Quoctrung Bui and Justin Wolfers
• "Early Economic Impacts of COVID-19 in Europe: A View from the Grid" by Steve Cicala
• "What Is Owed: It Is Time for Reparations" by Nikole Hannah-Jones

The Full Transcript

Kristin Hayes: Hello, everyone. Welcome to our very first Resources Radio live recording. I'm your host, Kristin Hayes. Our regular listeners will know that Resources Radio is a weekly podcast from Resources for the Future. This week, we're trying something new and recording the podcast in front of a live, albeit virtual audience for release next Tuesday. So we'll largely be sticking with the format of our regular podcast series where I asked our guests a range of questions for about half an hour, but this live recording format also allows us the opportunity to take some audience questions. And in addition to being lightly edited for the podcast, this public webinar is being recorded and will be posted on our website afterwards.

So just as a quick reminder, Resources for the Future is an independent nonprofit research institution based in Washington, DC. Our mission is to improve environmental, energy, and natural resource decisions through impartial economic research and policy engagement.

So as your invitation to this event noted, our Resources Radio live series will focus on topics that lie at the intersection of the COVID–19 pandemic and energy environmental issues. There's a lot of interesting research underway in this area, and while it's still too early for most definitive results to be released, even early findings can help shed light on important trends. So to kick off the series, today I'm talking with Steve Cicala, who is an assistant professor at the University of Chicago Harris School of Public Policy, at least until next week, when he will be moving to the Department of Economics at Tufts University. He's also a faculty research fellow at the National Bureau of Economic Research. Steve undertook one of the earliest looks at electricity demand during the peak of the pandemic lockdowns in the US, as reported back in April in the New York Times. So I'm very fortunate to have the opportunity to revisit that work with Steve today, to ask him how the numbers have evolved in the subsequent two months.

And because this is a live recording, as I mentioned, you also have a chance to ask Steve questions. I would encourage participants to submit their questions at any point during the webinar to the Q&A box, which they can find located at the bottom of their screen. We'll be monitoring those questions coming in and we'll try to get to as many as possible after Steve and I talk for a bit. So thank you all for joining in this inaugural Resources Radio live recording. And with that, let's dive in.

Steve, welcome. Thank you so much for joining us on Resources Radio.

Steve Cicala: Yeah, thanks for having me.

Kristin Hayes: Yeah. You're a trouoper for joining us in this experimental new format too, so. I always like to start with an introduction to our audience of our guests, so can you just tell us a little bit about your background—personal, professional—and what drew you to working on issues related to energy and the environment?

Steve Cicala: Sure. So I'm from the Hudson Valley in New York, about halfway between Albany and New York City. I was an undergrad at UChicago, I did my PhD in Economics at Harvard, then I turned around and went back to the University of Chicago and have been there for the past few years. And as you mentioned, I start Tufts next week.

So my interest in energy and environmental topics has been sort of for a combination of different reasons that there've been a few different pieces that really come together nicely in energy and environmental economics if you're interested in the topic of regulatory design, as I am. So a lot of times there's some kind of market failure—either a firm is exerting market power or polluting or any number of reasons—that sort of gives a starting point to start thinking about what sort of regulatory intervention should we undertake in order to start reducing this harm. I mean, as it turns out, of course, exactly how you decide to do that, the design of the regulation, is really important to determine whether that intervention is actually going to improve welfare at all. It can on net reduce it, it can have all kinds of unintended consequences. And so I find that energy and environmental economics is a really nice setting for studying those kinds of problems where there are real stakes, there are really important questions, and the answer is important for determining human health and wellbeing and any other sort of situation in which there are important stakes.

Kristin Hayes: Okay, great. Well, today the focus of our conversation, as I mentioned, is on electricity demand during the pandemic, so I guess I just wanted to start with a high-level overview of your findings. Can you just tell us—obviously a number of communities were under pretty strict lockdowns during this period, electricity demand changed pretty substantially—what did you find about the ways in which it did change?

Steve Cicala: Yeah. So it changed very abruptly. Actually, it started before the lockdowns themselves and so this has been an important and somewhat contentious point about, should we lift the lockdowns if the lockdowns are the reason for all of this economic disruption? That if only we lifted the lockdowns, things would get better. Electricity consumption actually started declining a bit before the lockdowns themselves began and have persisted after the lifting of lockdowns themselves.

So in the United States, it has settled at about 8 percent, an 8 percent drop in electricity reduction, say through April and May, and there's differences across the country that we can talk about in a minute. I've also been looking in the EU as well. The EU was an even bigger drop, more like thirteen or so. It came back from about 13 percent relatively quickly and has been on a sort of slow, steady recovery since then, too. I think it's now at about minus seven.

Kristin Hayes: Okay. All right. I guess one other contextual question that I wanted to ask you is in what way is electricity use a good proxy for overall economic activity? And in what ways do we need to be cautious about extrapolating those findings too much? So what are the caveats that you would want to give? I know researchers always want to make sure they're being as precise as possible, so what are the caveats you'd want to give about what we can learn from this?

Steve Cicala: Yeah, this is a really important one because there's two different reasons to be interested in this. I think one is if you're just interested in the energy sector, you would like to know what's happening in the energy sector, what are the implications for emissions, pollution, that sort of thing. And then another is: what does this tell us about the health of the economy? Because if we're writing $2 trillion pieces of legislation, while we're flying completely blind regarding the underlying state of the economy, then if we can learn something about the underlying state of the economy, more or less in real time, then that's really valuable.

So I think one of the major caveats and one of the things that I've been focusing on a lot lately is that the COVID shock is a particular kind of shock relative to, say, prior economic shocks. One that has had people working from home quite a lot and so it's in fact really just starting now. It was in the past couple of weeks where it looked like there was this sudden miraculous recovery in the US economy, we'd been down by about 7 percent as I described before, and then within a course of two weeks, or even a week, shot up to basically back to normal, and we're like, "What is going on here?" So this is not final yet, but it's looking like this is because people are working from home. It's really just in those two weeks that anyone has really started firing up their air conditioners in any meaningful way, and it takes more electricity to cool down everyone in their homes, because they're cooling their entire homes, than bringing everyone into offices and cooling those offices while their homes aren't being chilled quite as intensively.

And so trying to separate these sort of offsetting forces … In the summertime, I think there's actually going to be higher electricity consumption relative to normal because there are going to be some commercial spaces that are starting to cool or some people are coming to the office and you need to run the air conditioners if people are coming into the office, really at all, whether it's at 20 percent capacity or to 100 percent capacity. And at the same time, everybody else is still home and they're running their air conditioners from home. And so that just means that there's a lot more cooling going on.

Kristin Hayes: Interesting. Yeah, I think this question of how to break down your findings by region, by type of customer, whether it's commercial real estate, residential real estate, is a really interesting part. So I wonder if you could speak a little bit to how you were able to disaggregate the data and then how much those variations either between, again, type of customer or by region, how much those matter? Are there big differences across those?

Steve Cicala: Yeah. So the data that I'm using is called system load. It is a measure of how much electricity is being taken off the grid, and how finely you can observe that varies a lot by region. So it's hourly or even sub-hourly in some places, just about everywhere. But in New England, for example, the zones are states themselves. New York City, you can observe separately from different zones in New York—Iit's called ISO, Independent System Operator. They're the auctioneers who are keeping the lights on every day by running auctions and deciding which power plants are going to operate. So you've got that sort of variation, but you also have absolutely massive areas, the Tennessee Valley Authority or markets in the Midwest, where they don't really report sort of specific zones. And instead, you're actually seeing a share of the US electricity consumption in that number.

And so there are many differences in how fine an area you can monitor, but a relatively common pattern, that at this point it's sort of the signature pattern of a drop at the end of March, bottoming out around Easter. And then depending on how warm it's been in the past couple of weeks, really coming back.

Now, that's all at the system level. So that's residential consumers, commercial consumers, industrial consumers, everything being taken off the grid is being built into that number. And so one of the other latest things that I've been trying to pull together is that I've been working with a firm called Innowatts that works with utilities, monitoring meter data and getting some data on residential consumption, because what's happened there is there has been an increase in residential consumption, so the numbers we've looked at so far in Texas are about a 8 to 10 percent increase in residential consumption. And as cooling starts to become more intensive, well, then you're going to start to see even more increases in residential consumption. That's going to have some implications for consumers in the summer as they think about, you know, you have an employment shock and now your bills are going up too because you're running your air conditioners because you're at home all day.

It also means that the drop in commercial and industrial consumption is even larger than this overall, say, 7 percent number that we've been looking at because it's being masked somewhat by an increase in consumption from people working from home.

Kristin Hayes: Can I ask you one -semi- spontaneous question about the issue you just raised? So I live in Washington, DC, and we've had several notices from Pepco, the local utility, that bills are going to be postponed for a while. So is this something that as you're thinking about the policy implications or the utility implications here, where you're recognizing that the employment impacts are still very much affecting the US economy? But as you said, consumer demand continues to increase. And so do you see that policymakers have a role in continuing to mitigate the effect on consumers who may have lost their jobs? I know I'm putting you on the spot here.

Steve Cicala: No. I mean, I would expect that towards the end of the summer, my guess is that there's going to be a lot of bill shock and the fact that it is clearly related to what's going on may provide the basis for governments helping people with their electricity bills.

Kristin Hayes: So, of course you originally did this research back in April. That was when, I think, some of the original results were published. We've now had time—obviously, you've had time to continue this work—but others have also had a chance to undertake additional studies. So, could you just reflect a little bit on—, as the world has also engaged on this topic—, how your results compare to what others have found? Were there any surprises in looking across the body of work as it's evolving?

Steve Cicala: Yeah. So people have sent me some similar studies in different settings, Brazil—my colleague at Chicago for the next week, Fiona Burlig, has been doing some work on India that has shown similar patterns—Switzerland, Canada, a few other places where it's largely consistent with electricity consumption falling pretty quickly as the disease spread. I think really at the moment, the surprising thing that I'm really still trying to fully get a handle on to separate how much of the recent recovery is an increase in economic activity, and that's the reason that electricity consumption is coming back, separating that out from cooling.

Kristin Hayes: Maybe just to follow up on that a little bit, how are you thinking about answering that particular question to shed light on the underlying effects? Again, I know you're sort of in the middle of this, but how are you thinking about it?

Steve Cicala: Yeah. So this is a setting in which having a high frequency data is really useful. I have hourly data, and so you can see how electricity consumption is changing over the course of the day as weather fronts move through, as it's cooler from one day to the next. I mean, even in the raw data, if you plot cooling degrees, which is sort of the number of degrees, I think in Fahrenheit it'd be above 65 or 68 degrees—something like that—the number of degrees above that baseline against the changes in electricity consumption for what looks like an increase over time. One figure is effectively a shadow of the other; it's very clear. It jumps out that these two things are intertwined, and so it's just going to be a matter of accounting for the extent.

Kristin Hayes: Okay. Maybe just to build on that too, are there ways in which you're thinking about marrying other types of data together? Some of the things that I feel like people have looked at are combinations of electricity data with mobility data. Are there other big-picture questions that you're hoping to answer where this might be a foundation, but ultimately you could combine these findings with something else to give us a more robust picture of what's happening?

Steve Cicala: Yeah. Sort of in that direction, the main paper that comes out of this, I think there's sort of a few different pieces because there are really different, interesting questions to answer, but the main one is about using electricity to monitor the health of the economy. And so actually looking back in time at what happened during the Great Recession to learn what we could have known about the underlying state of the economy, given the data that were available at that time while we were still flying blind and putting together the stimulus package and that kind of thing, using that, in combination with separating out cooling and all of these other kinds of things around in the background with COVID, being able to monitor what's happening right now. I think at the end of the day that's the most important thing that could come out of this is better information about what's happening in the economy right now.

I think it's becoming increasingly clear that this situation isn't going to be a one-time shock and then we're done and then, "Do things look fine? Okay, things look fine. The wave has passed." It's going to ebb and flow. And as it's doing that, we'll need to be on top of what's happening to the economy itself.

Kristin Hayes: Yeah. I've seen some interesting graphic representations of what a recovery might look like and the changing illustrations of maybe we've moved from a V-shaped to a Nike swoosh, and now there's some reverse radical. I don't know, there are all sorts of sort of predictions, but I guess what I'm hearing is that the work that you're doing can in fact help inform what we know about the recovery pattern. So it's one piece of key data that can shed light on what that recovery is going to look like, is that a fair assessment?

Steve Cicala: For sure.

Kristin Hayes: Okay. Well, so this is the point in the podcast where I ask you to speculate on a highly uncertain future, so I know I'm putting you on the spot again, but given what you've seen about changes in electricity demand during the lockdown, plus what the recovery in demand has looked like so far, does this period represent any sort of structural change for the electricity sector? If so, in what ways? Are these patterns that are likely to persist in some way? Again, this sort of plays into, what does the recovery pattern look like? But feel free to use your crystal ball as best you can and would like to, and speculate on that.

Steve Cicala: I think one thing that's been interesting about the shock for the grid, so this is no longer what's happening in the economy, but sort of what do we learn about running the electricity grid itself, is that I think it has foreshadowed what running a grid with higher renewable penetration is going to look like. A lot of times when, say, a hurricane makes landfall, one of the main concerns is, what are the tides going to be? Is the storm surge going to arrive when it's low tide and therefore the two sort of offset each other a bit and it won't be as bad? Or if that storm surge hits when it's high tide, we're really in a lot of trouble. We're really getting the worst of it.

And so this shock happened, there is a natural flow to electricity consumption over the course of the year, that it's very high in the summer time when people are cooling, it tends to be higher in the winter when many people use electricity for heating as well. And it's really during the spring and the fall that electricity consumption tends to be really low. They use those periods to do annual maintenance on plants and that kind of thing. The reduction in electricity consumption that we saw happened right in the heart of when electricity consumption was already low, so it was sort of flipping signs, but the hurricane arriving right at high tide was that we had this reduction when it was already really low.

When you have a grid where renewables are going to produce electricity at any price, so they were effectively unimpacted short of the prices being lower, but their output was largely unaffected, that really put the hurt on fossil-fired plants, gas, and coal. And I think gave a lot of system operators a preview of how it's going to be managing a grid with a more modest percentage of renewables, because you're getting all of this power from renewable sources, and there really isn't too much consumption to soak that up, and really less room to be firing up coal-fired and gas-fired plants to meet demand.

Kristin Hayes: Interesting. Okay. So it sounds like there's some important lessons that whether it's system operators or utilities themselves can be learning here, but whether this leads to any long-term structural change in the use of plants, it's hard to predict at this point?

Steve Cicala: Yeah. I mean, I shouldn't immediately dismiss the possibility because one really fascinating thing that happened—I mean, the origins of this project was actually long before COVID, when I was first putting electricity data together. If you just sort of plot the time series of electricity consumption, it was sort of increasing in lockstep with the economy over time. And then the Great Recession hit and electricity consumption fell by about 7 percent, and then you'd expect it to sort of come back and then the economy has grown 24 percent or something like that since the depth of the Great Recession. But from 2010 to 2017, electricity consumption fell by another 7 percent. That is completely unprecedented in a modern economy to have this decoupling of electricity consumption and economic growth. That happened.

Kristin Hayes: Is that largely due to increases in efficiency? Is that why?

Steve Cicala: So that's what I'm looking forward to one day going back to. I was working with Lucas Davis on exactly this question when COVID hit, and now it's back-burner because it was, why is, so we're using the present tense, why is electricity consumption declining in a growing economy? And well, it's not growing anymore and so that's not today's question. But I think ultimately, there is that question of why exactly, what have been the main drivers of this decoupling of electricity consumption and economic growth? And to what extent, possibly, the shock of the Great Recession played a role in it? Because if it did, we can start to ask, well, what may be the long-term implications for the sort of longer-run growth or lack of growth in electricity consumption, given the current shock?

Kristin Hayes: Very interesting. Two follow-up questions for you, then. One is: has that decoupling also been seen in other types of energy use? Electricity has been decoupled from economic growth, but the use of other types of energy for other processes has continued to grow?

Steve Cicala: Yeah. That I'm not sure.

Kristin Hayes: Okay.

Steve Cicala: Yeah, that I'm not sure about. Yeah.

Kristin Hayes: Well, someone in the audience, there you go. Someone else can report back to me afterwards, that'd be great. But yeah, that's very interesting.

I had a second question for you too. Well, hopefully it will come back to me, but thanks, Steve. This is really helpful. So I do want to quickly pivot and see if we have any audience questions coming in. To do that, I'm just going to quickly look at the Q&A and, okay, so a very interesting question from one of our attendees. "So with the increase in residential consumption, could there also be an increase in the risk of brownouts? Are we changing patterns of consumption in a way that could lead to any sort of systemic risk about availability?"

Steve Cicala: Yeah. So this has been a question that a number of people have been working on in the context of electric vehicles, of thinking about what changes we need to make to the distribution system. So after power is generated, it goes on to the bulk transmission system, it comes off of the bulk transmission system into the local distribution network, and you need to have enough capacity on the local transmission network to handle that power. That has historically been a one-way relationship that's changing now with rooftop solar. And so sort of the combination of a lot of rooftop solar and potentially electric vehicles is going to put new kinds of stresses on the transmission system. If there is more cooling than there has been historically, then even if we have enough power plants to generate all of that power, thinking about, do we have enough local distribution capacity, local transformers? The stress on that system is an interesting question.

Kristin Hayes: That actually reminds me of the second thing that I wanted to ask you too because it seems like, in general, I feel like part of the climate policy, or the climate conversation, maybe not so much the policy side, but the sort of long-term vision for how we would reduce emissions in this country involves electrifying a lot of things that today haven't been electrified. And so I guess, I don't know if you have any comments on that trend in the context of what we're seeing now, whether that could actually be easier because, well, I guess renewable prices were low anyway, but are there interplays between that economic driver to decarbonize in what we're seeing now that come to mind for you?

Steve Cicala: Not that come to mind off the top of my head. I think more or less I'm on board with electrifying things, I see the value of electrifying things, but yeah, not off the top of my head.

Kristin Hayes: Yeah. I think that'll definitely be another thing to watch too, sort of how these interplay over time.

Okay, another question from the audience here. I feel like this is a great researcher-to-researcher question. So the question reads: "The COVID crisis and the Great Recession seem different. COVID began exogenously while the Great Recession was endogenous to the economy. How are you thinking about this potential difference in fundamental cause when making these counterfactual projections across economic downturns?”

Steve Cicala: Yeah. So that's a good question. There's been work that has looked at the relationship between home mortgage debt and leverage in the housing markets to the subsequent downturn that happened. So you had that variation across spaces. It technically started a year before the financial crisis itself, and that was a very sudden shock that's really, I think, not too different from the kind of when we're talking about sudden shocks from what we're observing now. I do think that over the longer run, there's this very important difference. I think that electricity consumption over long time horizons is, for some of the reasons we described before, not a very good indicator for what is happening in the overall economy. But for these sudden shocks, I think that the financial crisis in, was it September of 2008? Does that sound right?

Kristin Hayes: I think it was October, but yeah, very much stuck in the memory.

Steve Cicala: Yeah, that was a very sudden crisis in a similar sort of setting of when you're talking about a time horizon where things are moving fast enough that you don't have traditional economic indicators. That's where I think this would provide the most value.

Kristin Hayes: Great. Yeah. Okay, well, I want to ask one other audience question, but this one will draw on your very interesting current experience. So we were talking, just before we started broadcasting, about your current location. You are fortunate to be in the lovely country of Switzerland for the summer, and we were talking about how, given the different degrees that the pandemic has ebbed and flowed, the response has been quite, or the sort of current circumstances of opening in Switzerland look quite different than a lot of places in the US, and so I wondered if you could talk a little bit more. You mentioned a little bit about how these demand patterns look different across different regions, but as time has gone on and lockdowns have sort of changed at different rates, is there anything more you can say about the sort of regional differences between recovery in a place like Switzerland compared to the US or you mentioned Brazil and India, or some other places? Maybe just a little bit more about other contexts.

Steve Cicala: Sure. I mean, I think that you do see differences in areas that correspond with the policies that they've enacted. So a really good example of this is in Florida where everyone has sort of looked at Florida and been like, "Florida's behaving like Florida," but Tallahassee actually had a lockdown, and they report their electricity consumption separately from Florida Power and Light. And so even in very close proximity, you see a very different pattern in electricity consumption between these two areas. I think that in the US, as we are easing lockdowns, to the extent that we don't have things in place that make it safe to go back to your normal life with any confidence that the virus isn't spreading uncontrolled in the population. And so you would expect people to continue taking precautions, including not going out to dinner or many of the sort of things that keep a local economy running.

In Europe, they've eased many of these restrictions, but electricity consumption is still down. I think that as contact tracing apps—so Switzerland just launched their contact tracing app today—I think you'll start to really see economic behavior following the confidence that the virus is under control. And if you don't have confidence that the virus is under control, whether you should be locked down or not, I think is a distraction from thinking about, what are the economic implications of the virus?

Kristin Hayes: Well, as you noted right at the beginning too, the decrease in consumption started before the official lockdowns and it sounds like it will continue after, which is, again, a good indicator that this is more about overall consumer comfort levels with being out in the world as opposed to any specific policy measures, but, well, Steve, this has been really interesting. I really appreciate it. I did want to close with our regular feature, which we call Top of the Stack. So we ask our guests to recommend just more good content, it could be a book, it can be an article, a podcast to our listeners. We've had some really awesome recommendations during the pandemic, during lockdown. People have gotten much more creative with the things they recommend on Top of the Stack, so feel free to recommend whatever works for you. But what would you want to recommend to our listening audience?

Steve Cicala: It's really tough. There are so many different things happening now all at the same time, and so I'm very happy to be talking about energy and environmental issues. I think in terms of keeping up with some of the other things going on in the world, there was a long article in the New York Times Magazine this past week or coming week on reparations that I thought was very thoughtful, and I recommend it.

Kristin Hayes: That's great. Thanks. Yeah, we've actually had several of our guests sort of speak to the other context in which we're having important dialogues these days, so thank you for that extra recommendation.

So, Steve, I'm probably just going to thank you again for your time. It's been a pleasure. And again, thank you for experimenting in this new format with us and yeah.

Steve Cicala: A pleasure. Thanks for having me.

Kristin Hayes: Of course. Okay. To our audience, thank you for chiming in. Again, this recording will be available in slightly edited version, but available on our regular podcast website at Resources Radio next Tuesday. So feel free to check that out if you want to recapture any of the glory from this conversation back then. And be on the lookout for a couple of additional upcoming invitations for future podcasts and webinars in the series. Thanks, everybody. Bye bye.

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