WEBVTT 00:00:00.000 --> 00:00:01.980 align:middle line:90% [SQUEAKING] 00:00:01.980 --> 00:00:03.960 align:middle line:90% [RUSTLING] 00:00:03.960 --> 00:00:04.950 align:middle line:90% [CLICKING] 00:00:04.950 --> 00:00:10.400 align:middle line:90% 00:00:10.400 --> 00:00:15.350 align:middle line:84% SIQI ZHENG: So, OK, so, today will be the last economics 00:00:15.350 --> 00:00:17.250 align:middle line:90% session before the midterm. 00:00:17.250 --> 00:00:19.940 align:middle line:84% After midterm, we still have three, but last three will 00:00:19.940 --> 00:00:25.070 align:middle line:84% be about finance, real estate finance 00:00:25.070 --> 00:00:26.420 align:middle line:90% for sustainable real estate. 00:00:26.420 --> 00:00:31.070 align:middle line:84% Today is about policy, and so basically, today, I 00:00:31.070 --> 00:00:34.460 align:middle line:84% will talk about policy how, at first, may not 00:00:34.460 --> 00:00:36.780 align:middle line:84% be possible for sustainable real estate. 00:00:36.780 --> 00:00:39.110 align:middle line:84% And then with the policy intervention, 00:00:39.110 --> 00:00:40.920 align:middle line:84% you will see that becomes possible, 00:00:40.920 --> 00:00:43.890 align:middle line:84% so we call it policy as a game changer. 00:00:43.890 --> 00:00:45.710 align:middle line:90% So at first, maybe-- 00:00:45.710 --> 00:00:51.180 align:middle line:84% so I will give you this way to understand. 00:00:51.180 --> 00:00:57.240 align:middle line:84% So basically, remember, recall that, when in the introduction 00:00:57.240 --> 00:01:02.380 align:middle line:84% section, we put this three bottom lines, PPP, 00:01:02.380 --> 00:01:06.040 align:middle line:84% three bottom lines of the sustainable real estate. 00:01:06.040 --> 00:01:09.280 align:middle line:84% We mentioned that, of course, we are-- 00:01:09.280 --> 00:01:11.710 align:middle line:84% we want to do good things for the environment, 00:01:11.710 --> 00:01:15.940 align:middle line:84% so that's a reduced carbon emission and other things. 00:01:15.940 --> 00:01:19.260 align:middle line:84% And then we also want to do good things for the people, society, 00:01:19.260 --> 00:01:22.680 align:middle line:84% for example, healthy buildings, for example, productivity, 00:01:22.680 --> 00:01:26.400 align:middle line:90% and happiness like that. 00:01:26.400 --> 00:01:30.930 align:middle line:84% And then we also from this classroom, we are real estate. 00:01:30.930 --> 00:01:32.950 align:middle line:90% So we are like private sector. 00:01:32.950 --> 00:01:34.960 align:middle line:90% We really need to do the profit. 00:01:34.960 --> 00:01:38.310 align:middle line:84% So if no profit very hard, very hard to sustain. 00:01:38.310 --> 00:01:41.550 align:middle line:84% So we have the three bottom lines, then. 00:01:41.550 --> 00:01:45.670 align:middle line:84% Remember, when I first talked about this, they have-- 00:01:45.670 --> 00:01:46.690 align:middle line:90% they have intersection. 00:01:46.690 --> 00:01:49.320 align:middle line:84% I said, OK, in the middle of the intersection, that's 00:01:49.320 --> 00:01:54.520 align:middle line:84% our solution because you can balance all three, PPP. 00:01:54.520 --> 00:01:56.180 align:middle line:90% But that's a dream. 00:01:56.180 --> 00:01:57.470 align:middle line:90% Sometimes it's a dream. 00:01:57.470 --> 00:02:00.640 align:middle line:84% It's very hard to get the intersection of the three 00:02:00.640 --> 00:02:01.820 align:middle line:90% bottom lines. 00:02:01.820 --> 00:02:04.630 align:middle line:84% So then the market may not always work. 00:02:04.630 --> 00:02:06.230 align:middle line:90% Market may not always work. 00:02:06.230 --> 00:02:08.030 align:middle line:90% So we call them market failures. 00:02:08.030 --> 00:02:10.389 align:middle line:84% Then, if they're market failures, 00:02:10.389 --> 00:02:12.400 align:middle line:90% then we have three bubbles. 00:02:12.400 --> 00:02:14.090 align:middle line:90% We will diverge. 00:02:14.090 --> 00:02:15.590 align:middle line:90% Then if you diverge-- 00:02:15.590 --> 00:02:18.910 align:middle line:84% so basically, then you have no intersection. 00:02:18.910 --> 00:02:22.240 align:middle line:84% If you want to go to planet, no profit. 00:02:22.240 --> 00:02:24.830 align:middle line:84% Go to people, no profit like that. 00:02:24.830 --> 00:02:29.840 align:middle line:84% So we already covered the two of the market failures. 00:02:29.840 --> 00:02:32.320 align:middle line:90% Today is the third one. 00:02:32.320 --> 00:02:37.240 align:middle line:84% So a quick recap of the first two, information symmetry-- 00:02:37.240 --> 00:02:39.340 align:middle line:84% yesterday Akrisht already covered this. 00:02:39.340 --> 00:02:43.030 align:middle line:84% Information symmetry, so that means you have no information. 00:02:43.030 --> 00:02:46.120 align:middle line:84% You have no knowledge of green buildings benefit, cost. 00:02:46.120 --> 00:02:48.770 align:middle line:84% You have no information which building is a green building. 00:02:48.770 --> 00:02:52.950 align:middle line:84% So then the developer just do green washing 00:02:52.950 --> 00:02:55.690 align:middle line:84% and then just sell you the fake green buildings. 00:02:55.690 --> 00:02:59.560 align:middle line:84% And then this market will collapse. 00:02:59.560 --> 00:03:01.300 align:middle line:90% So that's the first thing. 00:03:01.300 --> 00:03:03.600 align:middle line:84% Then that's why we need the certificate, 00:03:03.600 --> 00:03:05.640 align:middle line:84% LEED, Well-- all these certificates 00:03:05.640 --> 00:03:07.110 align:middle line:90% provide information. 00:03:07.110 --> 00:03:11.490 align:middle line:84% Secondly is splitting incentive, so that one is about landlord 00:03:11.490 --> 00:03:14.700 align:middle line:84% versus tenant relationship, remember. 00:03:14.700 --> 00:03:18.390 align:middle line:84% And also yesterday covered in the presentation, 00:03:18.390 --> 00:03:21.540 align:middle line:84% split incentive means the tenants, 00:03:21.540 --> 00:03:26.370 align:middle line:84% if there is a triple net lease, then the landlord won't have 00:03:26.370 --> 00:03:28.800 align:middle line:84% the incentive to retrofit the building because they cannot 00:03:28.800 --> 00:03:36.320 align:middle line:84% recoup the benefit because the tenants pay the energy bills. 00:03:36.320 --> 00:03:38.350 align:middle line:90% And the tenants has-- 00:03:38.350 --> 00:03:40.650 align:middle line:84% also doesn't care about this building 00:03:40.650 --> 00:03:42.400 align:middle line:84% because the tenant's only in this building 00:03:42.400 --> 00:03:43.640 align:middle line:90% for five or 10 years. 00:03:43.640 --> 00:03:45.770 align:middle line:90% So that's cannot work. 00:03:45.770 --> 00:03:50.260 align:middle line:84% Then a solution to this will be a green lease, a green lease 00:03:50.260 --> 00:03:53.980 align:middle line:84% to better arrange, to better share the responsibility 00:03:53.980 --> 00:03:58.270 align:middle line:84% and also share the benefit and cost of this energy efficiency. 00:03:58.270 --> 00:04:00.730 align:middle line:84% And today, we already talked two. 00:04:00.730 --> 00:04:02.830 align:middle line:84% Then, today, we'll cover the last one 00:04:02.830 --> 00:04:04.900 align:middle line:84% that makes these three bubbles diverge, 00:04:04.900 --> 00:04:06.820 align:middle line:90% which is the externality. 00:04:06.820 --> 00:04:10.630 align:middle line:84% And do you understand the externality, at least 00:04:10.630 --> 00:04:13.030 align:middle line:90% the concept? 00:04:13.030 --> 00:04:19.070 align:middle line:84% So who already started or heard of the externality concept? 00:04:19.070 --> 00:04:20.200 align:middle line:90% Could you raise your hands? 00:04:20.200 --> 00:04:22.280 align:middle line:90% Who have already started this? 00:04:22.280 --> 00:04:23.000 align:middle line:90% OK, good. 00:04:23.000 --> 00:04:24.490 align:middle line:90% So you have basic understanding. 00:04:24.490 --> 00:04:29.440 align:middle line:84% Then we know for the externality, first, we look at-- 00:04:29.440 --> 00:04:32.810 align:middle line:84% because there's two types, positive and negative. 00:04:32.810 --> 00:04:34.960 align:middle line:90% We first look at positive. 00:04:34.960 --> 00:04:36.380 align:middle line:90% So think about this. 00:04:36.380 --> 00:04:37.430 align:middle line:90% This is the idea. 00:04:37.430 --> 00:04:40.400 align:middle line:84% So think about green buildings versus brown buildings. 00:04:40.400 --> 00:04:44.720 align:middle line:84% Remember, we always say apple-to-apple comparison. 00:04:44.720 --> 00:04:46.510 align:middle line:90% Then we have all as equal. 00:04:46.510 --> 00:04:47.980 align:middle line:90% One is green building. 00:04:47.980 --> 00:04:50.500 align:middle line:90% The other is brown building. 00:04:50.500 --> 00:04:52.930 align:middle line:90% So green building is good. 00:04:52.930 --> 00:04:57.890 align:middle line:84% Green building will generate a lot of positive externality. 00:04:57.890 --> 00:05:02.650 align:middle line:84% So these words means this is something good. 00:05:02.650 --> 00:05:09.370 align:middle line:84% And the providers, they generate those things by developing 00:05:09.370 --> 00:05:13.325 align:middle line:84% a green building, but they cannot really get the benefit, 00:05:13.325 --> 00:05:17.030 align:middle line:84% the entire benefit of the green building because they generate 00:05:17.030 --> 00:05:21.830 align:middle line:84% a lot of benefits to the society instead of to this builder 00:05:21.830 --> 00:05:24.590 align:middle line:90% or this developer himself. 00:05:24.590 --> 00:05:27.710 align:middle line:84% A very good example is the carbon emission, 00:05:27.710 --> 00:05:28.940 align:middle line:90% carbon emission. 00:05:28.940 --> 00:05:33.390 align:middle line:84% Climate warming is-- global warming is a global thing. 00:05:33.390 --> 00:05:37.400 align:middle line:84% Then all people are emitting CO2 to the atmosphere, 00:05:37.400 --> 00:05:39.200 align:middle line:90% then cause a global warming. 00:05:39.200 --> 00:05:42.140 align:middle line:84% And then green build is good because it reduce the carbon 00:05:42.140 --> 00:05:43.110 align:middle line:90% emission. 00:05:43.110 --> 00:05:46.190 align:middle line:84% However, you contribute to the entire globe 00:05:46.190 --> 00:05:47.700 align:middle line:90% instead of yourself. 00:05:47.700 --> 00:05:50.850 align:middle line:84% So you cannot get all the benefit of this. 00:05:50.850 --> 00:05:53.540 align:middle line:84% You cannot say, oh, because I reduce carbon emission, 00:05:53.540 --> 00:05:56.300 align:middle line:84% then I get benefit of how many dollars. 00:05:56.300 --> 00:05:57.120 align:middle line:90% You cannot. 00:05:57.120 --> 00:05:59.310 align:middle line:84% You just reduce the carbon emission. 00:05:59.310 --> 00:06:03.020 align:middle line:84% You will do good things for the society here. 00:06:03.020 --> 00:06:06.350 align:middle line:84% But this cannot get into your profit because there's no 00:06:06.350 --> 00:06:10.850 align:middle line:84% market, no very mature market for carbon. 00:06:10.850 --> 00:06:15.340 align:middle line:84% So this will be called positive externality. 00:06:15.340 --> 00:06:16.780 align:middle line:90% So think about the balance. 00:06:16.780 --> 00:06:19.750 align:middle line:84% Remember, we have the balance [INAUDIBLE] 00:06:19.750 --> 00:06:21.350 align:middle line:90% benefit-cost analysis. 00:06:21.350 --> 00:06:24.520 align:middle line:84% So the point here is the following-- 00:06:24.520 --> 00:06:26.860 align:middle line:84% if you build a green building-- for example, 00:06:26.860 --> 00:06:28.380 align:middle line:90% your cost is like this big-- 00:06:28.380 --> 00:06:30.950 align:middle line:90% 00:06:30.950 --> 00:06:34.970 align:middle line:84% and then you do get some benefit back, 00:06:34.970 --> 00:06:40.440 align:middle line:84% like this is a benefit, for example, 00:06:40.440 --> 00:06:43.230 align:middle line:84% your energy bill will reduce because you will save energy 00:06:43.230 --> 00:06:43.930 align:middle line:90% like that. 00:06:43.930 --> 00:06:46.410 align:middle line:84% Your bills, energy bills, will reduce, 00:06:46.410 --> 00:06:49.540 align:middle line:84% and you will get some reputation, all the things good. 00:06:49.540 --> 00:06:54.630 align:middle line:84% But you have one thing that you cannot get the monetary return, 00:06:54.630 --> 00:06:57.600 align:middle line:84% which your carbon emission-- this is carbon. 00:06:57.600 --> 00:07:05.270 align:middle line:84% You reduce the carbon, reduced carbon. 00:07:05.270 --> 00:07:09.560 align:middle line:84% So that's your-- this is your internal benefit. 00:07:09.560 --> 00:07:14.210 align:middle line:84% This is the external benefit you generated but you couldn't 00:07:14.210 --> 00:07:16.790 align:middle line:90% get into your monetary return. 00:07:16.790 --> 00:07:19.500 align:middle line:90% So that's positive externality. 00:07:19.500 --> 00:07:22.520 align:middle line:84% So if you have this remember, then you 00:07:22.520 --> 00:07:24.000 align:middle line:90% will compare benefit and cost. 00:07:24.000 --> 00:07:28.340 align:middle line:84% You will say, OK, if I'm selfish, if I'm so selfish, 00:07:28.340 --> 00:07:31.470 align:middle line:84% I won't consider this because I cannot recoup this. 00:07:31.470 --> 00:07:33.350 align:middle line:90% I compare benefit and cost. 00:07:33.350 --> 00:07:36.180 align:middle line:84% Then I have so much cost and not so much benefit. 00:07:36.180 --> 00:07:37.410 align:middle line:90% I'm not going to do this. 00:07:37.410 --> 00:07:40.790 align:middle line:84% So that will lead to an undersupply 00:07:40.790 --> 00:07:48.320 align:middle line:84% of this social beneficial goods to the society. 00:07:48.320 --> 00:07:51.780 align:middle line:84% And then the casing for the policy, 00:07:51.780 --> 00:07:56.440 align:middle line:84% why we say it's a policy game changer is to internalize. 00:07:56.440 --> 00:08:00.150 align:middle line:90% 00:08:00.150 --> 00:08:04.110 align:middle line:84% We really need the individuals, these decentralized decision 00:08:04.110 --> 00:08:08.360 align:middle line:84% makers as developers to internalize 00:08:08.360 --> 00:08:11.360 align:middle line:84% the benefit to society to themselves as money. 00:08:11.360 --> 00:08:13.790 align:middle line:84% And then they compare these two things. 00:08:13.790 --> 00:08:16.490 align:middle line:84% They will say, OK, now I understand this benefit. 00:08:16.490 --> 00:08:18.820 align:middle line:84% I can really enjoy that I'm going to do this. 00:08:18.820 --> 00:08:21.250 align:middle line:84% So that's a thing of the externality 00:08:21.250 --> 00:08:23.600 align:middle line:90% this individual won't consider. 00:08:23.600 --> 00:08:27.460 align:middle line:84% Then the policy will move this external benefit 00:08:27.460 --> 00:08:29.800 align:middle line:84% to the internal private benefit that 00:08:29.800 --> 00:08:31.290 align:middle line:90% makes the market start to work. 00:08:31.290 --> 00:08:33.340 align:middle line:84% At first, the stock market won't work. 00:08:33.340 --> 00:08:35.400 align:middle line:90% So that's the thing. 00:08:35.400 --> 00:08:39.520 align:middle line:84% If this positive, we always say this is a Pigouvian subsidy-- 00:08:39.520 --> 00:08:42.130 align:middle line:90% or anyway is a subsidy. 00:08:42.130 --> 00:08:43.220 align:middle line:90% It's an incentive. 00:08:43.220 --> 00:08:45.820 align:middle line:84% It's a good thing that you can get more benefit. 00:08:45.820 --> 00:08:50.440 align:middle line:84% And to incentivize these individuals, then in reality, 00:08:50.440 --> 00:08:54.940 align:middle line:84% there's many types of the subsidies, like tax rebates 00:08:54.940 --> 00:09:00.430 align:middle line:84% and subsidies, direct subsidy money and other-- 00:09:00.430 --> 00:09:04.180 align:middle line:84% not exactly they give you money, but will change 00:09:04.180 --> 00:09:07.230 align:middle line:90% to your financial return. 00:09:07.230 --> 00:09:11.490 align:middle line:84% So if this thing, this thing, this product 00:09:11.490 --> 00:09:15.750 align:middle line:84% has positive externality, then the policy makers 00:09:15.750 --> 00:09:17.250 align:middle line:84% will have the responsibility if they 00:09:17.250 --> 00:09:21.030 align:middle line:84% want to move this external thing into internal benefit. 00:09:21.030 --> 00:09:23.020 align:middle line:90% They will give carrots. 00:09:23.020 --> 00:09:24.250 align:middle line:90% We call it carrots. 00:09:24.250 --> 00:09:27.180 align:middle line:90% So that's why I went to-- 00:09:27.180 --> 00:09:29.610 align:middle line:90% that's why I went to-- 00:09:29.610 --> 00:09:32.670 align:middle line:84% Whole Foods, and I got some carrots today. 00:09:32.670 --> 00:09:36.340 align:middle line:84% I went to Trader Joe, but I couldn't get. 00:09:36.340 --> 00:09:39.630 align:middle line:90% So that's why I have this. 00:09:39.630 --> 00:09:43.260 align:middle line:84% So that's our carrots so that you remember this is carrots. 00:09:43.260 --> 00:09:46.080 align:middle line:84% And if this positive externality, 00:09:46.080 --> 00:09:47.500 align:middle line:90% we need to give carrots. 00:09:47.500 --> 00:09:48.970 align:middle line:90% The thing is the following. 00:09:48.970 --> 00:09:52.530 align:middle line:84% I want you understand the basic economics of carrots. 00:09:52.530 --> 00:09:54.060 align:middle line:84% So, for example, now we are still 00:09:54.060 --> 00:09:56.320 align:middle line:90% thinking about green building. 00:09:56.320 --> 00:09:59.130 align:middle line:84% The green building will be positive thing. 00:09:59.130 --> 00:10:05.810 align:middle line:84% Then, however, unfortunately, first, before the carrots, 00:10:05.810 --> 00:10:06.650 align:middle line:90% no carrots. 00:10:06.650 --> 00:10:07.660 align:middle line:90% No carrots. 00:10:07.660 --> 00:10:12.870 align:middle line:84% Then these demand sides, they only 00:10:12.870 --> 00:10:15.390 align:middle line:84% consider the private benefit, for example-- 00:10:15.390 --> 00:10:17.700 align:middle line:84% for example, it's good for reducing 00:10:17.700 --> 00:10:19.090 align:middle line:90% energy bills, et cetera. 00:10:19.090 --> 00:10:21.300 align:middle line:90% That's called private benefit. 00:10:21.300 --> 00:10:26.130 align:middle line:84% This is private benefit, only consider reducing energy bills. 00:10:26.130 --> 00:10:29.850 align:middle line:84% However, there is another social benefit. 00:10:29.850 --> 00:10:32.860 align:middle line:84% Social benefit is reducing carbon emission. 00:10:32.860 --> 00:10:34.600 align:middle line:90% That's good for the society. 00:10:34.600 --> 00:10:36.870 align:middle line:84% But you cannot just change it to money. 00:10:36.870 --> 00:10:40.800 align:middle line:84% And then if you are so selfishless-- 00:10:40.800 --> 00:10:43.050 align:middle line:84% you are socialist, you are selfishless, 00:10:43.050 --> 00:10:44.940 align:middle line:90% you consider the entire planet. 00:10:44.940 --> 00:10:48.400 align:middle line:84% Then the demand of the green buildings should be like this. 00:10:48.400 --> 00:10:49.800 align:middle line:90% This is the demand curve. 00:10:49.800 --> 00:10:54.360 align:middle line:84% So you move up the demand curve because you 00:10:54.360 --> 00:10:55.920 align:middle line:90% consider the entire society. 00:10:55.920 --> 00:10:57.400 align:middle line:90% But not everyone's like that. 00:10:57.400 --> 00:11:00.600 align:middle line:84% It's very hard to expect all the individuals in the market 00:11:00.600 --> 00:11:03.990 align:middle line:90% to consider those selfishness. 00:11:03.990 --> 00:11:05.410 align:middle line:90% Then we need market. 00:11:05.410 --> 00:11:13.710 align:middle line:84% We need policy as a way to achieve this goal because this, 00:11:13.710 --> 00:11:15.810 align:middle line:84% at first, if you don't consider this, 00:11:15.810 --> 00:11:21.600 align:middle line:84% you have an undersupply of market equilibrium, 00:11:21.600 --> 00:11:24.720 align:middle line:84% lower quantity of the green buildings. 00:11:24.720 --> 00:11:28.060 align:middle line:84% So actually, the social optimum point should be here. 00:11:28.060 --> 00:11:31.650 align:middle line:84% You should have more green buildings instead of this q 00:11:31.650 --> 00:11:32.430 align:middle line:90% prime. 00:11:32.430 --> 00:11:33.550 align:middle line:90% It's a q star. 00:11:33.550 --> 00:11:35.440 align:middle line:84% This is the optimal for the society. 00:11:35.440 --> 00:11:37.320 align:middle line:90% We need so much green buildings. 00:11:37.320 --> 00:11:40.440 align:middle line:84% But, unfortunately, when people are relatively selfish, 00:11:40.440 --> 00:11:42.720 align:middle line:90% you only have q prime. 00:11:42.720 --> 00:11:44.770 align:middle line:90% And then we need to change. 00:11:44.770 --> 00:11:48.600 align:middle line:84% How can we reach that social optimal point 00:11:48.600 --> 00:11:50.580 align:middle line:90% is to give the carrots. 00:11:50.580 --> 00:11:53.340 align:middle line:84% The carrots-- later I will show you other ways 00:11:53.340 --> 00:11:55.590 align:middle line:90% to move this to here. 00:11:55.590 --> 00:11:58.440 align:middle line:84% And for example, they will give a subsidy to households 00:11:58.440 --> 00:11:59.700 align:middle line:90% when they buy green buildings. 00:11:59.700 --> 00:12:00.780 align:middle line:90% That's one way. 00:12:00.780 --> 00:12:06.330 align:middle line:84% But there is another way is to shift down the supply curve that 00:12:06.330 --> 00:12:07.300 align:middle line:90% also works. 00:12:07.300 --> 00:12:12.310 align:middle line:84% Anyway, our point is to reach this q, this optimal q. 00:12:12.310 --> 00:12:15.980 align:middle line:84% And then you should give subsidy to the suppliers. 00:12:15.980 --> 00:12:18.220 align:middle line:90% Think about the developers. 00:12:18.220 --> 00:12:22.120 align:middle line:84% The developers are so hesitant to supply green buildings 00:12:22.120 --> 00:12:24.850 align:middle line:84% because all the demand side, they are selfish. 00:12:24.850 --> 00:12:26.740 align:middle line:90% They don't want to pay. 00:12:26.740 --> 00:12:28.490 align:middle line:90% They have no willingness to pay. 00:12:28.490 --> 00:12:31.750 align:middle line:84% Then we give them some bonus, like [INAUDIBLE] bonus. 00:12:31.750 --> 00:12:33.520 align:middle line:90% You can build taller buildings. 00:12:33.520 --> 00:12:35.950 align:middle line:84% Then you have more units to sell. 00:12:35.950 --> 00:12:38.620 align:middle line:84% Or if you build green buildings, the government 00:12:38.620 --> 00:12:42.010 align:middle line:84% gives you a tax credit or tax rebate. 00:12:42.010 --> 00:12:44.840 align:middle line:90% Anyway, that's the carrots. 00:12:44.840 --> 00:12:47.890 align:middle line:84% So that's the carrots so that, OK, we achieve. 00:12:47.890 --> 00:12:50.780 align:middle line:84% This now we achieve this with a game changer, 00:12:50.780 --> 00:12:52.410 align:middle line:84% so that's the idea of the carrots. 00:12:52.410 --> 00:12:55.410 align:middle line:90% 00:12:55.410 --> 00:12:59.010 align:middle line:84% OK, another thing is now we think a bad thing. 00:12:59.010 --> 00:13:01.600 align:middle line:84% A bad thing may be a brown building. 00:13:01.600 --> 00:13:07.150 align:middle line:84% Or we can think about a factory, very dirty factory, 00:13:07.150 --> 00:13:10.360 align:middle line:84% always emit a lot of pollutants to the air. 00:13:10.360 --> 00:13:12.180 align:middle line:90% So that's a bad thing. 00:13:12.180 --> 00:13:14.970 align:middle line:90% Now we think about bad thing. 00:13:14.970 --> 00:13:16.840 align:middle line:90% The bad thing is the following. 00:13:16.840 --> 00:13:18.190 align:middle line:90% This is a brown building. 00:13:18.190 --> 00:13:19.920 align:middle line:90% Now we think bad thing. 00:13:19.920 --> 00:13:25.850 align:middle line:84% So the thing is think about this. 00:13:25.850 --> 00:13:29.530 align:middle line:84% At first, the developers, they don't care. 00:13:29.530 --> 00:13:31.000 align:middle line:90% I just build buildings. 00:13:31.000 --> 00:13:34.810 align:middle line:84% If I can sell out the buildings, I build a lot of buildings. 00:13:34.810 --> 00:13:39.650 align:middle line:84% I don't care the actual damage I create for the planet. 00:13:39.650 --> 00:13:42.010 align:middle line:84% My actual damage creates the negative thing, 00:13:42.010 --> 00:13:44.830 align:middle line:90% is more carbon emission. 00:13:44.830 --> 00:13:47.390 align:middle line:84% Because you build a lot of brown buildings, you don't care. 00:13:47.390 --> 00:13:49.100 align:middle line:84% You build a lot of dirty buildings. 00:13:49.100 --> 00:13:54.880 align:middle line:84% Then you emit more carbon into the air, which was bad. 00:13:54.880 --> 00:13:56.150 align:middle line:90% But I think I'm selfish. 00:13:56.150 --> 00:13:56.980 align:middle line:90% I don't care. 00:13:56.980 --> 00:13:58.540 align:middle line:90% I will just build. 00:13:58.540 --> 00:14:02.230 align:middle line:84% So at first, you only consider your private cost, 00:14:02.230 --> 00:14:05.720 align:middle line:84% which is your materials and all the things that you build. 00:14:05.720 --> 00:14:08.680 align:middle line:84% You say, OK, if people want to buy, I will just build. 00:14:08.680 --> 00:14:12.940 align:middle line:84% However, you have a much higher social cost because you 00:14:12.940 --> 00:14:15.380 align:middle line:90% build a lot of dirty buildings. 00:14:15.380 --> 00:14:16.700 align:middle line:90% You emit a lot. 00:14:16.700 --> 00:14:18.580 align:middle line:84% Actually, your costs should be higher 00:14:18.580 --> 00:14:21.520 align:middle line:90% if you consider the planet. 00:14:21.520 --> 00:14:24.590 align:middle line:84% So now, the thing is, if you don't 00:14:24.590 --> 00:14:28.290 align:middle line:84% consider-- you are selfish, you build a lot of brown buildings. 00:14:28.290 --> 00:14:31.780 align:middle line:84% But if you-- selfishless, you should 00:14:31.780 --> 00:14:35.470 align:middle line:84% build less because you have a higher social cost. 00:14:35.470 --> 00:14:38.260 align:middle line:90% So that will Q star here. 00:14:38.260 --> 00:14:42.380 align:middle line:84% But, however, only with the market, it is very hard. 00:14:42.380 --> 00:14:45.250 align:middle line:84% It's very hard to achieve this because everyone just 00:14:45.250 --> 00:14:46.490 align:middle line:90% wants to make profit. 00:14:46.490 --> 00:14:48.020 align:middle line:90% So we need a market changer. 00:14:48.020 --> 00:14:51.610 align:middle line:90% That's we call sticks. 00:14:51.610 --> 00:14:54.610 align:middle line:84% Then I have a sticks not from Trader Joe 00:14:54.610 --> 00:14:56.720 align:middle line:90% but just from our yard. 00:14:56.720 --> 00:14:58.180 align:middle line:90% So this [INAUDIBLE]. 00:14:58.180 --> 00:15:00.010 align:middle line:90% So this is a stick. 00:15:00.010 --> 00:15:03.230 align:middle line:84% So stick means, OK, you are doing bad things. 00:15:03.230 --> 00:15:05.650 align:middle line:90% I must let you burden-- 00:15:05.650 --> 00:15:09.140 align:middle line:84% put the burden on you so that you will not do that. 00:15:09.140 --> 00:15:11.780 align:middle line:90% So that's a tax, carbon tax. 00:15:11.780 --> 00:15:12.680 align:middle line:90% OK, OK. 00:15:12.680 --> 00:15:13.450 align:middle line:90% You are selfish. 00:15:13.450 --> 00:15:17.150 align:middle line:84% You don't consider the things you hurt, the environment. 00:15:17.150 --> 00:15:19.970 align:middle line:90% Now, I'm moving up artificially. 00:15:19.970 --> 00:15:21.560 align:middle line:90% I charge tax to you. 00:15:21.560 --> 00:15:24.850 align:middle line:84% If you do things, you will pay carbon tax or penalty, 00:15:24.850 --> 00:15:26.980 align:middle line:90% like Local Law 97 like this. 00:15:26.980 --> 00:15:28.900 align:middle line:90% So that is a stick. 00:15:28.900 --> 00:15:31.460 align:middle line:90% Immediately move up the cost. 00:15:31.460 --> 00:15:35.120 align:middle line:84% Then they will build less of the brown buildings, 00:15:35.120 --> 00:15:38.660 align:middle line:84% or they will take action to retrofit their brown buildings 00:15:38.660 --> 00:15:39.990 align:middle line:90% into green buildings. 00:15:39.990 --> 00:15:42.950 align:middle line:84% So that's basically today's point is this, 00:15:42.950 --> 00:15:44.070 align:middle line:90% and this one is small. 00:15:44.070 --> 00:15:45.650 align:middle line:90% This is very big. 00:15:45.650 --> 00:15:49.290 align:middle line:84% But anyway, so this is the carrot and sticks. 00:15:49.290 --> 00:15:51.770 align:middle line:90% Any questions until now? 00:15:51.770 --> 00:15:52.970 align:middle line:90% OK. 00:15:52.970 --> 00:15:54.510 align:middle line:90% This is very abstract. 00:15:54.510 --> 00:15:56.400 align:middle line:90% That's why I put it here. 00:15:56.400 --> 00:15:59.210 align:middle line:84% But later, I will give more examples of the carrots 00:15:59.210 --> 00:16:00.120 align:middle line:90% and sticks. 00:16:00.120 --> 00:16:02.280 align:middle line:84% And later this is our common language 00:16:02.280 --> 00:16:04.970 align:middle line:90% in the classroom between us. 00:16:04.970 --> 00:16:07.850 align:middle line:84% After you graduate and then we say reunion, 00:16:07.850 --> 00:16:09.720 align:middle line:84% we will talk about carrots and sticks. 00:16:09.720 --> 00:16:11.450 align:middle line:90% You will tell me-- 00:16:11.450 --> 00:16:14.120 align:middle line:84% in your market, if you later become developer, 00:16:14.120 --> 00:16:17.120 align:middle line:84% you will tell me whether you think you have enough carrots 00:16:17.120 --> 00:16:21.630 align:middle line:84% or too much sticks because we are developers, too, remember. 00:16:21.630 --> 00:16:24.270 align:middle line:84% We are-- maybe some of you will become policymakers. 00:16:24.270 --> 00:16:26.360 align:middle line:84% If you are policymakers, you will need 00:16:26.360 --> 00:16:29.440 align:middle line:90% to design this kind of thing. 00:16:29.440 --> 00:16:30.500 align:middle line:90% It's too big. 00:16:30.500 --> 00:16:32.090 align:middle line:90% Then you'll kill the market. 00:16:32.090 --> 00:16:34.540 align:middle line:84% Nobody wants to do things too big. 00:16:34.540 --> 00:16:37.000 align:middle line:84% Then I say, oh, cut, cut, cut to the extent 00:16:37.000 --> 00:16:38.920 align:middle line:84% that you can still make the market work, 00:16:38.920 --> 00:16:41.320 align:middle line:90% but you want to achieve this q. 00:16:41.320 --> 00:16:45.160 align:middle line:84% Or you say, OK, this carrot is too small. 00:16:45.160 --> 00:16:48.380 align:middle line:90% Then I have this, too small. 00:16:48.380 --> 00:16:49.630 align:middle line:90% Nobody want to do. 00:16:49.630 --> 00:16:53.390 align:middle line:84% Then I add on incentives to get more carrots. 00:16:53.390 --> 00:16:56.410 align:middle line:84% So later, when you work, when you go to work, 00:16:56.410 --> 00:16:59.380 align:middle line:84% if you're policy makers, you design the size of this 00:16:59.380 --> 00:17:00.790 align:middle line:90% and the size of this. 00:17:00.790 --> 00:17:02.960 align:middle line:84% And if you are developers, no problem. 00:17:02.960 --> 00:17:04.099 align:middle line:90% You can complain. 00:17:04.099 --> 00:17:06.310 align:middle line:90% It's too much, too little. 00:17:06.310 --> 00:17:10.270 align:middle line:84% And then you can lobby the policy makers. 00:17:10.270 --> 00:17:11.220 align:middle line:90% That's how this works. 00:17:11.220 --> 00:17:15.586 align:middle line:90% 00:17:15.586 --> 00:17:18.000 align:middle line:90% So then this is a table. 00:17:18.000 --> 00:17:20.760 align:middle line:84% Yesterday I previewed this table. 00:17:20.760 --> 00:17:26.270 align:middle line:84% That's our boxes, four boxes, four baskets of the carrots 00:17:26.270 --> 00:17:27.390 align:middle line:90% and sticks. 00:17:27.390 --> 00:17:29.820 align:middle line:90% So we have the sticks. 00:17:29.820 --> 00:17:32.030 align:middle line:90% The formal name is enforcement. 00:17:32.030 --> 00:17:35.180 align:middle line:84% And the carrots, the formal name is incentive. 00:17:35.180 --> 00:17:38.880 align:middle line:84% And then we also have the mitigation-adaptation side 00:17:38.880 --> 00:17:41.340 align:middle line:84% so that you have a better understanding of this. 00:17:41.340 --> 00:17:44.070 align:middle line:84% So think about we talked climate. 00:17:44.070 --> 00:17:47.300 align:middle line:84% This climate is very, very good example 00:17:47.300 --> 00:17:50.990 align:middle line:84% of the negative externality, or you reduce carbon [INAUDIBLE], 00:17:50.990 --> 00:17:52.470 align:middle line:90% so we use mitigation. 00:17:52.470 --> 00:17:54.350 align:middle line:84% Mitigation means we will reduce your carbon 00:17:54.350 --> 00:18:00.710 align:middle line:84% emission, like decarbonizing buildings, P set number one. 00:18:00.710 --> 00:18:05.510 align:middle line:84% P set one is about mitigation, how you retrofit your building 00:18:05.510 --> 00:18:07.770 align:middle line:90% and then you reduce carbon. 00:18:07.770 --> 00:18:11.690 align:middle line:84% Then the government says, OK, I understand. 00:18:11.690 --> 00:18:16.170 align:middle line:84% You are very hesitant to do so, and you resist. 00:18:16.170 --> 00:18:19.430 align:middle line:84% For example, Boston Properties, they don't want to do anything. 00:18:19.430 --> 00:18:23.820 align:middle line:84% And then they impose sticks and carrots. 00:18:23.820 --> 00:18:28.050 align:middle line:84% Another thing, P set 2, remember our hedonic regression. 00:18:28.050 --> 00:18:30.680 align:middle line:90% I know tomorrow is a due date. 00:18:30.680 --> 00:18:32.550 align:middle line:90% Today or tomorrow is a due date. 00:18:32.550 --> 00:18:37.010 align:middle line:84% So that is to understand adaptation. 00:18:37.010 --> 00:18:40.280 align:middle line:84% So you understand, OK, if we have houses, buildings 00:18:40.280 --> 00:18:42.320 align:middle line:90% in the flood zone, bad. 00:18:42.320 --> 00:18:44.760 align:middle line:84% And then later we'll get flooded. 00:18:44.760 --> 00:18:48.270 align:middle line:84% So we need to take action to adapt to that. 00:18:48.270 --> 00:18:50.790 align:middle line:84% Then you have sticks and carrots. 00:18:50.790 --> 00:18:53.970 align:middle line:84% So that's-- and the building codes is in the middle. 00:18:53.970 --> 00:18:55.230 align:middle line:90% You have building codes. 00:18:55.230 --> 00:18:56.990 align:middle line:84% You can say, OK, the building codes 00:18:56.990 --> 00:18:59.880 align:middle line:84% say you're building energy level must reach what? 00:18:59.880 --> 00:19:00.860 align:middle line:90% That's a building code. 00:19:00.860 --> 00:19:02.060 align:middle line:90% Then that's mitigation. 00:19:02.060 --> 00:19:04.310 align:middle line:84% Adaptation, if you are in a flood zone, 00:19:04.310 --> 00:19:07.920 align:middle line:84% you must elevate your ground floor to high level. 00:19:07.920 --> 00:19:09.330 align:middle line:90% So that's also building code. 00:19:09.330 --> 00:19:10.890 align:middle line:90% Building code is like minimum. 00:19:10.890 --> 00:19:12.920 align:middle line:84% It's like, you must achieve this. 00:19:12.920 --> 00:19:17.910 align:middle line:84% So that can be used, mitigation, adaptation, both. 00:19:17.910 --> 00:19:19.950 align:middle line:90% OK, so now I'm doing this. 00:19:19.950 --> 00:19:22.790 align:middle line:90% So first, look at carrots. 00:19:22.790 --> 00:19:25.380 align:middle line:90% So we look at carrots. 00:19:25.380 --> 00:19:26.970 align:middle line:84% You will find that green building 00:19:26.970 --> 00:19:31.650 align:middle line:84% policy, so many green building policies in different cities. 00:19:31.650 --> 00:19:33.780 align:middle line:84% So from the states, from the countries, 00:19:33.780 --> 00:19:36.420 align:middle line:84% from country, from the federal level 00:19:36.420 --> 00:19:38.910 align:middle line:84% to the state level to the county level 00:19:38.910 --> 00:19:43.350 align:middle line:84% to the municipality level, so many policies. 00:19:43.350 --> 00:19:45.420 align:middle line:84% And you see so many, and different states 00:19:45.420 --> 00:19:46.710 align:middle line:90% have different things. 00:19:46.710 --> 00:19:47.520 align:middle line:90% That's a way. 00:19:47.520 --> 00:19:49.170 align:middle line:90% This is a policy monitor. 00:19:49.170 --> 00:19:51.190 align:middle line:84% Green buildings, economic policies. 00:19:51.190 --> 00:19:56.470 align:middle line:84% And I think our TA Sanjana is now doing a policy tracker. 00:19:56.470 --> 00:19:58.890 align:middle line:84% It's similar idea because policies, 00:19:58.890 --> 00:20:02.400 align:middle line:84% these two different types of carrots or sticks, 00:20:02.400 --> 00:20:03.970 align:middle line:90% is totally different. 00:20:03.970 --> 00:20:05.500 align:middle line:90% And they are narratives. 00:20:05.500 --> 00:20:06.970 align:middle line:90% It's very hard to quantify. 00:20:06.970 --> 00:20:09.450 align:middle line:84% So Sanjana is now doing a project 00:20:09.450 --> 00:20:11.460 align:middle line:84% as a policy tracker of this building, 00:20:11.460 --> 00:20:16.950 align:middle line:84% decarbonization and different local municipalities and even 00:20:16.950 --> 00:20:21.430 align:middle line:84% different countries and to measure that policy. 00:20:21.430 --> 00:20:23.670 align:middle line:90% So that's the idea. 00:20:23.670 --> 00:20:30.920 align:middle line:84% Now, carrot number one, carrot number one, any questions here? 00:20:30.920 --> 00:20:32.540 align:middle line:90% Why are you so happy? 00:20:32.540 --> 00:20:34.710 align:middle line:90% I don't think you need this. 00:20:34.710 --> 00:20:37.770 align:middle line:84% And if you answer questions, well, I will give you this. 00:20:37.770 --> 00:20:38.270 align:middle line:90% [LAUGHTER] 00:20:38.270 --> 00:20:41.630 align:middle line:90% But I don't think you need this. 00:20:41.630 --> 00:20:44.560 align:middle line:90% OK, question? 00:20:44.560 --> 00:20:50.400 align:middle line:84% AUDIENCE: Yeah, look, I just think it's-- 00:20:50.400 --> 00:20:53.910 align:middle line:84% the concept is simple of the economics and where to set 00:20:53.910 --> 00:21:06.730 align:middle line:84% the [INAUDIBLE], how do you get the social [INAUDIBLE] a lot 00:21:06.730 --> 00:21:07.935 align:middle line:90% of costs for-- 00:21:07.935 --> 00:21:10.435 align:middle line:84% SIQI ZHENG: You mean it's very hard to achieve that social-- 00:21:10.435 --> 00:21:10.930 align:middle line:90% AUDIENCE: Yeah. 00:21:10.930 --> 00:21:11.740 align:middle line:90% SIQI ZHENG: --optimal point? 00:21:11.740 --> 00:21:13.698 align:middle line:84% AUDIENCE: How do you define the social optimum? 00:21:13.698 --> 00:21:16.330 align:middle line:84% SIQI ZHENG: We can define that theoretical way, 00:21:16.330 --> 00:21:18.640 align:middle line:90% but, in reality, it's very hard. 00:21:18.640 --> 00:21:21.430 align:middle line:90% We understand-- we always we-- 00:21:21.430 --> 00:21:25.510 align:middle line:84% I think, for economists, they understand which one is which, 00:21:25.510 --> 00:21:28.600 align:middle line:84% like social should be higher or lower than the market 00:21:28.600 --> 00:21:29.710 align:middle line:90% equilibrium. 00:21:29.710 --> 00:21:31.090 align:middle line:90% That's quantitative way. 00:21:31.090 --> 00:21:33.160 align:middle line:90% But you calculate the-- 00:21:33.160 --> 00:21:36.310 align:middle line:84% Exactly the number here is very hard. 00:21:36.310 --> 00:21:40.510 align:middle line:84% And also sometimes the policymakers, 00:21:40.510 --> 00:21:42.110 align:middle line:90% they are not so smart. 00:21:42.110 --> 00:21:43.300 align:middle line:90% They understand this. 00:21:43.300 --> 00:21:45.050 align:middle line:90% They design policy. 00:21:45.050 --> 00:21:47.770 align:middle line:90% But the problem is-- 00:21:47.770 --> 00:21:49.370 align:middle line:90% let me see. 00:21:49.370 --> 00:21:51.630 align:middle line:84% For example, they design the policy. 00:21:51.630 --> 00:21:54.900 align:middle line:84% But the problem is they estimate. 00:21:54.900 --> 00:21:56.900 align:middle line:84% They estimate some sophisticated models, 00:21:56.900 --> 00:21:58.770 align:middle line:84% but they make a lot of assumptions. 00:21:58.770 --> 00:22:01.070 align:middle line:84% And people's behavioral response to those policies 00:22:01.070 --> 00:22:03.620 align:middle line:84% may not be the same as these policymakers. 00:22:03.620 --> 00:22:06.600 align:middle line:84% So then we call it the unintended consequences. 00:22:06.600 --> 00:22:10.850 align:middle line:84% You impose a policy, and you assume that people will respond. 00:22:10.850 --> 00:22:13.680 align:middle line:84% And actually people will not respond in that way. 00:22:13.680 --> 00:22:17.510 align:middle line:84% Then you have other side effects of the policy. 00:22:17.510 --> 00:22:20.890 align:middle line:84% But in theory, there should be a social optimum 00:22:20.890 --> 00:22:25.790 align:middle line:84% if you really can capture and estimate all the social cost. 00:22:25.790 --> 00:22:30.170 align:middle line:84% Now, I started from this, this carrot. 00:22:30.170 --> 00:22:32.420 align:middle line:90% This is a big thing. 00:22:32.420 --> 00:22:37.040 align:middle line:84% I don't know why the EU is so rich. 00:22:37.040 --> 00:22:39.140 align:middle line:90% I feel EU is very rich. 00:22:39.140 --> 00:22:41.440 align:middle line:84% So I really want to move to the Europe. 00:22:41.440 --> 00:22:43.850 align:middle line:84% So the point is they are very rich. 00:22:43.850 --> 00:22:46.670 align:middle line:84% And then they have a lot of money, 00:22:46.670 --> 00:22:51.980 align:middle line:84% and then they commit to endow this amount of money, 00:22:51.980 --> 00:22:56.030 align:middle line:90% 672 billion money. 00:22:56.030 --> 00:22:58.310 align:middle line:90% The European Council agreed. 00:22:58.310 --> 00:23:03.660 align:middle line:84% Use this money and to subsidize the building renovations. 00:23:03.660 --> 00:23:06.930 align:middle line:84% So they call it the renovation wave. 00:23:06.930 --> 00:23:11.780 align:middle line:84% They have ambitious goal, say, 2030, all renovated. 00:23:11.780 --> 00:23:15.530 align:middle line:84% And then if you decide to renovate your buildings, 00:23:15.530 --> 00:23:17.030 align:middle line:90% you apply for funding. 00:23:17.030 --> 00:23:18.690 align:middle line:84% Then the EU will give you funding. 00:23:18.690 --> 00:23:22.160 align:middle line:90% So that's a big, big carrot. 00:23:22.160 --> 00:23:24.180 align:middle line:90% I don't think the US has this. 00:23:24.180 --> 00:23:26.460 align:middle line:84% Maybe US in some area has, but it's 00:23:26.460 --> 00:23:30.690 align:middle line:84% very, very big thing now in EU that, if you retrofit, 00:23:30.690 --> 00:23:33.000 align:middle line:90% then you get money from the EU. 00:23:33.000 --> 00:23:36.990 align:middle line:84% And then this is-- the good thing is the following. 00:23:36.990 --> 00:23:38.400 align:middle line:90% This is EU money. 00:23:38.400 --> 00:23:40.390 align:middle line:90% This is all you get. 00:23:40.390 --> 00:23:43.530 align:middle line:84% And then, because of this, the private sector, 00:23:43.530 --> 00:23:46.800 align:middle line:84% like the banks and some financial institutions, add on. 00:23:46.800 --> 00:23:49.920 align:middle line:84% So then they said, OK, if you go to the EU, get money, 00:23:49.920 --> 00:23:53.140 align:middle line:84% then we will match with some private financial tools. 00:23:53.140 --> 00:23:57.220 align:middle line:84% Then you have more money, so that's a good thing. 00:23:57.220 --> 00:24:00.750 align:middle line:84% OK, now we move on to another carrot. 00:24:00.750 --> 00:24:02.130 align:middle line:90% It's a another carrots. 00:24:02.130 --> 00:24:04.270 align:middle line:90% So that's from Massachusetts. 00:24:04.270 --> 00:24:07.110 align:middle line:84% So here, so Massachusetts, basically, 00:24:07.110 --> 00:24:09.630 align:middle line:84% if you go to the Mass Save website, 00:24:09.630 --> 00:24:11.910 align:middle line:84% you will see if you're residential, 00:24:11.910 --> 00:24:15.810 align:middle line:84% if you are homeowner, or you are small business or big business 00:24:15.810 --> 00:24:18.570 align:middle line:84% no matter what, and then if you are non-profit like that. 00:24:18.570 --> 00:24:21.030 align:middle line:90% You hit on these things. 00:24:21.030 --> 00:24:23.580 align:middle line:84% You will find many, many small-, and big-, 00:24:23.580 --> 00:24:27.240 align:middle line:84% and medium-sized carrots like that. 00:24:27.240 --> 00:24:30.850 align:middle line:84% And we already mentioned this example. 00:24:30.850 --> 00:24:34.230 align:middle line:84% This is a heat pump, heat pump installation, 00:24:34.230 --> 00:24:37.020 align:middle line:84% for the heat pump because, thanks 00:24:37.020 --> 00:24:43.920 align:middle line:84% to Biden's Inflation Reduction Act, then you can have more. 00:24:43.920 --> 00:24:47.820 align:middle line:84% There's a subsidy if you install a heat pump. 00:24:47.820 --> 00:24:49.320 align:middle line:90% So question. 00:24:49.320 --> 00:24:51.240 align:middle line:90% I'm not sure many of-- 00:24:51.240 --> 00:24:54.960 align:middle line:84% I'm not sure how many of you are home owners or tenants 00:24:54.960 --> 00:24:56.850 align:middle line:90% or you already used this. 00:24:56.850 --> 00:24:59.040 align:middle line:90% Anyone? 00:24:59.040 --> 00:25:01.140 align:middle line:90% I know you have used. 00:25:01.140 --> 00:25:01.890 align:middle line:90% OK. 00:25:01.890 --> 00:25:03.810 align:middle line:84% AUDIENCE: I'm a renter, but I used [INAUDIBLE] 00:25:03.810 --> 00:25:06.510 align:middle line:84% to do some energy efficiency around my house, which 00:25:06.510 --> 00:25:09.650 align:middle line:90% was [INAUDIBLE], free. 00:25:09.650 --> 00:25:12.230 align:middle line:84% So they gave me free light bulbs and 00:25:12.230 --> 00:25:16.470 align:middle line:84% changed out my thermometers [INAUDIBLE] smart thermometer, 00:25:16.470 --> 00:25:20.510 align:middle line:84% gave me new showerheads and stuff. 00:25:20.510 --> 00:25:22.790 align:middle line:84% SIQI ZHENG: Yeah, you first did a energy audit, 00:25:22.790 --> 00:25:25.280 align:middle line:84% and they will do an energy audit and say, oh, this building 00:25:25.280 --> 00:25:25.910 align:middle line:90% is so old. 00:25:25.910 --> 00:25:28.940 align:middle line:84% And you need to change this, change this, and change 00:25:28.940 --> 00:25:30.680 align:middle line:90% the insulation, and then you-- 00:25:30.680 --> 00:25:33.455 align:middle line:84% OK, how much money you got and whether you are happy with that? 00:25:33.455 --> 00:25:35.580 align:middle line:84% AUDIENCE: They just give you a bunch of free stuff. 00:25:35.580 --> 00:25:36.420 align:middle line:90% [LAUGHS] 00:25:36.420 --> 00:25:37.630 align:middle line:90% SIQI ZHENG: Yes, OK. 00:25:37.630 --> 00:25:38.140 align:middle line:90% All free. 00:25:38.140 --> 00:25:39.750 align:middle line:84% So you don't need to spend money. 00:25:39.750 --> 00:25:41.790 align:middle line:84% They will come and give you things. 00:25:41.790 --> 00:25:43.120 align:middle line:90% OK see, this is good. 00:25:43.120 --> 00:25:45.400 align:middle line:84% And even this is not only for homeowners. 00:25:45.400 --> 00:25:47.340 align:middle line:90% It's tenants also eligible. 00:25:47.340 --> 00:25:49.990 align:middle line:90% Who else? 00:25:49.990 --> 00:25:53.736 align:middle line:84% Now we only have two people in this room, so this is for you. 00:25:53.736 --> 00:25:55.620 align:middle line:90% [LAUGHTER] Free stuff. 00:25:55.620 --> 00:25:56.710 align:middle line:90% OK, good. 00:25:56.710 --> 00:25:58.390 align:middle line:90% Who else? 00:25:58.390 --> 00:25:59.470 align:middle line:90% Who else? 00:25:59.470 --> 00:26:00.557 align:middle line:90% No, nobody. 00:26:00.557 --> 00:26:01.640 align:middle line:90% OK, we need to learn more. 00:26:01.640 --> 00:26:03.730 align:middle line:90% So we need educate more. 00:26:03.730 --> 00:26:08.090 align:middle line:84% Actually, we are doing a research project now on this. 00:26:08.090 --> 00:26:11.290 align:middle line:84% After today's class, I'm going to go to the MIT Energy 00:26:11.290 --> 00:26:15.050 align:middle line:84% Initiative to present our work is actually exactly this. 00:26:15.050 --> 00:26:17.170 align:middle line:84% That's our ongoing work, ongoing research. 00:26:17.170 --> 00:26:18.970 align:middle line:84% Again, if you are interested, talk to me. 00:26:18.970 --> 00:26:20.410 align:middle line:90% It's the following. 00:26:20.410 --> 00:26:24.370 align:middle line:84% We know that, for Massachusetts, there is a heat pump, 00:26:24.370 --> 00:26:25.910 align:middle line:90% like $10,000. 00:26:25.910 --> 00:26:28.090 align:middle line:90% You can get subsidy, carrot. 00:26:28.090 --> 00:26:31.340 align:middle line:84% But the installation, the adoption rate is still very low. 00:26:31.340 --> 00:26:33.370 align:middle line:84% We want to understand the puzzle of this. 00:26:33.370 --> 00:26:37.100 align:middle line:84% Oh, free money, but why still installation? 00:26:37.100 --> 00:26:42.040 align:middle line:84% How can we accelerate, accelerate this? 00:26:42.040 --> 00:26:44.330 align:middle line:90% We may need more carrots. 00:26:44.330 --> 00:26:45.850 align:middle line:90% So that's another more. 00:26:45.850 --> 00:26:50.180 align:middle line:84% So the thing is, sometimes you cannot just give money, 00:26:50.180 --> 00:26:52.010 align:middle line:90% but you need some mechanism. 00:26:52.010 --> 00:26:55.040 align:middle line:84% For this thing, we found out actually, 00:26:55.040 --> 00:26:59.720 align:middle line:84% this $10,000 is enough to cover this machine, 00:26:59.720 --> 00:27:03.020 align:middle line:84% but it's not enough to cover all the installation. 00:27:03.020 --> 00:27:04.640 align:middle line:90% You have workers. 00:27:04.640 --> 00:27:05.750 align:middle line:90% You have all the things. 00:27:05.750 --> 00:27:07.440 align:middle line:90% Then it's not enough. 00:27:07.440 --> 00:27:09.427 align:middle line:84% And then the people, they don't understand. 00:27:09.427 --> 00:27:11.760 align:middle line:84% People come, and people they don't understand knowledge. 00:27:11.760 --> 00:27:15.930 align:middle line:84% So these are education information, all the things. 00:27:15.930 --> 00:27:17.670 align:middle line:90% OK, let's think about carrots. 00:27:17.670 --> 00:27:20.340 align:middle line:90% So just now I mentioned this. 00:27:20.340 --> 00:27:24.840 align:middle line:84% So game changer, this conceptual-level pro forma, 00:27:24.840 --> 00:27:28.100 align:middle line:84% conceptual-level cash flow diagram is so important. 00:27:28.100 --> 00:27:33.280 align:middle line:84% So at first, the green retrofit won't work. 00:27:33.280 --> 00:27:35.920 align:middle line:84% The green retrofit is too expensive. 00:27:35.920 --> 00:27:42.550 align:middle line:84% Like Prudential Center, for example, too dirty building. 00:27:42.550 --> 00:27:46.080 align:middle line:84% Then if you want to retrofit, a huge investment 00:27:46.080 --> 00:27:50.250 align:middle line:84% is needed to do the deep retrofit. 00:27:50.250 --> 00:27:52.080 align:middle line:90% And then nobody wants to do. 00:27:52.080 --> 00:27:55.980 align:middle line:84% Now the game changer comes, say, OK, we will get subsidy. 00:27:55.980 --> 00:27:59.270 align:middle line:84% So then we will offset this upfront cost. 00:27:59.270 --> 00:28:00.620 align:middle line:90% So that's very clear. 00:28:00.620 --> 00:28:04.560 align:middle line:84% So then this might decrease because, remember, 00:28:04.560 --> 00:28:08.030 align:middle line:84% NPV, NPV, NPV is our decision making tool. 00:28:08.030 --> 00:28:09.580 align:middle line:90% NPV must be positive. 00:28:09.580 --> 00:28:11.310 align:middle line:84% Otherwise, it doesn't make sense. 00:28:11.310 --> 00:28:15.250 align:middle line:84% And at first, this upfront cost is so big, 00:28:15.250 --> 00:28:17.230 align:middle line:90% and this is totally negative. 00:28:17.230 --> 00:28:20.440 align:middle line:84% And then because of Mass Save or some other, 00:28:20.440 --> 00:28:23.500 align:middle line:84% like EU, then they give you subsidy. 00:28:23.500 --> 00:28:27.670 align:middle line:84% This one becomes smaller then this change NPV 00:28:27.670 --> 00:28:29.210 align:middle line:90% from negative to positive. 00:28:29.210 --> 00:28:30.910 align:middle line:84% So that's why we call it game changer. 00:28:30.910 --> 00:28:37.180 align:middle line:84% At first, NPV negative and now become NPV positive. 00:28:37.180 --> 00:28:39.490 align:middle line:84% At first, negative because too big. 00:28:39.490 --> 00:28:45.430 align:middle line:84% Then, because of policy, thanks to the carrot, then positive. 00:28:45.430 --> 00:28:48.430 align:middle line:84% And it's not like only give you a-- write a check to you. 00:28:48.430 --> 00:28:50.320 align:middle line:84% Or if you install this, write check. 00:28:50.320 --> 00:28:51.910 align:middle line:90% If you do this, write a check. 00:28:51.910 --> 00:28:55.240 align:middle line:84% Sometimes it's not a check, per se, 00:28:55.240 --> 00:28:57.820 align:middle line:84% but it will really help financial, very 00:28:57.820 --> 00:28:59.360 align:middle line:90% big financial benefit. 00:28:59.360 --> 00:29:04.210 align:middle line:84% So that's another carrot, which is the density bonus. 00:29:04.210 --> 00:29:06.900 align:middle line:84% The density bonus, I think that's very easy to understand. 00:29:06.900 --> 00:29:11.950 align:middle line:84% So basically they say, if you build a green building, 00:29:11.950 --> 00:29:14.290 align:middle line:84% they have a standard, for example, LEED. 00:29:14.290 --> 00:29:16.030 align:middle line:90% They always need a standard. 00:29:16.030 --> 00:29:20.320 align:middle line:84% You cannot just a self-report, say I'm a green building, 00:29:20.320 --> 00:29:23.950 align:middle line:84% For example, this is Arlington, not our Arlington, Arlington, 00:29:23.950 --> 00:29:24.790 align:middle line:90% Virginia. 00:29:24.790 --> 00:29:27.850 align:middle line:90% Then here, here, here. 00:29:27.850 --> 00:29:31.510 align:middle line:84% And LEED version silver, gold, platinum, 00:29:31.510 --> 00:29:36.620 align:middle line:84% if you really meet the LEED Silver, you get a certificate. 00:29:36.620 --> 00:29:45.010 align:middle line:84% Then you can get a bonus of 0.05 increase of the FAR. 00:29:45.010 --> 00:29:49.210 align:middle line:84% So all other buildings, 0.25 FAR. 00:29:49.210 --> 00:29:50.440 align:middle line:90% That is the cap. 00:29:50.440 --> 00:29:53.140 align:middle line:90% Now they lift the cap higher. 00:29:53.140 --> 00:29:56.120 align:middle line:90% Then you get more. 00:29:56.120 --> 00:29:59.620 align:middle line:90% So I think that's a-- 00:29:59.620 --> 00:30:00.170 align:middle line:90% let me see. 00:30:00.170 --> 00:30:04.270 align:middle line:90% Yes, so that's a casing. 00:30:04.270 --> 00:30:05.680 align:middle line:90% Oh, so, so sorry. 00:30:05.680 --> 00:30:07.060 align:middle line:90% They have a benchmark FAR. 00:30:07.060 --> 00:30:10.180 align:middle line:84% If you are silver, you get this increase. 00:30:10.180 --> 00:30:12.050 align:middle line:90% This is incremental. 00:30:12.050 --> 00:30:14.740 align:middle line:84% And then if you meet other priorities, 00:30:14.740 --> 00:30:16.400 align:middle line:90% I think you get another 0.05. 00:30:16.400 --> 00:30:17.845 align:middle line:90% So always you get these. 00:30:17.845 --> 00:30:21.020 align:middle line:84% For Silver, you get 25, 0.25 FAR increase. 00:30:21.020 --> 00:30:25.300 align:middle line:84% And the gold, 0.35, and the platinum, 0.50. 00:30:25.300 --> 00:30:27.230 align:middle line:90% So that's a big carrot. 00:30:27.230 --> 00:30:29.560 align:middle line:84% So this is not a check, but you can 00:30:29.560 --> 00:30:33.640 align:middle line:84% build more, which is so important, You can build more. 00:30:33.640 --> 00:30:35.170 align:middle line:90% And I remember. 00:30:35.170 --> 00:30:37.780 align:middle line:84% So question for this-- if you are policymaker, 00:30:37.780 --> 00:30:41.170 align:middle line:84% if you are in the building authority of this Arlington 00:30:41.170 --> 00:30:42.040 align:middle line:90% town. 00:30:42.040 --> 00:30:44.560 align:middle line:84% And when you design this, when you later 00:30:44.560 --> 00:30:50.590 align:middle line:84% go to the town, city government, like carrots, 00:30:50.590 --> 00:30:52.690 align:middle line:90% carrot's role in the city hall. 00:30:52.690 --> 00:30:54.610 align:middle line:90% So how you are going to design? 00:30:54.610 --> 00:30:57.850 align:middle line:84% Do you think these numbers, they have a very scientific 00:30:57.850 --> 00:30:59.620 align:middle line:90% calculation or something? 00:30:59.620 --> 00:31:06.550 align:middle line:84% Why did they came up with these numbers, 0.25, 035, 0.50? 00:31:06.550 --> 00:31:09.318 align:middle line:84% Do you know this is very scientific based? 00:31:09.318 --> 00:31:11.610 align:middle line:84% AUDIENCE: I don't know if it's scientific based or not, 00:31:11.610 --> 00:31:13.800 align:middle line:84% but it probably should be because, if you're 00:31:13.800 --> 00:31:16.740 align:middle line:84% going to be increasing the FAR, it's going to use more energy. 00:31:16.740 --> 00:31:18.310 align:middle line:84% It's more space to heat and cool, 00:31:18.310 --> 00:31:20.710 align:middle line:84% and things like that, and electricity usage. 00:31:20.710 --> 00:31:22.290 align:middle line:84% So you want to make sure that you're 00:31:22.290 --> 00:31:24.870 align:middle line:84% getting the benefit of them switching to LEED and things 00:31:24.870 --> 00:31:29.910 align:middle line:84% like that and getting a benefit where there's less consumption. 00:31:29.910 --> 00:31:31.237 align:middle line:90% SIQI ZHENG: Very good. 00:31:31.237 --> 00:31:35.640 align:middle line:84% So if you are city policymaker, where are you on your mind 00:31:35.640 --> 00:31:37.130 align:middle line:90% when you decide on this? 00:31:37.130 --> 00:31:37.930 align:middle line:90% You understand? 00:31:37.930 --> 00:31:40.530 align:middle line:84% This, the developer, they don't want to build. 00:31:40.530 --> 00:31:43.327 align:middle line:84% AUDIENCE: I just wanted to add that also the embodied carbon 00:31:43.327 --> 00:31:45.160 align:middle line:84% would increase because you're building more. 00:31:45.160 --> 00:31:46.535 align:middle line:84% SIQI ZHENG: Yeah, that's exactly. 00:31:46.535 --> 00:31:47.610 align:middle line:90% Yes. 00:31:47.610 --> 00:31:51.300 align:middle line:84% Yes, embodied operational carbon will both increase 00:31:51.300 --> 00:31:52.950 align:middle line:90% if you build taller. 00:31:52.950 --> 00:31:54.020 align:middle line:90% And other things? 00:31:54.020 --> 00:31:57.070 align:middle line:90% 00:31:57.070 --> 00:31:57.570 align:middle line:90% Please. 00:31:57.570 --> 00:31:59.760 align:middle line:84% AUDIENCE: You encourage the developer 00:31:59.760 --> 00:32:01.590 align:middle line:90% to build the green building. 00:32:01.590 --> 00:32:04.580 align:middle line:84% SIQI ZHENG: Yeah, that's the purpose. 00:32:04.580 --> 00:32:07.610 align:middle line:84% But how you can really decide on precisely that 00:32:07.610 --> 00:32:09.450 align:middle line:90% number to give them as a gift. 00:32:09.450 --> 00:32:11.023 align:middle line:90% This gift to you, please. 00:32:11.023 --> 00:32:13.190 align:middle line:84% AUDIENCE: [INAUDIBLE] signs Billy was talking about, 00:32:13.190 --> 00:32:15.190 align:middle line:84% you also have to think about the financial cost. 00:32:15.190 --> 00:32:18.230 align:middle line:84% So what's the cost of your additional building systems 00:32:18.230 --> 00:32:22.150 align:middle line:84% to hit these hurdles versus the FAR that you're granting? 00:32:22.150 --> 00:32:25.820 align:middle line:84% You got to grant enough FAR more to subsidize 00:32:25.820 --> 00:32:29.560 align:middle line:84% the cost of the added scale of your scope. 00:32:29.560 --> 00:32:30.770 align:middle line:90% SIQI ZHENG: OK, good. 00:32:30.770 --> 00:32:34.390 align:middle line:84% But [INAUDIBLE] you are from developer's perspective, right? 00:32:34.390 --> 00:32:36.402 align:middle line:84% No, I'm talking from the city's perspective, 00:32:36.402 --> 00:32:38.860 align:middle line:84% whether they are giving too much or they are giving little. 00:32:38.860 --> 00:32:39.130 align:middle line:90% [INAUDIBLE] 00:32:39.130 --> 00:32:40.190 align:middle line:84% AUDIENCE: Understand what that cost is. 00:32:40.190 --> 00:32:40.810 align:middle line:90% SIQI ZHENG: OK yes. 00:32:40.810 --> 00:32:41.140 align:middle line:90% AUDIENCE: [INAUDIBLE] 00:32:41.140 --> 00:32:42.640 align:middle line:84% SIQI ZHENG: They need to understand whether the developer 00:32:42.640 --> 00:32:43.790 align:middle line:90% will respond or not. 00:32:43.790 --> 00:32:48.630 align:middle line:84% And for the city perspective, more from city perspective? 00:32:48.630 --> 00:32:49.390 align:middle line:90% Yeah, please. 00:32:49.390 --> 00:32:50.973 align:middle line:84% AUDIENCE: I think from the other side, 00:32:50.973 --> 00:32:53.640 align:middle line:84% if you look at it and say if you're jumping from 0.25 FAR 00:32:53.640 --> 00:33:00.280 align:middle line:84% to 0.50 in an office building, you're creating twice as much 00:33:00.280 --> 00:33:05.088 align:middle line:84% supply of office [? Platinum. ?] And that would, in theory, 00:33:05.088 --> 00:33:07.630 align:middle line:84% not be created somewhere else because you're already creating 00:33:07.630 --> 00:33:09.968 align:middle line:90% it in that place. 00:33:09.968 --> 00:33:13.600 align:middle line:90% So like-- 00:33:13.600 --> 00:33:15.600 align:middle line:84% SIQI ZHENG: You will-- it'll create more supply. 00:33:15.600 --> 00:33:17.510 align:middle line:84% Maybe the rent will go down, are you saying? 00:33:17.510 --> 00:33:20.780 align:middle line:84% AUDIENCE: The supply is limited in the city for office. 00:33:20.780 --> 00:33:23.590 align:middle line:84% You can't build whatever you want. 00:33:23.590 --> 00:33:26.210 align:middle line:84% So if you're already turning the 0.25 in that building 00:33:26.210 --> 00:33:29.100 align:middle line:84% into a 0.50, you're reducing, what another developer 00:33:29.100 --> 00:33:31.345 align:middle line:90% [INAUDIBLE]. 00:33:31.345 --> 00:33:31.970 align:middle line:90% SIQI ZHENG: OK. 00:33:31.970 --> 00:33:33.320 align:middle line:90% good, so very good. 00:33:33.320 --> 00:33:37.180 align:middle line:84% So that gives you a sense of it's not that easy, actually. 00:33:37.180 --> 00:33:40.430 align:middle line:84% I think just now someone asked a question. 00:33:40.430 --> 00:33:44.500 align:middle line:84% It's not that easy to really design the optimal policy, 00:33:44.500 --> 00:33:47.210 align:middle line:90% optimal size of the carrot. 00:33:47.210 --> 00:33:48.040 align:middle line:90% It's very hard. 00:33:48.040 --> 00:33:51.100 align:middle line:84% And you need to consider both sides of the coin. 00:33:51.100 --> 00:33:53.800 align:middle line:84% First, as many of you said, you need to understand, 00:33:53.800 --> 00:33:55.270 align:middle line:90% is this enough? 00:33:55.270 --> 00:33:57.610 align:middle line:84% And whether this will really nudge 00:33:57.610 --> 00:34:02.140 align:middle line:84% the developers to respond in a way you want them to respond. 00:34:02.140 --> 00:34:05.710 align:middle line:84% Maybe too little, no response, and then you 00:34:05.710 --> 00:34:06.800 align:middle line:90% have some other things. 00:34:06.800 --> 00:34:12.070 align:middle line:84% If you increase the height, then you have carbon emission, 00:34:12.070 --> 00:34:13.670 align:middle line:90% like negative things. 00:34:13.670 --> 00:34:17.020 align:middle line:84% And for this FAR itself, on the other side, 00:34:17.020 --> 00:34:18.560 align:middle line:90% you need to see the social-- 00:34:18.560 --> 00:34:22.090 align:middle line:84% this is like, oh, if you do this, the social benefit, that's 00:34:22.090 --> 00:34:22.969 align:middle line:90% the rationale. 00:34:22.969 --> 00:34:26.199 align:middle line:84% But you also have social costs related to this. 00:34:26.199 --> 00:34:31.750 align:middle line:84% Why the fundamental rationale of FAR limitation of zoning is you 00:34:31.750 --> 00:34:33.050 align:middle line:90% cannot build too much? 00:34:33.050 --> 00:34:34.989 align:middle line:84% If you build too much, you add a lot of burden 00:34:34.989 --> 00:34:37.030 align:middle line:84% to the city's system infrastructure, 00:34:37.030 --> 00:34:41.409 align:middle line:84% for example, traffic, all the tall buildings, and traffic, 00:34:41.409 --> 00:34:45.139 align:middle line:84% and all the things, and all these infrastructure system. 00:34:45.139 --> 00:34:49.389 align:middle line:84% So when we design this, from the city, from the city mayor, 00:34:49.389 --> 00:34:51.580 align:middle line:84% and to balance the social benefit 00:34:51.580 --> 00:34:55.420 align:middle line:84% of this, the social cost of this because I'm the city mayor. 00:34:55.420 --> 00:34:58.960 align:middle line:84% The social benefit will be more green buildings. 00:34:58.960 --> 00:35:03.050 align:middle line:84% The social cost will be taller, buildings, more embodied carbon 00:35:03.050 --> 00:35:08.260 align:middle line:84% and operational energy use, and more traffic around that area, 00:35:08.260 --> 00:35:10.190 align:middle line:90% and this and that. 00:35:10.190 --> 00:35:13.240 align:middle line:90% So that's the point. 00:35:13.240 --> 00:35:15.900 align:middle line:84% And this density bonus is a carrot. 00:35:15.900 --> 00:35:20.650 align:middle line:84% So the point is it's not a check, per se. 00:35:20.650 --> 00:35:23.740 align:middle line:84% But it will increase your revenue for sure 00:35:23.740 --> 00:35:25.040 align:middle line:90% because you build more. 00:35:25.040 --> 00:35:28.900 align:middle line:84% Then you have more office space to rent out. 00:35:28.900 --> 00:35:30.640 align:middle line:90% So that will change. 00:35:30.640 --> 00:35:35.770 align:middle line:84% That will change the thing of this equation, 00:35:35.770 --> 00:35:37.850 align:middle line:90% make NPV negative to positive. 00:35:37.850 --> 00:35:41.055 align:middle line:84% Then they respond if your if your carrot is big enough. 00:35:41.055 --> 00:35:43.720 align:middle line:90% 00:35:43.720 --> 00:35:48.220 align:middle line:84% So here is very interesting is our project we have been doing 00:35:48.220 --> 00:35:51.280 align:middle line:84% for one more than one years together with Zhengzhen, 00:35:51.280 --> 00:35:53.830 align:middle line:84% Akrisht, and other another professor 00:35:53.830 --> 00:35:58.660 align:middle line:84% Justin Steil in our department is a combination. 00:35:58.660 --> 00:36:00.320 align:middle line:90% This one is very interesting. 00:36:00.320 --> 00:36:02.380 align:middle line:90% The story is the following. 00:36:02.380 --> 00:36:04.970 align:middle line:84% There is-- this is a real project. 00:36:04.970 --> 00:36:08.980 align:middle line:84% We have a project that this Massachusetts Association 00:36:08.980 --> 00:36:12.010 align:middle line:90% of Homebuilders, HBRA. 00:36:12.010 --> 00:36:16.330 align:middle line:84% So every state has some similar association 00:36:16.330 --> 00:36:19.450 align:middle line:84% of the builders, especially the medium-sized and small-sized 00:36:19.450 --> 00:36:20.210 align:middle line:90% builders. 00:36:20.210 --> 00:36:21.640 align:middle line:84% They want to have a market power. 00:36:21.640 --> 00:36:23.140 align:middle line:84% They want to say-- they want to talk 00:36:23.140 --> 00:36:24.890 align:middle line:90% to the governor of the state. 00:36:24.890 --> 00:36:26.630 align:middle line:90% So they just gather together. 00:36:26.630 --> 00:36:28.270 align:middle line:90% They have this association. 00:36:28.270 --> 00:36:33.820 align:middle line:84% And then the Massachusetts, very, very aggressive-- 00:36:33.820 --> 00:36:37.360 align:middle line:84% very, very, very, very progressive. 00:36:37.360 --> 00:36:40.690 align:middle line:84% Yes, so basically, they said, they want to reduce-- 00:36:40.690 --> 00:36:42.800 align:middle line:84% they want to change the energy code. 00:36:42.800 --> 00:36:45.040 align:middle line:84% Energy code is a stick, remember? 00:36:45.040 --> 00:36:46.460 align:middle line:90% Energy code is a stick. 00:36:46.460 --> 00:36:49.180 align:middle line:90% So they say net zero. 00:36:49.180 --> 00:36:51.010 align:middle line:84% The governor said, we really want 00:36:51.010 --> 00:36:52.930 align:middle line:90% to achieve net zero very fast. 00:36:52.930 --> 00:36:55.030 align:middle line:84% Very fast trajectory, go to net zero. 00:36:55.030 --> 00:37:00.260 align:middle line:84% They have an energy index called HERS, HERS energy score. 00:37:00.260 --> 00:37:01.730 align:middle line:90% Every building has a HERS. 00:37:01.730 --> 00:37:04.210 align:middle line:84% I'm not sure whether when you get the energy audit. 00:37:04.210 --> 00:37:06.520 align:middle line:84% They will tell you the HERS score of your building. 00:37:06.520 --> 00:37:10.780 align:middle line:84% And then they say, OK, now I mandate. 00:37:10.780 --> 00:37:15.790 align:middle line:84% I mandate all the new constructions, new buildings. 00:37:15.790 --> 00:37:20.870 align:middle line:84% Energy HERS score must decrease from 55 to 45 or 42. 00:37:20.870 --> 00:37:21.890 align:middle line:90% That's a big decrease. 00:37:21.890 --> 00:37:25.010 align:middle line:84% If you decrease to very low, then you become net zero. 00:37:25.010 --> 00:37:26.800 align:middle line:84% Now they are doing this step by step. 00:37:26.800 --> 00:37:29.740 align:middle line:84% At first, may be not net zero, but they want sharp decrease 00:37:29.740 --> 00:37:33.730 align:middle line:84% of the energy score of all the new construction of the housing 00:37:33.730 --> 00:37:36.980 align:middle line:90% units in Massachusetts. 00:37:36.980 --> 00:37:41.000 align:middle line:84% And then these homebuilders, they are very anxious, 00:37:41.000 --> 00:37:43.010 align:middle line:90% and they are unhappy. 00:37:43.010 --> 00:37:44.750 align:middle line:90% They are saying, why? 00:37:44.750 --> 00:37:48.350 align:middle line:84% You cannot just think about this political goal of the net zero 00:37:48.350 --> 00:37:51.050 align:middle line:90% or to society, to the planet. 00:37:51.050 --> 00:37:55.880 align:middle line:84% But you need to think about our cost because then it 00:37:55.880 --> 00:37:59.630 align:middle line:84% means must fully electrify, heat pump first, 00:37:59.630 --> 00:38:02.070 align:middle line:84% and the installation and the passive house. 00:38:02.070 --> 00:38:04.130 align:middle line:90% That all means costs increase. 00:38:04.130 --> 00:38:07.280 align:middle line:84% Then they say, OK, costs increase. 00:38:07.280 --> 00:38:08.360 align:middle line:90% We cannot do. 00:38:08.360 --> 00:38:12.170 align:middle line:84% You cannot just give a stick, and then you ask us to do 00:38:12.170 --> 00:38:13.160 align:middle line:90% as a mandate. 00:38:13.160 --> 00:38:14.490 align:middle line:90% And we will not do. 00:38:14.490 --> 00:38:17.250 align:middle line:84% If they will not do, that become a problem. 00:38:17.250 --> 00:38:17.810 align:middle line:90% Why? 00:38:17.810 --> 00:38:20.870 align:middle line:84% Because, especially in Boston area, as you know, 00:38:20.870 --> 00:38:22.560 align:middle line:84% it's already limited housing supply. 00:38:22.560 --> 00:38:24.950 align:middle line:84% We don't have enough houses, especially 00:38:24.950 --> 00:38:27.320 align:middle line:84% for some areas with a lot of people, 00:38:27.320 --> 00:38:29.550 align:middle line:90% not enough, not enough houses. 00:38:29.550 --> 00:38:33.510 align:middle line:84% Then if the builders all get upset and they all step back-- 00:38:33.510 --> 00:38:36.570 align:middle line:84% so we're not going to develop new houses-- 00:38:36.570 --> 00:38:39.390 align:middle line:84% that will be a shortage of the supply. 00:38:39.390 --> 00:38:42.360 align:middle line:84% That will push up the housing affordability 00:38:42.360 --> 00:38:45.030 align:middle line:90% problem, no supply. 00:38:45.030 --> 00:38:48.420 align:middle line:90% Or they say, OK, we will supply. 00:38:48.420 --> 00:38:53.100 align:middle line:84% But since you only give us stick, you give us stick now, 00:38:53.100 --> 00:38:55.980 align:middle line:84% we are going to pass on this cost 00:38:55.980 --> 00:39:00.100 align:middle line:90% into the buyers or the tenants. 00:39:00.100 --> 00:39:02.760 align:middle line:84% We're not going to carry on this cost. 00:39:02.760 --> 00:39:08.370 align:middle line:84% If this induce or increase cost of 5%, we will go to the price, 00:39:08.370 --> 00:39:11.400 align:middle line:84% say 5% higher because we have power 00:39:11.400 --> 00:39:15.080 align:middle line:84% because it's still limited housing supply. 00:39:15.080 --> 00:39:18.740 align:middle line:84% So then that will hurt the house affordability. 00:39:18.740 --> 00:39:22.090 align:middle line:84% Then they came to us saying, although we have this intuition, 00:39:22.090 --> 00:39:23.840 align:middle line:84% but we don't know how to talk to governor. 00:39:23.840 --> 00:39:27.260 align:middle line:84% Governor want us to show empirical evidence. 00:39:27.260 --> 00:39:30.080 align:middle line:84% We need empirical evidence, evidence-based, 00:39:30.080 --> 00:39:32.120 align:middle line:90% so that we can talk to governor. 00:39:32.120 --> 00:39:34.940 align:middle line:90% So they came to us, all of us. 00:39:34.940 --> 00:39:38.100 align:middle line:84% And they say, OK, MIT, could you do a project? 00:39:38.100 --> 00:39:40.730 align:middle line:84% Could you do research to quantify, 00:39:40.730 --> 00:39:44.000 align:middle line:84% if you go in this way, what will be 00:39:44.000 --> 00:39:47.060 align:middle line:84% the actual burden to the households in terms 00:39:47.060 --> 00:39:48.620 align:middle line:90% of the housing affordability? 00:39:48.620 --> 00:39:51.800 align:middle line:84% So that became our project called "The Balance Between 00:39:51.800 --> 00:39:54.050 align:middle line:84% Sustainability and Affordability." 00:39:54.050 --> 00:39:57.050 align:middle line:84% You cannot everyday say, oh, sustainability is so good. 00:39:57.050 --> 00:39:59.570 align:middle line:84% So we all go to green and net zero. 00:39:59.570 --> 00:40:02.090 align:middle line:84% But you need to think about affordability. 00:40:02.090 --> 00:40:04.190 align:middle line:90% Remember ESG? 00:40:04.190 --> 00:40:06.175 align:middle line:90% So we talked about this, ESG. 00:40:06.175 --> 00:40:11.300 align:middle line:90% 00:40:11.300 --> 00:40:14.570 align:middle line:84% Now everything benefits all three. 00:40:14.570 --> 00:40:17.760 align:middle line:84% Now, if you think, oh, we only consider E, 00:40:17.760 --> 00:40:22.770 align:middle line:90% then you heard, so go up. 00:40:22.770 --> 00:40:25.170 align:middle line:90% Social part go down. 00:40:25.170 --> 00:40:28.170 align:middle line:84% Housing affordability is a social thing. 00:40:28.170 --> 00:40:29.740 align:middle line:90% If this go up, this goes down. 00:40:29.740 --> 00:40:32.440 align:middle line:84% How to balance-- how to balance these two? 00:40:32.440 --> 00:40:33.960 align:middle line:90% That's the question. 00:40:33.960 --> 00:40:37.600 align:middle line:84% So you need to design a good policy to balance. 00:40:37.600 --> 00:40:39.670 align:middle line:90% Then we start this project. 00:40:39.670 --> 00:40:40.780 align:middle line:90% We are almost done. 00:40:40.780 --> 00:40:44.740 align:middle line:84% We will go to Washington DC early June to present. 00:40:44.740 --> 00:40:51.090 align:middle line:84% I think that will be a National Association of Home Builders-- 00:40:51.090 --> 00:40:55.950 align:middle line:84% National Association of Home Builders, NAHB, yes. 00:40:55.950 --> 00:40:59.950 align:middle line:84% Massachusetts, because the governor is so progressive-- 00:40:59.950 --> 00:41:02.920 align:middle line:84% so we are going to go this, and there's many, many states. 00:41:02.920 --> 00:41:05.610 align:middle line:84% Some are relatively not that progressive. 00:41:05.610 --> 00:41:06.540 align:middle line:90% Some are progressive. 00:41:06.540 --> 00:41:08.040 align:middle line:84% We are going to present our research 00:41:08.040 --> 00:41:11.160 align:middle line:84% to let those policy makers understand this. 00:41:11.160 --> 00:41:15.090 align:middle line:84% Then we did analysis of housing affordability. 00:41:15.090 --> 00:41:17.250 align:middle line:84% For example, we understand housing affordability 00:41:17.250 --> 00:41:22.020 align:middle line:84% is a share of the housing cost and household income. 00:41:22.020 --> 00:41:25.120 align:middle line:84% Have anyone have studied this housing affordability thing? 00:41:25.120 --> 00:41:26.880 align:middle line:90% Do you know there's a threshold? 00:41:26.880 --> 00:41:30.420 align:middle line:84% If the share is above a threshold, 00:41:30.420 --> 00:41:33.950 align:middle line:90% that's not affordable. 00:41:33.950 --> 00:41:36.830 align:middle line:84% And then you are eligible for some subsidy or some program 00:41:36.830 --> 00:41:37.860 align:middle line:90% from the government. 00:41:37.860 --> 00:41:40.450 align:middle line:90% Do you know that threshold? 00:41:40.450 --> 00:41:41.220 align:middle line:90% AUDIENCE: 30%. 00:41:41.220 --> 00:41:42.540 align:middle line:90% SIQI ZHENG: Yes, 30%. 00:41:42.540 --> 00:41:47.160 align:middle line:84% I think you have this mixed income housing project 00:41:47.160 --> 00:41:48.990 align:middle line:90% class, 30%. 00:41:48.990 --> 00:41:51.460 align:middle line:90% This thing is a share of this. 00:41:51.460 --> 00:41:54.960 align:middle line:84% If this about 30%, not affordable. 00:41:54.960 --> 00:41:59.280 align:middle line:84% And then the housing costs can break down into this 00:41:59.280 --> 00:42:02.790 align:middle line:84% is a utility bill, of course, the housing cost. 00:42:02.790 --> 00:42:05.040 align:middle line:84% And another thing, the home owners 00:42:05.040 --> 00:42:08.190 align:middle line:84% will be the monthly payment, like the mortgage, and the tax, 00:42:08.190 --> 00:42:09.060 align:middle line:90% and insurance. 00:42:09.060 --> 00:42:12.000 align:middle line:84% If the renters will be rent, and both renters and owners 00:42:12.000 --> 00:42:13.620 align:middle line:90% need to pay energy bill. 00:42:13.620 --> 00:42:19.360 align:middle line:84% So then we say, OK, if we go to net zero, 00:42:19.360 --> 00:42:20.710 align:middle line:90% this one will decrease. 00:42:20.710 --> 00:42:22.900 align:middle line:90% Then this one will increase. 00:42:22.900 --> 00:42:24.580 align:middle line:90% But to what extent? 00:42:24.580 --> 00:42:28.230 align:middle line:84% What should be the elasticity of this? 00:42:28.230 --> 00:42:31.560 align:middle line:84% For many of you, you may understand this is a big thing. 00:42:31.560 --> 00:42:33.570 align:middle line:90% This is a majority of the thing. 00:42:33.570 --> 00:42:35.710 align:middle line:84% This may be a small thing, minor thing. 00:42:35.710 --> 00:42:39.570 align:middle line:84% But this one will decrease, and this one 00:42:39.570 --> 00:42:43.680 align:middle line:84% will increase if the developers pass on the cost 00:42:43.680 --> 00:42:46.530 align:middle line:90% to buyers and tenants. 00:42:46.530 --> 00:42:48.600 align:middle line:90% Then which one will dominant? 00:42:48.600 --> 00:42:50.700 align:middle line:84% And in which market will dominant? 00:42:50.700 --> 00:42:54.190 align:middle line:84% And to what kind of income group will dominant? 00:42:54.190 --> 00:42:57.150 align:middle line:90% That's totally empirical. 00:42:57.150 --> 00:42:58.590 align:middle line:90% Then we started. 00:42:58.590 --> 00:42:59.730 align:middle line:90% We get data. 00:42:59.730 --> 00:43:02.310 align:middle line:84% Of course, this research needs data. 00:43:02.310 --> 00:43:03.510 align:middle line:90% So we have data. 00:43:03.510 --> 00:43:05.350 align:middle line:90% This is Massachusetts. 00:43:05.350 --> 00:43:09.270 align:middle line:84% We got data from all households, of the single family, 00:43:09.270 --> 00:43:10.830 align:middle line:90% of multifamily. 00:43:10.830 --> 00:43:15.600 align:middle line:84% Then we have income groups from the very poor to very rich. 00:43:15.600 --> 00:43:19.830 align:middle line:84% I think we have 20 groups, 20 income groups. 00:43:19.830 --> 00:43:22.077 align:middle line:90% And then we started this. 00:43:22.077 --> 00:43:23.410 align:middle line:90% I think this is an energy bills. 00:43:23.410 --> 00:43:26.370 align:middle line:84% This is an energy cost, energy bill cost. 00:43:26.370 --> 00:43:29.340 align:middle line:84% And then they have some insurance and tax cost. 00:43:29.340 --> 00:43:32.560 align:middle line:84% Then they have their mortgage income costs like that. 00:43:32.560 --> 00:43:36.850 align:middle line:84% And then the solid line for each category is before the change. 00:43:36.850 --> 00:43:39.640 align:middle line:84% The dashed line is after the change. 00:43:39.640 --> 00:43:43.450 align:middle line:84% So you will see, yes, your costs decrease 00:43:43.450 --> 00:43:46.540 align:middle line:84% but so little, invisible, almost. 00:43:46.540 --> 00:43:49.330 align:middle line:90% So little change. 00:43:49.330 --> 00:43:52.850 align:middle line:90% However, the price may go up. 00:43:52.850 --> 00:43:54.280 align:middle line:90% So the dashed line is above. 00:43:54.280 --> 00:43:57.620 align:middle line:90% So then this is the 30% line. 00:43:57.620 --> 00:44:02.650 align:middle line:84% So you will see, of course, the poor people always affordable, 00:44:02.650 --> 00:44:04.820 align:middle line:84% no matter what, always affordable. 00:44:04.820 --> 00:44:08.300 align:middle line:84% They always need subsidy from the government. 00:44:08.300 --> 00:44:10.730 align:middle line:84% They are always very high because their income is so low. 00:44:10.730 --> 00:44:15.010 align:middle line:84% But the change will hurt those groups, see? 00:44:15.010 --> 00:44:19.330 align:middle line:84% This is group that will be hurt by this sustainability 00:44:19.330 --> 00:44:22.840 align:middle line:84% because, at first, they will be below 30%. 00:44:22.840 --> 00:44:27.670 align:middle line:84% Then, after the change, they jump above 30%. 00:44:27.670 --> 00:44:31.710 align:middle line:84% So we identify, oh, this group will be very vulnerable 00:44:31.710 --> 00:44:34.860 align:middle line:90% and from OK to not OK. 00:44:34.860 --> 00:44:39.360 align:middle line:84% So this is multifamily, multifamily, 00:44:39.360 --> 00:44:41.370 align:middle line:90% every income relatively lower. 00:44:41.370 --> 00:44:42.840 align:middle line:90% OK, that's the point. 00:44:42.840 --> 00:44:47.830 align:middle line:90% So then we give suggestions. 00:44:47.830 --> 00:44:48.400 align:middle line:90% Question? 00:44:48.400 --> 00:44:48.942 align:middle line:90% AUDIENCE: Oh. 00:44:48.942 --> 00:44:50.770 align:middle line:84% SIQI ZHENG: You want another carrot? 00:44:50.770 --> 00:44:51.440 align:middle line:90% Go ahead. 00:44:51.440 --> 00:44:53.982 align:middle line:84% AUDIENCE: I was just curious how the Homebuilders Association 00:44:53.982 --> 00:44:56.700 align:middle line:84% feels about these findings, because they're the ones that 00:44:56.700 --> 00:44:57.630 align:middle line:90% wanted you to do this? 00:44:57.630 --> 00:44:59.800 align:middle line:90% SIQI ZHENG: Yeah, yeah. 00:44:59.800 --> 00:45:02.540 align:middle line:84% So, yes, they want to-- they want-- we will go there. 00:45:02.540 --> 00:45:05.530 align:middle line:84% We will go to DC to show this to-- this is Massachusetts, 00:45:05.530 --> 00:45:07.600 align:middle line:84% but we will show to other states. 00:45:07.600 --> 00:45:09.170 align:middle line:90% So they want this. 00:45:09.170 --> 00:45:10.120 align:middle line:90% They want to show. 00:45:10.120 --> 00:45:13.960 align:middle line:84% So this will hurt because their argument from the beginning is 00:45:13.960 --> 00:45:16.220 align:middle line:90% you cannot just do stick. 00:45:16.220 --> 00:45:19.630 align:middle line:84% You need to couple with a carrot. 00:45:19.630 --> 00:45:24.820 align:middle line:84% If you couple with a carrot, you will reduce this part 00:45:24.820 --> 00:45:30.310 align:middle line:84% because then you give some subsidy or what kind of things, 00:45:30.310 --> 00:45:34.090 align:middle line:84% carrots to the developers so they won't pass on so much 00:45:34.090 --> 00:45:35.870 align:middle line:90% to the buyers and the tenants. 00:45:35.870 --> 00:45:40.090 align:middle line:84% So that's [INAUDIBLE] combine, cannot do this, only this. 00:45:40.090 --> 00:45:41.570 align:middle line:90% So that's the thing. 00:45:41.570 --> 00:45:45.070 align:middle line:84% And then, however, this is politics. 00:45:45.070 --> 00:45:47.530 align:middle line:84% As last time, remember, Ed Golding 00:45:47.530 --> 00:45:49.640 align:middle line:90% come-- came, last session. 00:45:49.640 --> 00:45:52.750 align:middle line:84% He says, sometimes it's not just a social issues. 00:45:52.750 --> 00:45:54.980 align:middle line:90% It's just the equity issues. 00:45:54.980 --> 00:45:58.490 align:middle line:84% Instead, money is about politics. 00:45:58.490 --> 00:46:02.910 align:middle line:84% The politics will be very pushback from the policy makers 00:46:02.910 --> 00:46:03.440 align:middle line:90% pushback. 00:46:03.440 --> 00:46:05.000 align:middle line:90% If you say, oh, write a check. 00:46:05.000 --> 00:46:07.160 align:middle line:84% If you do this, write a check to developers. 00:46:07.160 --> 00:46:08.100 align:middle line:90% Very hard. 00:46:08.100 --> 00:46:15.180 align:middle line:84% So they may be more acceptable, amenable to some ways of FAR, 00:46:15.180 --> 00:46:19.280 align:middle line:84% this kind of things, increase a little bit FAR as a FAR bonus 00:46:19.280 --> 00:46:26.240 align:middle line:84% and do some tax rebate and some expedited permitting process. 00:46:26.240 --> 00:46:28.320 align:middle line:84% Others, like two years, you get a permit. 00:46:28.320 --> 00:46:31.440 align:middle line:84% No, then you [INAUDIBLE] the permitting process. 00:46:31.440 --> 00:46:34.430 align:middle line:84% So that's some kind of-- so zoning will be the best 00:46:34.430 --> 00:46:36.980 align:middle line:84% solution, we feel, zoning because zoning 00:46:36.980 --> 00:46:38.970 align:middle line:84% will make sure they really start to build. 00:46:38.970 --> 00:46:42.215 align:middle line:84% If you don't build, then you cannot get the benefit. 00:46:42.215 --> 00:46:47.330 align:middle line:84% OK, now I need to move on for other sticks, other sticks, 00:46:47.330 --> 00:46:49.040 align:middle line:90% this stick is-- 00:46:49.040 --> 00:46:53.300 align:middle line:84% I think many of us, we went to the New York city field trip 00:46:53.300 --> 00:46:54.380 align:middle line:90% with Kairos' class. 00:46:54.380 --> 00:46:55.590 align:middle line:90% I was also there. 00:46:55.590 --> 00:46:58.580 align:middle line:84% We went to some buildings, and in every building, 00:46:58.580 --> 00:47:00.020 align:middle line:90% I tried to find this. 00:47:00.020 --> 00:47:01.400 align:middle line:90% I tried to find this. 00:47:01.400 --> 00:47:05.410 align:middle line:84% And remember, I also ask a question when we first 00:47:05.410 --> 00:47:08.740 align:middle line:90% stop at the Rockefeller Center. 00:47:08.740 --> 00:47:11.980 align:middle line:84% And then, because New York city said, 00:47:11.980 --> 00:47:16.990 align:middle line:84% you must put this very, very entrance, 00:47:16.990 --> 00:47:20.360 align:middle line:84% the entrance of your building, to show this is mandate. 00:47:20.360 --> 00:47:22.990 align:middle line:84% You must show your energy reading. 00:47:22.990 --> 00:47:28.090 align:middle line:84% A good, B, C, D. So this is mandatory to put. 00:47:28.090 --> 00:47:29.060 align:middle line:90% That will pressure. 00:47:29.060 --> 00:47:31.720 align:middle line:84% If you are too dirty, you have D. 00:47:31.720 --> 00:47:35.140 align:middle line:84% Then, when we were there together with Kairos, 00:47:35.140 --> 00:47:37.660 align:middle line:84% every building I try to find-- in the last building, 00:47:37.660 --> 00:47:39.340 align:middle line:84% the last of the architect building, 00:47:39.340 --> 00:47:43.710 align:middle line:84% the architect firm visited, finally we found a D, 00:47:43.710 --> 00:47:49.160 align:middle line:84% a very corner place, "not very easy to see" place. 00:47:49.160 --> 00:47:54.310 align:middle line:84% In another building in my hotel, I went there in Thursday night. 00:47:54.310 --> 00:47:58.270 align:middle line:84% And the Thursday night, also a D here and also behind a door, 00:47:58.270 --> 00:48:00.890 align:middle line:84% a place they posted there because they have to post. 00:48:00.890 --> 00:48:03.650 align:middle line:84% But they feel so embarrassed and to post 00:48:03.650 --> 00:48:05.900 align:middle line:84% a D. If they are A, of course, they put here. 00:48:05.900 --> 00:48:07.280 align:middle line:90% This one is very-- 00:48:07.280 --> 00:48:10.860 align:middle line:84% this one is very brave, and they put C there. 00:48:10.860 --> 00:48:14.880 align:middle line:84% But this is a stick, make you lose face. 00:48:14.880 --> 00:48:16.340 align:middle line:84% AUDIENCE: How do they get LEED Gold 00:48:16.340 --> 00:48:17.592 align:middle line:90% if they have such bad energy? 00:48:17.592 --> 00:48:19.050 align:middle line:84% SIQI ZHENG: That's a good question. 00:48:19.050 --> 00:48:19.650 align:middle line:90% I don't know. 00:48:19.650 --> 00:48:23.600 align:middle line:90% [LAUGHS] Check this building. 00:48:23.600 --> 00:48:27.740 align:middle line:84% OK, so I think New York is very, very strict, even LEED, 00:48:27.740 --> 00:48:28.620 align:middle line:90% not good. 00:48:28.620 --> 00:48:31.900 align:middle line:90% C. Yeah. 00:48:31.900 --> 00:48:34.000 align:middle line:90% So we have similar things. 00:48:34.000 --> 00:48:39.640 align:middle line:84% Boston has BERDO, and the Cambridge is BEUDO. 00:48:39.640 --> 00:48:42.790 align:middle line:84% Very similar pronunciation, but they are different. 00:48:42.790 --> 00:48:44.540 align:middle line:90% So this is MIT. 00:48:44.540 --> 00:48:46.810 align:middle line:84% This is Cambridge because we are in Cambridge. 00:48:46.810 --> 00:48:52.630 align:middle line:84% Cambridge also has this, lose face, so disclosure mandatory. 00:48:52.630 --> 00:48:56.350 align:middle line:84% So they say Cambridge is a BEUDO. 00:48:56.350 --> 00:48:59.740 align:middle line:84% BEUDO [? set, ?] it's very similar, Cambridge version 00:48:59.740 --> 00:49:02.140 align:middle line:90% of Local Law 97, the disclosure. 00:49:02.140 --> 00:49:06.790 align:middle line:90% You must disclose your energy. 00:49:06.790 --> 00:49:08.330 align:middle line:90% So this is our building now. 00:49:08.330 --> 00:49:11.170 align:middle line:84% We are here, building 9 Total carbon 00:49:11.170 --> 00:49:14.890 align:middle line:90% emission intensity is 22.15. 00:49:14.890 --> 00:49:16.450 align:middle line:90% It's very small. 00:49:16.450 --> 00:49:18.950 align:middle line:84% And this one is a Hayden library. 00:49:18.950 --> 00:49:21.140 align:middle line:84% Have you been there, the Hayden library? 00:49:21.140 --> 00:49:23.480 align:middle line:90% Very beautiful, the renovation. 00:49:23.480 --> 00:49:26.130 align:middle line:90% 00:49:26.130 --> 00:49:30.030 align:middle line:84% They did the renovation in 2020, 2021 during the pandemic, 00:49:30.030 --> 00:49:31.780 align:middle line:84% and then they finished the renovation. 00:49:31.780 --> 00:49:33.400 align:middle line:90% I strongly suggest you go there. 00:49:33.400 --> 00:49:35.910 align:middle line:84% I always went there when I feel stressed out. 00:49:35.910 --> 00:49:37.680 align:middle line:90% I go there, and I stay there. 00:49:37.680 --> 00:49:39.160 align:middle line:90% And I look at the Charles River. 00:49:39.160 --> 00:49:39.910 align:middle line:90% I. feel good. 00:49:39.910 --> 00:49:44.220 align:middle line:84% So this is a very good library, the first floor, 24/7. 00:49:44.220 --> 00:49:46.380 align:middle line:84% All the time you can go there to study. 00:49:46.380 --> 00:49:50.970 align:middle line:84% So LEED Gold, Fitwel, all the good things they have. 00:49:50.970 --> 00:49:54.990 align:middle line:84% And then they have all the things 00:49:54.990 --> 00:50:00.940 align:middle line:84% as a role model on campus for the green and healthy building. 00:50:00.940 --> 00:50:02.510 align:middle line:84% And we already talked about this. 00:50:02.510 --> 00:50:05.590 align:middle line:84% SEC push that you'll use this for your P set 1. 00:50:05.590 --> 00:50:08.290 align:middle line:84% They push for all the listed companies, big companies 00:50:08.290 --> 00:50:10.250 align:middle line:90% to disclose, scope 1, 2, 3. 00:50:10.250 --> 00:50:12.010 align:middle line:90% That's it. 00:50:12.010 --> 00:50:16.700 align:middle line:84% So then this minimum energy efficiency. 00:50:16.700 --> 00:50:18.170 align:middle line:90% This is not a stick. 00:50:18.170 --> 00:50:19.310 align:middle line:90% It's a huge stick. 00:50:19.310 --> 00:50:23.680 align:middle line:84% It's very, very thick stick, very strong stick in UK. 00:50:23.680 --> 00:50:27.920 align:middle line:84% The UK said it's not like only ask you to lose face. 00:50:27.920 --> 00:50:31.450 align:middle line:84% No, not just losing face but real action. 00:50:31.450 --> 00:50:38.500 align:middle line:84% If your energy standard so low, so dirty, you have-- 00:50:38.500 --> 00:50:43.800 align:middle line:84% you cannot lease, can no longer lease your properties until you 00:50:43.800 --> 00:50:49.590 align:middle line:84% make the renovation, makes the energy rating better. 00:50:49.590 --> 00:50:57.390 align:middle line:84% So if you-- since this, since this 2020, below E, bad. 00:50:57.390 --> 00:51:00.090 align:middle line:90% Stop losing, out of the market. 00:51:00.090 --> 00:51:00.810 align:middle line:90% Andy. 00:51:00.810 --> 00:51:01.950 align:middle line:84% AUDIENCE: Is there an enormous subsidy 00:51:01.950 --> 00:51:02.820 align:middle line:90% that goes along with this? 00:51:02.820 --> 00:51:05.112 align:middle line:84% Because otherwise you're just punishing all the renters 00:51:05.112 --> 00:51:06.040 align:middle line:90% in the marketplace. 00:51:06.040 --> 00:51:07.220 align:middle line:84% SIQI ZHENG: Yeah, that's a good question. 00:51:07.220 --> 00:51:08.000 align:middle line:90% We need to check out. 00:51:08.000 --> 00:51:08.600 align:middle line:90% I don't know. 00:51:08.600 --> 00:51:11.065 align:middle line:84% I think they should have some carrots combined. 00:51:11.065 --> 00:51:11.770 align:middle line:84% AUDIENCE: Because if you just said 00:51:11.770 --> 00:51:13.640 align:middle line:84% all landlords [INAUDIBLE] poor quality apartment, 00:51:13.640 --> 00:51:15.598 align:middle line:84% you can't rent it, all the prices in the market 00:51:15.598 --> 00:51:16.340 align:middle line:90% just went up. 00:51:16.340 --> 00:51:17.673 align:middle line:90% SIQI ZHENG: Right, right, right. 00:51:17.673 --> 00:51:18.950 align:middle line:90% So it's very thick, correct? 00:51:18.950 --> 00:51:21.880 align:middle line:84% You must have a small carrot together so 00:51:21.880 --> 00:51:23.290 align:middle line:90% that you can balance. 00:51:23.290 --> 00:51:27.540 align:middle line:84% And then otherwise, all the out-- 00:51:27.540 --> 00:51:32.530 align:middle line:84% all the-- No, no, no, that's very similar to Massachusetts. 00:51:32.530 --> 00:51:37.000 align:middle line:90% So the casing is very strict. 00:51:37.000 --> 00:51:40.840 align:middle line:90% If you under-- no rent. 00:51:40.840 --> 00:51:44.870 align:middle line:84% Then rent is gone, no revenue, no revenue. 00:51:44.870 --> 00:51:47.120 align:middle line:84% So that means it become a game changer. 00:51:47.120 --> 00:51:50.870 align:middle line:84% Then you say, OK, I have no other choice. 00:51:50.870 --> 00:51:52.930 align:middle line:84% If I still want to be the landlord, 00:51:52.930 --> 00:51:56.680 align:middle line:84% I have to do this renovation to get out of this situation 00:51:56.680 --> 00:52:02.680 align:middle line:84% and get above E. So that's not a losing face, 00:52:02.680 --> 00:52:07.580 align:middle line:84% saying this is really cut, totally cut your revenue. 00:52:07.580 --> 00:52:09.070 align:middle line:90% Cut your cash flow. 00:52:09.070 --> 00:52:13.800 align:middle line:84% OK, now, Local Law 97 is a big stick. 00:52:13.800 --> 00:52:14.910 align:middle line:90% We already talked so much. 00:52:14.910 --> 00:52:16.800 align:middle line:90% I'm going to skip this. 00:52:16.800 --> 00:52:19.160 align:middle line:90% Skip this. 00:52:19.160 --> 00:52:21.770 align:middle line:84% And remember, another thing I really want to tell you 00:52:21.770 --> 00:52:23.320 align:middle line:90% is the following. 00:52:23.320 --> 00:52:27.260 align:middle line:84% Until now, I give you some examples of sticks and carrots. 00:52:27.260 --> 00:52:29.210 align:middle line:84% So you will find out very interesting thing 00:52:29.210 --> 00:52:31.920 align:middle line:84% is the government is not so stupid. 00:52:31.920 --> 00:52:35.480 align:middle line:84% When they look at the big developers, big real estate 00:52:35.480 --> 00:52:38.000 align:middle line:84% owners, commercial real estate, they 00:52:38.000 --> 00:52:40.640 align:middle line:90% use this because they are rich. 00:52:40.640 --> 00:52:42.260 align:middle line:90% They are on Wall Street. 00:52:42.260 --> 00:52:44.330 align:middle line:90% They are the rich people. 00:52:44.330 --> 00:52:48.800 align:middle line:84% They are all they want to charge them, so use these sticks. 00:52:48.800 --> 00:52:53.450 align:middle line:84% For households, they use this because, for common households, 00:52:53.450 --> 00:52:55.020 align:middle line:90% they use carrots. 00:52:55.020 --> 00:52:56.250 align:middle line:90% Oh, can you do this? 00:52:56.250 --> 00:52:56.960 align:middle line:90% Can you do this? 00:52:56.960 --> 00:52:58.890 align:middle line:84% If you do this, we will get a check. 00:52:58.890 --> 00:53:00.960 align:middle line:84% If you do that, we will give you a check. 00:53:00.960 --> 00:53:04.800 align:middle line:84% So that's the thing is too big guys, 00:53:04.800 --> 00:53:07.580 align:middle line:84% Local Law 97, stick, because they are rich, 00:53:07.580 --> 00:53:09.230 align:middle line:90% and they are easy to target. 00:53:09.230 --> 00:53:11.090 align:middle line:84% And for household, especially middle- 00:53:11.090 --> 00:53:13.820 align:middle line:84% and low-income households, they do this because, otherwise, you 00:53:13.820 --> 00:53:16.160 align:middle line:90% will hurt this social thing. 00:53:16.160 --> 00:53:20.460 align:middle line:90% So that's always we find. 00:53:20.460 --> 00:53:23.140 align:middle line:84% Boston called BERDO, that's the same thing. 00:53:23.140 --> 00:53:26.880 align:middle line:84% I want to say that Boston is more aggressive than Local 00:53:26.880 --> 00:53:28.670 align:middle line:90% Law 97, BERDO. 00:53:28.670 --> 00:53:31.530 align:middle line:84% Although all the Local Law 97 is very famous, 00:53:31.530 --> 00:53:38.610 align:middle line:84% but you can see Boston, 2050, 0, 0, 0, 0, so which means, 00:53:38.610 --> 00:53:41.410 align:middle line:84% really, [? neither ?] 2050 for Boston. 00:53:41.410 --> 00:53:44.310 align:middle line:84% But Local Law 97 is not that case. 00:53:44.310 --> 00:53:47.010 align:middle line:84% I think local 97, even they are not so aggressive, 00:53:47.010 --> 00:53:51.870 align:middle line:90% to see all zero in 2050. 00:53:51.870 --> 00:53:53.270 align:middle line:90% Then we have BERDO, right? 00:53:53.270 --> 00:54:01.080 align:middle line:84% Big guys, big guys, sticks, money, fine. 00:54:01.080 --> 00:54:06.150 align:middle line:84% Then penalty changes the game, game changer here. 00:54:06.150 --> 00:54:08.790 align:middle line:84% If you don't do anything, big penalty. 00:54:08.790 --> 00:54:13.640 align:middle line:84% So at first, they may not want to do now, game changed. 00:54:13.640 --> 00:54:17.910 align:middle line:84% Cambridge, BEUDO, similar pronunciation. 00:54:17.910 --> 00:54:21.480 align:middle line:84% BEUDO, Building Energy Use Disclosure Ordinance, 00:54:21.480 --> 00:54:22.370 align:middle line:90% same thing. 00:54:22.370 --> 00:54:24.107 align:middle line:84% But the difference is the following. 00:54:24.107 --> 00:54:25.440 align:middle line:90% I feel this is very interesting. 00:54:25.440 --> 00:54:26.398 align:middle line:90% I don't know the logic. 00:54:26.398 --> 00:54:28.820 align:middle line:84% I hope you can help me find out what's the reason. 00:54:28.820 --> 00:54:38.630 align:middle line:84% For Local Law 97, they have the real thing of the cap. 00:54:38.630 --> 00:54:43.510 align:middle line:90% For Boston BERDO also cap. 00:54:43.510 --> 00:54:47.780 align:middle line:84% This is absolute numbers of the CO2 emission. 00:54:47.780 --> 00:54:54.170 align:middle line:84% But for BEUDO, no, relative term, relative term. 00:54:54.170 --> 00:54:58.430 align:middle line:84% They use 2018 to 2019 as a baseline. 00:54:58.430 --> 00:54:59.360 align:middle line:90% That's a baseline. 00:54:59.360 --> 00:55:02.210 align:middle line:84% No matter what, building's very green or very dirty, 00:55:02.210 --> 00:55:07.040 align:middle line:84% no matter what, look at your own building, yourself, '18 and '19 00:55:07.040 --> 00:55:07.910 align:middle line:90% as a baseline. 00:55:07.910 --> 00:55:13.650 align:middle line:84% Then you start to reduce 2025, 80% of your baseline, 00:55:13.650 --> 00:55:19.440 align:middle line:84% your own baseline, then [? 72 ?] [? 0. ?] 2035, 0, 00:55:19.440 --> 00:55:21.550 align:middle line:90% more aggressive than Boston. 00:55:21.550 --> 00:55:25.230 align:middle line:84% So the aggressive index will be-- 00:55:25.230 --> 00:55:27.300 align:middle line:84% our own Cambridge, we are so proud. 00:55:27.300 --> 00:55:30.660 align:middle line:84% We rank number one, top, and then Boston. 00:55:30.660 --> 00:55:32.018 align:middle line:90% Yeah, please. 00:55:32.018 --> 00:55:35.370 align:middle line:84% AUDIENCE: [INAUDIBLE] using this method, 00:55:35.370 --> 00:55:37.410 align:middle line:84% wouldn't it be unfair for [INAUDIBLE]? 00:55:37.410 --> 00:55:40.950 align:middle line:90% 00:55:40.950 --> 00:55:41.950 align:middle line:90% SIQI ZHENG: Before that? 00:55:41.950 --> 00:55:43.510 align:middle line:90% Before or after? 00:55:43.510 --> 00:55:45.010 align:middle line:90% AUDIENCE: [INAUDIBLE] 00:55:45.010 --> 00:55:46.610 align:middle line:90% 00:55:46.610 --> 00:55:47.460 align:middle line:90% SIQI ZHENG: Yeah. 00:55:47.460 --> 00:55:49.790 align:middle line:90% Then what will happen? 00:55:49.790 --> 00:55:51.770 align:middle line:90% So unlucky. 00:55:51.770 --> 00:55:54.500 align:middle line:84% If you ran away before, then your benchmark 00:55:54.500 --> 00:55:56.660 align:middle line:90% is already very, very clean. 00:55:56.660 --> 00:55:58.640 align:middle line:90% Then you continue to reduce. 00:55:58.640 --> 00:56:00.590 align:middle line:90% This is a very good point. 00:56:00.590 --> 00:56:03.510 align:middle line:84% Do you think our building is lucky or unlucky? 00:56:03.510 --> 00:56:04.470 align:middle line:90% This is for you. 00:56:04.470 --> 00:56:06.800 align:middle line:84% This is a very good point because that's 00:56:06.800 --> 00:56:08.330 align:middle line:90% what our next slide-- 00:56:08.330 --> 00:56:09.345 align:middle line:90% do you have a question? 00:56:09.345 --> 00:56:10.970 align:middle line:84% AUDIENCE: Yeah, I also have a question. 00:56:10.970 --> 00:56:13.730 align:middle line:84% What's the square footage requirement on this? 00:56:13.730 --> 00:56:16.340 align:middle line:84% Because I think Boston was 20,000, right? 00:56:16.340 --> 00:56:17.480 align:middle line:90% SIQI ZHENG: Yes. 00:56:17.480 --> 00:56:21.180 align:middle line:84% This one also big, but exactly saying, I couldn't remember. 00:56:21.180 --> 00:56:22.090 align:middle line:90% But we can check. 00:56:22.090 --> 00:56:25.620 align:middle line:84% Also, big buildings, not like single family. 00:56:25.620 --> 00:56:27.700 align:middle line:90% So now you see Cambridge. 00:56:27.700 --> 00:56:30.450 align:middle line:84% If you-- unfortunately, you are in Cambridge like us, 00:56:30.450 --> 00:56:32.790 align:middle line:90% 2035, net zero. 00:56:32.790 --> 00:56:35.100 align:middle line:84% If you are in Boston, 2050, net zero. 00:56:35.100 --> 00:56:39.390 align:middle line:84% If you are in New York city, not net zero. 00:56:39.390 --> 00:56:41.010 align:middle line:90% Then look at MIT. 00:56:41.010 --> 00:56:43.890 align:middle line:84% Although MIT, we are like a non-profit organization, 00:56:43.890 --> 00:56:46.170 align:middle line:84% we are not like a for-profit organization. 00:56:46.170 --> 00:56:48.600 align:middle line:84% We are also subjected to this regulation. 00:56:48.600 --> 00:56:49.920 align:middle line:90% That makes MIT-- 00:56:49.920 --> 00:56:51.990 align:middle line:90% MIT has a sustainability office. 00:56:51.990 --> 00:56:54.240 align:middle line:90% I'm a good friend of them. 00:56:54.240 --> 00:56:56.190 align:middle line:84% They have a sustainability office. 00:56:56.190 --> 00:57:00.390 align:middle line:84% Julie, Julie Newman is the head, also lecturer here in DUSP. 00:57:00.390 --> 00:57:03.190 align:middle line:84% And they are so busy because of this. 00:57:03.190 --> 00:57:03.690 align:middle line:90% Carlos. 00:57:03.690 --> 00:57:07.080 align:middle line:84% AUDIENCE: I have a question [INAUDIBLE] with the last slide. 00:57:07.080 --> 00:57:12.660 align:middle line:84% Have you done or Cambridge, policymakers, 00:57:12.660 --> 00:57:18.690 align:middle line:84% whatever, that did maybe study before doing this BEUDO 00:57:18.690 --> 00:57:24.570 align:middle line:84% law of the financing stage of all office, all assets, 00:57:24.570 --> 00:57:26.580 align:middle line:84% all real estate assets located in Cambridge 00:57:26.580 --> 00:57:30.990 align:middle line:84% that could be affected on refinancing with the banks, 00:57:30.990 --> 00:57:32.430 align:middle line:90% given this-- 00:57:32.430 --> 00:57:33.900 align:middle line:84% SIQI ZHENG: Very aggressive, yeah. 00:57:33.900 --> 00:57:37.050 align:middle line:84% AUDIENCE: Because old buildings will most likely 00:57:37.050 --> 00:57:41.370 align:middle line:84% won't achieve this, and they will be the most likely-- 00:57:41.370 --> 00:57:43.460 align:middle line:84% maybe if they have to refinance in 2032, 00:57:43.460 --> 00:57:48.470 align:middle line:84% they won't get refinance under a normal and fair rate, which 00:57:48.470 --> 00:57:51.590 align:middle line:84% will lead to defaults, very high rate, I imagine, no? 00:57:51.590 --> 00:57:53.570 align:middle line:84% SIQI ZHENG: I don't think they have really 00:57:53.570 --> 00:57:55.610 align:middle line:90% done a very thorough research. 00:57:55.610 --> 00:58:00.870 align:middle line:84% That's my-- because this is too rushed to put on this. 00:58:00.870 --> 00:58:05.090 align:middle line:84% But the good thing is this has not been written into the law. 00:58:05.090 --> 00:58:06.450 align:middle line:90% This is almost there. 00:58:06.450 --> 00:58:11.060 align:middle line:84% But I think Boston is already implemented, 00:58:11.060 --> 00:58:12.410 align:middle line:90% and they have to do. 00:58:12.410 --> 00:58:15.410 align:middle line:84% This one is in the final discussion thing. 00:58:15.410 --> 00:58:18.660 align:middle line:84% But I think they will pass in some other version. 00:58:18.660 --> 00:58:22.040 align:middle line:84% But I don't think they-- because they met a lot of pushback 00:58:22.040 --> 00:58:24.890 align:middle line:90% about this. 00:58:24.890 --> 00:58:27.208 align:middle line:90% So now I'm going to say that-- 00:58:27.208 --> 00:58:29.000 align:middle line:84% AUDIENCE: Sorry, just following up on that, 00:58:29.000 --> 00:58:32.180 align:middle line:84% don't you think that policy is also 00:58:32.180 --> 00:58:34.980 align:middle line:84% going to make affordable housing more expensive? 00:58:34.980 --> 00:58:35.987 align:middle line:90% And-- 00:58:35.987 --> 00:58:38.070 align:middle line:84% SIQI ZHENG: I think they target the big buildings. 00:58:38.070 --> 00:58:41.760 align:middle line:84% But if these apartments, yeah, yeah. 00:58:41.760 --> 00:58:44.940 align:middle line:84% AUDIENCE: You're targeting old buildings and buildings that 00:58:44.940 --> 00:58:47.830 align:middle line:84% cannot really afford to become net zero. 00:58:47.830 --> 00:58:54.290 align:middle line:84% So It'll affect the low-income renters, 00:58:54.290 --> 00:58:57.400 align:middle line:84% but it will benefit whoever can pay for the [INAUDIBLE]. 00:58:57.400 --> 00:58:58.190 align:middle line:90% SIQI ZHENG: Yeah. 00:58:58.190 --> 00:59:00.860 align:middle line:84% It's like big apartments, like that buildings, 00:59:00.860 --> 00:59:02.540 align:middle line:90% that will be in this category. 00:59:02.540 --> 00:59:05.720 align:middle line:84% And maybe this also like median income and all the people, 00:59:05.720 --> 00:59:10.190 align:middle line:84% they have to pay much higher rent because they 00:59:10.190 --> 00:59:11.470 align:middle line:90% have to achieve this. 00:59:11.470 --> 00:59:15.120 align:middle line:84% This is-- I feel this we don't understand this, actually. 00:59:15.120 --> 00:59:19.170 align:middle line:84% And I went to our MIT sustainability office. 00:59:19.170 --> 00:59:22.290 align:middle line:84% They also have a class to make a presentation. 00:59:22.290 --> 00:59:25.340 align:middle line:84% And they were all complaining about this because this make MIT 00:59:25.340 --> 00:59:31.280 align:middle line:84% sustainability people cannot sleep, cannot sleep at all. 00:59:31.280 --> 00:59:36.350 align:middle line:90% Then MIT's even more aggressive. 00:59:36.350 --> 00:59:39.650 align:middle line:84% OK, MIT, of course, we need to show our commitment 00:59:39.650 --> 00:59:41.730 align:middle line:90% to the climate crisis. 00:59:41.730 --> 00:59:47.510 align:middle line:84% So we have a committee called 2026 Net Zero, MIT 2026 00:59:47.510 --> 00:59:49.280 align:middle line:90% Net Zero Committee. 00:59:49.280 --> 00:59:51.080 align:middle line:84% On that committee, we have a bunch 00:59:51.080 --> 00:59:55.550 align:middle line:84% of professors in that committee to help MIT how to achieve this. 00:59:55.550 --> 01:00:00.170 align:middle line:84% Now, our only way to achieve this is to buy credit, 01:00:00.170 --> 01:00:05.510 align:middle line:84% carbon credit offset because you cannot eliminate overnight 01:00:05.510 --> 01:00:08.070 align:middle line:84% to make all the MIT buildings into net zero. 01:00:08.070 --> 01:00:11.400 align:middle line:84% That's no chance for 2026, only three years from now. 01:00:11.400 --> 01:00:12.500 align:middle line:90% How can we? 01:00:12.500 --> 01:00:16.500 align:middle line:84% And the only way for short term is to buy carbon offsets. 01:00:16.500 --> 01:00:20.390 align:middle line:84% But since we are MIT, we must study carbon offset market 01:00:20.390 --> 01:00:23.390 align:middle line:84% very carefully and buy very credible offsets instead 01:00:23.390 --> 01:00:25.070 align:middle line:84% of random offsets because there's 01:00:25.070 --> 01:00:27.000 align:middle line:90% a lot of critics on offsets. 01:00:27.000 --> 01:00:32.410 align:middle line:84% So then our goal is 2026 no matter what. 01:00:32.410 --> 01:00:36.400 align:middle line:84% We must achieve net zero even by buying carbon offsets. 01:00:36.400 --> 01:00:42.790 align:middle line:84% By 2050, MIT campus will be real net zero, so that's the goal. 01:00:42.790 --> 01:00:44.110 align:middle line:90% Look at these two buildings. 01:00:44.110 --> 01:00:47.400 align:middle line:90% One is building 9. 01:00:47.400 --> 01:00:52.590 align:middle line:90% The other is Hayden Library. 01:00:52.590 --> 01:00:57.660 align:middle line:84% Just now, you raise a very good point about renovation. 01:00:57.660 --> 01:01:00.260 align:middle line:84% Unfortunately, this building is so unlucky. 01:01:00.260 --> 01:01:04.410 align:middle line:84% This building was renovated in 2015 or 2016, 01:01:04.410 --> 01:01:07.440 align:middle line:90% already renovated OK, great. 01:01:07.440 --> 01:01:09.870 align:middle line:84% Before I came to MIT, got renovated. 01:01:09.870 --> 01:01:11.670 align:middle line:84% That's why we put Sam Tak Lee building 01:01:11.670 --> 01:01:14.860 align:middle line:84% our last name because Sam Tak Lee's a donor, gave some money. 01:01:14.860 --> 01:01:16.260 align:middle line:90% Then we renovated the building. 01:01:16.260 --> 01:01:19.290 align:middle line:84% And again, renovated the building, 01:01:19.290 --> 01:01:24.390 align:middle line:84% now it's very stable because already renovated. 01:01:24.390 --> 01:01:28.430 align:middle line:84% Then Hayden Library, at first, this is carbon, right? 01:01:28.430 --> 01:01:32.320 align:middle line:90% 14,, now 5. 01:01:32.320 --> 01:01:35.230 align:middle line:90% This was renovated 2020. 01:01:35.230 --> 01:01:38.740 align:middle line:84% So this is relatively lucky, this building, 01:01:38.740 --> 01:01:41.500 align:middle line:84% because renovated after the baseline year. 01:01:41.500 --> 01:01:44.180 align:middle line:84% This renovated before the baseline year. 01:01:44.180 --> 01:01:48.680 align:middle line:84% So according to this thing, Building 9, 01:01:48.680 --> 01:01:53.120 align:middle line:84% you need to do a lot because Building 9 is 2018, 2019, 01:01:53.120 --> 01:01:55.315 align:middle line:90% already after the renovation. 01:01:55.315 --> 01:01:56.690 align:middle line:84% Then you need to continue to make 01:01:56.690 --> 01:02:00.650 align:middle line:84% our building greener and greener and greener to reduce. 01:02:00.650 --> 01:02:03.680 align:middle line:90% And then for Hayden Library. 01:02:03.680 --> 01:02:06.980 align:middle line:84% This one was very high because it ran out later. 01:02:06.980 --> 01:02:10.160 align:middle line:84% Then they are less under pressure. 01:02:10.160 --> 01:02:14.060 align:middle line:84% Then we, ourselves, we calculate this potential penalty 01:02:14.060 --> 01:02:16.880 align:middle line:84% for this building and the Hayden Library. 01:02:16.880 --> 01:02:22.290 align:middle line:84% And we use this to show to the MIT sustainability office, 01:02:22.290 --> 01:02:26.670 align:middle line:84% say, if this got passed finally by the Cambridge, 01:02:26.670 --> 01:02:32.160 align:middle line:84% see, then, Building 9, immediately pay penalty, 01:02:32.160 --> 01:02:33.870 align:middle line:90% Building 9. 01:02:33.870 --> 01:02:37.350 align:middle line:90% Pay until 2050-- 2035. 01:02:37.350 --> 01:02:39.810 align:middle line:84% Then you are flat because always net zero. 01:02:39.810 --> 01:02:42.870 align:middle line:84% And Hayden Library, at first safe. 01:02:42.870 --> 01:02:45.870 align:middle line:84% And then at some year, start to pay penalty. 01:02:45.870 --> 01:02:50.820 align:middle line:84% So that's the thing is this is a non-profit organization. 01:02:50.820 --> 01:02:52.725 align:middle line:84% It's not like Building 9 then our department 01:02:52.725 --> 01:02:55.320 align:middle line:84% and me at the Center for Real Estate, we need to pay. 01:02:55.320 --> 01:02:57.420 align:middle line:84% We don't need-- for us, we don't need to worry. 01:02:57.420 --> 01:03:01.860 align:middle line:84% The MIT president will need to worry about this and how to pay. 01:03:01.860 --> 01:03:07.440 align:middle line:84% Then MIT said, OK, now we want to buy offset. 01:03:07.440 --> 01:03:10.290 align:middle line:84% The good thing is, although they are so aggressive 01:03:10.290 --> 01:03:12.930 align:middle line:84% but they still have a condition [INAUDIBLE] reasonable, 01:03:12.930 --> 01:03:16.600 align:middle line:84% say, maybe they will accept offsets. 01:03:16.600 --> 01:03:21.420 align:middle line:84% So if you buy offsets, then you reduce your nominal carbon 01:03:21.420 --> 01:03:22.470 align:middle line:90% intensity. 01:03:22.470 --> 01:03:27.720 align:middle line:84% Then you can avoid penalty because, if you ask people 01:03:27.720 --> 01:03:31.170 align:middle line:84% to buy offsets and then you still ask them to pay penalties, 01:03:31.170 --> 01:03:32.250 align:middle line:90% that's unfair. 01:03:32.250 --> 01:03:33.060 align:middle line:90% You buy offset. 01:03:33.060 --> 01:03:33.795 align:middle line:90% You spend money. 01:03:33.795 --> 01:03:35.170 align:middle line:84% And then you still pay a penalty. 01:03:35.170 --> 01:03:38.040 align:middle line:84% How can-- then everyone needs to pay penalty. 01:03:38.040 --> 01:03:45.525 align:middle line:84% So if-- this is a BEUDO cap, da da da, like this. 01:03:45.525 --> 01:03:48.230 align:middle line:90% 01:03:48.230 --> 01:03:51.800 align:middle line:90% And then this is MIT by offset. 01:03:51.800 --> 01:03:57.500 align:middle line:84% If MIT buy offset, zero, no penalty, safe because offset. 01:03:57.500 --> 01:04:02.570 align:middle line:84% If built or later set, no offset accepted. 01:04:02.570 --> 01:04:07.950 align:middle line:84% Then, at this moment, MIT need to pay a penalty. 01:04:07.950 --> 01:04:09.918 align:middle line:90% So that's the point, OK. 01:04:09.918 --> 01:04:10.418 align:middle line:90% [? Jiane. ?] 01:04:10.418 --> 01:04:14.710 align:middle line:84% AUDIENCE: [INAUDIBLE] for the offsets [INAUDIBLE]? 01:04:14.710 --> 01:04:18.230 align:middle line:84% SIQI ZHENG: This is a messy market. 01:04:18.230 --> 01:04:24.410 align:middle line:84% AUDIENCE: Somewhere between $2 to $500 [INAUDIBLE] 01:04:24.410 --> 01:04:31.160 align:middle line:84% the topic of [INAUDIBLE] $2 to $500. 01:04:31.160 --> 01:04:34.400 align:middle line:84% So right now, you can check the carbon credit online. 01:04:34.400 --> 01:04:37.190 align:middle line:84% And I think it's like hovering around 2 to 3, 01:04:37.190 --> 01:04:39.898 align:middle line:84% but in European, there's some high quality. 01:04:39.898 --> 01:04:41.690 align:middle line:84% SIQI ZHENG: So the carbon offset market now 01:04:41.690 --> 01:04:45.570 align:middle line:84% is very messy because there's no very clear regulation of that. 01:04:45.570 --> 01:04:48.770 align:middle line:84% And then you just plant some plants. 01:04:48.770 --> 01:04:51.020 align:middle line:90% You plant some wood, trees. 01:04:51.020 --> 01:04:54.720 align:middle line:84% Then you can sell your carbon offset to others. 01:04:54.720 --> 01:04:57.740 align:middle line:84% Then there's a lot of questions regarding the credibility 01:04:57.740 --> 01:04:59.160 align:middle line:90% of the carbon offset. 01:04:59.160 --> 01:05:02.750 align:middle line:84% So MIT we have so many professors who are 01:05:02.750 --> 01:05:04.590 align:middle line:90% studying carbon offset market. 01:05:04.590 --> 01:05:07.370 align:middle line:84% So we have this committee to make sure 01:05:07.370 --> 01:05:10.280 align:middle line:84% that we are going to buy the good offsets instead 01:05:10.280 --> 01:05:11.370 align:middle line:90% of the fake ones. 01:05:11.370 --> 01:05:14.058 align:middle line:84% But the entire market is very messy. 01:05:14.058 --> 01:05:15.600 align:middle line:84% AUDIENCE: What does Cambridge propose 01:05:15.600 --> 01:05:18.250 align:middle line:84% they're going to do with the money from the fine? 01:05:18.250 --> 01:05:20.780 align:middle line:84% Are they going to set up like a climate fund or something? 01:05:20.780 --> 01:05:22.440 align:middle line:84% What are they going to do with all that money? 01:05:22.440 --> 01:05:23.648 align:middle line:90% SIQI ZHENG: I have no answer. 01:05:23.648 --> 01:05:25.100 align:middle line:90% Yeah, that's a very good point. 01:05:25.100 --> 01:05:27.550 align:middle line:84% So maybe, yes, I think this money 01:05:27.550 --> 01:05:28.800 align:middle line:90% is charged from the buildings. 01:05:28.800 --> 01:05:32.520 align:middle line:84% They must need this to address the climate crisis. 01:05:32.520 --> 01:05:36.240 align:middle line:90% So I don't know the answer. 01:05:36.240 --> 01:05:39.570 align:middle line:84% I think they will consider to use that for some subsidy 01:05:39.570 --> 01:05:44.500 align:middle line:84% to the building retrofit or something. 01:05:44.500 --> 01:05:48.730 align:middle line:84% OK, the final stick will be energy codes. 01:05:48.730 --> 01:05:50.230 align:middle line:90% So I already talked about this. 01:05:50.230 --> 01:05:52.070 align:middle line:90% You know this energy code thing. 01:05:52.070 --> 01:05:55.250 align:middle line:84% And then energy code is enrollment over time. 01:05:55.250 --> 01:05:57.670 align:middle line:90% At first, this is a use-- 01:05:57.670 --> 01:05:59.380 align:middle line:90% this is New York City. 01:05:59.380 --> 01:06:03.400 align:middle line:84% So they have different versions of the energy codes, 01:06:03.400 --> 01:06:06.160 align:middle line:84% and then they become more and more stringent. 01:06:06.160 --> 01:06:09.980 align:middle line:84% And they use that to address the mitigation and adaptation. 01:06:09.980 --> 01:06:13.490 align:middle line:84% So overall, for the commercial real estate, 01:06:13.490 --> 01:06:15.500 align:middle line:84% residential buildings, if you look at this, 01:06:15.500 --> 01:06:19.880 align:middle line:84% and you have some states' variation. 01:06:19.880 --> 01:06:22.520 align:middle line:84% In some states, they have very strict, like Boston, 01:06:22.520 --> 01:06:24.680 align:middle line:90% like Massachusetts. 01:06:24.680 --> 01:06:27.020 align:middle line:84% In some states, they are not so stringent. 01:06:27.020 --> 01:06:29.480 align:middle line:84% And then you are much easier to build. 01:06:29.480 --> 01:06:34.165 align:middle line:84% So the developers-- because the developers will move, 01:06:34.165 --> 01:06:34.790 align:middle line:90% they will move. 01:06:34.790 --> 01:06:37.970 align:middle line:84% If some states make the development more and more 01:06:37.970 --> 01:06:40.580 align:middle line:84% difficult, they will move to those soft states 01:06:40.580 --> 01:06:43.210 align:middle line:90% that are not that difficult. 01:06:43.210 --> 01:06:44.240 align:middle line:90% OK, good. 01:06:44.240 --> 01:06:47.170 align:middle line:84% So then finally, I'm so happy that I still 01:06:47.170 --> 01:06:52.030 align:middle line:84% have some minutes to discuss another big thing 01:06:52.030 --> 01:06:56.110 align:middle line:84% from the government, which is this climate resiliency 01:06:56.110 --> 01:06:59.210 align:middle line:90% investment in coastal areas. 01:06:59.210 --> 01:07:03.670 align:middle line:84% So that will be not a small stick or small carrots. 01:07:03.670 --> 01:07:08.080 align:middle line:84% That will be huge carrots that the government put 01:07:08.080 --> 01:07:11.290 align:middle line:84% in the coastal areas but that will be very interesting, 01:07:11.290 --> 01:07:12.710 align:middle line:90% a lot of debates. 01:07:12.710 --> 01:07:14.050 align:middle line:90% So this is like-- 01:07:14.050 --> 01:07:17.840 align:middle line:84% this part is a continuation from last session. 01:07:17.840 --> 01:07:22.060 align:middle line:84% We talked about some frontier topics about climate change, 01:07:22.060 --> 01:07:22.780 align:middle line:90% remember? 01:07:22.780 --> 01:07:27.370 align:middle line:84% And this one is also very, very, very controversial 01:07:27.370 --> 01:07:31.030 align:middle line:84% now for how to invest and whether should we 01:07:31.030 --> 01:07:35.430 align:middle line:84% invest-- continue to invest in this climate, vulnerable places. 01:07:35.430 --> 01:07:38.420 align:middle line:90% 01:07:38.420 --> 01:07:41.190 align:middle line:90% So the story is the following. 01:07:41.190 --> 01:07:44.350 align:middle line:90% The story is the following. 01:07:44.350 --> 01:07:46.960 align:middle line:84% Although we know more and more of us, 01:07:46.960 --> 01:07:51.220 align:middle line:84% we know that coastal areas are risky in terms 01:07:51.220 --> 01:07:53.620 align:middle line:84% of all the climate risks, for example, flooding 01:07:53.620 --> 01:07:58.210 align:middle line:84% and hurricanes, but if you look at the population patterns, 01:07:58.210 --> 01:08:01.240 align:middle line:84% when you look at the population patterns in the United States, 01:08:01.240 --> 01:08:03.520 align:middle line:84% you will see Americans are still moving 01:08:03.520 --> 01:08:07.210 align:middle line:84% into high-risk zones for wildfire, drought, 01:08:07.210 --> 01:08:09.160 align:middle line:90% and hurricanes. 01:08:09.160 --> 01:08:15.180 align:middle line:84% So this is a blue and green color. 01:08:15.180 --> 01:08:17.319 align:middle line:90% They are the inward migration. 01:08:17.319 --> 01:08:22.399 align:middle line:84% And this yellow brown is the outward migration. 01:08:22.399 --> 01:08:25.340 align:middle line:84% People are still moving to those areas 01:08:25.340 --> 01:08:30.319 align:middle line:84% with high risk of the climate disasters. 01:08:30.319 --> 01:08:34.080 align:middle line:84% And this Redfin figure shows us more clearly 01:08:34.080 --> 01:08:38.090 align:middle line:84% there's a heat, drought, fire, flood, storm. 01:08:38.090 --> 01:08:41.300 align:middle line:84% And then these red bars are countries-- not-- 01:08:41.300 --> 01:08:45.319 align:middle line:84% counties with largest share of the homes facing high risk. 01:08:45.319 --> 01:08:47.660 align:middle line:90% High-risk areas, red. 01:08:47.660 --> 01:08:50.029 align:middle line:90% Low-risk areas, blue. 01:08:50.029 --> 01:08:56.029 align:middle line:84% So for those things, you will see all these people 01:08:56.029 --> 01:09:00.050 align:middle line:84% move into high-risk areas of heat, drought, fire, flood, 01:09:00.050 --> 01:09:02.340 align:middle line:84% only storm a little bit different. 01:09:02.340 --> 01:09:04.035 align:middle line:90% So what do you think about this? 01:09:04.035 --> 01:09:04.535 align:middle line:90% Why? 01:09:04.535 --> 01:09:07.250 align:middle line:90% 01:09:07.250 --> 01:09:11.000 align:middle line:84% This so risky, but people are still moving into. 01:09:11.000 --> 01:09:11.920 align:middle line:90% People move there. 01:09:11.920 --> 01:09:13.550 align:middle line:90% They won't all become homeless. 01:09:13.550 --> 01:09:15.590 align:middle line:84% There must be a lot of new construction, 01:09:15.590 --> 01:09:16.880 align:middle line:90% and people move there. 01:09:16.880 --> 01:09:18.710 align:middle line:84% Then they live in houses, and there's 01:09:18.710 --> 01:09:20.720 align:middle line:84% a lot of real estate development. 01:09:20.720 --> 01:09:23.600 align:middle line:90% What's going wrong or not wrong? 01:09:23.600 --> 01:09:26.430 align:middle line:90% Any thoughts? 01:09:26.430 --> 01:09:27.103 align:middle line:90% [INAUDIBLE] 01:09:27.103 --> 01:09:28.020 align:middle line:90% AUDIENCE: Motivations. 01:09:28.020 --> 01:09:28.728 align:middle line:90% SIQI ZHENG: Yeah. 01:09:28.728 --> 01:09:29.620 align:middle line:90% Motivations, why? 01:09:29.620 --> 01:09:32.015 align:middle line:84% AUDIENCE: [INAUDIBLE] in that area, 01:09:32.015 --> 01:09:36.326 align:middle line:84% I would assume [INAUDIBLE] activity [INAUDIBLE]. 01:09:36.326 --> 01:09:40.640 align:middle line:90% 01:09:40.640 --> 01:09:43.370 align:middle line:84% SIQI ZHENG: Yeah, OK, because they have jobs, 01:09:43.370 --> 01:09:45.680 align:middle line:90% and the economy is strong. 01:09:45.680 --> 01:09:48.530 align:middle line:84% AUDIENCE: You also have [INAUDIBLE] income tax 01:09:48.530 --> 01:09:51.330 align:middle line:84% or taxation on personal [INAUDIBLE]? 01:09:51.330 --> 01:09:53.710 align:middle line:90% SIQI ZHENG: Lower, lower tax. 01:09:53.710 --> 01:09:55.260 align:middle line:90% That's Florida. 01:09:55.260 --> 01:09:59.310 align:middle line:84% I heard Florida is very low tax, but California may be very high. 01:09:59.310 --> 01:10:01.440 align:middle line:90% But that's a factor. 01:10:01.440 --> 01:10:04.730 align:middle line:90% Any other things? 01:10:04.730 --> 01:10:06.605 align:middle line:84% Why people move there, do want to move there? 01:10:06.605 --> 01:10:11.540 align:middle line:90% 01:10:11.540 --> 01:10:12.040 align:middle line:90% Yeah. 01:10:12.040 --> 01:10:12.470 align:middle line:90% [INAUDIBLE] 01:10:12.470 --> 01:10:13.030 align:middle line:90% AUDIENCE: Cost of living-- 01:10:13.030 --> 01:10:14.155 align:middle line:90% SIQI ZHENG: Cost of living. 01:10:14.155 --> 01:10:15.118 align:middle line:90% AUDIENCE: --is better. 01:10:15.118 --> 01:10:16.160 align:middle line:90% SIQI ZHENG: Are you sure? 01:10:16.160 --> 01:10:19.660 align:middle line:90% It's the coastal areas. 01:10:19.660 --> 01:10:22.000 align:middle line:84% AUDIENCE: Well, Florida, compared to, say, the Northeast 01:10:22.000 --> 01:10:23.470 align:middle line:90% or California. 01:10:23.470 --> 01:10:26.304 align:middle line:84% You see East Texas is a huge [INAUDIBLE] area there 01:10:26.304 --> 01:10:29.290 align:middle line:90% [INAUDIBLE]. 01:10:29.290 --> 01:10:30.620 align:middle line:90% SIQI ZHENG: Yeah, yeah, good. 01:10:30.620 --> 01:10:32.780 align:middle line:84% So that's all good things, Good answers. 01:10:32.780 --> 01:10:36.910 align:middle line:84% And another thing is people just enjoy, enjoy 01:10:36.910 --> 01:10:40.900 align:middle line:84% the view, the ocean, the access to the ocean view 01:10:40.900 --> 01:10:46.100 align:middle line:84% and all the sun belt. So anyway, that's a fact. 01:10:46.100 --> 01:10:47.960 align:middle line:90% And there is a paper. 01:10:47.960 --> 01:10:50.440 align:middle line:84% Actually, there's a paper in Nature. 01:10:50.440 --> 01:10:54.620 align:middle line:84% Then the paper's title is "Building Back Bigger". 01:10:54.620 --> 01:10:58.110 align:middle line:84% So those places destroyed or get damaged, 01:10:58.110 --> 01:11:02.630 align:middle line:84% despite of this, all the regulatory efforts and hurricane 01:11:02.630 --> 01:11:04.140 align:middle line:90% damage is increasing. 01:11:04.140 --> 01:11:07.130 align:middle line:84% But if you compare the footprints 01:11:07.130 --> 01:11:10.070 align:middle line:84% from 2010 to 2017 or list like that, 01:11:10.070 --> 01:11:14.800 align:middle line:84% and you will see more buildings there, more development there. 01:11:14.800 --> 01:11:16.600 align:middle line:90% The houses become bigger. 01:11:16.600 --> 01:11:19.720 align:middle line:84% So that's the market trend of this. 01:11:19.720 --> 01:11:21.910 align:middle line:90% So that's the market trend. 01:11:21.910 --> 01:11:23.980 align:middle line:84% And then an interesting thing, I think 01:11:23.980 --> 01:11:26.110 align:middle line:84% I mentioned this because, later, some of you 01:11:26.110 --> 01:11:30.430 align:middle line:84% will become developers, and the common belief really 01:11:30.430 --> 01:11:33.700 align:middle line:84% plays a role because not all the places-- 01:11:33.700 --> 01:11:36.410 align:middle line:90% these are scientific matters. 01:11:36.410 --> 01:11:38.480 align:middle line:84% Those are all scientific matters. 01:11:38.480 --> 01:11:41.830 align:middle line:84% But not all people believe in that because some 01:11:41.830 --> 01:11:46.150 align:middle line:84% of them so rare, later disasters, they don't believe, 01:11:46.150 --> 01:11:50.460 align:middle line:84% climate deniers, not climate believers. 01:11:50.460 --> 01:11:54.300 align:middle line:84% So then you will say that developers all 01:11:54.300 --> 01:12:00.540 align:middle line:84% rush into those areas with low belief in climate change. 01:12:00.540 --> 01:12:04.680 align:middle line:84% All else equal, for example, the scientific evidence, 01:12:04.680 --> 01:12:08.340 align:middle line:84% the scientific measure of the climate risks of those areas 01:12:08.340 --> 01:12:13.190 align:middle line:84% to never hold the same, climb the risk index. 01:12:13.190 --> 01:12:16.420 align:middle line:84% But these are deniers' neighborhood. 01:12:16.420 --> 01:12:19.240 align:middle line:84% These are believers' neighborhood. 01:12:19.240 --> 01:12:22.370 align:middle line:84% And the developers all go to this place to build. 01:12:22.370 --> 01:12:26.890 align:middle line:84% That's the scientific-- that's their data shows. 01:12:26.890 --> 01:12:32.380 align:middle line:84% So that's very clear because, if they go here, based on our DID 01:12:32.380 --> 01:12:36.080 align:middle line:84% analysis, we know based on your P set 2, 01:12:36.080 --> 01:12:38.660 align:middle line:90% P set 2 is wrong in Boston data. 01:12:38.660 --> 01:12:41.990 align:middle line:84% So Boston has a relatively high climate belief. 01:12:41.990 --> 01:12:45.310 align:middle line:84% But then if you go there, you have discount. 01:12:45.310 --> 01:12:46.550 align:middle line:90% You cannot make money. 01:12:46.550 --> 01:12:51.980 align:middle line:84% But for the deniers' community, it doesn't matter. 01:12:51.980 --> 01:12:56.060 align:middle line:90% So the developers go there. 01:12:56.060 --> 01:12:59.220 align:middle line:84% So thus, I talked about some market trends. 01:12:59.220 --> 01:13:01.580 align:middle line:84% People are moving to those areas in spite 01:13:01.580 --> 01:13:05.600 align:middle line:84% of the scientific evidence of the climate risk or even 01:13:05.600 --> 01:13:06.660 align:middle line:90% some facts. 01:13:06.660 --> 01:13:08.540 align:middle line:90% Hurricanes really happened. 01:13:08.540 --> 01:13:11.480 align:middle line:84% And then they build up back and bigger. 01:13:11.480 --> 01:13:13.220 align:middle line:90% And developers understand. 01:13:13.220 --> 01:13:18.500 align:middle line:84% These are all about individuals or private sector. 01:13:18.500 --> 01:13:21.040 align:middle line:90% And then it's not-- 01:13:21.040 --> 01:13:24.890 align:middle line:84% it doesn't mean that they are doing this very recklessly 01:13:24.890 --> 01:13:26.750 align:middle line:84% and they don't understand things. 01:13:26.750 --> 01:13:30.410 align:middle line:84% They understand, and they understand there's 01:13:30.410 --> 01:13:32.420 align:middle line:90% no like-- we are all passive. 01:13:32.420 --> 01:13:33.860 align:middle line:84% We go there, and hurricane comes. 01:13:33.860 --> 01:13:34.650 align:middle line:90% And we all die. 01:13:34.650 --> 01:13:35.150 align:middle line:90% No. 01:13:35.150 --> 01:13:37.670 align:middle line:84% They understand they can do something. 01:13:37.670 --> 01:13:40.700 align:middle line:84% That's a climate resiliency investment strategies. 01:13:40.700 --> 01:13:43.820 align:middle line:90% So these strategies can-- 01:13:43.820 --> 01:13:47.550 align:middle line:84% if the developer comes to the project, they can do something. 01:13:47.550 --> 01:13:50.480 align:middle line:84% And also the city government can do something. 01:13:50.480 --> 01:13:53.490 align:middle line:84% The city or the state, they can invest money in this. 01:13:53.490 --> 01:13:56.330 align:middle line:84% And, of course, when the large scale, large scale, 01:13:56.330 --> 01:14:02.100 align:middle line:84% the developer can do little and mainly for the city governments. 01:14:02.100 --> 01:14:03.990 align:middle line:84% So that's why I put in this session is 01:14:03.990 --> 01:14:06.170 align:middle line:84% the city government, or the state government, 01:14:06.170 --> 01:14:08.600 align:middle line:84% or the federal government, they can do. 01:14:08.600 --> 01:14:10.890 align:middle line:84% But these are all engineering things. 01:14:10.890 --> 01:14:12.307 align:middle line:90% I just want to show you. 01:14:12.307 --> 01:14:13.140 align:middle line:90% This is the website. 01:14:13.140 --> 01:14:14.370 align:middle line:90% You can look into this later. 01:14:14.370 --> 01:14:17.300 align:middle line:84% If you go to some coastal areas for your business, 01:14:17.300 --> 01:14:19.290 align:middle line:90% maybe you will get to know more. 01:14:19.290 --> 01:14:22.820 align:middle line:84% And also, after the midterm, we will have three sessions 01:14:22.820 --> 01:14:24.320 align:middle line:90% of sustainable design. 01:14:24.320 --> 01:14:26.480 align:middle line:84% And we will have a guest, the instructor, Carlos, 01:14:26.480 --> 01:14:29.150 align:middle line:84% they will talk about all these things. 01:14:29.150 --> 01:14:33.050 align:middle line:84% This build-on field, just how to fill this-- 01:14:33.050 --> 01:14:37.770 align:middle line:84% artificial, first, fill this area to get out of the water, 01:14:37.770 --> 01:14:41.210 align:middle line:84% then you can build buildings, first to fill this area. 01:14:41.210 --> 01:14:47.870 align:middle line:84% And build on the Keys, so this is like pillars to elevate. 01:14:47.870 --> 01:14:51.560 align:middle line:84% And there's different things and make this very, very-- 01:14:51.560 --> 01:14:55.290 align:middle line:84% absorb the water and all the things. 01:14:55.290 --> 01:14:58.500 align:middle line:90% So these are permeable surfaces. 01:14:58.500 --> 01:15:00.330 align:middle line:84% You absorb the water, and you make-- 01:15:00.330 --> 01:15:03.750 align:middle line:84% the water can go to the underground. 01:15:03.750 --> 01:15:07.350 align:middle line:84% And you preserve white lines, and green space, 01:15:07.350 --> 01:15:08.130 align:middle line:90% and this and that. 01:15:08.130 --> 01:15:09.643 align:middle line:90% There's many, many strategies. 01:15:09.643 --> 01:15:11.310 align:middle line:84% But I just want-- for now, I'm not going 01:15:11.310 --> 01:15:12.393 align:middle line:90% to go into the strategies. 01:15:12.393 --> 01:15:15.920 align:middle line:84% But I just want to let you know they all cost the money. 01:15:15.920 --> 01:15:18.170 align:middle line:84% This all costs money because these are all big things. 01:15:18.170 --> 01:15:21.120 align:middle line:90% 01:15:21.120 --> 01:15:26.380 align:middle line:84% And then, because they are big things, it's not like a carrot. 01:15:26.380 --> 01:15:27.540 align:middle line:90% Carrot is so small. 01:15:27.540 --> 01:15:28.740 align:middle line:90% It won't work. 01:15:28.740 --> 01:15:30.900 align:middle line:84% It speaks-- it's huge money that government 01:15:30.900 --> 01:15:34.320 align:middle line:84% has invested in those places, make all the change. 01:15:34.320 --> 01:15:38.230 align:middle line:84% And first, water, under water the ground, 01:15:38.230 --> 01:15:40.110 align:middle line:84% then you elevate the entire ground. 01:15:40.110 --> 01:15:42.130 align:middle line:90% And you fill and fill. 01:15:42.130 --> 01:15:43.670 align:middle line:90% Then it's not that easy. 01:15:43.670 --> 01:15:45.090 align:middle line:90% It's a huge investment. 01:15:45.090 --> 01:15:49.030 align:middle line:84% So that's why not all the cities, they can do that. 01:15:49.030 --> 01:15:51.180 align:middle line:84% Not all the developers, they can do that, for sure, 01:15:51.180 --> 01:15:52.810 align:middle line:90% because they are so small. 01:15:52.810 --> 01:15:55.570 align:middle line:84% But even for not all the cities can do that. 01:15:55.570 --> 01:15:57.810 align:middle line:84% Remember last session Ed came in. 01:15:57.810 --> 01:16:00.750 align:middle line:90% He talked about Miami. 01:16:00.750 --> 01:16:03.270 align:middle line:90% Remember, he mentioned Miami. 01:16:03.270 --> 01:16:07.305 align:middle line:84% He said, oh, how can we explain Miami in the last, I forgot, 01:16:07.305 --> 01:16:07.930 align:middle line:90% how many years? 01:16:07.930 --> 01:16:11.500 align:middle line:84% Each year they have 20%, 30% of housing price increase. 01:16:11.500 --> 01:16:13.740 align:middle line:84% If people, they don't care-- if people, 01:16:13.740 --> 01:16:17.370 align:middle line:84% they really understand, why are they still keep going to Miami? 01:16:17.370 --> 01:16:19.460 align:middle line:90% Let's add a question. 01:16:19.460 --> 01:16:21.170 align:middle line:90% Miami is a rich city. 01:16:21.170 --> 01:16:25.480 align:middle line:84% And Miami says, Miami city mayor says 01:16:25.480 --> 01:16:31.030 align:middle line:84% they are very confident they can adapt to rising seas. 01:16:31.030 --> 01:16:32.630 align:middle line:84% Although not everyone is convinced, 01:16:32.630 --> 01:16:35.920 align:middle line:84% but the officials have a big, ambitious plan to manage 01:16:35.920 --> 01:16:37.990 align:middle line:90% rising water, succeed or fail. 01:16:37.990 --> 01:16:40.870 align:middle line:90% So they can live with water. 01:16:40.870 --> 01:16:42.370 align:middle line:90% That's Miami. 01:16:42.370 --> 01:16:46.990 align:middle line:84% But other towns, small towns, very, very miserable. 01:16:46.990 --> 01:16:50.580 align:middle line:84% So I will tell a tale of two cities. 01:16:50.580 --> 01:16:53.540 align:middle line:90% This is my tale of two cities. 01:16:53.540 --> 01:16:59.900 align:middle line:84% So I will use Miami and North Carolina, small town. 01:16:59.900 --> 01:17:00.900 align:middle line:90% I have never been there. 01:17:00.900 --> 01:17:03.830 align:middle line:84% I have been to Miami, but I have never been this. 01:17:03.830 --> 01:17:05.980 align:middle line:90% Anyone know this town? 01:17:05.980 --> 01:17:07.030 align:middle line:90% No. 01:17:07.030 --> 01:17:10.850 align:middle line:84% We got this from media, Fair Bluff. 01:17:10.850 --> 01:17:11.810 align:middle line:90% This is a small town. 01:17:11.810 --> 01:17:15.680 align:middle line:84% It's a very, very small town and a very relatively poor town. 01:17:15.680 --> 01:17:17.960 align:middle line:90% So this is two extremes. 01:17:17.960 --> 01:17:19.750 align:middle line:90% That's a tale of two cities. 01:17:19.750 --> 01:17:23.680 align:middle line:84% So for Miami, they are rich, and people like there. 01:17:23.680 --> 01:17:27.110 align:middle line:84% People all go tourists and also people after retirement. 01:17:27.110 --> 01:17:28.760 align:middle line:90% Maybe they all go there. 01:17:28.760 --> 01:17:32.860 align:middle line:84% Then they have a huge salary, spend so much money 01:17:32.860 --> 01:17:36.290 align:middle line:84% for the climate resiliency to all the things, the strategies. 01:17:36.290 --> 01:17:39.100 align:middle line:84% They have an upbeat strategy for living with more water. 01:17:39.100 --> 01:17:40.510 align:middle line:90% And they say, no problem. 01:17:40.510 --> 01:17:44.790 align:middle line:90% We will do everything we can. 01:17:44.790 --> 01:17:49.200 align:middle line:84% And also the-- why the city is so ambitious, 01:17:49.200 --> 01:17:53.470 align:middle line:84% they understand they don't want to lose their economic base. 01:17:53.470 --> 01:17:55.060 align:middle line:84% They don't want to lose their people. 01:17:55.060 --> 01:17:57.180 align:middle line:84% They don't want this climate thing 01:17:57.180 --> 01:18:02.280 align:middle line:84% become a factor that's pushing out the buyers and the investors 01:18:02.280 --> 01:18:03.310 align:middle line:90% into the city. 01:18:03.310 --> 01:18:06.870 align:middle line:84% They want their city to be booming, to be vibrant, 01:18:06.870 --> 01:18:09.630 align:middle line:90% so they invest a lot of money. 01:18:09.630 --> 01:18:10.720 align:middle line:90% They keep people. 01:18:10.720 --> 01:18:12.400 align:middle line:90% Then people still go there. 01:18:12.400 --> 01:18:14.790 align:middle line:84% People still-- the developers still go there. 01:18:14.790 --> 01:18:15.910 align:middle line:90% People still go there. 01:18:15.910 --> 01:18:18.130 align:middle line:84% Then they generate tax revenue for the city. 01:18:18.130 --> 01:18:21.720 align:middle line:84% So this is a positive feedback loop. 01:18:21.720 --> 01:18:23.440 align:middle line:90% So this is very important. 01:18:23.440 --> 01:18:25.670 align:middle line:90% This is a feedback loop. 01:18:25.670 --> 01:18:29.030 align:middle line:84% So this is the positive feedback loop. 01:18:29.030 --> 01:18:30.550 align:middle line:90% The government put money. 01:18:30.550 --> 01:18:33.310 align:middle line:90% 01:18:33.310 --> 01:18:36.100 align:middle line:84% Put the money in, build, and the resiliency-- 01:18:36.100 --> 01:18:40.580 align:middle line:84% remember, all these strategies to live with water. 01:18:40.580 --> 01:18:51.020 align:middle line:84% And then people still moving in, more people, business, tax 01:18:51.020 --> 01:18:55.790 align:middle line:84% go up because then you have a lot of base to tax economics. 01:18:55.790 --> 01:18:57.205 align:middle line:90% Then you have more money. 01:18:57.205 --> 01:18:59.780 align:middle line:90% 01:18:59.780 --> 01:19:02.460 align:middle line:84% Then the government becomes richer. 01:19:02.460 --> 01:19:06.200 align:middle line:84% Then they continue to invest on this climate resiliency, 01:19:06.200 --> 01:19:08.540 align:middle line:84% make this more and more resilient, 01:19:08.540 --> 01:19:11.760 align:middle line:84% and the people moving, no problem. 01:19:11.760 --> 01:19:17.100 align:middle line:84% Another thing is-- the other end of the spectrum, 01:19:17.100 --> 01:19:23.790 align:middle line:84% if this small town in North Carolina is a Fair Bluff. 01:19:23.790 --> 01:19:27.960 align:middle line:84% So for this one, we got this from New York Times newspaper. 01:19:27.960 --> 01:19:31.710 align:middle line:84% And then the small rural communities, now you're 01:19:31.710 --> 01:19:33.660 align:middle line:90% in a very, very bad situation. 01:19:33.660 --> 01:19:37.050 align:middle line:84% So this one is a negative feedback loop. 01:19:37.050 --> 01:19:41.630 align:middle line:90% 01:19:41.630 --> 01:19:44.150 align:middle line:84% The negative feedback loop is the following. 01:19:44.150 --> 01:19:46.670 align:middle line:84% The small town, at first, are really very poor. 01:19:46.670 --> 01:19:50.030 align:middle line:84% No tax base, not that easy to handle things, even 01:19:50.030 --> 01:19:54.110 align:middle line:84% the basic public service like schools, health care, hard. 01:19:54.110 --> 01:19:59.700 align:middle line:84% Now, combined with the hurricane and all the things, 01:19:59.700 --> 01:20:02.470 align:middle line:84% they already struggled economically. 01:20:02.470 --> 01:20:04.440 align:middle line:90% And then people are leaving. 01:20:04.440 --> 01:20:10.300 align:middle line:84% Then got hit by 19 hurricanes from 2054-- 01:20:10.300 --> 01:20:15.330 align:middle line:90% 1954 to 2016, 19 hurricanes. 01:20:15.330 --> 01:20:17.310 align:middle line:90% Cannot bounce back. 01:20:17.310 --> 01:20:19.890 align:middle line:84% Money, no money, government to lose money. 01:20:19.890 --> 01:20:22.380 align:middle line:90% Government no money. 01:20:22.380 --> 01:20:24.670 align:middle line:90% Poor, poor government. 01:20:24.670 --> 01:20:25.570 align:middle line:90% No money. 01:20:25.570 --> 01:20:28.290 align:middle line:90% Cannot do any resilience. 01:20:28.290 --> 01:20:32.790 align:middle line:84% All the businesses run out of business, closed off. 01:20:32.790 --> 01:20:38.430 align:middle line:90% People leaving, then no tax. 01:20:38.430 --> 01:20:39.582 align:middle line:90% People are leaving. 01:20:39.582 --> 01:20:40.540 align:middle line:90% Businesses are leaving. 01:20:40.540 --> 01:20:42.150 align:middle line:90% No tax. 01:20:42.150 --> 01:20:44.160 align:middle line:90% Then further, no money. 01:20:44.160 --> 01:20:45.750 align:middle line:90% Then cannot do anything. 01:20:45.750 --> 01:20:48.090 align:middle line:90% Then become ghost city, almost. 01:20:48.090 --> 01:20:52.510 align:middle line:84% So that's a negative feedback loop. 01:20:52.510 --> 01:20:54.400 align:middle line:90% They have a rebuild plan. 01:20:54.400 --> 01:20:57.740 align:middle line:84% And they say, how we can-- we don't want to lose our home. 01:20:57.740 --> 01:20:58.730 align:middle line:90% We don't want to lose. 01:20:58.730 --> 01:21:00.010 align:middle line:90% This is our community. 01:21:00.010 --> 01:21:00.560 align:middle line:90% No plan. 01:21:00.560 --> 01:21:02.200 align:middle line:90% But they have no money. 01:21:02.200 --> 01:21:05.180 align:middle line:84% And they have a plan, but they cannot fund. 01:21:05.180 --> 01:21:10.850 align:middle line:84% Now, Biden side, our President Biden side. 01:21:10.850 --> 01:21:18.950 align:middle line:84% Bipartisan Infrastructure Act, 2021 located so much money 01:21:18.950 --> 01:21:22.970 align:middle line:84% from the Federal Government, $47 billion money 01:21:22.970 --> 01:21:26.930 align:middle line:84% for climate resiliency to protect existing infrastructure, 01:21:26.930 --> 01:21:27.950 align:middle line:90% all the things. 01:21:27.950 --> 01:21:31.010 align:middle line:84% Then this led to a moral hazard thing. 01:21:31.010 --> 01:21:34.910 align:middle line:84% The moral hazard thing, if government say-- 01:21:34.910 --> 01:21:37.010 align:middle line:90% Biden has no problem-- 01:21:37.010 --> 01:21:41.900 align:middle line:84% trust me, I will spend $47 billion on the coastal areas 01:21:41.900 --> 01:21:45.410 align:middle line:84% to protect those areas to build the levee, 01:21:45.410 --> 01:21:48.200 align:middle line:84% to build the seawalls, to build all the things. 01:21:48.200 --> 01:21:52.250 align:middle line:84% And then the people say, OK, no problem. 01:21:52.250 --> 01:21:55.100 align:middle line:84% I will still move to those areas because the government 01:21:55.100 --> 01:21:56.020 align:middle line:90% will protect me. 01:21:56.020 --> 01:21:57.020 align:middle line:90% I believe in government. 01:21:57.020 --> 01:21:59.960 align:middle line:84% That's called moral hazard is, when the individuals, 01:21:59.960 --> 01:22:01.280 align:middle line:90% they consider the things. 01:22:01.280 --> 01:22:03.060 align:middle line:90% They consider their choices. 01:22:03.060 --> 01:22:05.270 align:middle line:84% They don't consider the risks because they 01:22:05.270 --> 01:22:08.120 align:middle line:84% understand later the government will save them. 01:22:08.120 --> 01:22:11.180 align:middle line:84% So that's very similar to this Silicon Valley Bank thing 01:22:11.180 --> 01:22:12.890 align:middle line:90% recently, that collapse. 01:22:12.890 --> 01:22:15.980 align:middle line:84% The bank, Silicon Valley, their small bank collapsed. 01:22:15.980 --> 01:22:19.490 align:middle line:84% And then the Biden says, we are going to save all the money. 01:22:19.490 --> 01:22:23.130 align:middle line:84% All the people's savings, we will pay back. 01:22:23.130 --> 01:22:26.240 align:middle line:84% Then later, the individual depositors, 01:22:26.240 --> 01:22:27.420 align:middle line:90% they don't consider risk. 01:22:27.420 --> 01:22:29.060 align:middle line:84% They just put money in small banks. 01:22:29.060 --> 01:22:31.170 align:middle line:84% They understand if the small banks go bankrupt, 01:22:31.170 --> 01:22:32.420 align:middle line:90% the government will save them. 01:22:32.420 --> 01:22:35.590 align:middle line:84% So they become more and more reckless. 01:22:35.590 --> 01:22:38.200 align:middle line:84% So that's the problem of moral hazard. 01:22:38.200 --> 01:22:40.420 align:middle line:90% So this is a moral hazard issue. 01:22:40.420 --> 01:22:44.250 align:middle line:84% If Biden promised to all the people to build back, 01:22:44.250 --> 01:22:48.600 align:middle line:84% then all the people will still move into those places. 01:22:48.600 --> 01:22:52.340 align:middle line:84% However, this inequality issue again-- 01:22:52.340 --> 01:22:54.030 align:middle line:90% $47 billion. 01:22:54.030 --> 01:22:55.980 align:middle line:84% Which cities will get more money. 01:22:55.980 --> 01:22:58.170 align:middle line:84% Which cities, towns will get less money? 01:22:58.170 --> 01:23:00.380 align:middle line:90% Which towns won't get any money? 01:23:00.380 --> 01:23:01.740 align:middle line:90% It's totally different. 01:23:01.740 --> 01:23:03.800 align:middle line:84% It's not like calculate per capita, 01:23:03.800 --> 01:23:05.700 align:middle line:84% how much money per capita like that. 01:23:05.700 --> 01:23:08.330 align:middle line:90% Instead, you need to post-- 01:23:08.330 --> 01:23:10.790 align:middle line:84% you need to submit a sophisticated proposal 01:23:10.790 --> 01:23:13.830 align:middle line:84% to the congress, to the White House. 01:23:13.830 --> 01:23:16.660 align:middle line:90% And then you also need to match. 01:23:16.660 --> 01:23:19.200 align:middle line:84% You cannot say money from the Federal Government. 01:23:19.200 --> 01:23:21.680 align:middle line:84% If you get money, your local must match. 01:23:21.680 --> 01:23:23.960 align:middle line:84% For poor towns, it cannot match at all. 01:23:23.960 --> 01:23:32.100 align:middle line:84% So it's very hard for this town, Fair Bluff town, 01:23:32.100 --> 01:23:34.840 align:middle line:84% to get enough money compared to Miami. 01:23:34.840 --> 01:23:39.120 align:middle line:84% Miami has so sophisticated officials and do all the things 01:23:39.120 --> 01:23:42.190 align:middle line:90% team and do things match. 01:23:42.190 --> 01:23:43.780 align:middle line:90% Thus, small town cannot. 01:23:43.780 --> 01:23:46.960 align:middle line:84% So there's still another inequality. 01:23:46.960 --> 01:23:52.990 align:middle line:84% Finally, one minute is whether this moral hazard thing 01:23:52.990 --> 01:23:57.700 align:middle line:84% and inequality thing really let us think twice. 01:23:57.700 --> 01:23:59.560 align:middle line:84% Think twice means whether we really 01:23:59.560 --> 01:24:04.540 align:middle line:84% need to save all the places or we retreat. 01:24:04.540 --> 01:24:06.680 align:middle line:90% That's called managed retreat. 01:24:06.680 --> 01:24:07.990 align:middle line:90% It's not random retreat. 01:24:07.990 --> 01:24:12.880 align:middle line:84% So this is managed retreat, like managed like an organized 01:24:12.880 --> 01:24:16.210 align:middle line:84% retreat, not always just flee randomly. 01:24:16.210 --> 01:24:18.910 align:middle line:84% So there are some arguments on this, 01:24:18.910 --> 01:24:22.240 align:middle line:90% say, don't always rebuild them. 01:24:22.240 --> 01:24:23.500 align:middle line:90% Manage them. 01:24:23.500 --> 01:24:26.060 align:middle line:90% Manage the disaster. 01:24:26.060 --> 01:24:32.780 align:middle line:84% And move some people together from one 01:24:32.780 --> 01:24:36.710 align:middle line:84% place to another place because, if not, if random retreat 01:24:36.710 --> 01:24:39.120 align:middle line:84% problem, all the people lost their community, 01:24:39.120 --> 01:24:41.280 align:middle line:84% lots of friends, social networks. 01:24:41.280 --> 01:24:45.380 align:middle line:84% And then now they are thinking about this. 01:24:45.380 --> 01:24:47.740 align:middle line:84% The Obama administration, and [? this ?] [? lot, ?] 01:24:47.740 --> 01:24:52.120 align:middle line:84% they're talking about how we can really move the Hurricane Sandy 01:24:52.120 --> 01:24:59.120 align:middle line:84% and this and move a community together into another place. 01:24:59.120 --> 01:25:01.750 align:middle line:84% However, this is very controversial. 01:25:01.750 --> 01:25:04.040 align:middle line:84% It's very politically controversial, 01:25:04.040 --> 01:25:08.770 align:middle line:84% and there's a lot of pros and cons for this managed retreat. 01:25:08.770 --> 01:25:11.080 align:middle line:84% So I will leave this as an open-- 01:25:11.080 --> 01:25:13.300 align:middle line:84% I have no answer to this, whether you 01:25:13.300 --> 01:25:16.090 align:middle line:84% should manage retreat or you should 01:25:16.090 --> 01:25:19.070 align:middle line:90% continue to put money here. 01:25:19.070 --> 01:25:22.060 align:middle line:84% And the people don't care about risk, moral hazard, 01:25:22.060 --> 01:25:24.490 align:middle line:84% and still move into Miami and all those places 01:25:24.490 --> 01:25:25.930 align:middle line:90% continue to spend. 01:25:25.930 --> 01:25:27.440 align:middle line:90% And who will benefit? 01:25:27.440 --> 01:25:30.460 align:middle line:84% Who will lose as the two different types 01:25:30.460 --> 01:25:32.140 align:middle line:90% of a tale of two cities? 01:25:32.140 --> 01:25:33.100 align:middle line:90% Open question. 01:25:33.100 --> 01:25:35.810 align:middle line:90% Thank you so much for today. 01:25:35.810 --> 01:25:36.740 align:middle line:90% This is for you. 01:25:36.740 --> 01:25:38.114 align:middle line:90% [LAUGHTER] 01:25:38.114 --> 01:25:40.404 align:middle line:90% [APPLAUSE] 01:25:40.404 --> 01:25:41.320 align:middle line:90% 01:25:41.320 --> 01:25:43.440 align:middle line:90% I will take this. 01:25:43.440 --> 01:26:07.000 align:middle line:90%