Which Cities Will the High Cost of Energy Hurt (and Help) the Most?

A high cost energy future will profoundly impact the cost of doing business and create new opportunities, but not necessarily in the way most people expect.

By Joel Kotkin and Michael Shires

The New York Times, the Atlantic Monthly and the rest of the establishment press have their answer: big cities like New York, Chicago, and San Francisco will win out. Our assessment is: not so fast. There’s a lot about the unfolding energy economy that is more complex than commonly believed, and could have consequences that are somewhat unanticipated.

On the plus side there are some undoubted winners -- those areas that produce energy and those with energy expertise. What’s working for Moscow, St. Petersburg, Calgary, Edmonton, and Dubai is also working for the U.S. energy regions as well. Not surprisingly, many are located deep in the heart of Texas. This includes not only big cities like energy mega-capital Houston but a host of smaller ones, like high-flyers Midland, Odessa and Longview.

But it’s not just Texas cities that are winning. A host of other places have strong ties to energy production and exploration -- Salt Lake City, Denver, and the North Dakota cities of Bismarck, Fargo, and Grand Forks. And it’s not just oil: The U.S. Great Plains have also been described as “the Saudi Arabia of wind.” If the right incentives are put in place, a wind-belt from west Texas to the Canadian border could be produce new jobs, both in building mills and also for the industries -- manufacturers, computer-related companies -- that will harness the relatively cheap energy.

Alternative renewal energy producers in biofuels, thermal, and hydro-electric will also become big business. The Sierra Nevada cities like Reno could benefit from thermal; the Pacific Northwest’s hydro-power gives places like Portland, Seattle, and a host of smaller communities -- Wenatchee, Bend, Olympia -- a great competitive advantage in terms of dependable, low cost and low carbon energy.

How about the big cities and metros that consume less energy? It seems logical that San Francisco, D.C., Los Angeles, Boston, Chicago, and New York should have an advantage over other cities and their suburban hinterlands; these cities, especially New York, have higher than average transit use. San Francisco and Los Angeles enjoy milder climates requiring less air conditioning and heating.

But these advantages are somewhat mitigated by the fact that these same cities often pay far more for energy than their rivals. Electricity in New York, notes an upcoming study by the New York-based Center for an Urban Future, costs twice the national average. California cities also suffer much higher prices -- almost 50 percent higher than their counterparts in the Midwest. So even if you use considerably less energy, you might end up paying more. Being a big, dense city clearly has advantages, but they too often are squandered by aging infrastructure, lack of new plants and high business costs.

One other problem for big Northern cities: colder regions will feel the ripple in local economies as the impact of high heating bills is felt next winter. A cold winter will push northeastern city-dwellers to join the chorus of complaints now voiced by drivers in auto-heavy Sunbelt states like Florida and California.

Nor is it certain suburban areas will do so much worse in tough energy times. Studies of commuting patterns in Chicago and Los Angeles show that many suburbs thirty miles or more from their downtowns -- places like Naperville, Illinois and Thousand Oaks or Irvine, California -- have shorter commutes than most inner-ring urbanites. This is a result of the movement of jobs to “nodes” on the periphery over the past 30 years.

Another kind of area that will do well are those that have well-developed telecommuter economies. In Los Angeles, notes California State University at Los Angeles geographer Ali Modarres, telecommuters are concentrated not only in places like Santa Monica, but also in sections of the San Fernando Valley (which has most of the region’s entertainment workers) as well as further out inu highly educated communities like Thousand Oaks and Irvine. In the long run, the best and most energy efficient commute is none at all.

So who are the losers? Certainly some of the distant outer suburbs, like the high desert communities far east of Los Angeles, which lack jobs for their residents, and suffer longer than average commutes. Also hurt will be poorer inner city areas where workers have to commute, by transit or car, over great distances. Sadly, it’s many of the communities that have already suffered the most. The changeover to lower mileage vehicles will be particularly tough on those communities that produce SUVs and trucks -- places like Flint, Michigan; Ft. Wayne Indiana; and Janesville, Wisconsin.

But there are also some auto centers that are likely to do better. Just follow where low-mileage vehicles, particularly those built by Toyota, Honda, Nissan, and the Korean makers, are either being built or planned. This is mostly a southern play -- Tupelo, Mississippi; Nashville, Tennessee; and Georgetown, Kentucky, site of the largest Toyota plant outside Japan.

Economic change has always impacted America’s communities. But with the current energy price surge, we may find that “creative destruction” may be sweeping through many communities even faster than we anticipated.

Cities and Oil Prices: The Winners and The Losers

For most places, it’s hard to tell what the long-term effect of the high cost of energy might be. But there are some fairly safe bets.

Two kinds of areas tend to perform best in a harsh energy environment. One is the energy-producing cities, whose place at the top of this list should come as no surprise. Another, though it may take a bit longer to emerge, may be those cities that are sites for production of fuel-efficient vehicles. These tend to be located in parts of the country -- Texas, the Southeast, and the Great Plains -- that have lower energy costs and more favorable business climates.

Winners:

Our list of losers is all too familiar. Basically, these are areas dominated by America’s weak automakers and are particularly wedded to the SUVs and trucks that are losing market share at an astonishing rate. Most fall in states that are strong union bastions, have relatively high energy prices, and get much of their energy from coal, a fuel that’s even less popular with environmentalists than oil is.

Losers:

Joel Kotkin is a presidential fellow at Chapman University and executive editor of Newgeography.com.

Michael Shires, Ph.D. is a professor at Pepperdine University School of Public Policy.