Topic: Energy and Environment

Obama: Running on Empty

Last week’s energy speech was vintage Obama: repeating the same bad ideas that he has advocated since his pre-2008 election campaign and misrepresenting both his actions and the opposition.

To be sure, he is correct that the Republicans are overstating what can be done immediately to alleviate oil price spikes.  However, he falls into the same trap as the Republicans in believing that a sensible policy exists to avoid the inevitable fluctuations in world oil prices. These fluctuations are more tolerable than the possible alternatives.

His selective statement of his policies ignores at a minimum its general anti-fossil fuel thrust with slowdowns in oil and gas leasing on federal land, the temporizing on the Keystone XL pipeline, and the massive anti-coal regulations promulgated by the Environmental Protection Agency. He continues on the paths of dictating fuel-efficiency standards and pursuing dubious alternative energy incentives. Moreover, Republican criticisms of these actions belie the assertion of exclusive concern with drilling.  There may be no silver bullet, but there are more sensible policies than Obama’s.

Otherwise the speech differs in no substantial respect from his prior efforts. Every key point from the America-can-do-it pep talk to his misleading argument about tax benefits to the oil industry was critiqued in my Cato Policy Analysis: “The Gulf Oil Spill: Lessons for Public Policy.”

Nancy Pelosi on Gasoline Prices

The congresswomen’s comments are so cartoonish, I don’t even have to comment on them. But I thought Cato readers would like to know what the minority leader of the U.S. House is saying about rising gas prices. From a Nancy Pelosi press release today:

Independent reports confirm that speculators are driving up the cost of oil, hurting consumers and potentially damaging the economic recovery. Wall Street profiteering, not oil shortages, is the cause of the price spike.

We need to take strong action to protect consumers from this speculation. Unfortunately, Republicans have chosen to protect the interests of Wall Street speculators and oil companies instead of the interests of working Americans by obstructing the agencies with the responsibility of enforcing consumer protection laws.

We call on the Republican leadership to act on behalf of American consumers and join our efforts to crack down on speculators who care more about their profits than the price at the pump even if these spikes harm the American consumer and our economy.

For a rational discussion on energy policy, see Downsizing the Department of Energy.

Franken to Chu: Doggone It, Like My State’s Company

The Senate Energy and Natural Resources Committee held a hearing last week on the Department of Energy’s budget request for fiscal 2013. Chris Edwards tipped me off to a particularly galling exchange between Energy secretary Steven Chu and Sen. Al Franken (D-MN). Sen. Franken uses his allotted time to badger Chu about a federal loan that Energy conditionally committed to a Minnesota company in 2010 that apparently has yet to be approved.

The exchange begins around the 61 minute mark here. Our trusty interns, Devon Sanchez and Stephen Wooten, transcribed the exchange, which I’ll share a portion of:

Sen. Franken:

One such project is from a company in Minnesota called SAGE Electrochromics. I know you are aware of that. Sage has developed energy efficient windows that are cutting edge, better than anything in the world and uses photo-voltaic cells to control the window how dark it gets during the summer to block out UV light and lower air conditioning costs and to let it all in, lower heating costs in the summer. And it’s really…I’ve been there and it’s just an amazing tech. In the Spring of 2010, the DoE promised the company it would receive a $72 million loan guarantee under the 1703 Program to build a new manufacturing facility that would create 160 manufacturing jobs and 200 construction jobs in southern Minnesota. It’s now been two years since SAGE has been notified that it will receive a loan guarantee and the deal has not yet been closed. While the Department of Energy prolongs closing the deal, time and money are running out for SAGE. There are high-tech manufacturing construction jobs at stake here. It’s been going forward with the project assuming they get this loan guarantee but they’re running out of time and they may have to sell themselves to a French company. My first question is that the SAGE loan guarantee was going to be submitted to the credit committee on August 23rd, but it was stopped. Why is the Department of Energy continuing to delay closing and executing the SAGE loan guarantee?

Secretary Chu tells Sen. Franken that he can’t discuss the details and advises the senator to speak with SAGE. A frustrated Sen. Franken takes another crack at getting Chu to explain the holdup, but doesn’t get anywhere and his speaking time runs out. Anyhow, the exchange is sad commentary on the state of affairs in Washington. Sen. Franken sitting there singing the virtues of handing out other people’s money to commercial interests in general would have been problem enough. That he instead used his time to grovel for a handout to a company in his state just goes to show that too many policymakers see the federal government as a favor dispenser.

If this company is producing such “amazing tech,” then perhaps Sen. Franken should lend SAGE some of his money? (Maybe he could use the royalties he receives from DVD sales of “Stuart Saves His Family” to help the company.) Wisecracks aside, a quick Google search shows that SAGE has already received private capital. If this company is so great then it should have no trouble finding additional investors to lend it the money it needs. Then again, Franken says that it’s running out of money so perhaps it isn’t so great. But that’s the way Washington works: taxpayers get the losses while private companies get the profits…and arrogant senators get to pat themselves on the back for “creating jobs.”

See here for more on downsizing the Department of Energy.

Fixing the House Transportation Bill

After catching flack from both fiscal conservatives and the transit lobby, House Speaker John Boehner has postponed consideration of a surface transportation bill. Fiscal conservatives (including my fellow Cato scholar Michael Tanner) objected to the bill’s deficit spending; transit interests (including Republicans from New York and Chicago), objected to the bill’s lack of dedicated funds to public transit.

Here are a few things you need to know about the transportation bill before it comes up again in a couple of weeks. First, the legislation now in effect, which passed in 2005, mandated spending at fixed levels even if gasoline taxes (the source of most federal surface transportation funds) failed to cover that spending. Gas taxes first fell short in 2007 and the program has been running a deficit ever since. Although the 2005 bill expired in 2009, Congress routinely extends such legislation until it passes a replacement bill.

Unlike the 2005 law, the controversial House bill only authorized, but did not mandate, deficit spending. Actual deficit spending would be considered on a year-by-year basis by the House and Senate appropriations committees. Should they decide not to deficit spend, passage of the House bill could potentially save taxpayers more than $60 billion over the next five years. Failure to pass a bill will only lead Congress to continue to deficit spend.

Second, transportation is big-time pork. The House Transportation and Infrastructure Committee is the largest committee in Congressional history because everyone wants a share of that pork. Fiscal conservatives’ dreams of devolving federal transportation spending to the states run into the roadblock made up of members of Congress from both parties who don’t want to give up the thrill of passing out dollars to their constituents.

The highway bill wasn’t always pork. When Congress created the Interstate Highway System in 1956, it directed that gas taxes be distributed to states using formulas based on such factors as each state’s population, land area, and road miles. While Congress tinkered with the formulas from time to time, once the formulas were written neither Congress nor the president had much say in how the states spent the money other than it was spent on highways.

That changed in 1982, when Congress began diverting gas taxes to transit–initially about 11 percent, now about 20 percent. The 1982 bill also saw the first earmarks; the 10 earmarks that year exponentially grew to more than 6,000 earmarks in the 2005 reauthorization.

Ron Paul recently defended earmarks, saying “Congress has an obligation to earmark every penny, not to deliver that power to the executive branch. What happens when you don’t vote for the earmark it goes into the slush fund, the executive branch spends the money.” But the Highway Trust Fund was not a slush fund; because it was distributed to the states by formulas, the executive branch had no say in how it would be spent.

In 1991, however, Congress decided to put billions of dollars of transit’s share of gas taxes into “competitive grant” programs. While competitive grants supposedly supported the best projects, in fact they were mainly slush funds distributed on political grounds either through earmarks or by the president.

The biggest competitive grant program is “New Starts,” which supports construction of new transit lines. Since the main way cities could get more money from this fund was to build the most expensive rail transit lines they could, New Starts gave cities incentives to replace low-cost buses with high-cost trains.

All over the country today, cities are waiting for Congress to pass a pork-laden transportation bill so they can continue to build ridiculously expensive rail transit lines, at least half of whose costs would be covered by the feds. Portland, Oregon, which spent about $200 million building a 17-mile light-rail line in 1986, now wants to build a 7-mile light-rail line at a cost of $1.5 billion. Honolulu wants to build a 20-mile elevated rail line for $5.1 billion.

Baltimore, whose transit ridership has declined by more than 20 percent since it started building rail transit in 1982, wants to spend $2.2 billion on a 15-mile light-rail line, nearly 80 percent of whose riders are expected to be people who were previously riding much more economical buses. San Jose wants to spend more than $5 billion building a 16-mile extension to the San Francisco BART system even though the project’s environmental impact statement says that it will not take enough cars off the road to increase speeds on any highway by even 1 mile per hour.

In 2005, then-Secretary of Transportation Mary Peters attempted to limit such wildly expensive projects by issuing a rule that rail lines could cost no more than $24 per hour that they saved travelers. Congress immediately exempted the San Jose BART line and several other projects from the rule. Planners tinkered with the numbers for other projects so that an amazing number appeared to cost around $23.95 per hour. Of course, after they received funds from the Federal Transit Administration, costs rose and ridership declined.

For example, in 2000 Minneapolis sought federal funds for what was to be an 80-mile commuter-rail line costing $223 million and projected to carry more than 10,500 riders per day in its first year. By 2004, the cost was up to $265 million but the line would only be 40 miles and was projected to carry just 4,000 riders per day. The line actually ended up costing $317 million, half of which was paid for by the feds, and in fact ended up carrying only about 2,200 riders per day in its first full year of operation, and even fewer in its second year.

To keep transit agencies from having to deal with Mary Peters’s pesky cost limit, the Obama administration proposed last month to rewrite the rules for New Starts. The new rules replace Peters’s $24 per hour limit with such subjective criteria as “livability,” “environmental justice,” and “multimodal connectivity.” In other words, cities can justify and the Secretary of Transportation can award grants for fantastically expensive projects based on just about any reason at all.

The House transportation bill addressed all of these issues. In addition to ending the 2005 bill’s mandatory spending, it completely eliminates earmarks and rededicates gas taxes to highways and put them all in formula funds. The deficit spending is almost all for transit, and while the bill still includes a New Starts program, it insists that projects be judged using firm quantitative criteria, not meaningless terms like livability.

Most importantly, the bill provides a path for the devolution that fiscal conservatives want. By taking all of the pork out of the gasoline tax, the bill makes it far more likely that Congress will be willing to devolve the tax to the states in the next go-around in about 2017.

Not surprisingly, the bill raised the ire of not only fiscal conservatives but the powerful transit lobby (which, because contractors can make far more profits building $100-million-per-mile rail lines than $10-million-per-mile highways, is far better funded than the supposedly powerful highway lobby). Transit advocates would prefer to retain transit’s 20-percent share of gas taxes than rely on Congress to fund transit out of deficit spending or some hoped-for oil and gas royalties.

As I see it, the bill’s authorization (but not mandate) for deficit spending was an attempt to get Democrats to support the elimination of earmarks and other pork. Since that has apparently failed, I would suggest another form of compromise.

First, end deficit spending, which means a bill that authorizes about $190 billion instead of $260 billion over the next five years. Second, distribute the money to the states exclusively through formulas with no earmarks and no competitive grants. Third, assuage transit interests by allowing the states to spend the money on either highways or transit, with no set formula for how much can go for either one.

Finally, encourage the states to spend the money as cost-effectively as possible by building user fees (defined as state or local taxes or fees paid by users that go to the facilities those users use) into the formula for allocating federal funds to the states. I have proposed a formula based 50 percent on user fees, 45 percent on population, and 5 percent on land area. This initially results in states getting about the same federal dollars as they receive today but gives states incentives to cater to users rather than politicians by investing their funds in projects the produce the most user fees. Most important, by taking the pork out of the gas tax, this keeps open the path to devolution in the next reauthorization cycle.

Transportation Agreement Seems Remote

House Republicans and Senate Democrats remain at loggerheads over the future of federal highway and transit funding. Although House Transportation & Infrastructure Committee Chair John Mica introduced a compromise transportation bill this week, few are pleased with his proposal. Secretary of Transportation Ray LaHood, for example, calls it “the worst transportation bill” he has ever seen.

Congress passes legislation defining how federal gasoline taxes and other highway user fees will be spent every six years, and the most recent bill lapsed in 2009. Although the revenues all come from highway users, public transit agencies and other interests have captured increasing shares of the funds in successive bills passed since 1982. To please the wide range of interest groups who benefitted from this spending, the 2005 bill (which itself was two years late) made spending mandatory, meaning annual appropriations bills could not refuse to spend the money even if gas taxes failed to cover the costs—which they did after 2008, forcing Congress to transfer general funds to the Highway Trust Fund. In addition, Congress added more and more earmarks to the bills, increasing from 10 earmarks in 1982 to more than 6,000 in the 2005 bill.

The struggle today is between the Democrats (and others) who want to keep spending like there is no tomorrow and the Tea Party Republicans who want to reduce spending to be no more than actual revenues and eliminate earmarks and other pork.

One major source of pork is so-called competitive grants, which are mainly for transit. Although most highway funds have been distributed to the states using formulas based on such things as population, land area, and road miles, competitive transit grants are handed out on a project-by-project basis. Though the money was supposed to be used for the best projects, in fact most of it was distributed based on political power.

Mica’s compromise would keep spending at current levels—which are as much as $10 billion a year more than revenues—but include no earmarks and replace all competitive grants with formula funds. Instead of pleasing everyone, the compromise has simply ticked everyone off.

LaHood and various transit advocates are upset because they lose their funds dedicated to light-rail, streetcar, and other rail transit construction. Conservative groups hate the bill because it almost certainly will require deficit spending.

Mica could have compromised in the other direction: reducing spending to be no more than revenues, but maintaining competitive grants, earmarks, and other pork-barrel programs. This might have been more successful, as fiscal conservatives couldn’t complain about deficit spending while pork-barrelers could point with pride to the earmarks they were funding.

The negative response to Mica’s proposal makes it unlikely that Congress will pass a bill this year. Instead, it will have to once more extend the 2005 bill (which it has already done eight times), as the current extension expires on March 31, 2012. But the extensions maintain spending at current levels, which means the Highway Trust Fund is quickly running out of money.

Advocates of increased spending claim funds are needed to repair crumbling infrastructure. But America’s highways and bridges are actually in pretty good shape, partly because they are largely paid for out of user fees. The infrastructure that is crumbling is mainly those things paid for out of taxes, such as urban transit systems, which have at least a $78 billion maintenance backlog. Even President Obama’s head of the Federal Transit Administration complains that transit agencies are too eager to get federal funds to build new rail lines when they can’t afford to maintain the ones they have.

The real question is why the federal government should be involved at all in highways, urban transit, bike paths, and other surface transportation projects. State and local governments, not to mention private transportation companies, are more likely to make wise transportation investments and less likely to be swayed by pork barrel. Congress should simply eliminate the federal gas tax or, as some have proposed, allow states to opt out of federal programs by raising their gas taxes by the amount of the federal 18.3-cent-per-gallon tax.

Such alternatives will be taken more seriously if Tea Party candidates win more Senate and House seats in the 2012 election. If they lose seats, however, Congress is more likely to raise gas taxes so the transit industry and other interests can continue to get their largely undeserved shares of highway user fees.

‘Professor Cornpone: Ethanol Lobbyist Newt Gingrich—and the Future of the GOP’

The title is from a Wall Street Journal editorial in January of 2011. I commented on Gingrich’s response to that editorial in the following excerpt from a chapter I wrote for a recently published book by Robert E. Looney, ed., Handbook of Oil Politics, Routledge (2012):

Even if draconian belt-tightening by U.S. motorists could significantly reduce the world price of oil (which is highly doubtful), the benefits of cheaper oil would by definition accrue to other countries.   If the U.S. allowed its own industries and consumers to benefit from the supposed drop in world oil prices (as a result of breaking the oil cartel), that would undo the effort to cut imports.  Most petroleum consumed in the U.S. is not used by passenger cars and demand for petroleum among commercial, industrial and non-auto transportation sectors would rise if any induced reduction in the world oil price was allowed to be matched by a lower domestic oil price (rather than being offset by taxes or rationing).

Consider the protectionists’ old idea that money spent on buying something useful from another country is just lost to the U.S. economy, so we would be much better off buying everything close to home (regardless what it costs, though they never say that).

Attempting to defend ethanol subsidies and mandates, for example, former Speaker of the House Newt Gingrich wrote, ‘It is in this country’s long-term best interest to stop the flow of $1 billion a day overseas… . Think of what $1 billion a day kept in the U.S. economy creating jobs, especially energy jobs which cannot be outsourced, could do.’  That is, of course, a totally false choice.  Apologists for subsidies and mandates are not proposing to pay the same price for domestic fuel as we could otherwise pay for an energy-equivalent amount of imported oil – replacing $1 billion of imported fuel with $1 billion of domestic fuel.  They are talking about paying much more for domestic fuel than we pay for imported oil.   Why else would they be asking for subsidies, tariffs and mandates?

Paying much more for something as important as energy, whether directly or through taxes, makes an economy poorer, and being poorer is no way to create ‘green jobs.’  Money wasted on something like ethanol which politicians favor is money that could otherwise have been spent on something else that consumers favor.


Is California High-Speed Rail Dead?

The CEO and board chair of the California High Speed Rail Authority have resigned in disgrace over erroneous cost projections. A peer-review commission created by the California legislature says the authority’s high-speed rail plan is “not financially feasible.” Surveys show a majority of Democrats, Independents, and Republicans in the state all oppose construction.

Yet the authority’s scheme to build a new rail line capable of moving trains from Los Angeles to San Francisco in two hours and 40 minutes won’t die unless the state legislature kills it. Officially, the authority plans to begin construction by September 2012, despite the fact that it has less than 10 percent of the money it needs to complete the project.

The tide definitely turned against the plan when the authority published a new business plan admitting that estimated inflation-adjusted construction costs had more than doubled from $43 billion to $98.5 billion. Moreover, under the new plan the promised 220-mph trains would not roll until 2033, more than a decade later than voters were promised in 2008.

The authority’s credibility was further reduced when it admitted that the million jobs it promised were really job-years, and that no more than 60,000 jobs would be created at any given time (and even that was probably an exaggeration). These revelations cost the project the editorial support of a number of major papers that had previously endorsed the project.

The 2008 ballot measure that voters narrowly approved authorized the sale of $9 billion in bonds that would eventually have to be repaid by state taxpayers. But those bonds could only be sold if they were matched by funds from federal or other sources. The Obama administration has given the state about $3.5 billion (giving the authority a total of $7 billion) on the condition that construction begin by September 30 and that the first segment constructed be in the Central Valley. The latter condition was made just before the 2010 election in a blatant effort to assist the election campaign of Representative Jim Costa (D-CA) of Fresno (who subsequently won re-election by a mere 3,000 votes).

Journalists are now questioning every aspect of the project. The latest story is that “doubts [are being] cast on cost estimates” for the alternative to high-speed rail, which is better highways and airports. I pointed this out back in 2008 in a Cato report showing that the highway-airport alternative did far more to reduce congestion than the high-speed rail line, suggesting that a highway-airport alternative that accomplished the same congestion reduction as the rail line would have cost much less.

What raises doubts now is the way the cost of the alternative has crept up. When the authority was insisting that the rail line could be built for $43 billion, its highway-airport alternative was estimated to cost $100 billion. When the rail cost jumped to nearly $100 billion, the highway-airport cost mysteriously increased to $171 billion. “There is some dishonesty in the methodology,” says a University of California, Berkeley transportation engineer. “I don’t trust an estimate like this.”

California Republicans have introduced a bill in the state legislature to prevent any bond sales that would fund the initial construction out of Fresno. Some Democratic legislators question the project, but it retains the endorsement of Governor Jerry Brown, and since Democrats have majorities of both houses of the legislature, anything could happen.

If the legislature doesn’t kill the project, the authority will spend the money it has available to build track capable of moving trains at 220 mph from somewhere south of Fresno to somewhere north of Fresno (though probably not all the way from Bakersfield to Merced). A handful of daily Amtrak trains might use those tracks, probably at no more than 110 mph, to save their passengers a few minutes on their trips from Bakersfield to Sacramento. The authority will be betting that someone will come up with the other $92 billion, but at the present time neither the federal government nor the state government has the cash.

All this has made rail advocates increasingly desperate. While supporters hysterically talk about California’s population growing to 50 million people, the truth is that, by the time the state could ever finish a high-speed rail line, the technology will have been completely superseded by such things as driverless cars and improved air service. Although the failure of the California scheme will end Obama’s dream of a national high-speed rail system, California needs high-speed rail like it needs a $100 billion hole in its budget.