Topic: Energy and Environment

150 Years of Boondoggles

Today is the 150th anniversary of the pounding of the gold spike that represented completion of the first transcontinental railroad. Union Pacific, which now owns the complete route, plans to bring its newly restored Big Boy steam locomotive to Ogden to recreate, with 4-8-4 locomotive 844, the joining of the UP and Central Pacific in 1869. Numerous museums and history societies are planning exhibits and meetings.

While it would be fascinating to watch the Big Boy operate, you’ll have to excuse me for otherwise being unenthused about this event. As I see it, the first transcontinental railroad was the biggest boondoggle in nineteenth-century America, and one that – as later railroads proved – we could have lived without. Unfortunately, it is still being cited as an example of why twenty-first century America should do even more foolish things like build high-speed rail.

Railroads were the high-tech industry of the mid-1800s. They revolutionized both passenger travel and freight movement and mode it possible to farm and extract resources in remote locations. Yet, like today’s high-tech industries, many planned and some actual railroads were little more than securities schemes to separate naive investors from their money. The first transcontinental railroad did so on a grand scale, relying not on naive investors but a gullible Congress willing to give away tax dollars and resources.

The story is told in detail in Railroaded: The Transcontinentals and the Making of Modern America by Stanford University historian Richard White. To entice investors into building a continuous line from the Mississippi River to the Pacific shore, Congress agreed to give the railroads 10 square miles of land for every mile of track. In addition, it would loan builders $16,000 a mile for construction on flat lands and $48,000 a mile in the mountains.

The leaders of the Central Pacific (which built from California) and Union Pacific (which built from the Mississippi) quickly realized that immediate profits could be made by contracting construction out to themselves. They created separate companies that built the railroads as cheaply as possible, then billed the government the full amount of the available loans. The railroads were committed to eventually repaying the loans, but that responsibility belonged to a different set of investors, while a narrow inner circle of each railroad’s leaders owned the highly profitable construction companies.

The Central Pacific even went so far as to hire a geologist who claimed that the Sierra Nevada Mountains started just outside of Sacramento, many miles away from the real mountains, so they could collect the full $48,000 a mile for that segment. Using techniques like this, the people who owned the construction companies earned millions of dollars in profits before the railroads were even completed.

President Trump Considering a Jones Act Waiver

New reports suggest that President Trump is considering granting a Jones Act waiver to allow non-U.S.-flagged ships to transport natural gas from energy-rich parts of the United States to the Northeast and Puerto Rico. He should do so without delay. Granting this waiver would mark not just a triumph of common sense, but also help fulfill President Trump's campaign promise to take on the Washington special interests who profit from laws such as the Jones Act at the expense of American consumers and businesses.

To learn more about this issue both the public and media alike are invited to attend an April 30 event at the Cato Institute that will examine the Jones Act’s impact on Puerto Rico. Featuring Puerto Rico's Secretary of State, the president of the Puerto Rico Economic Development Bank, and other experts, the event will include a discussion of the island's attempt to obtain a Jones Act waiver for the purpose of transporting U.S. natural gas. For further information about both the Jones Act and the Cato Institute’s effort to raise awareness about this burdensome and outdated law please visit cato.org/jonesact.

The Fight over Particulate Matter

The EPA and conventional air pollution regulations are back in the news. NPR reported that the seven-member Clean Air Scientific Advisory Committee (CASAC), which provides the EPA with technical advice for National Ambient Air Quality Standards, is “considering guidelines that upend basic air pollution science.” But NPR’s oversimplified depiction of a settled scientific debate ignores real misgivings about the science that has justified the regulations and provides an opportunity to ask questions about the proper role of science in public policy.

The pollutant in question is particulate matter (PM), tiny particles or droplets emitted from power plants, factories, and cars. The EPA contends that PM with diameters smaller than 2.5 micrometers, about 3 percent of the size of a human hair, is the most harmful because the particles can be inhaled deep into the lungs. Along with five other criteria pollutants, the Clean Air Act requires that the EPA periodically prepare an analysis that “accurately reflects the latest scientific knowledge” on the health effects of PM exposure. It must then set air quality standards “requisite to protect the public health…allowing an adequate margin of safety.”

Whether one favors leaning towards caution and setting stringent pollutant standards or is skeptical of the efficacy of air quality rules and worries about the costs of the regulations, PM is important. On the one hand, the supposed harms of PM are high. One (contested) study claimed that 2005 levels of PM caused about 130,000 premature deaths per year, which would put PM as the sixth leading cause of death in the United States after strokes. On the other hand, the regulations are expensive. Between 2003 and 2013, EPA regulations accounted for 63–82 percent of the estimated monetized benefits and 46–56 percent of the costs of all federal regulations. The benefits of reducing PM specifically are 90 percent of the monetized benefits of EPA air regulations, meaning PM rules play an outsized role in the justification for many of the costliest federal regulations.

No matter which side of the debate one is on, it would seem important that the EPA have a rational standard-setting process that properly weighs both the possible reduction in the harms of PM and the potential costs. Unfortunately, that is not the case.

The scientific evidence of the harms of PM is much more uncertain than many observers claim and the conflict over what we do and do not know about the effects of PM has existed for decades. The evidence of negative health effects of PM is primarily two studies published in the 1990s, the Harvard Six Cities Study (SCS) and the American Cancer Society Study (ACS). As I have previously noted,

The SCS has been the subject of intense scientific scrutiny and much criticism because of results that are biologically puzzling. The increased mortality was found in men but not women, in those with less than high school education but not more, and those who were moderately active but not sedentary or very active. Among those who migrated away from the six cities, the PM effect disappeared. Cities that lost population in the 1980s were rust belt cities that had higher PM levels and those who migrated away were younger and better educated. Thus, had the migrants stayed in place it is possible that the observed PM effect would have been attenuated.

Furthermore, a survey of 12 experts (including 3 authors of the ACS and SCS) asked whether concentration-response functions between PM and mortality were causal. Four of the 12 experts attached nontrivial probabilities to the relationship between PM concentration and mortality not being causal (65 percent to 10 percent). Three experts said there is a 5 percent probability of noncausality. Five said a 0-2 percent probability of noncausality. Thus 7 out of the 12 experts would not reject the hypothesis that there is no causality between PM levels and mortality.

Perry the Profligate

Rick Perry is one of the more disappointing of Trump’s cabinet secretaries. He once fashioned himself a conservative budget-cutter, but since becoming head of the Department of Energy (DOE), he has focused on defending subsidies rather than cutting anything. He once wanted to abolish the DOE, but he turned 180 degrees on that idea upon taking the DOE helm in 2017.

The Daily Caller reports:

… Perry visited Waynesboro, Georgia, on Friday and announced $3.7 billion in additional federal loans for the primary owners of a nuclear power project that has been beset with delays and cost overruns.

The Department of Energy is guaranteeing up to $1.67 billion in loans for Georgia Power, up to $1.6 billion for Oglethorpe Power, and up to $414.7 million for the Municipal Electric Authority of Georgia (MEAG Power). The three utilities are co-owners of the Vogtle Electric Generating Plant.

The loans are to help Vogtle’s construction of its two latest nuclear reactors: Units 3 and 4. The two units, which are the only nuclear reactors under construction in the entire country, were originally planned to be completed by 2017, but have been plagued with construction delays and ballooning costs. Unit 3 will not be ready to be loaded with fuel until 2020, and Unit 4 won’t go online until 2021.

Construction of the two units are expected to cost a total of $27 billion, and the announcement by Perry on Friday marks a total of $12 billion in federal loan guarantees to help keep the project afloat.

More on energy subsidies and Vogtle here, here, and here.

Is This Infrastructure Really Necessary?

The United States has “at least $232 billion in critical public transportation” needs, claims the American Public Transportation Association (APTA). Among the “critically needed” infrastructure on APTA’s list are a streetcar in downtown Los Angeles, another one in downtown Sacramento (which local voters have rejected), one in Tempe, and streetcar extensions in Tampa and Kansas City.

Get real: even ardent transit advocates admit that streetcars are stupid. The economic development benefits that supposedly come from streetcars are purely imaginary, and even if they weren’t, it would be hard to describe streetcars – whose average speed, APTA admits, is less than 7.5 miles per hour – as “critically needed.”

Much of the nation’s transit infrastructure is falling apart, and the Department of Transportation has identified $100 billion of infrastructure backlog needs. (Page l – that is, Roman numeral 50 – of the report indicates a backlog of $89.9 billion in 2012 dollars. Converting to 2019 dollars brings this up to $100 billion.) Yet APTA’s “critical needs” list includes only $24 billion worth of “state of good repair” projects. Just about all of the other “needs” listed – $142 billion worth – are new projects or extensions of existing projects.

In fact, few if any of these new projects are “needed” – they are simply transit agency wish lists. For example, it includes $6 billion for phase 2 of New York’s Second Avenue Subway, but no money for rehabilitating New York’s existing, and rapidly deteriorating, subway system. Similarly, it includes $140 million for a new transitway in Alexandria, Virginia, but no money for rehabilitating the DC area’s also rapidly deteriorating Metrorail system. (In case anyone is interested, I’ve converted APTA’s project list into a spreadsheet for easy review and calculations.)

The $166 billion total on APTA’s “Project Examples” list is less than the $232 billion APTA says is needed, but even if all of the difference is “state of good repair” projects, that difference plus the $24 billion on APTA’s list doesn’t add up to what the DOT says is needed to restore transit infrastructure. This shows that even APTA doesn’t take public safety and “crumbling infrastructure” seriously.

I’ve previously pointed out that the best-maintained infrastructure is funded out of user fees. For example, Federal Highway Administration data show that only 2.9 percent of toll bridges are “structurally deficient,” compared with 5.5 percent of state-owned bridges funded mainly out of gas taxes and 12.2 percent of locally-owned bridges that are funded mainly out of general tax dollars. Gas taxes are a user fee, so state bridges are better maintained than local bridges, but tolls are an even better user fee so toll-funded bridges are in the best shape.

Politicians allow infrastructure funded out of tax dollars to deteriorate because they would rather spend money on new projects than maintain old ones. APTA’s list simply confirms this: APTA is trying to entice politicians into funding all sorts of new projects rather than maintain the existing ones that are falling apart.

To justify this spending, APTA claims that transit produces $4 in economic benefits for every $1 spent. This is based on a report prepared for APTA in 2009. This report includes two kinds of benefits from transit spending.

First, when anyone spends money on anything, the recipients of that money turn around and spends it again. That’s called “indirect” or “secondary” benefits. Spending money on digging holes and filling them up would produce similar secondary spending. That doesn’t mean the government should pay people to dig holes and fill them up (although that’s really what it’s doing for many rail transit projects). For one thing, if government didn’t spend that money, there would be more money in the hands of taxpayers, who would spend it, generating just as many secondary benefits.

Second, the study counts cost savings to transit riders and other travelers, such as the savings from not having to own a car, from getting to destinations faster, or from congestion relief. But transit costs far more and travels far slower than automobiles; there is no cost or time savings from substituting expensive, slow methods of transportation for inexpensive, fast methods of transportation. Transit also does not provide a significant amount of congestion relief; in fact, large buses, streetcars, light rail, and commuter trains that have many grade crossings often do more to increase congestion than reduce it.

The study’s arguments are even less plausible today, when transit ridership is shrinking, than they were in 2009, when transit ridership had been growing. Charlotte, Los Angeles, and Portland recently spent hundreds of millions or billions on new light-rail lines or light-rail extensions, yet transit ridership in those regions dropped after the new lines opened. There is no way that can that be good for transit riders or other travelers.

APTA’s wish-list is just one more reason why Congress should only pass an infrastructure bill if it is one that is funded exclusively out of user fees. An infrastructure bill funded out of tax dollars or deficit spending would impose huge costs on taxpayers in order to build unnecessary projects that we won’t be able to afford to maintain. 

Federal Gas Tax Increase Not Needed

President Trump’s new budget proposes to increase federal spending on infrastructure by $200 billion over 10 years. Many members of Congress are supportive. Some favor raising federal gas taxes to fund more highway spending, and President Trump may be on board.

However, increasing federal gas taxes and federal infrastructure spending is a bad idea. For one thing, the vast majority of government infrastructure is owned by the states, including 98 percent of all U.S. streets and highways. The states have many options to finance their highways and other infrastructure including state gas taxes, sales taxes, debt, user charges, public-private partnerships, and privatization.

A federal gas tax hike makes no sense because states can raise their own gas taxes anytime they want. Indeed, half the states have raised their gas taxes in just the past six years, as the Wall Street Journal reported yesterday:

Ohio Gov. Mike DeWine is pushing for an 18-cent-per-gallon increase in the state’s gas tax after he said he discovered a $1 billion infrastructure spending hole that transportation officials say was masked for more than a decade by borrowing.

The proposal is running into objections from some state lawmakers and sparking debate over how much the state should spend on new transportation projects and how much of that should be borne by taxpayers.

Governors in more than half a dozen states are considering boosting gas taxes. They follow more than two dozen states that have done so since 2013, as rising construction costs and greater fuel efficiency erode revenue generated from the taxes.

The chart shows that while the federal gas tax has been held at 18 cents per gallon, state gas taxes have risen steadily, according to API data. The average state gas tax increased from 21 cents per gallon in 1994 to 34 cents per gallon today, which includes excise taxes and other taxes on gasoline.

More on highways and infrastructure here and here.

68% of Americans Wouldn’t Pay $10 a Month in Higher Electric Bills to Combat Climate Change

Public opinion polls have long found that Americans say they are concerned about climate change. But does that mean people are willing to reduce their own standard of living and make personal sacrifices in efforts to do something about it? New survey data suggests not. An AP-NORC survey finds that 68% of Americans wouldn’t be willing to pay even $10 more a month in higher electric bills even if the money were used to combat climate change.

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Proposals that use government intervention in the economy to combat climate change, like the Green New Deal (GND), will require people make personal sacrifices. The GND resolution, introduced to Congress by Rep. Alexandria Ocasio-Cortez  (D-NY) and Sen. Ed Markey (D-MA), calls for the U.S. to undertake a 10 year national mobilization, on the scale of World War II, to overhaul its entire infrastructure and industry, including upgrading or replacing every single building in the US with new energy-efficient technology, and reach net-zero greenhouse gas emissions in 10 years with a goal of completely eliminating Americans use of gas, oil, and coal. Currently, about 80% of all the energy Americans use comes from fossil fuels like gas, oil, and coal. 

To say the least, the Green New Deal isn’t cheap. Most analyses estimate it will cost in the trillions of dollars and require Americans to make personal sacrifices. Both supporters and opponents of the plan agree that the environmental aspects of the plan would cost at least $10 trillion. That’s about three times the entire U.S. federal budget. Even when spread out over 10 to 30 years, these estimates indicate an annual price tag of thousands of dollars per U.S. household. Higher levels of government spending necessarily require higher taxes, either now or in the future. Advocates of the Green New Deal say it can be paid for with the government borrowing money (deficit spending.) But deficit spending today means higher taxes tomorrow.

Many 2020 Democratic hopefuls have signed on to the plan, including Kamala Harris, Elizabeth Warren, Cory Booker, Kirsten Gillibrand, Bernie Sanders, and Amy Klobuchar. They may believe this is a popular move with the public. Perhaps because surveys show the public is concerned about climate change. For instance, a 2018 Quinnipiac survey found that 69% of Americans say they are concerned about climate change.  And the same survey found that a smaller, but still substantial, share (50%) believe that climate change will personally affect them during their lifetimes.

But what people say they are concerned about and what they are actually willing to do about it are not the same thing.  An AP-NORC survey found that 68% of Americans wouldn’t be willing to pay $10 a month in high electric bills to combat climate change. The survey asked people if they would be willing to pay a fee in their electric bill every month that would be used to combat climate change. Then the survey asked about different potential fee amounts. The survey found overwhelming majorities of Americans opposed paying the fee to combat climate change if it cost:

  • $10 a month, 68% opposed
  • $20 a month, 69% opposed
  • $40 a month, 76% opposed
  • $75 a month, 83% opposed
  • $100 a month, 82% opposed

Was there any amount Americans were willing to pay to combat climate change? Yes, $1 dollar. Fifty-seven percent (57%) of Americans would be willing to pay a $1 a month fee in their electric bills to combat climate change.

Although Americans say they are worried about climate change, most clearly aren’t worried enough to spend their own money on it, or make personal sacrifices for the cause. Perhaps it might be that people know they are supposed to be concerned about climate change because this is a salient message they receive from trusted sources and thus say so on surveys. However, receiving these messages and cues hasn’t been enough to convince them to give up their own money, let alone lower their own standard of living, for the cause of combating global warming. However, significant personal sacrifices are what proposals like the Green New Deal will require. These data provide some indication that purported support for government interventions in the economy to deal with climate change may be inflated. Instead, Americans may be more supportive of public policies that foster an economic environment that allows for technological innovation and invention among rising entrepreneurs and private sector businesses competing to come up with the next big idea that makes our world cleaner, healthier, happier, and more productive. 

 

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