Sunday Train: Supporting Rail Electrification with the Climate Bill

Burning the Midnight Oil for Living Energy Independence
posted at ProgressiveBlue, crossposted at The Hillbilly Report, Docudharma, and Agent Orange.

Transport For America (t4america.org) has a call to action out on the Climate Change Bill. "ACES" passed the House, and the corresponding (but of course not identical) legislation is presently up for consideration in the Senate.

The basis of the call for action is straightforward:

• 1% of the revenues raised by the Carbon Fee is permitted to be used for clean energy transport - not even mandated, but optionally may be used for that among a range of other options.
  
• Transport is responsible for 30% of the CO2 emitted
  
• thus, "You can't solve 30% of the problem with 1% of the funds

Now, about 14% of carbon fee revenue is dedicated to emissions reduction, so that is 7.2% of the emissions reduction budget allocated that is the maximum allowed to be spent on installing existing clean energy transport. Based on CBO estimates of carbon fees, the maximum amount that states would be allowed to devote to clean energy transport is:

• $391m in 2011; rising to
• $1.3b ($1,323m) in 2019

By contrast, the bill authorizes utilities to tax customers by $1b-$1.1b a year over 10 years to finance the installation of Carbon Sequestration Technology, which is the excuse given for permitting continued construction of coal-fired generating plants. (source: 1Sky analysis, pdf)

There is plenty of funding in the bill for vehicle electrification. Plug-in cars, plug-in trucks, plug-in buses, all get funding. However, vehicle electrification funds read as if they were written by a battery manufacturer: existing electrified rail and trolley bus technologies are restricted to a public transit ghetto. It seems that the motto for vehicle electrification funding is, "Lord, make me virtuous, but please, not quite right now."

Even worse, the 1% funding that is permitted is provided by allowing states to use up to 10% of their funds to provide the state match to "greenhouse gas saving" transport such as bicycles and transit.

This means:

• The most promising single opportunity to reduce greenhouse gas emissions in transport inside a decade, electrification of the STRACNET long haul rail freight network, is entirely out of bounds for any funding
• Funding for electric rail and trolley bus passenger transport requires first gaining approval through Federal programs that discriminate against energy-efficiency

Those are two massive flaws for any bill that is serious about greenhouse gas emissions reduction in the next decade, as opposed to hoping for greenhouse gas emissions a generation or more in the future.

They can, however, be fixed, if the Senate can be made aware that there is a loud and demanding constituency for reducing greenhouse gas emissions in this coming decade, and not just in some indefinite future ... and that this loud and demanding constituency is capable of both rewarding its political friends and punishing its political enemies.

First the Steel Interstate ... jump here for fixing the local transit project funding bias and here for the Local Community Funds for Energy-Efficient Transport, LC-FEET.


Financing Steel Interstates

In a previous Sunday Train, I discussed the Steel Interstate. The focus there was on the transport benefits provided, and the spill-over benefits to the opportunities for improving the range and quality of transport opportunities available in Appalachia.

It's been much longer since I've discussed the financing of a Steel Interstate.

The financial challenge is straightforward. While we have been massively subsidizing diesel truck freight infrastructure, we have placed rail freight on the YOYO principle: Your On Your Own. And while the infrastructure used by diesel trucks is in part funded by property taxes, the infrastructure used by rail pays property taxes - so rail in effect subsidizes their competition with each investment that they make in infrastructure.

Not surprisingly, the response by US railroads has been to focus on cutting capital costs and associated cost while maximizing the tonnage of freight they can haul on that infrastructure. Heavy freight is, after all, where their energy efficiencies give them a competitive advantage even competing against subsidized truck freight in a low-energy-cost environment.

Now, electric freight rail requires overhead electric infrastructure. Fully taking advantage of of the market opportunities requires 100mph Rapid Freight Paths, which themselves require investment in track and signal infrastructure, since 100mph single stacked container freight will not be able to meet schedules if they share the existing pare-down bi-directional single track networks with slow coal trains and double stack slow container freight.

Further, private railroads remain capital intensive industries, facing substantial risks of fluctuations in market demand, so that investment in Rapid Electric Freight Rail could easily drive a private railroad into bankruptcy in a recession even if it is offers a massive long term financial benefit to the company.

So, that is the challenge. And that challenge points the way to a direct solution.

• First, a public authority, organized like a regional economic development corporation, is established to finance, build and operate electrical rail infrastructure and Rapid Rail track and signaling.
• Second, those authorities receive a dedicated flow of funding from Carbon Feeds to cover the interest on the debt that they issue to fulfill their responsibility
• Those corporations charge user fee for electric rail that uses the electric rail infrastructure, and access fees for use of the Rapid Rail track and signal infrastructure
• The Federal Rail Authority establishes equipment and operational safety regulations for the operation of Rapid Light and Medium Freight Rail and Rapid Passenger Rail on the Rapid Rail infrastructure

Providing the funding stream for these corporations is straightforward. Allow States to dedicate an amount of up to 20% of their current Carbon Fee share to the establishment and interest subsidy for these Public Electric Freight Infrastructure Corporations.

Now, 20% of 10% is projected by the CBO to be $782m in 2011. At 5% interest for Public Regional Development bonds, that would finance up to $15.6b in infrastructure, rising to $50b by 2018. After meeting debt finance requirements, each non-profit corporation would have be allowed to use surpluses from user and access fees to finance further improvements.

In the event of oil price shocks which would substantially increase the competitive advantage of Steel Interstate freight, we could expanded investment in infrastructure, and accelerated payback of bonds.


Solving a Problem by Financing More Problem

The second glaring weakness of the transport-oriented spending by ACES is the way that money is made available to existing electric transport technology - electric rail and trolley buses.

Their entire stake in the program is inside the 10% state allocation for energy efficiency programs. Up to 10% of that - or a maximum of 1% of carbon fees - can be spent on cycle or public transit as part of the state matching fund to attract a federal grant.

That means, of course, that the present biases of federal grant funding are built into the funding. And those biases are a big part of the problem.

Take the example of the Minneapolis light rail project, as reported at Yonah Freemark at Transport Politic in Southwest Minneapolis’ Transit Route Selection Process May Rule Out Light Rail to Uptown.

The problem is this:

After years of study, Minneapolis is almost ready to submit its locally preferred alternative (LPA) corridor to the Federal Transit Administration, which will distribute up to 60% of total funds to the project through the New Starts major capital grant program. In order to receive money from Washington, Metro will have to show that the proposed route meets national cost-effectiveness guidelines, which are stringent enough to sieve out a large percentage of proposed new transit lines.

This requirement puts elected officials in a quandary: should they work to build the most effective transit network possible, or should they limit their ambitions for fear that the federal government will rule out any funding at all?

And why is it that the route that would provide the most attractive service to a larger number of people (as well as serving neighborhoods with a larger percentage of people living in poverty) is disadvantaged in the chase for Federal funds? What gives? Its in the formula for estimating transport benefits provided by a transit system:

One, the cost-benefit analysis is heavily biased towards the number of annual hours commuters will save by using the new transit system. This means that people who already have longer commutes are seen as more valuable for the FTA than those who choose to live in in-town locations with shorter distances between their residences and workplaces. ...
Two, similarly, the FTA likes speed. As a result, the slightly shorter 3A route is better for commuters in the far-out suburbs hoping to get to jobs downtown. The tunnel planned for route 3C, which ramps up costs exponentially, is only necessary because a surface route would be too slow and make the commutes of people from Eden Prairie slightly longer. Note that a 3C route without the tunnel would have a significantly lower construction cost, but it still wouldn’t meet FTA cost-effectiveness criteria because fewer outer-suburban people would ride it because their trip would be longer.
Three, the formula used by the FTA prefers new riders to old ones. In other words, a person moving from a car to a train is considered more important than a person moving from a bus to a train. ...

So an area is discriminated against if transit will encourage more short trips, more car-free living, and provide transport improvements to people already forced to rely on lower quality transit.

When an electric vs diesel choice is included, there is a further bias, since the funding formula does not count energy saving as a distinct benefit (Daily Kos: 14Apr2007).

Add on top of that the fact that a conservative ridership estimate is required when handing out Federal funds ... especially in light of the massive underfunding compared to the need for transit systems. However, conservative ridership estimates means that the project must be proposed with a conservative operating frequency. That means that the major financial benefit of the electric traction, in reduced operating costs, is persistently underestimated, while the financial benefit of the diesel traction, in lower up-front capital costs, is always given full weight.

What I propose here are two fixes to this problem. The first fix is to make the allocation proposed by the House both more selective and more effective.

Increasing selectivity: The purpose of this funding is reduction in greenhouse gas emissions, but even a modern high-efficiency diesel bus in an effective transit system with reasonable load factors will only be competitive with a Prius in terms of gallons consumed per hundred passenger-miles.

Therefore, this allocation is restricted to personal transport infrastructure - that pedestrian and cycle infrastructure - and electric mass transit. And for electric mass transit, the funding is for the electrification: the cost of electric vehicles (including both overhead and pluggable battery-electric), and the cost of electric support infrastructure.

Increasing effectiveness: The purpose of this portion of the funding is reduced greenhouse gas emissions. Therefore, the portion of the cost that is funded by this allotment is not considered as part of the base cost when computing cost-benefit ratios.

Longer term, I would hope that the next transport authorization will fix some or all of the bias in the current funding formulas against energy efficient transport. Improving the funding formula to eliminate the bias against Transit-Oriented-Development in Federal transit funding will be a win-win-win in terms of reducing greenhouse gas emissions, improving energy independence, and promoting economic equity.

However, whatever the funding formula, the investment of Carbon Fees to reducing the greenhouse gas emissions of transport should still be excluded from the transport cost/benefit index.


Local-Community-FEET

The second fix is to allow funding for existing energy efficient transport that is entirely outside of the Federal funding framework. This is provided for with a new institution that allows for local community-based project selection, provided that the project qualifies as providing clean energy transport. I call this institution the "Local Community Funds for Energy-Efficient Transport", or "Local-Community-FEET".

These funds are structured on an account basis, with an account for each incorporated municipality, county (for population outside an incorporated area) and tribal area.

The funds can either be used to fund projects - paying up-front for their capital expense, or to finance projects - paying the interest expense on projects whose original capital cost can be funded over time by either cost-savings or user-fees.

The administrator of the project does not do a cost-benefit assessment - it is the responsibility of the local community to decide how to best allocate the funds in the account. Instead, what the administrator judges is whether a project qualifies as an Energy Efficiency Transport project that also reduces greenhouse gas emissions.^{note1}

The legislation will therefore establish qualifying types of projects, with the administrator of the account evaluating whether a specific application will promote energy efficiency and reduce greenhouse gas emissions. If transit agencies, transport authorities, or state governments wish to gain pre-qualification for a project that will be seeking support from LC-FEET accounts, they may do so, provided they pay an application fee that covers processing costs.^{note2}

Once a local area has qualified projects registered against its account, it can either allocate capital funding for a qualified project from the account or, for projects that will generate cost-savings or user-fees to recover the initial capital cost over time, interest finance for capital project bonds.

The following types of projects should qualify for LC-FEET funding, if they pass the energy efficiency and greenhouse gas emissions tests:

• Dedicated pedestrian infrastructure - sidewalks, plazas, pedestrian bridges and subways;
  
• Dedicated cycle infrastructure - cyclways, traffic calming infrastructure for shared use bicycle boulevards, cycle parking, secure transport cyclist showers in public buildings
  
• Electric vehicles and electric support infrastructure for local transit - pluggable electric shared cars, pluggable electric buses, trolley buses, electric light rail, electric mass transit
  
• Electric vehicles and electric support infrastructure for inter-urban transport - capped at the pro-rata local share based on proportion of population served
  

The proposal is to allocate 10% of State Funding to LC-FEET accounts, with 2.5% from the existing 12.5% share directed to local communities. The allocation to local communities is therefore increased to one-fifth of the state allocation, 10% under the existing heading, and 10% to the LC-FEET account system.


All This, and a Set of Steak Knives

I would like to add a note that all of this qualifies as Brawny Recovery Economic Stimulus. If you have made it this far, you will have seen that there is a heavy reliance on providing finance for projects that are partly self-funding - that is, that can cover up-front capital costs over time, provided an interest subsidy.

This is simply bringing our current economic system in line with the economic accounting required for strongly sustainable economic development. Strong sustainability is we should leave the same or better material wealth to the following generation that we inherited. That implies that a dollar of cost experienced by the next generation is not compensated for by $0.10 in benefit today - and therefore, among many other implications, requires us to evaluate project impacts at a 0% discount rate for strong sustainability even as we evaluate it at whatever liquidity preference we determine to decide on the financial present value of the project.

This is only a first step toward adopting strong sustainability principles, but it says that if a project can be self-funded at a 0% rate, and it reduces greenhouse gas emissions, why in the hell wouldn't we at least do that?

The second part of the Brawny Recovery is that the focus on interest subsidies means that the Carbon Fees collected today can finance more total economic activity today. And since that is investment in economically useful infrastructure, once the infrastructure is in place our economic experience further benefits from the improved energy efficiency and reduced reliance on imported petroleum.

With so much of the emissions reduction funding devoted to projects that will take over a decade to bear fruit, it is important to front-load investment where existing clean energy technology makes it possible.


Summary

So this is the proposal. In the funding share allocated to states, 10% to 30% is available to existing Energy Efficient Transport technology, up from 0% to 10%:

• Up to 10% for funding Steel Interstates for promoting Long Haul Rapid Electric Freight Transport in the light and medium freight markets currently hauled cross-county by energy-wasting diesel motor freight
  
• Up to 10% for providing the state match for funding personal transport and electric public transport, with capital costs that are funded for greenhouse gas emissions reduction excluded from transport cost/benefit formulas.
  
• Exactly 10% for funding local community selected projects for personal transport and electric local and intercity transport

Further, the funding is designed to take advantage of opportunities to finance partly-self-funded projects, to amplify the economic benefit of the construction of the infrastructure, and accelerate the delivery of multiple economic and ecological benefits.


Notes

{Note 1: For sufficiently strong energy efficiency improvements, greenhouse gas emission improvements are automatic. For example, long-haul electric rail freight requires less than 10% the energy cost of diesel truck freight. At this efficiency level, coal-fired electricity provides substantially fewer tons of CO2 emissions per ton-mile than diesel fuel would do. However, a pluggable all-battery-electric large city bus that offered a 20% energy efficiency gain compared to a pluggable hybrid diesel-electric bus would require a substantially larger share of carbon-free electricity supply before it could also ensure a reduction in greenhouse gas emissions.}

{Note 2: I would suggest placing the administration of the accounts within the EPA.}