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Smart stimulus

Posted by Daniel Hall on December 9, 2008

I don’t know if Ryan Avent and Alex Tabarrok would find a lot to agree on politically if they sat down for a chat but they are singing the same tune in the blogosphere this morning.  I’d like to add my voice to the chorus.

First, Alex says some smart things this morning about infrastructure stimulus:

The first thing people think about when someone says “infrastructure” is roads and bridges.  That’s unfortunate because we already spend over $100 billion a year on transportation infrastructure and the truth is we don’t need that much more.  Peter Orzag, President-Elect Obama’s choice for OMB estimated – when Director of the CBO – that an additional $20 billion in spending, mostly to maintain current transportation infrastructure, would achieve 83% of the net benefits to be had from more transportation infrastructure spending.  Moreover, in many cases, congestion pricing would be both greener and more efficient than greater spending. …

Even more valuable than transportation infrastructure would be greater investment in  electricity infrastructure, a smart grid. … Overall, blackouts cost the U.S. on the order of $100 billion a year. [DH: Alex does not source this, but Mike Giberson suggests a source.]

The smart gird is a not one idea but many technologies such as real-time pricing (smart meters), superconductive smart cable, and plug-n-play architecture that combine to produce a grid that is decentralized, self-healing, robust, and smart for both producers and consumers.

Alex is right on here: we already spend a lot on roads but not much on the electric grid, and the marginal returns to more spending on the latter are likely higher than the former.  Further, we need smarter policies for managing both resources, particularly congestion and real-time pricing to efficiently allocate demand to high-value uses.

Meanwhile, Ryan talks about how to spend money on roads (recommended) and then adds:

let me draw your attention to the Center for American progress’ $350 billion stimulus proposal. It includes $18 billion in spending on roads and bridges, and a total of $19 billion for transit. The former is about 50% of average annual spending on highways, while the latter is about 200% of average annual spending on transit (and the money allocated for New Starts is about 300% the annual average for that line item). I think it’s safe to say that these kinds of numbers are probably getting a good look from (soon-to-be) administration officials.

Wow, $18 billion for roads, huh?  It is almost like someone out there* was listening when Peter Orszag suggested $20 billion was about the right number.

Finally, if you do actually check the details of that CAP stimulus proposal, guess what else you find?  You guessed it, stimulus money for upgrading the electric transmission grid, $10 billion in all.

All that should be music to the ears of economists — now if we could just convince folks to try out this congestion pricing plan….

*For anyone who has been totally ignoring the news recently, this is the ‘Center for American Progress’ as in the ‘heart and soul of Obama’s transition team’.

Posted in Electricity, Government Policy, Infrastructure, Transportation | Leave a Comment »


Posted by Daniel Hall on September 19, 2008

I have been far too distracted by global financial calamity this week to spend much time thinking or writing about environmental economics.  As way of apology I’ve rounded up some good quotes that touch on a few of the (often tenuous) links between the complete meltdown of our economic system and environmental economics:

But the gloomy investment climate suggests that clean energy needs a quick rebound in credit markets more than it needs lawmakers to renew tax credits if it is to avoid a desert of financing options for the rest of 2008 and 2009.

— Nathanial Gronewold and Michael Burnham at Greenwire

The most passable carbon pricing policy up until now was believed to be cap and trade, a system in which emission permits are bought, sold, banked, and so on. Will that begin to look undesirable in the wake of this crisis?

Free Exchange, wondering whether market skepticism will influence the course of climate policy

I think we’ll only get one shot to set things right by throwing a ton of money at the problem, so we’d better think carefully before we throw it at symptoms rather than causes. … As far as the money is concerned, throw it at infrastructure. Increase worker bargaining power by offering Federally funded retraining sabbaticals for any worker over thirty who decides they want to retool. I’d rather see a new WPA than a new RTC.

—  Steve Randy Waldman, with smart thoughts on bailout money and infrastructure spending.  I do worry a bit though about where the green collar job nuts supporters are going to run with this.

Certainly AIG though with the construction bonds that they’re holding and with the insurance that they are holding very, very impactful to Americans…

Sarah Palin, who caught a lot of flak — much of it deserved — for her responses to questions about the crisis.  However, she actually seems to be right about the construction bond point, as Tyler Cowen points out.  Credit conditions are going to make it difficult for municipalities to build infrastructure over the next couple years so in my mind this strengthens Waldman’s argument above.

It’s useful that Paulson seems to have excellent contacts and working relationships with China, which will be America’s most challenging bilateral relationship for the next decades.

Jonathan Zasloff, arguing that Paulson should be kept on as treasury secretary regardless of who the next president is.  Zasloff previously discusses climate change — Paulson is a committed environmentalist — although he doesn’t draw the obvious link: doing anything substantial about climate means getting China on board, and ASAP.  China’s relationship with the U.S. right now is the most important bilateral relationship affecting global economic health, and long-term China’s relationship with the U.S. is the most important bilateral relationship affecting global environmental health.  Speaking of which, who is bailing out whom again?

surely it would be more rational for the Chinese to own the American financial system itself

Robert Preston

In our central scenario, we estimate that the crisis could lower real GDP growth in 2008 and 2009 by an average of 1.8 percentage points per year.

Jan Hatzius.  I’ll note that substantially reducing economic growth should also slow down carbon emissions in America over the next couple years!  Unfortunately this is rather like getting killed by lightning while looking for that silver lining in the cloud.  Speaking of which:

Annoying our neighbors so much that they cut off our oil supplies would, I suppose, be one way of helping us achieve energy independence, but it doesn’t seem like a particularly good idea.

Hilzoy, wondering who exactly is the most knowledgeable person in the U.S. on energy issues these days.  (Hint: It’s not Sarah Palin.)

Posted in Economics, Government Policy, Infrastructure, International | Leave a Comment »

Protection from a sometimes vindictive mother…

Posted by Danny Morris on September 2, 2008

For now, it appears like New Orleans has mostly dodged a bullet with Hurricane Gustav. While power  remains down and there is mild flooding throughout the deserted crescent city, fears that we would witness the second-coming of Hurricane Katrina thankfully did not come to pass. Still, just because New Orleans survived this storm does not mean it will survive another storm that is perhaps a little more powerful and a little more on target, as Andrew Revkin highlights today on DotEarth.

Some of the questions brought up in the aftermath of Katrina and stirred up again with Gustav relate to human infrastructure in the face of a pissed-off mother nature. The flashy question is of course ‘is New Orleans worth saving?’ Another more nuanced, and ultimately more important, question though lingers in the background and that is ‘what can cities do to reduce their vulnerability to extreme weather events?’

The question is not as simple as reinforcing our infrastructure (i.e. building higher levees), because it doesn’t take a hurricane to show us that the systems we have to protect ourselves have pretty significant limits. The floods throughout eastern Missouri earlier this year were perfect examples of supposedly adequate infrastructure failing. Stupid policies, like offering tax incentives to developers who build levees that narrow the Mississippi River’s channel in order to throw up subdivisions and the country’s longest strip mall (in Chesterfield, MO) on former floodplains, don’t buttress these systems from letting people down either. Anyone who has taken any kind of river or hydrology course should be able to tell you that when you reduce a river’s channel, flood water doesn’t have much choice but to go up, and eventually over, the levees that restrict it. I have devised a series of equations that should highlight this concept:

Free money (tax breaks) + developers = new levees + smaller river channel

smaller river channel + high flood waters = broken levees

broken levees = sad people with wet houses

Solving these kind of problems will not be simple, but there may be some solutions on the way, courtesy of the nation-state of California. The state Senate there recently passed a bill that was designed to discourage suburban sprawl as part of the larger efforts to bring the state into compliance with AB 32, the sweeping climate change bill passed in 2006. Here’s a couple things the bill would do, according to the San Jose Mercury News:

The bill would require local governments to plan their growth so homes, businesses and public transit systems are clustered together. The goal is to help California meet the emission mandates spelled out in a wide-ranging greenhouse gas reduction law passed two years ago.

At the same time, it will encourage housing to be built closer to where people work and shop while discouraging the type of suburban sprawl that has characterized California’s development pattern for decades.

It requires local governments to submit regional development plans to state air regulators for approval, making them eligible for billions of dollars in state and federal transportation grants…

…[Sen Darrell Steinberg’s] bill requires the California Air Resources Board to work with local governments to set regional targets for reducing heat-trapping greenhouse gases. Those targets would be used in transportation plans for each of the state’s 17 metropolitan regions.

Similarly, the state would create regional housing plans that take into account the transportation plans, putting more homes near rail and bus lines and within a short commuting distance of major employers.

Local governments and transit agencies that comply would get faster regulatory approval, including an easing of the usual environmental review requirements. That provision allows a major concession to developers by making it more difficult for opponents to sue them as a way to stop projects.

No doubt libertarians are shuttering from here to Zzyxx, CA (a real town, I promise), but if the bill passes, it may provide a useful template for other states to emulate. It’s not a huge leap to envision a similar bill discouraging additional developments in major floodplains and coastal areas while limiting the irresponsible growth of communities that are already exposed to elevated risks. Such efforts may not help solve the tricky problem of places like New Orleans, but it could help head off future problems. State senators, start drafting your legislation…

Posted in Development, Events, Infrastructure, Urban | Leave a Comment »


Posted by Daniel Hall on August 27, 2008

There are two articles in today’s New York Times that you should read.  First, Matthew Wald discusses the limits of our current electric grid:

The dirty secret of clean energy is that while generating it is getting easier, moving it to market is not.

The grid today, according to experts, is a system conceived 100 years ago to let utilities prop each other up, reducing blackouts and sharing power in small regions. It resembles a network of streets, avenues and country roads.

“We need an interstate transmission superhighway system,” said Suedeen G. Kelly, a member of the Federal Energy Regulatory Commission.

While the United States today gets barely 1 percent of its electricity from wind turbines, many experts are starting to think that figure could hit 20 percent.

Achieving that would require moving large amounts of power over long distances, from the windy, lightly populated plains in the middle of the country to the coasts where many people live. Builders are also contemplating immense solar-power stations in the nation’s deserts that would pose the same transmission problems.

The grid’s limitations are putting a damper on such projects already. Gabriel Alonso, chief development officer of Horizon Wind Energy, the company that operates Maple Ridge, said that in parts of Wyoming, a turbine could make 50 percent more electricity than the identical model built in New York or Texas.

Jenny Anderson then surveys the trend towards privatizing infrastructure investment.  I won’t quote from the article (just go read it!) but the figure that pops out is the $1.6 trillion that the U.S. needs in infrastructure investment in the next 5 years.  The article is focused on infrastructure like roads, bridges, and airports, but it is easy to draw links to the need for investment in the electric grid.  Can we get private investment in the electric grid?  I think T. Boone Pickens has discussed building his own transmission lines to support his proposed wind farms in Texas, but I wonder whether he can solve the NIMBY issues.

Here is Felix Salmon arguing that private investment in infrastructure is a good thing and will be more efficient over the long run.

Update: Please read Mike Giberson’s comment below about how T. Boone is (was?) working the NIMBY angles.  Funny stuff.

More update: Ryan Avent has some very smart thoughts about the incentives for private investors in infrastructure.  I’ll add that the experience with BAA and London airports suggests that even when it appears that private investors have properly aligned incentives to invest in infrastructure the actual outcome can be suboptimal. Is this a moral hazard problem arising from implicit government backing of the arrangement? Competition from other firms whose infrastructure is subsidized? Strategic behavior to maximize revenue rather than welfare?

Posted in Electricity, Energy Technology, Infrastructure, Wind | 2 Comments »

Spare tire, jumper cables, and… wading boots?

Posted by Daniel Hall on March 12, 2008

A couple of new government studies assess the impacts climate change is going to have on U.S. transportation infrastructure, including roads, ports, and rail lines. Some of the quoted statistics are a little nerve-wracking. According to today’s New York Times the report put out by the U.S. Climate Change Science Program highlights some major vulnerabilities:

Produced by a collaboration among agencies that included the United States Geological Survey, the National Oceanographic and Atmospheric Administration and the Department of Transportation, the report offers three estimates for sea-level rise by 2100: about 16 inches a century, a rate it said had already been exceeded; about two feet, an estimate many scientists regard as optimistic; and up to three feet, which the report says would be catastrophic for wetlands and other coastal features but that is “less than high estimates suggested by more recent publications.”

The multiagency report cited the Port of Wilmington in Delaware as an example. The report says that if the sea level rises by two feet or even a bit less, 70 percent of port property will be affected.

Meanwhile, it says, such a rise in sea level would leave almost 2,200 miles of major roads and almost 900 miles of rail lines in Maryland, Virginia, North Carolina and the District of Columbia “at risk for regular inundation.”

I guess if I live long enough I am going to be boating to work.

Here’s the lede from the NYTimes’ story, and some further info on the other report: Read the rest of this entry »

Posted in Adaptation, Climate Change, Infrastructure, Transportation | Leave a Comment »

Transport: fees or subsidies? [update]

Posted by Daniel Hall on October 1, 2007

James Joyner does some private calculus and comes out with an explanation for why more people don’t commute on Metro:

I’m now commuting into D.C. on a near-weekdaily basis. According to GoogleMaps, the office is 13.5 miles from the house. I can usually drive there in 45-60 minutes during off-peak hours, although it can sometimes take much longer if there’s an accident. I can park in the garage next to my office for the day for $12. Conversely, I can drive 15-20 minutes to a Metro station, pay $4 to park, wait as long as 15 minutes for a train, pay another $2.65 to get two blocks from the office 35-50 minutes later, followed by a 5-10 minute walk to the office.

So, in order to save $2.70 (plus a nominal amount of gasoline), it would cost me 30-75 minutes each day for the round trip, plus the privacy and autonomy I enjoy in my own vehicle. Given that I earn enough that $3 is poor compensation indeed for that much of my time, I drive unless there’s a really good reason not to.

I’ll note that he’s commuting at off-peak, which is probably skewing his decision toward “drive”, but for the most part I’ll assume he knows how to solve his own travel optimization problem. His solution for increasing ridership, however, has problems: Read the rest of this entry »

Posted in Climate Change, Infrastructure, Transportation | Leave a Comment »

Can my ethanol bum a ride from one of you guys?

Posted by Evan Herrnstadt on October 1, 2007

The New York Times reports that ethanol prices are crashing as supply outstrips the distribution network:

Because ethanol is corrosive and soaks up water and impurities, it cannot be shipped through the country’s fuel pipeline network. So it must be transported by train, truck and barge, a more expensive transportation network that is suddenly finding it hard to keep up with the surge in ethanol production.

Oops. With high demand on the coast, and a huge amount of corn in the heartland, it turns out that we actually need infrastructure for the market to work. Since corn ethanol is so inefficient in terms of energy balance (not to mention the economic inefficiency of doubly-subsidizing corn), we should be taking this ethanol boom as incentive to invest in fuel transport infrastructure. If we make a breakthrough in cellulosic ethanol, hopefully production will be less concentrated in my beloved home state; still, we’ll be needing to distribute it to truly harness market forces.

Posted in Biofuels, Climate Change, Infrastructure, Transportation | Leave a Comment »