Get Energy Smart! NOW!

Another guest post from the extremely thoughtful and insightful BruceMcF. Bruce’s thoughts, writ large, about transport policy and, more specifically, electrified rail merit attention and action.

If we reduce our oil consumption by 5% a year over each of the next twenty years, that allows use to be free of our oil addiction if we choose to be. But as I observed last week, since 60%-70% of our oil consumption is in transport, that means that in each decade, seven out of the ten 5% reductions have to come out of transport.

I set forward three of the seven for the coming decade last week: the Steel Interstates, national funding for sustainable power local transit corridors, and a target of 5% “Active Transport” – pedestrian and cycle transport.

I have written at some length on the Steel Interstate, but this was the first airing of the rest of the proposal. I promised to go into more depth this week … and that’s what I aim to do today.

But First, One More

Three out of Seven is a bit short of a majority, so first I want to add a couple of pencil strokes to one more of the blank stretches in the sketchbook.

Part 4: 25% of existing light vehicle passenger transport in higher efficiency private motor vehicles. Roughly three fifths of our petroleum consumption in the transport sector is by “light duty vehicles, so that is roughly 40% of our total petroleum imports. Slice off a quarter of the light vehicle passenger transport, that is 10% of our petroleum imports. Doubling the efficiency of that light vehicle passenger transport is a 5% improvement.

The follow-on in the next decade is to replace that component by electric or green, carbon negative bio-fuels (as opposed to the current energy intensive and CO2 emitting biofuels), and double or treble its role, for one or two more 5% cuts.

The primary instrument here is a four level feebate. The feebate is self-adjusting, because it is based on existing fuel efficiency levels:

• A 10% excise tax on all light duty vehicles that have more than twice the existing average fuel usage (gallons per hundred miles)
• A 5% excise tax on all light duty vehicles between one and two times the existing average fuel usage (gallons per hundred miles)
• A 10% subsidy on all light duty vehicles that have less than half the existing average fuel usage (gallons per hundred miles)

Now, only putting the subsidy on US produced fuel efficient vehicles would fall afoul of the WTO. On the other hand, countries rebate indirect taxes all the time … most commonly in the form of Value-Added tax rebates on exports. So, instead of limiting the subsidy to American produced automobiles, I’d focus on the direct labor cost of the American-produced lower fuel consumption automobiles:

• If there is a surplus in the excuse tax funds, then where the vehicle is made in the US, the subsidy also includes a rebate up to the full value of employee and industry payroll tax contributions associated with production of that vehicle.

Direct production labor costs are about 10% of the production cost, and with payroll income tax being well over 10%, that is an extra 1% on its own. However, there are also labor costs embedded in components in a car. And further, R&D is labor intensive, and direct R&D on a vehicle would also be associated with production of that vehicle. There would have to be a rule on how much could be allocated per vehicle, and of course once the entire payroll tax payments by R&D employees has been covered, that ducks out, but it might be possible to push the subsidy on the US value added to a vehicle up by 2-3% higher.
Why Should High Income Individuals pay a Transport Levy

Actually, nobody last week asked the question why there should be a levy on earned and unearned income by people make more than 7 or 10 times median personal adult income, so this might be entered under the “not yet asked questions”.

This was inspired by a twitter user at the Motley Fool, an investment news and views blog, who declared an objection to High Speed Rail being built with “his money”.

In any other casino, we may call our winnings “our money” … but most of us do not think of it as money we earned. Its money we won. However in the financial markets, the only casinos were the house puts extra money into the pot (eg, bond interest payments and stock dividends), most of the players believe that they have “earned” their winnings.

However, “ah, you won it by gambling with the future of our economy, why shouldn’t you chip in a bit” is not a strong argument for directing those funds to transit in particular. And while much of the income is the result of either gambling in the financial market casinos or the rigged game of executive pay raises being granted by board members who are themselves executives somewhere else and who stand to benefit from general executive pay inflation … and who are in many cases receiving the income as a board director because they were put their by the executives who’s pay they are deciding on … some of the income will indeed have been earned.

So no, the argument should be something that counts for large incomes even if they were earned.

And the argument is straightforward: insurance. We have just seen the worst recession since the Great Depression … immediately on the heels of our biggest oil price shock ever. And the previous record holder for biggest post-WWII global recession by total impact was also on the heels of an oil price shock.

And whether its the decade ahead or the one after that, as demand hits up against first static and then declining supply, we are going to get more and more oil price shocks. If we are cutting our oil consumption, and on track to eliminate our oil consumption … that allows use to insulate ourselves from the effects of the shock.

This program of weaning ourselves off of oil is many things, but it most certainly is an investment in the long term purchasing power of the US dollar. And those who are getting the most US dollars are those who get proportionally more protection.

By contrast, the funding tends to be far from proportional to income. A five cent per gallon imported petroleum gas tax is a negligible share of the income of a $1.5m/year household. A person making $8/hour gets on an electric trolley bus to go to work … even if the person making $120/hour gets on a high speed rail service they are not going to be paying 15x as much, even though they have 15x as much income to protect.

The 5% levy allows us to get a lot more done a lot faster than we could otherwise do … and by generating employment in the short and medium term and making our economy far more resilient in the medium and long term, the highest income households are likely to receive more than their money’s worth on the program.
How Much Petroleum Can It Save

The structure of the program is to fund transport corridors for common carrier services that do not depend on petroleum for their operation. So cutting oil consumption by 5% means getting a large minority of motorists out of their cars.

What share is this? Well, I already did the arithmetic above: about 40% of our petroleum is consumed by “light duty vehicles”, so 12.5% of vehicle miles of our average gas-power vehicle would be about 5% of our petroleum use.

And the Brooking Institute just issues a report on Metro America, including a chapter on one key element of our vehicle use: commuting.

This is the first decade since America lost our status as Energy Independent that we have seen an increase in transit use in commuting, but of course individuals driving cars remain the dominant means of commuting. There is only one city that has under half of its commuters driving alone to work: New York.

And New York with 368kms of rail features as the only city in the US that hit the target that NBBooks set out in his $3.195 Trillion budget to get transit rail corridors within 2.5 miles of all residents of the metro areas with half of the US population.

The next four in terms of commuters driving along to work are:

• San Francisco / Oakland / Fremont, 62.4% (167kms rail)
• Honolulu, 64.2%
• Washington / Arlington / Alexandria, 66.3% (171kms)
• Seattle / Tacoma / Bellevue, 69% (24.5kms)

Turn around to Youngstown, the next medium size city to my east, with their city bus routes that shut down before 7pm, and they have the highest reliance on individual commuters in cars in the country at 85.1%.

Why the focus on commuters driving alone? One of the points raised when any common carrier transit is brought into focus … local trains, light rail, buses, intercity trains … is “but think about the cost of tickets for a family of five.” And if the target was to get 100% of automobile passengers into a single common carrier … why, yes, that would be a reasonable objection.

However, a 5% reduction in national oil use from this policy does not require 100% … it requires 12.5%. And the gap in the highest rate of commuters driving alone to work and the lowest is over 35%.

Of course, the example of Youngstown also raises another issue … one that was raised in the discussion last week.
If You Build It … Then You Gotta Run It

As TheOverheadWire asked last week:

Capital is Easy, Operating is Not
Bruce, you know I’m all about spending enough money to get a transit density of NYC in every major city in the United States, but as of now I’m a bit jaded.  How are we going to pay for operating all these lines after we build them?

You can click through for my responses last week, but the question jostled something in my head when I was writing last week … if we finance construction to reach a target level of coverage, what about cities that are already at that target?

And also brought to mind the Stranded at the Station report by Transportation for America and the Transportation Equity Network:

The nationwide demand for public transportation is at historic levels and growing, but funding for the day-to-day operations of these transit services is built on an unstable foundation. This report shows that without federal support, many will likely will be unable to meet the demand now and in the future.

Many transit agencies across the country have cut service, raised fares or laid off workers to deal with shrinking budgets, severely affecting the people who depend on regular, reliable service in order to access jobs, social services and education everyday. Nearly 90 percent of transit systems have had to raise fares or cut service in the past year and among the 25 largest transit operators, 10 agencies are raising fares more than 13 percent.

Americans without access to an alternative form of transportation, the majority of whom are older, African-American or Hispanic and senior populations, are being left stranded without access to lifeline services.

The fair solution to those cities who, with much justification, say, “but, we built ours without this capital grant!” is to allow the local areas … municipalities, counties and reservations … that have achieved the target of a stop on an oil-free dedicated transport corridor within five miles of all residents can use the funds for operations.

Specifically, the fraction of residents within five miles of a qualifying stop or station is the fraction of funds that can be used for operations. A free grant for operations would be a quite abrupt change in Federal policy … so the proposal I am making is that these are 50:50 matching funds for state or local subsidies to operations of qualifying services.
What’s a Qualifying Service? Why Not Just Say Electric Train?

Now, the name of the series is “Sunday Train” … what is all this waffling about “qualifying services”? And “common carrier blah blah blah”?

I think quite a lot of these will be Electric Trains. Given a capital grant to build the things, as a per person share of an ongoing stream of capital funding, and a 50:50 match required to tap the funds for operations … there is a strong incentive to focus on the investments that lead to a lower incremental cost per seat mile of running each service.

However … this is not about train sets in the basement, its about transport. If a particular route will not generate the patronage to justify a light rail service, then it is preferable to provide a successful trolley bus than a failed light rail service.

There’s also a difference between large cities and smaller towns and rural areas. The focus of NNBooks budget was the largest metro areas, but the idea here is an accounts based system where the most local government representing every resident has a crack at putting up a project that can qualify.

So while I have been saying “within 5 miles”, that is the proposal for urban and suburban residents. A station or stop within 10 miles of a resident of a rural area qualifies as serving that resident.

And while I have been saying local transit, broadening the focus to include all Americans also means broadening the focus there as well. Municipalities, counties and reservations either outside metropolitan areas, or in metropolitan areas of less than 1m, can devote funds to qualifying interurban services, in proportion to the residents served either directly or by transfer from other qualifying services.

The main thing about a qualifying service is:

• It must be powered by sustainable, renewable domestic power
  • If powered by electric power, this includes being able to assure sufficient supply of sustainable renewable domestic power
• It must be a common carrier service on a dedicated transport corridor
• It must have a viable business plan including committed funds for operations to allow it to operate at least every half hour from 7am to 7pm, and at least once an hour for sixteen hours of the day
  • If the quality of service falls short of this, the funding that it qualifies for is reduced in direct proportion
• It must have a regular scheduled stop or station within five miles travel on public right of way of the residents that are served
• 5% of a localities funding in a single year can be applied to planning and environmental impact analyses of prospective qualifying systems
• or else a direct cost of operating a qualifying service where there is an equal or greater contribution for state and local authorities.

Oh, and if a municipality, county or reservation does not have a qualifying use for the funds, it goes back into the pool to be redistributed to those who have a use for the funds. The “per person” allocation is an opportunity, but first and foremost we gotta start building Living Energy Independent transportation systems. If there is a surplus that cannot be used in a given year, it is rolled over into the account funding for the next year.
Employment Impact

Now, in general, before the Stimulus, I’d have expected the employment impact of the capital works to be similar to the employment impact of road works … as Smart Growth America reports, direct job creation of 10,493 full time equivalent months of employment per billion dollars spending.

So based on that, the employment impact of about $150b in capital spending per year would be 131,000 jobs annually. Work by the Economic Policy Institute shows slightly more indirect job creation than direct job creation in transportation projects, so the total employment impact is about 260,000 jobs.

However, the ARRA requires detailed accounting of jobs retained and jobs created as a result of each contract let out by each state that spends ARRA funds. And the results of that shifts the results, with transit spending under ARRA resulting in direct job creation of 19,299 “job-months” per billion dollars. That scales the above figure up to 241,000 direct jobs, or about 480,000 total jobs.

However, this is not just a capital grant: for areas that already have qualifying systems, and for an increasing number of areas once the systems are built, this also funds operations. And operations are more labor intensive than capital work, so the direct and indirect job impact could easily rise to the neighborhood of 1m jobs annually.

In addition to this is the employment impact of the oil that we are not importing. 5% of our present oil consumption of about 19.5m barrels a day at around $75/barrel would be about $26b per year, or roughly $40 GDP impact with a multiplier of about 1.5. With about one person employed per $100,000GDP, that would be another 4 million employed people.

An important potential employment impact, is the impact on the economy of being able to ride out an oil price shock without being thrown into recession. There is no way to tell how many recessions we are going to encounter in the decade ahead if we don’t begin getting off of oil, but we lost 8.2m in the Panic of 2008. A 5% stake in ducking another recession of that magnitude would be another 400,000 in employment.

So, once the projects get going, employment impacts of about 490,000, rising over the next two decades to somewhere around 1.4m as the funding shifts from capital works to operating subsidies and we begin to feel the impact on our oil consumption of taking full advantage of the corridors being developed.