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Is it okay to waste infrastructure dollars?

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As President Biden and Congress move ahead on a multi-trillion-dollar infrastructure package, how will they decide which projects provide the best value for money? Or should lawmakers even bother? Although both political parties act as though it is no longer fashionable to worry about spending or debt, the laws of economics have not been repealed: Given limited resources, not every project on every constituency’s checklist can be funded by taxpayers. Some set of criteria needs to be applied to determine which projects are most worthy.

In the private sector, infrastructure projects are usually selected based on financial criteria that includes comparing the costs of building and operating each project to its long-term net revenue forecasts. A private firm will generally not build a new passenger rail line, for example, unless its projected fare revenues are expected to exceed both the operating and construction costs.

As government assumed a dominant role in infrastructure during the 20th century, projects were increasingly justified by the positive externalities they might create rather than by their actual internal economics. In this case, even if rail fares were insufficient to cover costs, the system could still be worth building because it could reduce congestion and vehicle emissions by taking cars off the road, advocates claimed.

Cost-benefit analysis, whether applied through a rigorous model or implicitly through back of the envelope calculations, has become a common way to evaluate infrastructure projects and other policies. But now we face the risk that trillions, or hundreds of billions, of federal taxpayers’ dollars could be spent on an infrastructure bill funding projects that have been subjected to incomplete or biased analysis — or even worse, simply because the projects seem like a good idea to politicians.

Such is the case with high-speed rail, which is likely to be part of the impending infrastructure proposals. Although the White House package does not explicitly reference high-speed rail it does earmark $80 billion for passenger service, and the House could increase this to include Representative Seth Moulton’s $205 billion high speed rail package. Proponents often argue that the U.S. should have bullet trains, in part, because they are common in China and Western Europe. But that is not a cost-benefit argument, nor does it consider different circumstances across these economies.

China can forcibly remove property owners living along the future right-of-way of a new rail line with little or no compensation. In the U.S., the Fifth Amendment to the Constitution protects the rights of incumbent owners by requiring government to pay “just compensation” for a property taking.

Western Europe had a stronger ridership base on which to build high-speed rail. It did not see the same sort of collapse in intercity rail travel experienced by the United States after the Great Depression, and further after World War II and introduction of the Interstate Highway System. It’s also worth noting that Western European countries complete transportation projects at lower costs than we do in the United States.

To the extent that high-speed rail proponents make cost-benefit arguments at all, they typically focus on climate change. If passengers switch from fossil fuel–powered cars and planes to electric trains, we can reduce greenhouse gas emissions. But to estimate how big that potential carbon savings would be and how much must be spent to achieve those emission reductions, one must do the math.

In the U.S., rail projects take many years to build, especially given the challenges of assembling the parcels needed to create new rights-of-way for new rail systems. During the construction process, new greenhouse gases are produced as steel and concrete are poured, and as vehicles operate at construction sites. Once the line is finished, those additional carbon emissions need to be factored in and offset. How quickly any given project generates a net carbon reduction depends on when service begins, how many riders switch from other modes of transportation and how much carbon those alternatives would have produced. By the time any significant high-speed rail project begins service in the United States, it is likely that a large proportion of new cars will be electric, thereby limiting carbon savings from additional passenger rail service.

Once we have some idea of how much carbon could be saved by a rail system, we should compare that to the cost of construction and expected operating losses. Calculating the cost per ton of emissions saved should not be of importance only to accountants and fiscal conservatives. Even those of us who are willing to see large expenditures to cut emissions should be interested in the relative efficiency of each clean energy alternative.

If $1 billion can be spent on electric charging stations, bicycle paths or high-speed rail, a committed environmentalist should choose the alternative that produces the biggest reduction in emissions.

Recently, Transportation Secretary Pete Buttigieg approvingly retweeted a map depicting a prospective national high-speed rail network, encouraging young people and policymakers to dream big. It wasn’t Buttigieg’s own plan, but it highlights the flaws that come with many rail proposals. For example, one route on the map connects Juarez, Mexico, to Cheyenne, Wyo. Major stops along this line would include Denver and El Paso. With metropolitan areas of roughly three million and 850,000 people respectively, those two cities are not unreasonable choices for rail service, although the fact that United Airlines only uses 50-seat commuter planes to connect them suggests limited demand for a rail route. But the extension to Cheyenne, which would add another 100 miles of costly track to reach an area with fewer than 100,000 residents, would not make economic sense for taxpayers, governments, or the private sector.

Armed with all-powerful smartphones and other technological wonders, it may be easy for many to believe that if Americans just summon the collective will to print trillions of dollars and/or tax it away from billionaires, the country can finally upgrade its infrastructure, do whatever it takes to achieve net zero carbon emissions and save the planet from a climate catastrophe.

But it is not so simple.

California’s voters approved a high-speed rail project in 2008, yet still, today, no trains are running. Planners are now hoping a small section of the system in a relatively sparsely-populated corridor of the state’s Central Valley can start transporting a handful of riders by 2028.

Achieving meaningful infrastructure and climate change objectives should be important to lawmakers. But that requires far more than just appropriating funds toward big picture goals. It requires planning based on realistic assumptions and setting priorities based on real-world impacts and trade-offs.

Marc Joffe is a policy analyst at Reason Foundation, former senior director at Moody’s Analytics, and author of the study “Unfinished Business: Despite Dodd-Frank, Credit Rating Agencies Remain the Financial System’s Weakest Link.”

Tags Climate change policy cost-benefit analysis Efficiency Energy government waste Greenhouse gas emissions High-speed rail Joe Biden Low-carbon economy Pete Buttigieg Resource economics Seth Moulton sustainable infrastructure plan

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