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Sunday Train: California HSR Receives Cap & Trade Funding in Budget Deal

BruceMcF's picture

Sunday Train has covered the California HSR project on a number of occasions in the past. However, there was no special attention given to what was widely covered at the time as the "end of California HSR", when a judge ruled that the proposed Business Plan did not meet the terms of the Prop1A(2008) which governed the sale of much of the $9m in state bond authority which had passed in 2008. The Sacramento Bee covered the issue at the time, including the appeal of the ruling to the Supreme Court.

And the reason the Sunday Train did not cover that court judgement is IANDL (I Aint No Dang Lawyer), so I was waiting to see what actually happened with respect to funding for the project. And now it appears to me that funding for the original segment from north of Fresno to the outskirts of Bakersfield has been secured, with the news that part of the Budget deal has secured Cap and Trade funding for the HSR project.

More on what this means, below the fold.

Funding Construction & Operating Segments and All That

OK, first, what was the economics behind the legal issue the California HSR Authority (CHSRA) was facing? Its the basic threshold problem for intercity passenger rail. It is feasible for "bullet train" HSR (conventionally a train operating faster than 125mph, though the first "bullet trains" were actually 100mph) operating on a wide range of intercity corridors to get sufficient patronage to run without operating subsidies.

However, that is not for just any alignment. That is so long as there is sufficient population along the corridor and so long as at least one end has a sufficiently strong anchor. In the California context, that translates into viable HSR corridors from San Diego to LA, LA through Fresno in the San Joaquin Valley, San Francisco through to Bakersfield in the San Joaquin Valley, and San Francisco through to Sacramento.

And so when you look at the planned California HSR alignment, what do you see? A "double Y" formation supporting LA / San Diego, LA / SF via the San Joaquin Valley, LA / Sacramento via the San Joaquin Valley and a supplementary connector for SF / Sacramento.

The threshold problem is that the first phase is the LA Basin to Bay Area part of the route matrix connected via the San Jaoquin Valley backbone, and both the LA Basin and Bay Area have difficult geography to get through to connect to the San Joaquin Valley backbone.

And this becomes a legal issue because the Prop1A(2008) to provide $9b in bond funding for HSR (and some extra for complementary rail transport) includes a range of measures to protect the bond authority from being raided. In particular, it was supposed to be protected from being used to provide capital subsidies to subsidized commuter rail service, or subsidized Amtrak California intercity rail services. It was supposed to be for "genuine HSR", and the demand that it run without operating subsidy is one that a well-designed HSR system can readily meet, but which commuter rail or conventional intercity rail would struggle to meet.

Prop1A(2008) was passed on the ballot in the same election that saw President Obama elected, and it was shortly after that the one-off $8b in HSR funding was included in the Stimulus II legislation, the "ARRA". Then-Governor Schwarzenegger applied for HSR funding, promising a 50:50 state match ~ the highest level of state match allowed under Prop1A(2008).

That was, of course, a reckless decision, since there was no way to run a self-supporting service on the Construction Segment originally awarded from a bit north of Fresno to a bit south, and even after that initial Construction Segment was extended, it still was not enough to offer a self-sustaining service on that Initial Construction Segment alone.

The reason that the FRA is willing to fund a partial operating segment is that California already has passenger rail in the San Joaquin Valley, the Amtrak-CA San Jaoquin, running three times a day each way. So the FRA was willing to fund an "Initial Construction Segment" on the promise of a down payment on building an HSR system which, at the same time, could as a back-up contingency be used to substantially upgrade the Amtrak-CA service.

But that is a Federal Rule about "independent utility" when funding parts of a corridor. Prop1A(2008) don't care about no "independent utility": it specifies a self-sustaining Initial Operating Service to authorize release of the bulk of Prop1A(2008) bonds.

And the CHSRA Business Plan seemed to be "we'll seek additional Federal and State funding to fund building the balance of the Initial Operating Service, once this Initial Construction Segment is completed." Which, from what I understand (though, remember, IANDL), is what the court ruling said wasn't good enough.

To be specific, their projected cumulative cost for an Initial Operating Service, from north of Fresno to the somewhere in the general area of Burbank in the San Fernando Valley in the LA Basin, is about $31b. That's the threshold test for the Prop1A(2008) funding ~ except for an amount allowed to be used for preliminary program costs, most of the bonds are under a condition of a Business Plan for establishing a service that can be run without operating subsidies.

However, the Initial Construction Segment has a cost of $6b, with $3.3b coming from Federal funding and $2.6b in Prop1A(2008) bond funding. So while the legal fight is over the $31b in Initial Operating Service project cost, the "breaking ground" fight is over $2.4b in state funding to match $3.3b in already authorized, appropriated, and awarded Federal funds. And it is that fight which appears to be settled with this deal.

Funding HSR from Cap and Trade funds

The Sunday Train has addressed the issue of funding HSR with cap and trade funds, back in April of 2012, well before the court ruling threw the project into a state of uncertainty at the beginning of this year. I reprinted that essay in March of this year, under the title: Sunday Train: Cap&Trade Funds should help finance the California HSR. So I don't suppose there is much ground for uncertainty on where I stand on Cap and Trade funds helping to finance the California HSR project

To summarize, the issue raised by critics of the use of Cap & Trade funds for capital subsidy for an HSR project is the efficiency of the use of funds. The argument is that the Cap & Trade funds should be devoted to projects with the greatest "bang for the buck" in terms of reducing GHG emissions.

The first issue with this is defining what the "bang" is for projects that serve multiple goals. If, overall, Cap & Trade funds provide 20% of the funding for a project, and that project is being funded from other sources in service of other goals, then in effect you get 100% of the "bang" for only 20% of the project cost "bucks".

So if the "full cost" of emissions reduction is, say, $250/ton, then the effective cost is $50/ton in the example (20% of $250) ... and could range from $25/ton if Cap & Trade funds contribute 10% of the budget, up to $125/ton if Cap & Trade funds contributed a whopping 50% of the budget for a multi-purpose project.

Or, working from a different direction, if the "full cost" of GHG emissions is five times the amount you can justify, then the GHG reduction funding should not fund more than one-fifth of the project cost.

That leads to the second issue, which is setting the target emissions reduction for a project to receive funding. Unless we do enough to avoid climate catastrophe at the level of the collapse of our nation's ability to function as a coherent national society and economy, then the efficiency of the investments we do make is basically pointless.

If we collect together all the most efficient ways of reducing CO2 and doing "enough" requires a carbon price of $60/ton, then that sets our threshold efficiency for a long term project. If "doing enough" requires a carbon price of $90/ton, then that sets our threshold efficiency for a long term project. As described in that piece, given estimates in that range, I settle halfway in the middle at a notional carbon price threshold of $75/ton.

The objection that will be raised by the kind of short-sighted, blinkered analysis performed by the California Legislative Analyst Office is that the Cap and Trade fund can find plenty of investments that are more efficient than that. But that is on a false specification of "plenty". Plenty to exhaust the Cap and Trade funding, to be sure. But not plenty to avoid climate catastrophe.

Simply focusing on getting the maximum efficiency in the context of not doing enough to solve the problem is refusing to make long-term fixes because short-term band-aids are quicker and cheaper.

On Those Grounds, Does The Budget Deal Pass Muster?

So, lets run the numbers. The California HSR is projected to be a $68b project:

  • which will have a full-cost price of CO2 reduction of $250/ton to $400/ton.
  • At an allowed $75/ton for the CO2 reduction,
  • that means that the Cap and Trade funds should be allowed to fund from 18.75% to 30% of the budget cost, or
  • Cap and Trade should be allowed to fund $12.7b to $20.4b of the project.

The proposal to use 25% of the Cap and Trade funds is expected to generate $750m to $1b annually, so taking the $12b more conservative estimate of ridership and corresponding CO2 reductions, that is from 12 to 17 years of funding at the estimated $750m to $1b annually.

The funds required to build the Initial Construction Segment are $2.4b, which is 3.6% of the total project cost. So assuming $400/ton at full cost from CO2 funding, just using Cap & Trade funds for that segment alone would have an effective cost of $15/ton.

And so the budget deal means that the Initial Construction Segment can go ahead. $750m to $1b per year from its share of Cap and Trade funds is ample to either fund on a current basis or finance through borrowing $2.4b.

How much more it should fund ... well, since we will know more by the time the question arises, that gets into the fact that The Future's Uncertain (but the End Is Always Near).

What if the Future Is Uncertain

I remember getting a research paper on time on a topic in Intermediate Macroeconomics in which the student was talking about the Post Keynesians. The Post Keynesians lay great stress on the fact that we don't just face risks in financial markets, we face genuine intrinsic uncertainty. "Risk" is like the odds of rolling a six with a balanced six-sided die. True "uncertainty" is like the odds of rolling a six when you don't know whether the person is holding a six sided, ten-sided, twenty-sided or four sided die, and you don't know how interested the person is in actuall rolling the die anyway.

And the first sentence of the student's paper was, "Among all the uncertain things in the world, the future surely ranks near the top of the list."

So, what about uncertainty?

What if we are in reality facing a future in in which an effective carbon price of under $15/ton is enough to get the job done?

Well, that is a future in which we are much wealthier than present information suggests that we will be, and the wealthier we are in a given future scenario, the less of a problem it is to spend money on GHG emissions reduction in a less than perfectly efficient way.

It is if we are facing a future in which the required effective carbon price is much higher than we now expect that it becomes crucial to not "waste" our carbon reduction funds, and in that future, putting $12b to $20b of Carbon Emissions Reduction funding toward HSR is a quite sensible use of CO2 emissions reduction funding.

What if there is no more Federal Funding coming?

This is the kind of issue that was the challenge in releasing Prop1A(2008) bond funds. The Business Plan assumes over 50% of funding from Federal sources. What if there are no Federal sources?

But this is where funding the state match for the Initial Operating Segment out of Cap & Trade funds is such a strategic step forward. Governor Schwarzennegger was truly reckless in promising to use so much of the Prop1A(2008) bond funding at a 50:50 match. For one thing, the Stimulus II HSR funding did not actually require matching funds, since it was part of a Stimulus package and during an economic crisis, state governments are often in a cash crunch. But even for normal Federal funding of intercity-distance passenger transport, an 80:20 Federal:Local match is more common, and for some Interstate spending its a 90:10 match.

Look at the projected $31b cost for the Initial Operating segment. Suppose the $6b for the Initial Construction Segment is not financed with Prop1A(2008) funds. And suppose that $3b are equipment costs that are financed privately by the operator that wins the franchise to operate the service. That leaves $22b to cover.

At an 80:20 match, $22b would call for a $4.4b state contribution ~ well within the reach of the Prop1A(2008) bond authorization.

Which gives a strategy for addressing the uncertainty of Federal Funding. First, build the Initial Construction Segment. That will not be finished after the end of the current administration, so the current House refusal to fund HSR as a refusal to allow President Obama a "win" will no longer be a political issue.

And then freaking win the Federal Funding. This is not forecasting volcanic eruptions or the sunspot cycle we are talking about. This is political decision making in the halls of Congress. When there is an opening to win an adequate level of Federal Funding to allow the Initial Operating Service to be funded ... take it and get it funded.

Normally the advice would be to use bond authorizations, rather than holding them in reserve, because bond authorizations are in "face value" dollar amounts, and inflation eats away at their buying power over time. However, because of Gov. Schwarzennegger's reckless promise of a 50% state match, that's not true in this case. In this case, it makes sense to use current state revenues to fund the State Match of the relatively inexpensive per-mile Initial Construction Segment, and keep the bond authorization in reserve to use with better leverage, to try to fund the more expensive project of getting an effective HSR corridor down into the LA Basin.

What if that fight is lost?

If we cannot ever win a fight in getting Federal funding for useful investment in sustainably powered intercity transport ... well, in that scenario we're probably not going to survive as a coherent national economy or national society.

And if California or the West Coast is trying to make it on its own, every bit of high quality legacy infrastructure that it can power with sustainable, renewable energy from West Coast Solar, Wind and other sustainable, renewable resources is going to be that much more valuable.

In the future where we lose the fight to get our national government to take steps to defend our country from the catastrophic consequences of our own current action, there will be no regret at all in that future California for any investment in sustainable transport that it inherits.

Conclusions and Conversations

As always, any topic in sustainable transport is on-topic in the Sunday Train. So feel free to take about CO2 emissions reduction, energy independence, suburban retrofit and reversing the cancer of sprawl over our diverse ecosystems, or the latest iPhone or Android app to map you bike ride. Whatever.

The Sunday Train doesn't really leave the station until you jump in and join the conversation so ... All Aboard!

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Splashoil's picture
Submitted by Splashoil on

Here in the PNW we find that "Amtrak Funds" for rail improvements are really just "greenwashing" subsidies for Warren Buffett's coal export program and his Bakken Shale oil shipments to local refineries. Of course, now we have "bipartisan" support for "Amtrak funding." If the Koch Brothers, Buffett, and Gates are for it, what could possibly go wrong?

BruceMcF's picture
Submitted by BruceMcF on

The Cascade Corridor works do benefit the Cascade Corridor services by doing a certain amount of untangling of the passenger service from the freight trains ... but that's not an appreciable benefit to the coal and oil freight trains, since the coal and oil trains are still lucrative even with a little extra delay.

Its the container trains competing against truck freight that get the main freight-side benefit from the Cascade Corridor works ... and of course, the more lucrative the container freight is, the less addicted BNSF is to oil and coal freight.

But then that falls in line with your prediction about "bipartisan" funding, since the next round of Cascade Corridor projects are among the collection of projects put back on the shelf by the refusal of the House GOP to provide any more funding to High Speed Rail and Rapid Rail projects.

Submitted by lambert on

Coal is out-going via hoppers, containers are incoming via stack cars. So I think the two form of traffic are independent of each other, no?

BruceMcF's picture
Submitted by BruceMcF on

But they both have to move both ways ~ the empty hoppers have to move east, and the containers move with content both ways, but whichever is the dominant flow, either the empty containers or empty flatcars have to also move back the other way.

But the key issue on dependency is rather money ~ coal and oil are high weight, low margin businesses, and moving into the higher value, higher margin freight that presently moves primarily by truck will increase the opportunity cost of using the capacity for the less lucrative freight, which by dollar per ton mile is coal and oil products.

Splashoil's picture
Submitted by Splashoil on

Like I said, "Amtrak funding" is how you pay with tax money for coal export infrastructure. Here along Chuckanut drive we anticipate new "Amtrak" sidings to ease the flow of Bakken gold and Buffett gold coal. It's very clever to greenwash that kind of pork using "Amtrak."

BruceMcF's picture
Submitted by BruceMcF on

I know you said it. Its not clear which specific funding you are talking about, though, so its not clear whether the claim is true or not.

If you are referring to the work funded in late 2009 under the Stimulus funding, those projects are primarily of benefit to passenger trains. And its no coincidence that there is no "bipartisan" support for funding those kinds of projections. Its a plain fact that the GOP zeroed out new funding of those projects when they took over the majority in 2011, and it continues to be zeroed out. The only money that is continuing to be spent on those project lines were funds that were authorized and appropriated under the Democratic majorities of 2009/2010.

Some specific part of the project may be of some local benefit to freight, but since the freight trains normally force the Amtrak trains to wait, most of the benefit of adding a passenger rail bypass track goes to the passenger service. Since the freight was not forced to lose much time waiting on passenger services, they have little time to gain by the passenger service getting a bypass track.

If you are referring to some other work funded under the freight rail programs that they continued to allow, and especially if it is under a project line that the House GOP voted to fund from 2011 on, then its very high odds that its primarily in place to serve some GOP contributors, and if "Amtrak" is included in the justification of the project, its highly likely to be green-washing.

After all, since 2011 the HSR & passenger rail improvement money has been $0, and essential capital investment in the NEC has been underfunded ... so there really hasn't been any actual intercity passenger rail money to hand out since 2011.

BruceMcF's picture
Submitted by BruceMcF on

I do want to note that I'd much rather be disagreeing over whether or not a particular project is primarily useful or primarily greenwashing than answering the Reason Foundation nonsense that one of the Agent Orange commentators was sprinkling over the Agent Orange edition of this diary (that is, dkos ... its the edition that always goes up last, because of the need to photobucket pictures linked to from elsewhere in the web).

Submitted by lambert on

... and see how much is devoted to parking lots. I'm guessing a huge percentage. And there are impermeable surfaces wherever I look. It's very discouraging.

My theory is that we should bring back the Maine two-footers, and network the state with them. (Our roads are getting shittier too, but nobody seems to notice....)

BruceMcF's picture
Submitted by BruceMcF on

Parking is one of the massive subsidies to our current suicide transport system. The average car supposedly requires an increment of three or four parking spaces ... because of course, we tend to go places at the same time that other people are going places. Work. School. The Game. Shopping. The Movies. Most things, when it gets down to it.

Which means that the average parking place is empty much of the time.

In fact, you can tell those places where motorists are forced to make even modest allowances for the fact that they aren't getting a totally free ride on parking ... because those are the places that motorists endlessly complain about parking problems.

Resulting in a country where it seems that parking is considered a right, even though its actually a privilege with a lot of downsides ... while privacy is increasingly treated like a privilege with a lot of downsides, rather than as one of the foundation rights of a free and democratic society.

As far as the Maine Two-Footers (which I had to google) ... call them Narrow Gauge Light Rail and have one of them light rail makers put together a flash looking electric train, and you could well get most people thinking it was a brand new idea.

Here's an extra part of the idea ... if you have a light rail vehicle that has enough battery power, it only needs to run under the wires for a certain part of the trip, so you don't actually have to string up wire for the majority of the route. Get wire up where its climbing a grade, get wire up where it is stopping at a platform (to put some of the energy back onto the wire) and then leaving the platform, you probably only need to wire up 1/5 of the route.

Now, coppice some wood for renewable biocoal production (not that damn torrified wood chips), put enough wind turbines offshore where the valuable wind resource is located, put up some modular pumped hydro to smooth out the peaks and dips in power demand, and you don't need to be paying a Texas Oil Billionaire or Saudi Oil Prince for the "privilege" of being able to get around.

Submitted by lambert on

... and looky what I found!

What I'm wondering is if a "sustainable team engine" that doesn't look like this:

and instead looks more like this:

would change the sustainability equation at all?

Maine has cellulose aplenty. and if manufacturin biocoal also permitted manufacturing biochar, we'd have an agricultural spinoff as well.

I freely admit that I am a train fan, and I'm thinking solely in terms of selling the project to Mainers. Our tourism industry is huge, and I think that "ride the electric two-footers" would have a lot less appeal than "ride the steam two-footers!" The first line could be from Mount Desert Island to Bangor, with a branch down to Belfast....

More on the Maine Two-footers here.

BruceMcF's picture
Submitted by BruceMcF on

As far as "green" biocoal and biochar, yes, briquette it, its biocoal, crush it, its biochar. Same stuff, one form is better for piling up and storing, the other better for maximum contact between the existing soil and the biochar.

Not everything loosely called biocoal is the same stuff as biochar, and if it isn't, I'm awful skeptical about it. Lots of unsustainable wood-fired projects are proposed that used charred wood that is not actually full charcoal.

The process of flash carbonizing the feedstock under pressure to make "green" biocoal also captures all of the exhaust gas, allowing it to be run through proper emissions control equipment and then the remaining gas can be burned or run through a fuel cell to produce electric power as a side product.

The little trains you run on the little tracks for local transport would be electric, because the little steam trains would be too labor intensive to rely on for local transport, but little biocoal powered steam trains could certainly be run for the tourists ... where the fact that its a tourist train means that you only have to run as many services as in fact pays for the extra labor.

Splashoil's picture
Submitted by Splashoil on

splashoil has shared a video with you on YouTube:
“20140613 Oil Train Passing at Rich Road” — noticed some wobbly cars on this train - maybe normal? more footage of the s...

Coal trains enhance "Amtrak" experience while sucking up infrastructure funding greenwashed by bipartisan "Amtrak supporters."

Just how it rolls up here in PNW.

BruceMcF's picture
Submitted by BruceMcF on

Nothing in that clip shows which money you are talking about being sucked up that was sold as Amtrak money.

Its obviously not the money for the Cascade Corridor improvements, since the coal trains don't get to use the passenger rail bypass, and if the passenger rail bypass wasn't there, the coal trains would still get priority and would just force the passenger trains to wait.

So its still not clear which particular funding you are talking about. I'd be happy to blog in opposition to funding any project that is doing that, improving things for coal trains without doing any good for passenger transport or freight transport competing against semi trucks, if you can give me a project name and your claim about the project checks out.

jo6pac's picture
Submitted by jo6pac on

Thanks for posting this and as native Calif. person as much as I would like this to be built I don't feel it should share track with any other type train. High Speed rail is very different than freight or other wise it isn't HS rail. The other problem I have unless systems like Ace Train in my area is built to service other towns away from the HS it doesn't make any sense. I guess what I'm saying unless the entire system is built from HS to connection trains to light rail and it goes everywhere and then connects to buses it's a waste of time.

I don't think this happening any time soon because this nations leaders have become think small thinkers in witch I find sad.

BruceMcF's picture
Submitted by BruceMcF on

Sharing track with freight trains is not the "Blended Plan", the Blended Plan is sharing track with other passenger trains. And its not sharing track in the higher speed sections of 160mph to 220mph, but in the lower speed sections of 125mph.

Those sections already exist ~ because in many urban areas, you just can't blast through at 220mph. The curves required by available alignments won't let you.

This is normal in countries with quite successful HSR systems, like France, where the HSR trains head into the largest cities on the same express 100mph to 125mph track that the regular express intercity trains were already using. Then France built the 160mph up to 220mph track in the areas in between the large cities, and on routes from big cities to medium sized cities, in the countryside where all new construction costs are not as high.

So Judge Kopp's refusal to consider upgraded sharing express track with local services does not fall in line with some of the most successful HSR systems in the world.

There is a very real waste of public resources when you follow Kopp's strategy. When a train is running at 220mph, you have to have five minute headways (minutes from the "head" of one train passing a point to the "head" of the next), for assured safe stopping with Positive Train Control, so the absolute maximum capacity is 12 trains per hour, and a realistic maximum, taking into account different all-sport and express service patterns, is more likely eight trains per hour.

But when in the sections that go 125mph, you have headways under modern signaling of more like three minutes, which means a maximum capacity of more like 20 trains per hour. And under Judge Kopp's approach of insisting on total separate between regional Express trains and HSR trains, even in the 125mph section, that is spare capacity that is going to waste, when it could be very useful to allow express trains to run past local stations where local trains are stopped.

And the flip side is that in some places like the section from LA Union Station to Burbank, there is room for four passenger tracks ~ so a local and an express track each way ~ but not room for five or six, so give the regional trains three tracks, to allow for at least one passing track ... you have to put the HSR up on a viaduct. And all those wasteful commitments to build unnecessary viaducts were driving the cost of the system through the roof.

BruceMcF's picture
Submitted by BruceMcF on

On the 2nd issue, they're doing that. After all, local transit is also getting 15% of CnT funds, so many projects like the improving the capacity of the Capital Corridor from Oakland to San Jose are likely to be able to go ahead.

Indeed, $900m of the Prop1A funding was set aside for investment in complementary rail services, so part of the investment into needed system expansions is already well underway.

ACE is a tricky case, since the ACE runs on an alignment owned by UP (aka Union Pacific), who are stubbornly opposed to any modern lighter weight passenger trains or any HSR trains getting close to their track, let alone run on their track. But there is an outward extension of the ACE to Merced that requires a track extension costing in the $100m to $200m range, so the opportunity does exist to extend the ACE eastward to connect in with the Initial Operating Service of the HSR from Merced to the San Fernando Valley at least, and preferably LA Union Station.

At present the ACE has a very unbalanced schedule, with services mostly inbound to the South Bay in the morning and mostly outbound from the South Bay in the evening, and having an anchor on the HSR corridor would allow it to have a more balanced schedule, with enough demand in both directions all through the day to run services both ways all through the day.