An encore of a Sunday Train from 22 April, 2012, on a topic that has come back in the news
Burning the Midnight Oil for Living Energy Independence
One element of the recent California HSR “revised” draft 2012 Business Plan (which we shall call the Other, Other Plan) involves looking to one particular means of finance in addition to general fund bond finance and Federal transport grant funding:
Cap-and-Trade Program Funds
Assembly Bill 32 (Statutes, 2006, Chapter 488) mandates a reduction of statewide greenhouse gas emissions to 1990 levels by 2020. In accordance with that law, California will implement a market-based cap-and-trade program. Funds from the program can be used to further the purposes of AB 32, including for development and construction of the high-speed rail system.
This has led to the current controversy in which the California Legislative Analysts Office, the LAO, has argued that the Cap and Trade funds might not be usable for HSR (pdf: p. 8).
One of their points, “Other GHG Reduction Strategies Likely to Be More Cost Effective,” involves a serious and common misframing of the question of the use of funds dedicated to reducing Greenhouse Gas Emissions: when reducing GHG emissions in a project that serves multiple purposes, the cost effectiveness of the GHG emissions spending depends on what share of the project funding is represented by that GHG emissions spending.
So more on transport, Green House Gas emissions, and the peculiar analytical weaknesses that crop up whenever the California LAO turns its attention to HSR, over the fold.
Funding Shares Matter
Lets consider three projects. A reduces CO2 at a cost of $20/ton. B reduces CO2 at a cost of $50/ton. And C reduces CO2 at a cost of $250/ton. Which one is the more cost efficient way to reduce CO2 emissions ?
Of course, you have no way of knowing, since you are missing a key piece of information: what share of funding is coming from the funds dedicated to reducing CO2 emissions:
- If A is 100% funding, B is 80% funding, and C is 10% funding, then the order is A=$20, C=$25, B=$40;
- If A is 100% funding, B is 20% funding, and C is 2.5% funding, then the order is C=$10, A=$20, B=$63
So, for projects that are onlyfunded to reduce CO2 emissions, the evaluation is simple. But for projects that are “win-win-win” type projects, advanced and supported as helping with multiple goals, the question is:
- what share of funding ought to come in support of its CO2 emissions reduction
Possible answers include: