Sunday Train: Livable Tranport if the Future Differs from the Past

(2 pm. – promoted by ek hornbeck)

Burning the Midnight Oil for Living Energy Independence

California is on a deadline from DC to either appropriate the funds to begin work on the first segment of the California HSR project, or else the Dept. of Transport will rescind California’s grant and hand the money over to other states.

One of the key controversies is the fact that there is no guarantee that the funding required for building the complete system will be forthcoming. And so, the argument goes, if the first construction segment is built, but no additional Federal funding for HSR is ever again authorized and appropriated, California will be stuck with a White Elephant.

This is, indeed, the “risk” that the California Legislative Analyst Office (LAO) has focused on in its series of anti-HSR analyses.

The LAO’s analysis includes the presumption that the Federal funds already granted can simply be re-allocated by California to be spent in the way that the LAO advises, which is a quite bizarre fantasy to be set forward in what is supposed to be professional analysis at the California taxpayer’s expense. By including this fantasy in their analysis, they can evade the question of, “would we be better off doing nothing?”

Reality does not allow the question to be evaded. If we continue to do nothing on the argument that whatever step forward actually on offer is inferior to some fictitious imagined superior plan, we will in the end arrive in the future having done nothing, and will find out the hard way whether or not that was a wise decision to make.

Now, if the future is identical to the past, then a system that worked well enough in the past can work well enough in the future. However, if the future differs from the past ~ as history teaches us it always has before ~ then the systems that worked well enough in the past will be unsuited to the future.

What we need, “if” the Future differs from the Past, is the flexibility to adapt to changes. Both the changes we can see coming, and the changes that we cannot see coming.

The Looming Deadline in California

With billions of dollars at stake, California’s high-speed rail project is at a critical, do-or-die juncture: The Obama administration’s ultimatum to state lawmakers to fast-track the money resonates in the Capitol, but the state budget is riddled by shortages less than six weeks before the start of the new fiscal year and bullet-train politics remain volatile.

…

U.S. Transportation Secretary Ray LaHood recently urged the Legislature to authorize spending the $2.7 billion state bonds by next month. If it didn’t he said, the federal government would rescind the $3.3 billion in federal grants promised to the project and look to other states to absorb the stimulus funds. The federal money is crucial to California’s efforts to launch the $64.8 billion project, which would link the northern southern California through the Central Valley with trains going 220 miles per hour.

The Sunday Train has already looked at the California HSR project a number of times, including recently in Did Governor Brown Save California’s HSR? (8 Apr), and Should Cap&Trade Funds finance the California HSR? (22 Apr).

As an appendix to this week’s Sunday Train, I include a more complete and more formal analysis of the LAO’s dubious analysis of the Cap & Trade issue in particular. But the main question this week is, if California cannot be sure that it can fund the HSR project from LA Union Station all the way to San Francisco Transbay Terminal, should it therefore decide to abandon the project for however long it takes until it can be sure?

The White Elephant In The Room Argument

The argument is straightforward. If the Initial Construction Segment (ICS) is completed, and then there is no more Federal funds, then $2.7b in state bonds will have been expended in building a corridor that will only be used to speed up the current San Joaquin corridor. In 2008, $9.95b of bonds were authorized by the voters of the state, with $950m dedicated to connecting rail services, and a $900m to fund preliminary design, environmental approvals, and engineering work. So out of $8.1b dedicated to capital works for the HSR system proper, there would be at most $5.4b remaining.

The Year of Expenditure costs of the project are projected, at present, to be $68.4B, with only the first $6b in place, through $2.7b in state bonds and a $3.3b Federal grant. If $5.4b was a state match to federal funding at a 20:80 rate, that would only be a total of $27b.

• $6b + $27b + (-$68.4b) = (-$35.4b)

… and, of course, there is no guarantee that there will be that amount of Federal funding available at a 20:80 match. The only funding that is in place for sure is the $6b for the ICS.

Some of the shortfall will be covered by private investment. Since the California HSR system will generate an operating surplus, private franchise operators can be asked to bid for the right to operate the service, and part of that bid will include investment in cash or kind ~ for example, the operator might find the acquisition of the trains themselves.

However, without substantial federal funding, or some other source of funds, there is no guarantee that anything but the first, “ICS” segment can be built.

This is, of course, normal for big projects like this. However, its been quite a while since the US has pursued any such big project that has not been a repeat of a previous big project, whether road system, airport, or reckless foreign invasion with no sound exit strategy in place.

This is something new ~ well, new to the US, since its something that is already being done in Japan, France, Italy, Germany, Taiwan, Sweden, Russia, Turkey and China. But for the US, it is a Brave New World. Can we be 100% sure that everything will go according to plan?

What Is the Plan, Anyway?

One of the strategies of opponents of the HSR system is to spread confusion about what “the plan” is, as part of the classic “Fear, Uncertainty and Doubt” strategy made famous in Microsoft’s successful, though sometimes illegal, efforts to maintain and leverage monopoly positions in various computer software markets.

So, what is the plan? It goes in three stages (constant dollar costs, followed by Year of Expenditure costs in parentheses):

• $26.9b-$31.3b ($31.3-$36.6b) Initial Operating Service, from Merced through to the San Fernando Valley (SFV)
• $14.4b-$17.7b ($19.9b-$24.3b) Bay to Basin, SFV to San Jose
• $12.1b-$13.3b ($17.2b-$18.8b) LA Union Station to SF Transbay, blended operations

The Initial Service to be completed by 2021 and operational by 2022, the Bay to Basin to be completed by 2026 and operational by 2027, and the LA to SF “blended” option to be operational by 2029 and completed on or after 2030. Note that the “blended” option is ‘completed’ after it is operational, since it is operational when the HSR can run through from SF Transbay to LA Union Station, but Phase 1 is not completed until  the system can support a 2:42 non-stop trip from SF to LA.

Given this plan, there are two “stages” of funding uncertainty.

First, if sufficient Federal funding is available at an 80% match, the Initial Operating Service can certainly be built. The performance of that service provides a platform on which revenue bonding can be issued for the Bay to Basin segment. And the performance of that service provides a platform on which revenue bonding can be issued for the SF/LA system. So if sufficient 20:80 Federal Funding is available, the uncertainty is in the timelines for completion, not for whether it can be completed.

The second, more critical, stage of funding uncertainty is if there is no Federal Funding available, or if the available Federal Funding falls far short of the requirements of the project. This is the “failure to launch” uncertainty for the Initial Operating Service itself.

Uncertainty and Coping with versus Defying the Future

Consider this question from the perspective of a nation that does not wish to become mired in old, increasingly obsolete systems that once more or less worked, at some distant time in the past:

• Can we be 100% sure that everything will go according to plan

The answer is, of course, that we can be very close to 100% sure that everything will not go according to plan. We plan because working with a plan is better than flying by the seat of our pants, but in long-term plans stretching out over more than a decade, only a fool expects everything to go according to plan.

The critical questions are, what is likely to happen if we don’t proceed with the plan? What is likely to happen if we do? And, most importantly, does proceeding with the plan leave us better prepared to cope with the unexpected, or worse prepared?

So, will building the Initial Construction Segment (ICS) leave California better prepared to face the unexpected or worse prepared?

In terms of facing the unexpected, we can venture off the California HSR Authority Business Plan script, and look at the range of possible uses of the ICS. The first is the planned use to run the Amtrak California San Joaquin service on the ICS once it is completed. The San Joaquin with existing equipment can run on the ICS at 110mph, with no slowing down for curves. That implies a substantially faster service between Bakersfield Station and Madera, since the current corridor has a maximum 79mph speed limit, does include curves that require slowing the train below that speed limit, and with 17% schedule padding added because the corridor is shared with freight, where a dedicated passenger corridor can have a 5% to 7% schedule padding. The speed on that corridor could allow one additional service to be provided through the day.

The next step up from this is completing the Merced to Palmsdale section as an electrified rail corridor. According to the current estimates, the total cost of this $17.7b-$21.8b, so with the ICS already completed (though not yet electrified), an additional $11.1b-$15.8b. At this stage it is possible, with combined electric/diesel trains already in service overseas, to run from LA Union Station to the San Joaquin terminus in Oakland, operating at a maximum of 79mph on the diesel sections from LA Union Station to Palmdale, along the Antelope Valley line, and from Merced to Oakland, and 125mph between Palmdale and Merced.

Why isn’t this included in the Business Plan? The Business Plan is based on forecasts over a range of future conditions. They are, however, forecasts rooted in the status quo. Indeed, they could not be otherwise: if the forecast condition was, “there is a severe interruption in petroleum supply, and gasoline is subject to stringent rationing”, the conclusion that “the HSR will be a massive success” would quite clearly follow from the assumption.

But … there could be severe interruptions to our nation’s petroleum supply, which could make it necessary to impose stringent gasoline rationing, as well as air travel restrictions to conserve on jet fuel. Under those conditions, there would be an explosion of use of our current trains. And under those conditions, if California had completed the Second Construction Segment, it would of course make sense to make use of it in some form of “hybrid” system.

To step back: ten years from now, twenty years from now, thirty years from now, we either will be able to keep using our current intercity transport systems has we have, or we will not be able to keep using them as we have.

Under which of those two scenarios will it be necessary to come up with a different way of doing things? The second, clearly.

Under which of those two scenarios will it be most useful to have already completed the ICS? The second, clearly.

And this is the crucial point: our current transport system was built, beginning in the 1950’s, to meet the needs of the wealthiest, highest standard of living nation in the world, which had been energy independent since before its establishment as a nation. If the next ten, twenty, thirty years allows us to get by with that system, that implies a level of real wealth and real income under which we can afford the occasional more expensive than necessary regional rail corridor.

By contrast, if we cannot rely on the current system, our economy could well be under severe distress. We could be facing economic crises that make us look fondly back on the “Great Recession” of 2007-2009 as better days. Under those conditions, already having a portion of a rail corridor in place designed to support high efficiency intercity transport is a tremendous benefit.

Living in a Future that Differs from the Past

We are always living in a future that differs from the past. One consequence of that is we are always influenced by vested interests like Big Oil whose interests are in preventing the nation from becoming more flexible and better able to cope with uncertainty ~ because the same event that is an economic crisis that the nation should have prepared for is, for them, an opportunity for massive windfall gains.

But they are not the primary challenge we face when it is time to prepare for the unexpected, by investing in the capability to cope with the unexpected when it arrives. The primary challenge is that our imaginations about how things work are formed in the past that becomes more and more obsolete with each passing day. The Big Oil funded propaganda mills like Cato and Reason and Heritage will happily leverage that advantage, but even if they were not in place, we would still have to face up to an idea of “risk” that counts the risk of trying something new … and ignores the risk of relying on the systems we have relied on in the past.

And this is the heart of flaw in the egregiously shoddy LAO risk analysis: a tacit assumption, never raised and so, likely, never even appreciated by the analysts themselves, that there is absolutely no risk in just going on with things as they are.

It certainly would be a lower risk to California if it could be confident that funding would be in place to complete the Initial Operating System, since once that system is in place, expansion of the system from there can proceed in a variety of ways, and will in any event be there as an operating system.

But that is not the question at hand. The question at hand is whether the risk is greater if California goes into the uncertain future with part of the system in place, or with the status quo. And it is standing pat on the status quo that is the greater risk.

Anyway, that is my conclusion, but as always, the end of the essay is the opening of the floor for discussion. This week, as mentioned above, I have a quite lengthy appendix on the LAO analysis of the use of Cap and Trade funds as a contingency source of funding for the HSR. But before pasting in the appendix, first there is the weekly performance of Burning the Midnight Oil’s headline act, Midnight Oil themselves.

Midnight Oil ~ Bedlam Bridge

Appendix

A Preliminary Analysis of the LAO Analysis of cap-and-trade funding of High Speed Rail

The LAO has made much of the risk that the HSR might not attract further Federal funding in previous reports. The purpose of this section on cap-and-trade funding appears to be to defend that earlier conclusion against the proposal to partially fund the HSR from cap-and-trade revenues. The LAO raises three points (p. 8) with respect to use of AB32 Cap and Trade funding for the High Speed Rail project. These are:

• Would Not Help Achieve AB 32’s Primary Goal.
• High-Speed Rail Would Initially Increase GHG Emissions for Many Years
• Other GHG Reduction
  
  Strategies Likely to Be More Cost Effective.

These points shall be considered in reverse order.

Other GHG Reduction Strategies Likely to Be More Cost Effective.

As we discussed in our recent brief on cap-and-trade, in allocating auction revenues we recommend that the Legislature prioritize GHG mitigation programs that have the greatest potential return on investment in terms of emission reductions per dollar invested. Considering the cost of a high-speed rail system relative to other GHG reduction strategies (such as green building codes and energy efficiency standards), a thorough cost-benefit analysis of all possible strategies is likely to reveal that the state has a number of other more cost-effective options. In other words, rather than allocate billions of dollars in cap-and-trade auctions revenues for the construction of a new transportation system that would not reduce GHG emissions for many years, the state could make targeted investments in programs that are actually designed to reduce GHG emissions and would do so at a much faster rate and at a significantly lower cost.

In comparing projects that are designed to reduce Greenhouse Gas Emissions to projects that have reduction in GHG as one of several program benefits, GHG reduction funds must cover the entire cost of projects aimed soly at GHG reduction, but may share the cost of projects that meet multiple goals.

The sole means that the LAO supports to allow cap and trade funding to share the cost of an investment is by purchasing CO2 emissions reductions credits at market determined rates. The return on emissions credits is both variable and uncertain, so this implies that long term infrastructure investment that results in reduced CO2 emissions must treat CO2 emissions reductions credits as an uncertain source of funding. If sufficient funding is obtained from other sources to complete sufficient infrastructure to begin operations, then at that time CO2 emissions reduction earnings may be treated as a windfall gain.

The LAO argues that there is substantial funding uncertainty regarding completion of the entire San Francisco to Los Angeles / Anaheim High Speed Rail corridor, and that because of that uncertainty, construction should not begin. And then they propose restricting the use of cap and trade funds in a way that maximizes the uncertainty of long term infrastructure investments that include CO2 emissions reductions as one of multiple benefits.

Evidently, a system of funding that prevents cap and trade funding from being used to complete a system that will result in reduced CO2 reductions is interfering with the development of systems that are carbon neutral and low emissions, while favoring a policy of continued development of existing high emissions systems, which implies hoping that carbon offset programs will both fully offset the additional emissions of the status quo systems and additionally offset our current emissions while using those systems.

The fundamental flaw in the analysis is that the LAO is performing a risk analysis of a system that represents a substantial departure from the status quo, yet neglecting to consider the status quo risks of reliance on combustion of petroleum products in our current intercity passenger transport system. These risks include the risk of crude oil price shocks, interruption of access to imported crude oil, and the CO2 emissions impacts of reliance on the current system.

It should be noted that this set of risks apply across a wide range of scenarios of potential future economic growth. That is, if crude oil prices remain low, and access to imported crude oil is uninterrupted, one likely consequence is strong economic growth. Continued dependence on petroleum combustion for intercity transport then implies that CO2 emissions impacts are higher. If there is a relatively fixed available portfolio of inexpensive CO2 offset projects, this implies that CO2 must be offset at an increasing cost.

On the other hand, a coming decade of repeated severe oil price shocks and oil supply interruptions directly implies forced reduction in petroleum consumption due to household and business travel budget constraints, and so implies substantially less risk of rapid growth in CO2 emissions from the intercity passenger transport system. However, it also likely implies a substantially lower economic growth rate, and under this scenario, the economic benefit of having an oil-independent common carrier intercity transport corridor is substantially greater than is represented by California HSR Authority Cost/Benefit modeling.

If these status quo risks are taken seriously, then there is a substantial risk in not proceeding with an available petroleum-independent common carrier intercity transport corridor. Given this status quo risk, the policy that the LAO is arguing for, of only funding CO2 emissions reductions from long term infrastructure after the fact, is amplifying those risks.

Addressing these neglected status quo risks brings attention to the neglected alternative policy. Under this policy, a reasonable cost is established for up-front investment in infrastructure in support of CO2 neutral and low emissions systems to replace existing high emissions systems. The CO2 emissions reductions associated with the new system is estimated, and that determines the maximum amount of capital support that may be provided by either grants or revenue bonding from the cap and trade fund.

The risks associated with this approach are that the cost will be at times higher than a cost than the current cost of emissions reductions over the coming decades, and that the project will not achieve the expected levels of CO2 emissions. However, the risks of not proceeding with this approach is that the projects in question are not able to go ahead for lack of funding, so California remains more dependent on petroleum combustion for intercity transport than is necessary and as a result suffers, under one set of scenarios, substantially greater reductions in economic activity than if the infrastructure had been made available or, under another set of scenarios, substantially higher CO2 emissions due to a failure of CO2 reductions policy to cope with the consequences of strong economic growth.

In line with its neglect of status quo risks, the LAO also restricts its consideration to direct GHG emissions benefits of the HSR line and ignores opportunity benefits associated with the availability of the HSR corridor. First, unlike the auto and air intercity transport systems, the HSR intercity transport system does not require explicit or hidden operating subsidies, so diversion of travel to HSR will free up resources for providing operating subsidies for low emissions and carbon neutral local transport. Second, an intercity train station offers an effective anchor for dense, multi-use development, even in areas that are presently car-dependent. Third, because rail pays a much smaller time penalty than airplanes for adding a stop, intercity rail is a superior intercity transport complement to sustainable local transport technologies that are competitive with gasoline fueled automobiles for local transport in smaller urban centers, but cannot compete with gasoline fueled automobiles for intercity trips.

The second claim is: High-Speed Rail Would Initially Increase GHG Emissions for Many Years.

As mentioned above, in order to be a valid use of cap-and-trade revenues, programs will need to reduce GHG emissions. While the HSRA has not conducted an analysis to determine the impact that the high-speed rail system will have on GHG emissions in the state, an independent study found that-if the high-speed rail system met its ridership targets and renewable electricity commitments-construction and operation of the system would emit more GHG emissions than it would reduce for approximately the first 30 years. While high-speed rail could reduce GHG emissions in the very long run, given the previously mentioned legal constraints, the fact that it would initially be a net emitter of GHG emissions could raise legal risks.

The LAO does not cite their source, but it appears to be the Chester and Horvath (2010) study which appeared to reach this conclusion, while including infrastructure construction, maintenance and operation emission costs and vehicle manufacture emission costs on both sides. However, this was based on a miscalculated figure of 170 kilowatt hours per vehicle kilometer traveled (kWh/VKT) from the California HSR Authority program EIR. A cross check with a source such as the CCAP & CNT (2006, pp. A1-A3) study of High Speed Rail and CO2 emissions in the US, would have shown power consumption in the range of 20-30 kWh/VKT. While the actual figure for the California system is expected to be an average of 46kWh/VKT for the double-length trains and operations at 220mph rather than 180mph, a figure of 170kWh/VKT should have been recognized as implausible.

The source of the miscalculation here is the California HSR Authority EIR itself. The German peer review of the California HSR Corridor Evaluation performed a detailed analysis of specific energy consumption based on a 240mph version of the German “ICE” HSR equipment, arriving at 74.2kWh/VMT, or 46 kWh/VKT. In the preparation of the EIR, the contractor for the CHSR Authority performed an incorrect conversion, which resulted in the value that Chester and Horvath (2010) used.

The LAO must clarify whether they are basing a substantial point in their analysis of the suitability of using cap and trade funds for a portion of High Speed Rail capital funding on the original Chester and Horvath figures, which were based on overestimating vehicle energy consumption nearly fourfold. Examination of the results of other studies point to the miscalculation embedded in Chester and Horvath (2010) as the source of their conclusion.

Further, the California HSR Authority has committed to sourcing renewable power for its operations. While there are unlikely to be contracting terms that guarantee that 100% of the power comes from incremental new capacity, the availability of a single guaranteed institutional buyer for carbon neutral power will encourage the more rapid development of carbon neutral power sources, so that the effective GHG emissions per kilowatt-hour for the California HSR system will be lower than the current grid norm assumed by Chester and Horvath (2010), so that their figures will still overstate the GHG emissions of the California HSR system, even corrected to take into account the miscalculation of HSR Vehicle power consumption.

Chester and Horvath (2010) also make the extraordinary assumption that a realistic low occupancy rate for HSR services is 10% occupancy of a sixteen car train with a 1,200 seat capacity. However, this train is comprised of two eight-car consists coupled together, and if there was an average 10% occupancy on such a service, operating costs could be cut nearly in half by only running an eight car train at 20% occupancy.

Indeed, even operating at an average 20% occupancy seems infeasible, given a requirement to operate without subsidy. Since a three hour corridor service is far more capable of tailoring its frequency to available transport demand than a six to twelve hour corridor service, 40% would be a quite conservative lower bound on occupancy.

In Chester and Horvath (2010b: fig S1), GHG emissions per Vehicle Kilometer travelled (VKT) appear to be about 55kg CO2e emissions per VKT, with about 45kg for operations, and so about 10kg for infrastructure. If their assumption of a low 10% occupancy of sixteen car trains is taken to be a 40% actual occupancy of eight car trains operating half the projected Vehicle Kilometers, the 10kg infrastructure emissions per 120 passengers remains the same, for 80-90g per passenger mile on the low assumption. However, at 46kWh/VKT rather than 170kWh/VKT, and at an actual 40% vehicle occupancy, that is more realistically 3kg CO2e/VKT than 45kg, so a further approximate 25g per passenger mile on the low assumption, for 105g to 115g CO2e/PKT.

Supporting 40% to 80% as a more reasonable range for HSR occupancy is Network Rail (2009):

In comparison, the following Table 2.12 summarises typical load factors for European high-speed rail services, which range from 42% to as high as 88%. The lower load factors of the German ICE services are notable compared to the French TGV and Spannish AVE. The primary reason for this is considered to be a degree of over-capacity provided by the ICE services (ATOC, 2009a) in order to compete more effectively with services from new low-cost airlines. On ICE lines, services are run closer to the capacity of the network than comparable TGV and Eurostar services. Load factors above 60% are achieved by TGV and Eurostar in most cases, which is achieved by running trains under the capacity of the infrastructure and pulling passengers to the train times (Network Rail, 2009). It is also notable that the medium-long distance high-speed rail services seem to achieve higher average load factors than the shorter distance services. This is presumably due to the increased competition with road at lower distances, where road transport can more effectively compete in terms of journey time.

If Chester and Horvath (2010) were to perform their analysis again and take into account that the energy consumption value is overstated nearly fourfold, with the knowledge that a sixteen car train is simply two eight car trains coupled together which can be operated individually if there is no demand for the additional seats, and taking into account the constraint on the train to operate at an occupancy that permits operating cost break-even or better, they would find that the “low” occupancy GHG emissions on a full life-cycle analysis are below their midpoint values for car, conventional rail, and air travel, and the GHG emissions at a mid-point occupancy value are below the emissions of car, conventional rail and air travel at 100% occupancy.

Center for Clean Air Policy (CCAP) and Center for Neighborhood Technology (CNT). (2006). “High Speed Rail and Greenhouse Gas Emissions in the US”. http://www.cnt.org/repository/…

Chester, Mikhail, and Arpad Horvath. (2010) “Life-cycle assessment of high-speed rail: the case of California.” Environmental Research Letters Vol.5 Issue 1. January 2010.

Chester, Mikhail, and Arpad Horvath. (2010b) “Supplementary Data for Life-cycle assessment of high-speed rail: the case of California.” Environmental Research Letters Vol.5 Issue 1. January 2010.

Network Rail (New Lines Programme). (2009) “Comparing environmental impact of conventional and high speed rail.” http://www.mendeley.com/resear…

Would Not Help Achieve AB 32’s Primary Goal.

The primary goal of AB 32 is to reduce California’s GHG emissions statewide to 1990 levels by 2020. Under the revised draft business plan, the IOS would not be completed until 2021 and Phase 1 Blended would not be completed until 2028. Thus, while the high-speed rail project could eventually help reduce GHG emissions somewhat in the very long run, given the project’s timeline, it would not help achieve AB 32’s primary goal of reducing GHG emissions by 2020. As a result, there could be serious legal concerns regarding this potential use of cap-and-trade revenues. It would be important for the Legislature to seek the advice of Legislative Counsel and consider any potential legal risks.

As part of the overall carbon cycle, carbon dioxide persists in the atmosphere for about a century. The goal of AB32 is therefore to reduce California’s ongoing contribution to climate change going forward by reducing CO2 emissions in 2020 to 1990 levels. While a lawyer may analyze the legal position, from the perspective of ecological economics, California’s transport system and its dependence on petroleum combustion is one of the principle sources of the problem. In terms of the primary objective of AB32, it is a far better outcome to arrive at 2020 in a position to make further substantial progress on this important GHG source than to arrive in 2020 at 1990 emissions level, but with little immediate prospect of further improvement.

In the analysis here, the LAO also ignores the fact that the current funding request is required to begin construction of the Initial Construction Segment (ICS), and that the initial construction segment will be put to use once track and signaling is completed by the San Joaquin service connecting the Bay Area to the San Joaquin Valley and connecting through to the LA Basin via a connecting intercity bus service between LA Union Station and Bakersfield. The capacity to support this service was a federal requirement for funding the ICS, and neglecting this independent utility has been a feature of previous LAO analyses as well.

The substantial reduction in San Joaquin service trip times will increase the ridership on the service, and additional passengers at existing stops on an existing train has a negligible impact on energy consumption of the train. Operation on the HSR corridor will also be more energy efficient than operation on the mainline freight corridor presently used. So the transfer of the San Joaquin to the HSR ICS corridor will have its own modest carbon emissions impact, before any cap-and-trade funds are required. Chester and Horvath (2010) confirm that will conventional rail has lower life cycle carbon costs than cars at equivalent occupancy, whether cars at 5 passengers and rail at 100% occupancy or cars at 1 passenger and rail at 20% occupancy.

While the gain in GHG reductions from increasing the average occupancy of conventional

Amtrak California services is modest, there is no need to fund this work from cap and trade funds. The LAO advice to repeatedly delay start of the ICS and hope that the Stimulus ARRA funds awarded to California on the basis of constructing the ICS in the Central Valley where Express HSR speeds are possibly risks not only losing these ARRA funds, but also losing the GHG emissions reductions from operations of the San Joaquin on the ICS.

The California HSR Authority has been directed to plan to build an Express HSR system, and much of the LAO report has focused upon the fact that a project of this magnitude is built in stages, and that the completion of the entire project is uncertain so long as the Federal Government has not committed to a funding mechanism for HSR that seems likely to fund the bulk of the California HSR system.

However, the LAO ignores the benefits of completion of portions of the proposed California HSR corridor even if completion of the entire Phase 1 is delayed. This is in line with the LAO neglect of the risks to the California economy of being dependent upon petroleum combustion for its intercity transport.

When considering alternative established, mature technologies, electric passenger trains are the most energy efficient mode of intercity transport per seat mile, and under current economic conditions, it is Express HSR that consistently generates operating surpluses when operated in transport markets at similar distances and size (though typically smaller than) the LA to SF transport market. Electric automobile transport is complementary with electric Express HSR transport, but unlike Express HSR, technology for all-electric operation on trips of 200 miles to 500 miles trips is not mature, proven technology. So the strategy of pursuing both potentially carbon-neutral intercity transport options is preferable to strategies of pursuing either one alone.

The focus of the use of CO2 cap-and-trade funds for the Express HSR system should be on providing insurance against dependency on petroleum fueled transport.

The proposed staging of the HSR construction is:

• The Initial Construction Segment (ICS) from Madera to Bakersfield;
• A construction segment from Merced to Madera and Bakersfield to Lancaster/Palmdale;
• A construction segment from Lancaster/Palmdale to the San Fernando Valley;
• A construction segment to connect from the San Joaquin Valley to San Jose;
• And completion of the “bookends” to the San Francisco Transbay Terminal and LA Union Station.

Under the business plan, the ICS is first used by the San Joaquin service, while Express HSR service will commence after construction is finished to the San Fernando Valley, to be extended further with each following phase.

It is feasible to provide a one-seat ride from the LA Basin to the Bay Area once the Bakersfield to Lancaster segment is complete, by electrifying the Lancaster to Merced segment and using one of several options to operate by a combination of electric and diesel power. This is not assured of operating at a surplus under current economic conditions, but is a useful contingency in the event of an urgent need to reduce petroleum consumption, whether because of oil supply shocks or because of increased urgency in addressing the problem of greenhouse gas emissions, or both, and under severe oil price shocks and supply interruptions, its financial viability would be assured.

Therefore, the most effective strategic use of CO2 cap-and-trade funds for the financing of the California HSR system, to guarantee the opportunity for an effective carbon-neutral intercity transport system, is to approve their use up to a total level appropriate for the projected CO2 emissions reductions, and to focus the spending on assuring the completion of the corridor from Merced through to Lancaster.