How to find the capital needed for green public investments

What if city hall had to disclose its assumptions like Wall Street does?

Posted by JMG (Guest Contributor) at 10:50 AM on 14 May 2007

Read more about: business | energy | cars | travel | greening biz operations

For those unaware, Michigan has been hard hit by the increasingly insistent intrusion of an unpleasant reality (that the era of cheap energy is over). Detroit and Wayne County are especially hard hit, as the economic malady destroying the auto industry hit a city already weakened to the point of collapse by stark racial segregation and disinvestment.

What Michigan likes to do is imagine that "big projects" will save it, so it tends to build enormous temples to optimism, much in the same way the pharaohs built the pyramids as monuments to themselves: "I may pass on, but my mighty empire will last forever," the pyramids say.

Well, in this country, not so much. Instead, you just get big tombs and sad little stabs at pouring big rivers of public money down leaky drains, hoping that somehow it will stick around long enough to fertilize some growth in the ruined soil.

The latest fantasy in Southeast Michigan is "Aerotropolis," a gigantic industrial park centered on, you guessed it, the airport, because we all know that every day, in every way, flying's getting better and better.

Sterling writer and columnist Jack Lessenberry wrote an article about the scheme here, which caused me to realize that one of the biggest reasons we have a hard time finding the capital needed to build a sustainable infrastructure in this country is that we squander it all on the kinds of investments that are:

killing us, and
clearly stupid at the time, no hindsight needed.

Hmmm, I thought -- when Wall Street wants to issue a new stock, they have to put out a prospectus that warns the rubes about the key assumptions made and the vulnerabilities of the company being touted. Like when they want to sell stock in a company whose profits all depend on cheap energy, they have to include some warnings about that dependence in the prospectus.

What if public capital investments had to meet the same standards of disclosure, in particular by disclosing their assumptions about energy costs throughout the design life of the project? I don't think many people would be rushing to pour money down an Aerotropolis rathole if they could see the assumptions about energy costs the planners were making.

(I jest of course -- not about making them do the prospectus or actually figuring out what their assumptions are, but that the planners to date have given even a moment's thought to what energy prices are going to do to the airlines that are the linchpins of this whole boondoggle. That is, my bet is that, right now, there are no assumptions about energy prices in the plan that could be disclosed. Instead, the whole thing just assumes that tomorrow will be like today, only more so, and energy will just be there whenever needed.)

Government planners, in the main, are horrible at identifying even the most obvious risk factors that will cause their projects to fail; no doubt many of the private interests lining up to profit from the "Aerotropolis" will make out fine so long as the project is sold; heck, they will probably even make out fine when it inevitably collapses, as they will get first crack at buying up pieces of it at firesale prices. The only people who will lose are the taxpayers who will (a) fund a project that can not possibly succeed and (b) not be able to use the money to fund the kinds of investments -- wind turbines, electrified rail systems -- that they actually need.

There is nothing more insane than to think that the solution to Detroit's woes caused by the end of cheap energy will come from or even have anything to do with an airport, or an even more gargantuan airport, or anything to do with commercial flying at all.

Airlines are nothing but subsidy sucking, greenhouse gas producing, executive bonusing corporate welfare hogs, but there isn't enough money in all of Michigan to keep the industry aloft when oil sails past $100/bbl and winds its way towards $200/bbl, which is a lot closer than many people seem to think. Even if you're one of the optimists who thinks peak oil hasn't already occurred, fewer and fewer folks think it won't happen by 2010 or 2015 at the latest.

Once people realize that no amount of "free market magic" will ever bring back cheap gas (or jet fuel), any investments centered around airports are going to look as stupid and lonely as that People Mover.

I'm not saying Detroit won't look reality in the eye and try to deny it once again -- they've been in that business for a long, long time, and it probably feels natural to them. They've got this whole pathetic "Death of a Salesman" doggedness thing down pretty well, able to get out and try and flog the goods day after day ...

But reality doesn't care if you want to pay attention or not, it just is. And the reality is that anyone with an ounce of sense is not looking to make big plans contingent on cheap energy, period.

I'm coming to think that every public investment needs to have a prospectus, just like new stock issues, and in that prospectus would be a disclosure printed on every page: "The analyses used in this investment presume an average price of oil of $X between now and 2010, $Y between 2011-2020, etc." for the design life of the project.

After all, if Wall Street is required to give the rubes that kind of disclosure before taking their money, why isn't government required to do the same?

For story: How to find the capital needed for green public investments
5 Comments | Post a Comment

Project development

JMG you have hit upon many of the pitfalls of government funded projects, they often do not make sense because often they are done out of desperation. When I talk with government officials in the situation you outlined, low on funds decreasing population and increasing retirement obligations they are desperate to attract jobs. How do you attract jobs? You need some reason for industry to come to your part of the country, some advantage that other cities do not have. One thing you can do is build an airport, this will produce a reason for industry to locate in your city, industry attracts people and people pay taxes and your city will survive.

Despite the emotional tirade against airline travel there is no indication in the mid-term (10 years) that scheduled airline traffic will diminish. As fuel prices increase airline ticket prices will increase, but will that significantly diminish air travel? Most analysis I have seen says that air traffic will continue to increase. Fortunately with all the competition for airports, few are built because there is a shortage of money, only the cities with the best plan (and political connections) will get funds. I think the next new airport in the US will be in south of Chicago. For the reasons you stated I would not bet on the Detroit area.

I have seen no world peak-oil projections before 2060, at least not from professionals. Where do you come up with 2015, or are you refering to North American oil production?

by GtoeOne at 1:49 PM on 14 May 2007

Maybe zerofund some old subsidies

Maybe you could zerofund some old subsidies and use those?

For instance, the rural coal plant construction subsidy.
http://www.washingtonpost.com/wp-dyn/content/article/2007 ...

-David Ahlport

by GreyFlcn at 1:58 PM on 14 May 2007
[ Parent ]

Peak estimates

"I have seen no world peak-oil projections before 2060, at least not from professionals. Where do you come up with 2015, or are you refering to North American oil production?"

Try Oil industry insider Robert Rapier's R-squared blog, or the Oil Drum. If can't find those, try "Twilight in the Desert" by Matt Simmons, an oil industry insider without peer (energy banker, co-chaired the Cheney Energy Task Force, etc.)

BTW, where have you seen a global peak oil projection of 2060?? Last I checked even the hyper-pollyannas as the EIA say 2038 or so ...

(I will try to get back to your question about jobs in states of decline but right now I have to run.)

The 5% Project

by JMG at 4:31 PM on 14 May 2007
[ Parent ]

Pyramids Ahoy

Senor JMG,Im the the jinxey science papa and this old man justs wants to touch base with you on the statement of the pharows.Sir,they did not build the pyramids,they just did not.We still use pyramids on this planet to protocol our ground line and when the egyptian pyramids were on line(They are not now because the grid node has moved.The chambers are for making a different tone in the node very similar to our modern HAARP system.The Sarcofagi was for a tone instrument that made thee different tones necessary to protocol the grid.Each continent body needs a ground to run to to bring the weather forth.The egyptians were just a marauding band of nomads who happened upon them and found that the strong A tone that is prevalent in that Phi structure would preserve and dehydrate living things as bacterias find themselves un -whole .The used them for ,of course mummifying bodies as part of their pagan religious practices.The very tall "kings" of that era are the tall whites from system 16,by the way and removed them selves from the planet quite a time ago.The 12 foot skeletons found in many places on earth are them.This was just another small tasking lesson as you science kind of folks need some up-dating from field to field.

Earth Shaman

by Earth Shaman at 10:56 PM on 14 May 2007

Peak Oil

I mis-typed, should have said 2040 is what I see most often. Although when you start looking years into the future the crystal ball is pretty cloudy.

by GtoeOne at 12:56 PM on 15 May 2007
[ Parent ]

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