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Infrastructure: Roads and The Smart Grid
The first thing people think about when someone says "infrastructure" is roads and bridges. That's unfortunate because we already spend over $100 billion a year on transportation infrastructure and the truth is we don't need that much more. Peter Orzag, President-Elect Obama's choice for OMB estimated - when Director of the CBO - that an additional $20 billion in spending, mostly to maintain current transportation infrastructure, would achieve 83% of the net benefits to be had from more transportation infrastructure spending. Moreover, in many cases, congestion pricing would be both greener and more efficient than greater spending. A better program would be to follow Germany and several innovative state programs to get congestion pricing using GPS technology up and running, especially for trucks.
Even more valuable than transportation infrastructure would be greater investment in electricity infrastructure, a smart grid. Consider that in 2003 a massive, widespread, power outage threw 50 million people in the Northeastern states and Ontario, Canada out of power - disrupting lives and the economy. Why did this happen? Because of a failure to "trim trees" in Eastlake, Ohio - now that's a dumb grid. And remember that only a few years earlier, the most innovative, high-tech industries in the world were shut down by blackouts caused by our primitive electricity grid. Overall, blackouts cost the U.S. on the order of $100 billion a year.
The smart gird is a not one idea but many technologies such as real-time pricing (smart meters), superconductive smart cable, and plug-n-play architecture that combine to produce a grid that is decentralized, self-healing, robust, and smart for both producers and consumers. Decentralized power, for example, makes it easier to isolate problems, "route" power to different areas, and maintain robustness in the face of falling trees and other problems. Plug and play architecture means that new technologies such as electric cars can be automatically used as both consumers and producers (via storage) of electricity, as needed, on the fly. Plug-n-play, the open-source of electricity infrastructure, will also open the field of electricity generation and storage to far greater innovation than is possible now.
Useful references include the Department of Energy's somewhat breathless introduction for the layperson, The Smart Grid, The National Energy Technology Laboratory's The Modern Grid Strategy, the Smart Grid newsletter and papers by Kiesling and also Dismukes in Electric Choices (a book I had a hand in).
The smart grid did not receive prominent attention in Obama's infrastructure speech but the campaign called for matching grants to investment in smart grid technology and support for smart meters and real-time pricing. An investment tax credit for smart grid technologies and more foresighted regulation (price regulation has limited investment in needed infrastructure) could encourage the construction of much-needed electricity infrastructure while maintaining private investment incentives and promoting innovation.
Posted by Alex Tabarrok on December 9, 2008 at 07:35 AM in Economics, Science | Permalink
Comments
And build a few more of these:
http://en.wikipedia.org/wiki/Pacific_DC_Intertie
Posted by: Nigel at Dec 9, 2008 8:02:16 AM
City mass transit needs to be improved in many of the large metropolitan cities that have wide sprawl such as Atlanta, Los Angeles, and Houston. If energy prices rise, these cities could face a very challenging future.
Posted by: John at Dec 9, 2008 8:25:29 AM
Because of a failure to "trim trees" in Eastlake, Ohio - now that's a dumb grid.
Actually, that couldn't happen in a dumb grid, just as a sudden global recession couldn't happen in a simple, primitive economic system with few financial and trading links. It was only because the electrical grid was highly interconnected and interdependent and had had redundancies squeezed out to increase efficiency was it vulnerable to a 'global' catastrophe (no surprise that the rural electric co-op that supplies power to our cottage had no problems during the outage).
That's not to say that spending on energy infrastructure is a bad idea, but we do need to recognize that "smarter, more complex, and more efficient" may work against "more robust and fault tolerant" -- and because of the complexity, experts may not recognize the vulnerabilities that have been created until the system-wide fault occurs (sound familiar?)
John: City mass transit needs to be improved in many of the large metropolitan cities that have wide sprawl such as Atlanta, Los Angeles, and Houston. If energy prices rise, these cities could face a very challenging future.
That's my biggest fear -- that we're going to end up with enormously costly light-rail white elephants. In areas with 'wide sprawl', mass transit is not the right solution, even in an expensive energy future (plug-in hybrid vehicles make much more sense). There are people agitating for a light rail system here where I live, but if it were up to me, I wouldn't take it if the construction was free (because I'm sure that even apart from the astronomical construction prices, it will require a huge operating subsidy besides).
Posted by: Slocum at Dec 9, 2008 8:47:47 AM
I'm not sure we are in a state where the people best able to pay congestion prices are the most value added drivers. I think the better economic contributers tend to be at the margins, the finance is kind of out of whack. That why we had such a meltdown due to oil prices, the real economic contributors, who generally don't realize their value financially, were hurt the hardest.
Posted by: aaron at Dec 9, 2008 9:03:18 AM
There is in development a new paradigm. It is called Transfinancial Economics.
http://www.p2pfoundation.net/Transfinancial_Economics
Posted by: Robert Searle at Dec 9, 2008 9:12:20 AM
Alex,
Obviously, given the views you and I share regarding government planning, it is no surprise that we can't point to obviously dumb outcomes when the State is heavily involved in an industry (such as electricity provision). But I am not hopeful that the solution is for experts to recommend to politicians the "smart" way to centrally plan (though in fairness you are recommending deregulation at points). I trust Obama with smart grids the way I trusted Bush with smart bombs.
Posted by: Bob Murphy at Dec 9, 2008 9:16:35 AM
Heh typo: "...it is no surprise that we CAN point to obviously dumb outcomes..."
Posted by: Bob Murphy at Dec 9, 2008 9:17:35 AM
I wished that Professor Krugman, even if he did not say that maybe he really thought it, that "auto industry is going to disappear". Good, if auto industry is going to disappear we would need less roads and bridges to "nowhere". It would make sense to restructure the economy towards less car, less oil, just same amount of cars and more alternative and efficient energy use. Let’s invest in something else than usual infrastructure. I really wish the car industry would disappear, around Europe as well. Think for a moment how it would be without private cars. If you cannot imagine a world without private cars just imagine one with small and fuel efficient ones, trains, public transport, car-sharing, car renting, home delivery, etc. No SUV to go to work, to take children to school or to go shopping. Save oil money and invest it in alternative energies and network of energy producers.
Posted by: Massimo GIANNINI at Dec 9, 2008 9:18:41 AM
Ours is a service economy, and it won't be effectively stimulated if infrastructure for human services isn't included in the stimulus package. Many of the unemployed possess skill sets that are better matched to service jobs than to construction, and it will be difficult to rejuvenate the economy if these people are not put back to work effectively, as argued at:
"Stimulus Should Include Essential Services"
http://calibansmarket.blogspot.com/2008/12/stimulus-should-include-essential.html
Further, our nation's social, educational, health and other systems of human infrastructure are in need of renewal. If younger workers and families are struggling financially, just imagine the problems for the elderly who have seen the value of their homes and their retirement accounts dwindle, with little prospect of having the time or the means of making up the deficit. Poverty, chronic illness, and other problems are also placing a heavier burden on both yound and old at this time of economic downturn, as noted at:
"Policy for Financial Crisis Should Target Those Most in Need"
http://calibansmarket.blogspot.com/2008/11/policy-for-financial-crisis-should.html
Some portion of the infrastructure stimulus should be directed to where it will meet immediate human needs, stimulate large sectors of the economy, and provide for building the human capital that this nation needs for its future growth.
Posted by: David Thompson at Dec 9, 2008 9:19:11 AM
I just wanted to say, on the question of grids versus roads, you sure persuaded me!
Posted by: Noumenon at Dec 9, 2008 9:22:13 AM
The California electricity crisis is an odd thing to choose as an example of failure of our "primitive" grid. It was pretty much a shakedown of the state by Enron and others prompted by ill-advised deregulation.
Posted by: jimbo at Dec 9, 2008 10:28:34 AM
SmartGrids would not have prevented the Ohio outage. Much of the failure was caused by inattentive operators and buggy software. The system was smart enough to tell the operators thay had massive problems, yet they did nothing to prevent the disaster in the 20 minutes or so they had before total blackout.
That being said, upgrades to our electrical infrastrucre is a good idea.
Posted by: theCase at Dec 9, 2008 10:46:59 AM
I think a smart grid is less "centally managed" - if that helps.
Posted by: odograph at Dec 9, 2008 10:51:46 AM
"Plug and play architecture means that new technologies such as electric cars can be automatically used as both consumers and producers (via storage) of electricity, as needed, on the fly."
A good reason not to buy electric cars if they could be drained of power to keep up the grid.
Posted by: billswift at Dec 9, 2008 11:01:07 AM
Germany is not the Western US, nor is it rural America.
Maybe congestion theory will work in the NE corridor but it's punitive elsewhere.
Posted by: Organic George at Dec 9, 2008 11:15:37 AM
Nothing will improve until the excess supply of housing is eliminated and people and businesses finish liquidating assets to payoff debts. Politicians are blowing smoke.
Posted by: jorod at Dec 9, 2008 11:53:55 AM
Bob Murphy, Alex; expanding upon jimbo: Smartest Guys in the Room [Enron documentary] makes it clear that immediately after deregulation, Enron moved to maliciously control energy supply, causing the meltdown themselves. They had codenames like "The Wheel" to describe routing the power in and out the state creating fluctuations and scarcities. It wasn't the dumb grid, it was the dumb traders.
Posted by: NE1 at Dec 9, 2008 12:09:26 PM
Road use pricing and smartning up the electricity grid are both sensible things to be planning to spend big on. Both the private benefits and the reduced emissions from each of them are well worth investing in. The trouble with both right now is that they have long lead times. You cannot properly smarten the grid until you have done quite a lot more modelling of grid configuration behaviour, lined up how the investment will be financed and then put out to tender and let complicated contracts. Equally, getting local political consent to road pricing will be a long process; and properly piloting and de-bugging the system will take years. The things Obama is focussing on now are the least bad things (many of them fairly good in the medium to long term) which there is a good chance of getting substantial spending going on soon.
If we are lucky, substantial spending on modernising the electricity grid(s) may be able to take up the budget "slack" after pulling out of Iraq and then rebuilding the army's inventory of equipment. But it is stuff for the legacy of Obama's presidency, not the first few months.
Posted by: David Heigham at Dec 9, 2008 1:04:31 PM
In news totally unrelated to featherbedding and the ability of the government to base decisions on rational cost/benefit analysis, from the markets in everything department, Senate seats are now available on Ebay.
Posted by: Andrew at Dec 9, 2008 3:45:06 PM
John wrote:
City mass transit needs to be improved in many of the large metropolitan cities that have wide sprawl such as Atlanta, Los Angeles, and Houston. If energy prices rise, these cities could face a very challenging future.
In the USA mass transit uses more fuel per passenger mile than the current fleet of cars.
Posted by: floccina at Dec 9, 2008 5:08:58 PM
BTW IMO safer motor cycles/scooters like the BMW c1 200 might be a much better solution than mass transit along with car pooling and ride sharing, samller lighter cars etc. We use so much petroleum becuase it is so cheap.
Posted by: floccina at Dec 9, 2008 5:12:23 PM
Alex,
Nice post.
Posted by: mickslam at Dec 9, 2008 5:13:24 PM
floccina-
Which is why a gas and/or carbon taxation is the way to go. People will start to buy those scooters and demand that they be safe on the road on them if had the right incentives.
Posted by: mravery at Dec 9, 2008 5:35:15 PM
@ floccina: There seems to be considerable debate, much of it at levels of expertise far above my own, about the relative efficiency of various kinds of mass transit compared to the current fleet of cars. Perhaps, rather than a blanket claim you could provide some instructive links?
More broadly: given what seems to be a moderately wide Keynsian consensus, what the Obama administration faces is a choice of HOW to spend a sizable stimulus in a way that (a) has high effectiveness in stimulating economic activity and job creation, and (b) is not, given the first goal, otherwise wholly wasteful (hiring one group of workers to bury stacks of money, and a second group to uncover it again).
The 'infrastructure' argument here seems to be largely about the details of (b), and these are important questions. What kind of spending on infrastructure will not be a waste in a few years. Improving building energy efficiency -- not just with light bulbs, but with more major changes -- seems plausible, here. So does a smart grid. So, frankly, does catching up on the admittedly large amount of deferred maintenance in our existing transportation infrastructure: this offers a range of jobs, from plain manual labor (repaving) through high-end (engineers, welders, etc.)
While I favor investment in mass transit where its sensible -- and there are a lot of places in the US where it would be sensible, believe me,...or just visit the moderately dense parts of Western Europe, which equate to our suburban areas -- it's less clear that large mass transit projects would fulfill goal (a), and it's not improbable to claim that many of them would also be boondoggles of the kind that (b) needs to avoid. The lead time of smart projects is considerable, so there wouldn't be much stimulus, and right now is the worst time to expect smart choices about where to invest, since everyone will clamor for maximal solutions in their local area of interest.
So caution is called for in the 'big projects': but really, between maintenance and small-scale projects (express bus lanes, remarking, electrifying bus lines, etc. etc.) there's still a lot that CAN be done on transportation infrastructure, it seems.
Posted by: PQuincy at Dec 9, 2008 8:07:23 PM
Very good post - the electricity infrastructure needs a thorough look.
"That's unfortunate because we already spend over $100 billion a year on transportation infrastructure and the truth is we don't need that much more. "
Well, not especially. Our roads are not really all that great. Having two major changes - increasing construction standards to near Autobahn quality, and forcing a Surety Bond by the bidders of 40 years (to encourage the building of superior roads) - would increase this cost, though give us a better system.
In addition, identifying where to improve public investment in freight rail, to transition from trucks, would cost a bit more too. Given the very large constraints constructing new rail systems, both financial and regulatory, it's a good time for this.
Posted by: Dave at Dec 9, 2008 8:08:18 PM
