The Effect of Cap-and-Trade on Cincinnati

The Congressional Budget Office (CBO) recently estimated that proposed Cap-and-Trade legislation would slow GDP growth 0.2-0.7% by 2020. Via The New Republic, here is an interesting map of showing the expense by Metro area. The cost of Cap-and-Trade legislation would be $244 per household in Cincinnati - the 6th highest of the 100 largest U.S. metro areas. The key driver of this is the wide fluctuation in temperatures in the Midwest, which increases heating and cooling expenses (Los Angeles has the lowest expense of $96 per household).



So, from a strictly self-interested perspective, Cap-and-Trade is bad news for Greater Cincinnati’s economy. But this is kinda the point of the legislation - Carbon taxes attempt to raise the relative cost of carbon intensive behavior, so as to discourage it. It is an incentive to drive less and live in places with lower utility expenses. Unfortunately, Cincinnati ends up on the losing end.

I still think a carbon tax is still the correct policy for the country to curb emissions. However, I would expect our politicians to demand a new bridge, a bunch of hybrid buses, or an extremely expensive rail system in exchange for their votes on this bill.

Funny Stuff

Via SNL - A concise summary of the United States' fiscal situtation delivered by our creditors.

Hybrid Buses and Service Cuts

In April, Cincinnati Metro purchased six new hybrid diesel busses for $515,000 per bus. That’s $180,000 more than the price of each traditional buses. But, Metro estimated that each hybrid would save about 3,000 gallons of diesel annually. The Enquirer cited Metro CEO Marilyn Shazor as saying "For a tax-supported transit system like ours, it's about being green and saving green at the same time." Metro argued that it had made both a smart environmental decision and a smart business decision.

I am skeptical, so I ran some math… The average price of diesel today is $2.80. Buses have an expected lifespan of 12 years.
-($2.80 per gallon) x (3,000 gallons of diesel per year) = $8,400 per year
-($8,400 per year) x (12 years) = $100,800 savings over the lifespan of each
hybrid diesel

So, the hybrid buses will save $100,800 in fuel costs over their lifetime. However, hybrid busses cost $180,000 more than the old diesel buses. That leaves about an $80,000 loss per hybrid bus. It’s actually probably more than that because I did not discount future payments as I should according to financial theory ($8,400 today is worth much more than $8,400 12 years from now). For simplicity, I’ll stick with an $80,000 loss per bus.

There are two reasons givens for the switch to hybrids - the fuel costs and the environmental impact. So, we could say that $80,00 loss per bus is environmental spending. But, we should balance this environmental spending against the damage being inflicted on the environment (After all, there are many other ways to spend this money that coupld have a positive impact on the environment). A NAS study recently estimated the environmental damage from diesel at $0.23 - 0.38 per gallon. Using the high end estimate, the additional damage to the environment over the 12 year usage of a traditional bus versus hybrid is $13,680. So, Metro is spending $80,000 per bus today for $13,680 in improvement spread over 12 years.

In summary, for hybrid buses - We’re paying additional $180,000 for expensive buses saving $100,000 in fuel (over 12 years) and our guess is positive environmental effects are worth $13,680. So, there’s a waste of $66,000 per bus. That’s $66,000 x 6 = $396,000 in 2009 and another 15 buses or $990,000 in 2010. Presumably, Metro could replace its entire 388 bus fleet at $200 million with $25.6 million of it being lost due to inefficiency. These are just back of the envelope calculations, but I believe I am using assumptions that are the most favorable for the hybrid buses. Also, some factors I did not take into account (due to the uncertainty of information) are: the higher ongoing maintenance cost for hybrid busses and the fact that we don’t know that they can last 12 years. I’m open to the possibility that hybrid buses will one day be the way to go, and am willing to pay a price for green solutions. However, the numbers just don’t add up on this one.

The reason I bring bus purchases up now is that Metro has found it's way into a $16 million shortfall. Cincinnati is facing a 12% cut in service along with an increase in prices. However, the 21 scheduled purchases are worth $11.5 million and that money could plug a good chunk of the budget hole. I have to image the people analyzing the decision at Metro realize this. So, we get to the root of the problem: Federal stimulus money paid for a large chunk of the hybrid bus purchases. To quote Metro’s website “These federal funds could only be used to buy new buses. This money could not be used for Metro’s daily operations like paying driver wages or buying fuel.” …What’s a better stimulus - expensive replacement buses or keeping routes operating so people can go to work?

Mel Kiper's Opinion

Each year, the NFL draft is eagerly anticipated by football fans. It’s sort of a little Christmas in April. Unfortunately, ESPN has a monopoly on television coverage and chooses to staff their otherwise capable draft program with the hyper-incompetent Chris Berman & Mel Kiper. Yes, the genius Mel Kiper who every year confidently gives his expert judgment of the NFL draft. How is he able to grade each team’s draft performance before a single game with the rookie players and also with a much smaller scouting department than the NFL teams? I'm not sure, perhaps we should just look at his past grades of Bengal drafts...

On his blog Tuesday, Paul Daugherty pointed out that with the Bengals’ release of Chris Perry, they now have zero players remaining from the 2004 draft. Henry, Fanene, and Ghiaciuc are the three players remaining from the 2005 draft. 2006 is much better with Joseph, Whitworth, Peko, & Rucker all now being contributers. Daugherty wonders what Mel Kiper gave the team for draft grades those years. Kiper, of course gave the Bengals As in 2003 and 2004, while giving 2006 a C. Kiper does not like 2007 or 2008 either, but it’s too early to tell. Here's a little more detail on Mel Kiper's opinions of Bengals drafts:

What I find amazing is not how poorly Kiper has done at predicting the value of Bengal draft classes. Rather, it's amazing how consistently he is exactly wrong. For every year, besides 2003, Kiper is close to the opposite of correct in his assessment of Bengals drafts. If Kiper had just gone with the opposite of his gut assessments, I might now be calling him a genius.