All of the above transportation policy
Underfunding rail and ships at the expense of highways impacts the energy transition
Before steam engines, businesses and governments would harness the power of the wind with sails and gravity on rivers to move massive shipments of goods from one place to another. The dawn of fossil fuel-driven transportation brought about new markets where shipping across land became a cost-competitive possibility. The US government decided in the 1950s to invest in bringing trucking costs down and policy supporting other transportation modes has lagged behind. Let’s talk about the missing pieces of all of the above transportation policy.
How the US moves *stuff*
The US is the fourth largest country in the world by land mass, only trailing China by a few thousand square miles and Canada by a few thousand more (Russia is easily the largest country). Unlike China, Canada, and Russia, the US population centers span the entire geography. This means US shippers have a unique opportunity to handle freight domestically in both massive volumes and across large distances. Over the years, this has resulted in a number of truly gargantuan infrastructure projects by the US government to grease the wheels of industry by clearing the path for better interstate commerce.
The transcontinental railroad was the first time the US government stepped in. This project was less about opening up shipping lanes to a then sparsely populated American West and more about holding the territories adjacent to the Pacific Ocean. Politics after the Civil War gave the final nod to create better national unity through such a project and the US government provided private rail companies land grants and 30-year federal government bonds at a 6% interest rate to get construction off the ground. This reminds me of today’s “green bank” in the Department of Energy’s Loan Programs Office that can offer up to $400B in lines of credit for clean energy projects. The Inflation Reduction Act funding model is pretty old school!
Railroads are great, but big, heavy items are best transported by boat. France started the Panama Canal in the late 1800s and ultimately abandoned it due to a lack of investor interest. Seeing an opportunity to transport goods coast to coast completely over sea, the US government picked up the remaining tab to complete the project’s initial construction in 1914 at a cost of $500M. This is around $23B in 2023 money and was directly paid by the US government to construct the canal, making it the largest government construction project at the time.
After World War II, there was a strong appetite to employ troops who had come home from the war to find that their wives had picked up factory jobs, figured out child care, and left them a bit surplus to the operation at home. President Eisenhower had personal experience crossing the US by car and found the experience abysmal, thus the Interstate Highway System project was born. Initially funded by fuel taxes, the new highways ran into a myriad of legal and cultural challenges during construction that caused costs to balloon during the first 10 years and nearly killed the project. President Kennedy sped up construction by signing into law the 1962 Federal-Aid Highway Act. This act adjusted interstate highway planning to require engagement from local officials with the ultimate goal of getting the highway segments built. The project was expected to take 12 years and $25B to complete but ended up $114B ($618B adjusted for inflation) and was claimed completed in 1992 after 25 years, though many gaps in the original plan still exist.
Of these three government-funded projects, the interstate highway system is the biggest boondoggle but continues to be pushed through even today. Trucking dominates domestic shipping in the US with more than 70% of the total value and 65% of cargo weight moved annually. Compared to rail and boats, trucks are much less efficient at moving heavy cargo, but they have cheaper access thanks to the enormous implicit government subsidy provided by the Highway Trust Fund that maintains the highway system increasingly through contributions from the general fund rather than transportation-related taxes. Trucking as the preferred mode of freight transportation in the US is a policy choice.
Transportation needs more choices
Why spend 600 words talking about the history of how the government has funded transportation modes in the US? First, I read this delightful article about the struggles the US has in building ships these days and I wanted to dive into the incentive structure that is in place further. It’s wild how the US has had multiple times where a shipbuilding boom has resulted in American-built ships dominating international trade, only to have the industry be crushed under its own weight of overproduction and high costs. US ships went from carrying 60% of the world’s commercial shipping tonnage after the conclusion of World War II to less than 0.25% today. The decline is shocking in the macro view but less surprising given that from 2020-2022 the US built a total of 12 large oceangoing ships while Europe, Japan, and Korea built hundreds per year and China built thousands. The only reason the US builds any ships domestically today are for military purposes or to have enough ships to work around archaic laws like the Jones Act that force cargo carried between US ports to be carried on US-built ships.
More germane to the clean energy transition and business impacts, I want to emphasize that the US government has shaped how the country operates for more than a century through policy. The “invisible hand of the market” has long been the federal government and the genie is not going back in the bottle. Today, policy works asymmetrically toward incentivizing trucking to move goods while throwing a fraction of the subsidies at other modes of transportation.
In this current funding model, it makes sense that the most successful parts of the clean energy transition so far in the US have been the adoption of solar and EVs. Solar panels are easily transported via truck and EVs benefit from the same massive highway subsidy program as any other vehicle.
Until there is more investment in shipbuilding or the restrictive laws around domestic freight handling are addressed, the US offshore wind industry will lag behind the rest of the world. Building offshore wind turbines requires trips back to shore on specialized ships. Only one American-built ship capable of this operation exists today, and the Jones Act prohibits using the myriad of European ships that have been building offshore wind turbines for decades.
Similarly, investing in railroads again would serve to reduce congestion and the need to invest as heavily in highways, especially in heavily populated corridors. It sounds like a lot of money but Amtrak estimates it would cost $151B to upgrade train service from Washington DC to Boston to high-speed rail. That’s slightly more than a single year of highway funding to provide world-class train service in the most densely populated American corridor that could better carry both people and freight. Backers for all of the above energy policies claim it is the market solution that will help the economy move most efficiently toward a clean energy transition. It’s time for an all of the above transportation policy platform.