The Government's Uneven Hand
State intervention in the
This feature is the second of two devoted to the Illinois transportation marketplace, in particular whether and how state government might intervene in that market. Part One of the mini-series, a discussion of transportation and the economics of oil, appears here.
Will Illinois become the Saudi Arabia of the next century? Faced with continued high demand and increased dependence on imported sources of oil to run its cars, trains, buses and airplanes, Illinois officials have turned to the task of boosting the production of petroleum substitutes from the state's rich supplies of corn and coal.
For the moment, even OPEC oil remains cheaper than synthetic motor fuels from coal or fuel ethanol distilled from corn and other agricultural products. But the price gap has been closing for years, with the result that alternatives which were dismissed as uneconomical just five years ago now may have a future.
Looking forward to that day, Illinois has set aside $70 million through the 1977 Coal Development Bond Act to help finance coal synfuels plants. Gov. James R. Thompson has set up a "fast-track" permitting process to speed approval of major energy projects. Major oil companies like Shell have been buying large blocks of Illinois coal reserves, presumably in anticipation of the day when they will get much of their products from factories instead of wells.
The manufacture of fuel ethanol from corn and other farm products offers similar possibilities. Largely as a result of the pioneering work by the Archer Daniels Midland Co. (ADM) of Decatur, Illinois is the nation's leading producer of fuel ethanol, with production expected to hit 220 million gallons by 1982. It was largely to provide a stimulus to this industry that Thompson ordered the conversion of the state fleet to gasohol in 1979. But Thompson also vetoed bills to exempt gasohol from state motor fuel taxes, on grounds that the state's road fund could not afford it. He did approve a five-year exemption for gasohol from the state's 4 percent sales tax, however, ending in 1985.
Ultimately, what the state does or does not do for coal synfuels or ethanol may not matter much. For example, there are doubts about just how much petroleum they could replace. Even a large coal synfuels plant of the sort envisioned by the Clark Oil Co. could replace barely 4 percent of the state's own petroleum consumption, and it would take nearly one hundred plants the size of ADM's to make enough ethanol to satisfy Illinois drivers. Worse, coal synfuels plants are extremely expensive to build and pose environmental risks, while a major shift of grains to ethanol production threatens disruptions in grain markets and upward pressure on food prices.
The biggest question, however, goes straight to the heart of the market-based philosophy of energy planning: Will petroleum substitutes ever be profitable? The Rand Corp. recently concluded that more than half the oil reserves in the U.S. have already been tapped and that the U.S. can maintain current levels of production for only 20 to 40 more years. Other estimates are slightly more optimistic, but the plain fact is that the expansion of domestic production predicted to follow deregulation hasn't happened. There just isn't that much oil left. Unless demand is dramatically curtailed, the U.S. is likely to remain dependent on OPEC oil for quite some time to come.
The world price of oil
What does this mean for Illinois' nascent petroleum-substitute industry? Both OPEC and non-OPEC suppliers, such as Mexico, have made clear their intention to match supply to demand, even if it means slashing output by up to 30 percent of current levels over the next 10 years. (The "glut" of the summer of 1981 was manufactured by the Saudis in an effort to force down OPEC radicals to a common price; rather than weaken OPEC, the glut was aimed at strengthening it.) The intent is to keep world oil prices at or below the cost of its alternatives. Rising oil prices will never create a market for substitutes as long as a cartel of suppliers can prevent prices from rising quite high enough.
This kind of manipulation of the market is hardly new, nor does it occur only outside Illinois' borders. In 1949 General Motors and several other large corporations were found guilty in Chicago of antitrust violations. They conspired to buy up and abandon the electric mass transit systems (streetcars and electrified buses known as "trackless trolleys") that served many smaller cities and replace them with motor buses. Acting through an "independent" bus company, GM bankrolled the takeover of trolley systems in Galesburg, East St. Louis and Joliet, among many other cities. Notes Jonathan Kwitny in Harper's, such actions "created a transportation oligopoly for the internal-combustion engine" and showed "what can happen when important matters of public policy are abandoned by government to the self-interest of corporations."
There are dangers as well as dilemmas in trusting energy policy to a "free market" that is anything but free. For example, the State of Illinois officially acknowledges its willingness to intervene in the transportation marketplace in two types of cases: the regulation of monopolies (where market forces do not apply) and the subsidy of mass transit (which is justified on the grounds that mass transit serves a clientele who cannot otherwise compete in the transportation market). Beyond that, the state seeks merely to match the supply of transportation (chiefly through capital investments) to the demand defined by the market.
But whether it intends to or not, the state does more than just serve the market. It shapes it as well. To pick one example, when a new four-lane highway is built connecting a city with its distant suburb, the state is satisfying a market demand. But it also stimulates development of the land in between, spurring the flight from central cities by making outlying areas accessible, cheating urban mass transit of riders and stimulating the demand for more cars—and more oil.
Another example: critics often complain that the fees charged by the state to trucking companies do not cover the cost to the state highway system of truck-related wear and tear. Underassessment of fees amounts in effect to a subsidy of the trucking industry by taxpayers and motorists. It also has helped divert freight from more energy-efficient railroads, which receive only minor subsidies. Similarly, until recently the users of the state's waterway system (which carries 11 percent of the state's intercity freight, ineluding most of the state's exportable commodities) paid virtually none of the costs of maintaining and improving that system. Railroads, which can compete with barges on an energy basis, cannot compete so well on a cost basis.
The problem is not so much that the state intervenes in the transportation marketplace, but that it does so inequitably. "There is no effort from the state to intervene uniformly," explains Bruce Hannon, director of the Energy Research Group at the University of Illinois. "The state could tax trucks and/or truck fuel as well as waterway operators to try to equilibriate the various modes and make the marketplace simulate the real costs of each." It is true, as Yale economics professor Paul MacAvoy wrote recently, that "the imperfect market produces results faster and to a far greater extent than imperfect policy." The problem is that they may not be the results desired.
Still, even an imperfect transportation market has achieved significant—and unexpected —economies. One of the difficulties in making energy policy is that no one acts precisely the way they are expected to. A few years ago it was assumed that gasoline demand was fixed, or inelastic, but it has since become clear that it only seemed inelastic because no one had ever stretched it. Economists now say that for every 10 percent rise in price there will be a 1.5 percent drop in demand attributable to price. Using Illinois' experience since 1978, during which time each 10 percent price rise brought a corresponding 3.8 percent drop in consumption, demand may be even more stretchable.
Of course, the greatest fuel savings result when one doesn't use the car at all. At least it would seem so; mass transit ridership in the six-county Chicago metropolitan area has been increasing at a rate of 2 percent to 3 percent per year. Statewide, mass transit carries roughly 823 million riders annually (800 million of them in the Chicago area) aboard 12 commuter rail lines, 36 bus systems and 11 rapid transit lines. As the recent legislative sparring over the Regional Transportation Authority confirmed, mass transit is vital to Chicago; an estimated 80 percent of all trips made into the Loop, for example, are made via mass transit.
From a social perspective, mass transit has many virtues, from cleaning urban air to relieving congestion to providing transportation to the poor. But since 1973 it has also been touted as an energy-saver. A team of researchers headed by Professor David Boyce of the University of Illinois recently completed an exhaustive analysis which yielded comprehensive energy accounts for urban transit in the Chicago metropolitan region. The study revealed that the direct energy consumption of the automobile was 4.63 megajoules (a megajoule is the equivalent of 737,500 foot-pounds of work) per person-kilometer, while that of public transit (an average of all types) was only 1.26 megajoules per person-kilometer. In Btus and miles, this works out to about 7,065 Btus per person per mile for cars compared to 1,923 Btus for public transit. Public transit, then, is roughly 3.7 times more efficient a people-mover than cars. Even taking into account the high indirect energy required for the construction and maintenance of mass transit systems, Boyce and his researchers found that public transit remains far more energy-efficient than the automobile (3.23 MJ/PK compared to 9.41 MJ/PK).
The right transit system
But any transit system is only efficient if it is used. Boyce learned that the efficiency of public transit varied considerably from place to place within the Chicago metropolitan area, depending on the system's occupancy. Rail systems are vastly efficient on crowded, urban short hauls but on intercity runs a half-empty train can use more energy than a bus, no matter what its other advantages. Similarly, a fully loaded, standard 40-passenger urban bus can be more efficient even than a train, but running such a vehicle (which gets roughly six miles per gallon) on lightly traveled routes or at night is energy-extravagant. There is no "right" transit system from an energy point of view. The challenge of transportation planning is to apply the appropriate technology to a given need.
From the point of view of the individual, the chief advantage of mass transit over the automobile—indeed, the only advantage—is that mass transit is cheaper. But this is only because mass transit is heavily subsidized, in Illinois as elsewhere. (Fares provided only about 48 percent of the Chicago Transit Authority budget in 1979.) As mass transit costs rise, and pressure mounts to earn more of those costs from the farebox, the price advantage of mass transit erodes. The Milwaukee Road, for instance, has calculated that if ticket prices were revised to cover all current costs, round-trip fares from suburban Arlington Heights to Chicago's Loop would jump to $148.59 a month (somewhat less with a monthly ticket), while the cost of making the same trip by car (including parking) would be $157.50.
Even with subsidization by federal and state funds, however, mass transit in the Chicago area accounts for only 11 percent of the passenger miles of travel. The reason why more people don't ride the bus is the same reason why the consumer swing to smaller cars did not begin in earnest until about 1979, some six years after OPEC first boosted its oil prices. The reason is that until then gasoline was still relatively cheap. After adjusting for inflation and the rise in purchasing power, the price of gasoline in constant dollars in the U.S. (the so-called "real" price) declined in the '60s and '70s and did not even reach the level of 1960 until late 1979. It has only been in the last two years, in other words, that price has begun to act as a rationing mechanism.
Mass transit illustrates the dilemma of transportation policymaking in the 1980s. In spite of its acknowledged advantages, mass transit has not won the endorsement of the market. The market prefers the automobile, since the dollar value attached by most commuters to the comfort and convenience that cars provide compared to mass transit makes the auto's nominally higher costs seem a bargain. For the sake of the broader, non-economic benefits offered by mass transit, the public (acting through its representatives) can contravene the market by maintaining ridership, keeping routes open and fares below their true cost. Or the public can allow the market to kill mass transit through atrophy, and pay what amounts, in effect, to a subsidy to OPEC through continued high oil consumption. The market will always allocate service according to cost. The trouble is, there is more than one kind of cost.
Government can undertake to cover social debts left unpaid by the market. How, and how much, is a question confronting transportation planners. Transportation policy in Illinois is shaped by many hands—new inventions, traditional market forces, special interest politics, geography, Washington. Each transportation mode gradually evolved its own constituency, its own lobby, its own unique set of priorities, sometimes in competition with, yet still separate from, other modes. Energy played little or no part in the process, being cheap to all. The result is a "system" which is not so much a system as a collection of parts, with railroad tracks running parallel to interstate highways carrying trucks carrying the same kind of freight carried by trains, and rapid rail tracks running down the median of urban expressways, each carrying commuters to the same offices.
But it seems clear that neither government nor the private sector in Illinois will be able to afford to build so extravagantly in the future. The Illinois Transportation Study Commission (ITSC), which was set up to advise the General Assembly on such matters, notes that simply maintaining the existing ad hoc state system at "minimally acceptable" levels will take nearly $15 billion in new money over five years, and even that estimate presumes undiminished federal funding, which the commission admits is "an indeterminate but unlikely prospect." It seems likely that only essential transportation systems will be affordable, and one way to define "essential" is any system that can move the most people and goods at the least cost—including energy cost.
The need may not be to refinance transportation in Illinois but to rethink it. In the last 50 years, transportation has come to be dominated by the car and the truck, which offer unparalleled convenience at unparalleled cost in energy, land, wealth and the environment. To an extent, the economies achieved to date have led the public and public servants to believe that transportation in Illinois can remain business almost-as-usual. But changes that affect the car affect virtually every facet of life, because the car has shaped everything from land use to lifestyles.
In many ways, local governments have outdone the state in recognizing the implications of the transportation energy problem. The Springfield-Sangamon County Regional Planning Commission, for example, has adopted energy-saving policies which are being incorporated into city and county master plans. Those policies call for stricter zoning controls and incentives to spur central city redevelopment, restrain urban sprawl and encourage mass transit use in an attempt to slow the dispersion of the urban area and the consequent waste of energy in commuting. The policies recognize that land use and transportation are inextricably linked, that more roads are not necessarily the solution to urban transit problems.
Given transportation's pivotal role, having an articulated transportation policy is to have a de facto energy policy as well, even a land use policy. But there is not yet such a plan at the state level. The Illinois Department of Transportation (IDOT) is required by state law to draft a comprehensive 20-year state transportation plan but so far has failed to do it. I DOT claimed last year that such a plan would be "inappropriate in these times of uncertain funding, rapidly changing energy and social conditions and pressing inflationary problems." IDOT's critics, while admitting the difficulties of planning in such an unplannable time, accuse the agency and governors of wishing to remain able to promise to build roads according to politics rather than a plan.
"I concede that energy considerations are critical to transportation planning," explains Fred Schoenfeld, the executive director of the ITSC. "But in the absence of that document, it is difficult to go to the next step and address energy concerns. We're a long way from beginning to address the energy trade-offs between, say, rail freight and freight transported on highways." Says the U of I's Hannon, "I don't know what the state is doing."
The real oil crisis
As the study commission notes in its 1981 recommendations to the General Assembly, "The entire set of beliefs, expectations and behaviors we have become accustomed to vis-a-vis highways should be now subject to re-evaluation. . . . On the horizon are dozens of technological adaptations and developments. These range from major shifts to alternative fuels such as alcohol to varieties of more esoteric vehicles." The commission concludes, "The real oil crisis is still perhaps 5 to 20 years away and what is going on now is largely an effort to avoid its fullest impact rather than come to grips with it." ■
Sidebar: Transportation modes: old, new, borrowed
How are people likely lo get around in a world increasingly short of affordable oil? In the short term, experts agree that better management of the existing transportation system is the key — car pooling, more use of bicycles, more use of buses (which will vary in shape and si/c according to their role, from 100-passenger articulated models to small vans), more use of computer-assisted demand transit systems (similar to services now offered to the handicapped and elderly in some cities) and of line taxis.
Making more efficient use of present transportation technology will probably mean making social changes as well. For example, Milton Pikarsky, the former chairman of the Regional Transportation Authority, recently noted that the high costs of private transportation have forced some Illinoisans to renegotiate what he calls the social contract covering transportation. Traditionally employees have been responsible for delivering themselves to work. As it becomes too expensive for workers to live up to that responsibility, employers such as Northbrook's Allstate Insurance Companies have supplied administrative coordination and initial capital investment for a commuter fleet of 56 passenger vans; employees in turn supply operating expenses (including labor as drivers) and fees to retire the purchase costs.
The automobile is likely to remain the key element in any transportation system for the foreseeable future. For the moment, cars will continue to run on gasoline. What will change is the efficiency with which that gasoline is used. The Ford Motor Co., for example, is already preparing to produce a two-seater that will get 70 miles per gallon on the highway.
But inventors are looking forward to the day, perhaps as soon as the 1990s, when cars will not use gasoline at all. Alcohol fuels (either ethanol from grain or methanol from coal or from plentiful cellulosic plant matter such as trees, crop residues and sawmill wastes) continue to be the subject of federally funded research. In Illinois, researchers are exploring for ways to use the state's crop wastes, even weeds, as motor fuels, engine lubricants and fuel extenders. In another development with implications for Illinois, General Motors has unveiled an experimental car that runs on finely powdered coal; the fuel is efficient (almost twice as efficient as gasoline) and cheap, although air pollution remains as much a problem in cars as it is in power plants.
Coal is more likely to be used in cars in a different form—as electricity. Electric cars are nonpolluting, and they can be recharged at night when demands on coal-fired generating plants are lowest. An Italian businessman has installed an experimental system in Brussels using small electric cars and a network of garages. A driver "checks out" a car from one garage and checks it in at another near his destination, where it is recharged; he is billed for the time the car is in use at rates estimated to run one-third those of taxis. But storage batteries remain heavy, relatively short-lived and expensive to replace, and the range of the electric car is limited to relatively short city trips.
There is, however, another type of electric car which does not use cumbersome storage batteries. Fuel-cell vehicles use a chemical fuel (such as hydrogen) which produces an electric current when combined with oxygen over an electrolyte; tests have already been performed using fuel cells to power city buses, delivery vans, trucks, even golf carts.
At present virtually none of the transportation energy in Illinois comes from coal. But electric vehicles, from high-speed commuter trains to streetcars and "trackless trolleys" or electric buses, once were common in Illinois. Electric systems are making a comeback in other states: San Diego, for example, recently debuted an electric trolley running between that city and Tijuana. There is talk in Illinois of harnessing coal for long-distance trips too. In 1980 the General Assembly authorized the High Speed Intercity Rail Passenger Compact with six other states to explore the feasibility of high-speed electric trains on various major routes, including the Chicago-St. Louis and Chicago-Milwaukee corridors. The report of that study is due in January. 1982.
Too "futuristic"? Hardly. In 1900, nearly 40 percent of all the cars on American roads were electric. Rudolph Diesel originally designed his new engine to run on powdered coal. Henry Ford's early models were made to run on either gasoline or alcohol. And sixty years ago, Illinois boasted 3,400 miles of intercity electric railway track which carried more than a billion passengers a year. Illinois' transportation energy dilemma was not caused by what we don't know, but by what we knew and forgot.