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Invest Now or Pay the Price Later

August 28, 2014 By Maria Brun, Graduate Research Fellow

Debt, the deficit, shrinking government—however it’s worded, cutting public spending is a popular, easily packaged for a good sound bite message used by politicians and the media alike. Commentators and bloggers have debated this topic from every angle ad nauseam, from labeling it communism to citing a misguided shift to economic theory largely disproven by reality (see Paul Krugman).

Infrastructure spending often takes the brunt of the hit from this debate, with many “deficit hawks” arguing that government spending not only crowds out useful private investment but, with the current deficit, should be reigned in. Other reports, including a GAO study, indicate that the recent trend of low levels of infrastructure spending is actually hurting the nation’s economic recovery.

Regardless of the merits or demerits of the public spending debate and infrastructure spending more specifically, there are scarier figures than our public debt that, sooner or later, we’ll have to face both at the state and national level.

As of 2013, our public infrastructure receives a “D+” overall from the American Society of Civil Engineers (ASCE). From their infrastructure report card, ASCE concludes that there is a “significant backlog of overdue maintenance across our infrastructure systems, a pressing need for modernization, and an immense opportunity to create reliable, long-term funding sources to avoid wiping out our recent gains.” By recent gains, ASCE is referring to an improvement from an even more abysmal D grade four years ago.

The ASCE projects that investment for airports and waterways alone is likely to fall short by nearly $150 billion between 2012 and 2014. Our deficient investment in infrastructure is estimated to cost U.S. industries and households approximately $34 billion due to airport congestion and $59 billion due to deficient inland waterways and marine port infrastructure in 2020, raising to $63 billion and $82 billion, respectively, by 2040.

These figures don’t include other key infrastructure, including energy infrastructure, which is even more worrying given its underlying importance for all major parts of society from industry to public health. Citing a range of issues from 100 + year old transmission and distribution equipment to failing pipelines (San Bruno, Kalamazoo River, to name the most notable of many) that have caused an increasing amount of economic and environmental damage, the ASCE also graded our energy infrastructure at a “D+”.

According to the International Energy Agency’s World Energy Investment Outlook, $40 trillion in energy infrastructure investment will be required between now and 2035 globally, a figure that the private and public sectors will struggle to meet. More illuminating is the fact that over half of that investment is needed just to keep up with current energy needs. Though that is a global figure, the U.S. faces significant future expenses, either in upgrading our energy system or paying the price of system failures.

Focusing solely on electricity, congestion is increasing in some areas of the grid and projections for future demand show that planning reserve margins—the excess generation capacity available to meet our power demand and a key ingredient to reliability—is likely going to decline. Aging grid infrastructure’s impact on reliability is only exacerbated by heat, storms, and other weather related stresses, currently the number one cause of outages in the United States.

These outages are costly; even a momentary outage can cost an industrial facility over $2,000, with sustained interruption costing over $5,000. Storms alone, projected to increase with climate change, cost the U.S. between $18 and $33 billion each year as the number one cause of outages.

Natural gas and oil also require hefty amounts of capital investments. As demonstrated in North Dakota, the shale oil and gas boom has been a boon for the United States but the necessary supporting infrastructure has largely failed to keep up. Natural gas is often flared due to a lack of pipeline infrastructure to use it productively, and rail lines throughout the Midwest—including in Minnesota—are increasingly congested with oil shipments. Private investment spending in oil and gas infrastructure has played a positive and significant role, increasing by 60 percent, from $56.3 to $89.6 billion between 2010 and 2013, but will have to be sustained if not increased over time as the U.S. will need $640 billion in related energy infrastructure investments in the next 20 years.

There is an additional wrinkle to this problem—climate change. Our current energy system is built to withstand (though this is somewhat debatable) current climate conditions and is situated on areas that currently provide the necessary resources for reliable operation. In reality, our energy system faces several climate risks. Mitigating these risks will mean taking additional action, including investment, to ensure long term resiliency and viability.

The IPCC projects, with a very high level of confidence, more severe coastal erosion and more frequent flooding (driven by more frequent and powerful storms), along with non-uniform amounts of sea level rise that will inundate low lying coastal areas. Much of our energy infrastructure, from refineries to power plants, is dependent on water, either for cooling or for transportation and hence, is located in areas with a significant flooding risk from storms and/or sea level rise.

  
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The Gulf Coast, where the majority of our refining capacity and the nation’s strategic reserves are located, is a good example where our energy infrastructure carries a significant climate risk.

  

On the other hand, more frequent droughts and higher water temperatures are also projected. Thermal power plants, such as coal, nuclear, and natural gas, rely on water for cooling; an average coal plant withdraws up to 180 billion gallons of water per year, consuming up to 1.1 billion gallons per year for cooling purposes. Already, several plants have had to temporarily shut down due to either lack of sufficient cooling water, or water that is too warm. Currently, thermoelectric plants that rely on water for cooling produce a staggering 91% of the U.S.’s power.


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Water isn’t the only climate-related risk to energy infrastructure. Drier, hotter conditions projected to accompany climate change in certain regions, are also potential threats. For example, higher air temperatures can reduce the efficiency of thermal power plants that operate on turbines that rely on a temperature differential to function properly. Prolonged heat waves also stress transmission lines and transformers which face lowered capacity and shorter lifespans when subjected to high temperatures. This is particularly true when nighttime temperatures are not low enough to permit the equipment to cool overnight.

More frequent and larger wildfires—driven partly by poor land management, partly by higher air temperatures leaving forests drier and pushing back snowmelt dates—also put infrastructure at risk. In San Diego County, wildfires have not only caused residential evacuations, but have led to power outages and the evacuation of the San Onofre nuclear plant. Last year, San Francisco’s water and electricity supply was threatened as the Yosemite Rim Fire crept up on Hetch Hetchy reservoir and hydropower plant. Smoke and ash from fires can also ionize the air, creating an electrical path away from transmission lines, shutting down critical transmission pathways.

Though the full extent of the risks we face with crumbling energy infrastructure is still up for debate, the overall picture is becoming clearer: we need to ramp up public and private investment at the national and state levels to modernize our energy infrastructure and use this as an opportunity to bolster our energy system’s resilience to the impacts of climate change that are not just future threats but current realities. Even more clear is that a lack of public spending and measures to boost private investment may seem to save money now but comes at the cost of more costly, reactionary fixes in the future and lower economic growth in the present.

When it comes to energy infrastructure, we can either invest public and private money now, or pay the price of inaction later.

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