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Welcome to The Nonlinear Library, where we use Text-to-Speech software to convert the best writing from the Rationalist and EA communities into audio. This is: Why not electric trains and excavators?, published by bhauth on November 21, 2023 on LessWrong.
Many countries are supporting electric cars for environmental and independence reasons. But perhaps there are some targets for electrification with better economics than those, cost-effective without any government incentives. For example, trains and hydraulic excavators.
trains
In some countries, most trains are powered by overhead electric lines. In America, most trains are powered by diesel engines. Why?
The competent estimates I've seen for ROI of electrifying US rail lines have it being worthwhile. This isn't a new thing. Here's a paper from 40 years ago estimating ~19% ROI. Arguments that the economics are bad in America because of geographic differences are wrong.
Why, then, hasn't that happened? Yes, US high-speed rail programs have not gone well, but unlike new high-speed rail lines, building electric lines over existing rail doesn't require purchasing a lot of land.
One major reason is that the Association of American Railroads has lobbied against electrification programs. Apart from private lobbying, they've put out some reports saying "it doesn't make sense for America because American rail networks are special" (wrong), "we should wait for hydrogen fuel cell trains instead" (ultra-super-wrong), and various other bad arguments. Why would they do that? Some hypotheses:
Construction of overhead electric lines would be much more expensive in America than other countries, making those ROI estimates inaccurate.
The pay of rail executives depends on short-term profits, so they're against long-term investments.
Manufacturing of electric trains would have more competition from overseas companies, and there's cross-ownership between rail operators and manufacturers.
Change would require work, and might give upstart companies a chance to displace larger companies, so it's opposed in general.
My understanding is that (2) and (4) are the dominant factors. Those aren't specific to rail; they're properties of US business management, so I think rail electrification is a good example of wider problems in US companies. Management is evaluated on shorter timescales than good investments provide returns on, so US companies eventually end up using outdated equipment and processes, and lose out to foreign firms. See also:
GE under Jack Welch.
Private equity now having better long-term returns in the US.
US steel companies being outcompeted by foreign steel firms, and then eg ArcelorMittal taking over steel plants in the US.
US shipyards failing to modernize, until they produce no commercial ships and Burke-class destroyers cost 2x as much to make as the Sejong-class equivalents from Korea.
When you look at the internal evaluations of proposed projects at large companies, it's fairly common for 15% ROI to be the minimum value for serious consideration. That is, of course, higher than the cost of borrowing. The usual explanation has been that a substantial buffer is needed to account for inaccurate estimations, but that doesn't make sense to me, for 2 reasons:
The required ROI doesn't increase linearly with low-risk interest rates or the cost of capital.
Some ROI estimates are known to be more accurate than others. The spread between required ROI and interest rates doesn't increase proportionately with estimate inaccuracy.
I have a different theory: the reason you see requirements for 15%+ ROI so often is because executives are often at their position for around 6 years, and they want most of the investment to have been returned by the time they're looking for a promotion or new job. What's really important isn't the true ROI estimated as best it can be, but rather the ROI in practice over the first few years.
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