Pareto Policy Solutions, LLC

advancing innovation through smart regulation

Pareto Policy Solutions, LLC is a policy analysis and advocacy firm committed to advancing sustainability through “smart” regulation: regulation that rewards, and does not penalize, superior performance.  Often, such actions leverage advances in science and technology and make the regulatory program itself more effective as well as more efficient.

The Opportunity Cost of Regulation: Positive Train Control, Homemade Narcotics, and Ocean-Aged Wine

Positive Train Control

According to the National Transportation Safety Board, the May 12th train derailment in Philadelphia that killed 8 people and injured 200 would not have occurred if Amtrak had installed positive train control (PTC) technology on the section of track at issue.  Reportedly, the train was moving at nearly twice the speed limit when it derailed. 

PTC technology sounds relatively simple (it utilizes radio signals and GPS to prevent trains from speeding or colliding with other trains) but is complex and very expensive, involving significant infrastructure investment in antennas, signals, sensors, and software to ensure interoperability. 

In 2008, in the wake of a California train crash that resulted in 25 deaths, Congress required railroads to be put PTC in place by the end of 2015 for all passenger rail main lines and major freight rail lines used to transport certain hazardous materials.  Despite a reported $6 billion investment in compliance thus far, railroads will miss this year’s deadline due to many factors, including the need to obtain sufficient radio spectrum and the need for FCC approval of thousands of antennas. 

Cost-benefit analyses of the PTC mandate show that the safety benefits are significantly less than the total cost (estimated to be between $9 billion and $13.5 billion over twenty years).  More recent analyses show that ancillary benefits (such as reduced fuel costs, greater reliability in service, etc.) may make the investment worthwhile.  Opponents of PTC say that greater utilization of older technology (i.e., automatic train control) is much more cost-effective.

The opportunity cost of PTC relates to the foregone investments that otherwise would have been made in the absence of the mandate.  Annual investments in rail safety by railroads are limited; diverting a large share to PTC leaves reduced investment for other types of safety improvements, such as track replacement or signal upgrades or installing older, proven technologies (like automated train control). 

Congress is likely to extend the December 2015 deadline for compliance with the PTC mandate.  The Senate is considering two bills—one allowing five additional years for compliance (S.650) and the other (S.1006) allowing a limited number of one-year extensions.  

Homemade Narcotics

On May 18th, the science journal Nature announced that researchers have discovered an engineered yeast pathway that converts glucose to morphine.  Although such a pathway could lead to cheaper, less addictive, and safer analgesics, there is a significant downside: in the wrong hands, the engineered yeast strain would boost illegal drug production.  The incentive for illegal use is large because the lower-cost engineered yeast strain would likely decentralize production and increase access.

In a comment published on-line (Kenneth A. Oye, Chappell H. Lawson, and Tania Bubela, “Drugs:  Regulate ‘home-brew’ opiates”, Nature, Volume 521, pages 281-283), the authors call for regulation to minimize the possibility that opiates could become as simple to produce as home-brewed beer. Their recommendations include engineering the yeast strain to minimize its attractiveness for illegal use, alerting commercial organizations that manufacture stretches of DNA to ensure they do not sell to unknown purchasers, minimizing the universe of laboratories and researchers that work with the engineered yeast, and updating current laws (e.g., the US Controlled Substances Act) to cover opiate-producing yeast strains.

Ocean-Aged Wine

On Thursday, May 21st, the Wall Street Journal published an op-ed by Napa Valley winemaker Jim Dyke Jr. about his experiment that has rubbed federal regulators the wrong way.  Dyke is aging some of his wines in the ocean to see if the traditional land-based aging process could be speeded up.  Initial results, while encouraging, have now caught the attention of federal regulators.  The Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau issued an advisory saying water pressure could cause contaminants to seep into the bottles.  The Bureau said it would issue no labels for ocean-aged bottles of wine until the FDA determines that the wine is unadulterated.  Dyke, who says the wine is chemically the same as land-aged wine, is awaiting the green light from the feds before he puts the wine on the market.  

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