California’s plan for high speed rail is on the fast track to become the most expensive public works project in U.S. history. Yet despite its hefty price tag ($68 billion over the next few decades), a bullet train from San Francisco to Los Angeles has the potential to be a valuable investment in California’s future. High speed rail will create jobs, increase economic mobility, and mitigate greenhouse gas emissions over the long run. Unfortunately, the funding for this massive project is highly uncertain.

The most troubling aspect of the bullet train’s funding structure is that 62% of the expected total cost relies on federal funding. It has been estimated that California will receive $42 billion from the federal government for the entire project, but only $3 billion has been secured thus far. Governor Brown will decide this week whether to match the $3 billion in federal funding and start construction on the $6 billion segment spanning 130 miles in the Central Valley. There’s just one catch: To avoid losing some federal funding, the Central Valley segment must be completed in five years. This would become this fastest transportation construction project in U.S. history, effectively burning $3.5 million every day of the year. What happens if the Central Valley segment isn’t completed on schedule and a chunk of federal funding is lost? What if we complete the Central Valley segment, but federal funds for other segments aren’t secured in the future? State leaders are proposing to use revenue from the new cap-and-trade auctions this fall to generate the needed funds, should Federal dollars fail to appear.

This reliance on cap-and-trade as a backup is unwise. It is unclear whether the revenue from this system could be used to pay for high-speed rail, and even if it can be used, revenue estimates are uncertain. California’s cap-and-trade program was established to reduce greenhouse gas emissions through market incentives. A cap, in the form of permits, is set on the level of pollution a firm can emit. Polluters with greater emissions will, in theory, pay for more permits bought from firms with lower emissions (and more permits to sell). The problem with using revenue from this system is that the market price for permits is speculative at this point. The California Air Resources Board estimates that auctions might generate $660 million to $3 billion in the first year – quite a broad range – and tens of billions in the years to come. Even if billions of dollars are generated through this program, it is unclear whether the revenues can be used for high speed rail at all. Due to the legalese of the cap-and-trade bill, revenues are classified as “mitigation fees”. This legal constraint means revenues must be used to reduce green house gas emissions. Although the bullet train will reduce green house gas emissions in the long run, its construction is likely to increase emissions in the short run.

High speed rail’s back-up plan needs a back-up plan. We should only proceed building the Central Valley segment if we are confident we can continue to build the remaining line in the future. Governor Brown’s decision needs to be underpinned with a clear and sustainable source of funding. Otherwise, California high speed rail runs the risk of becoming a future case-study in gross financial mismanagement – a rail line to nowhere.