A tale of two Oregon made products

by Eric Shierman

A good anecdote in the huge costs we impose on ourselves for feel-good gestures to marginally reduce carbon emissions in a way that will have no material impact on climate change is the comparison of two products manufactured right here in our state. Let’s compare Oregon Iron Works’ streetcars with Gunderson Marine’s covered barges.

One streetcar, if imported from the Czech Republic, costs $2 million or the equivalent of six brand new city busses, but the buy-American provision of the 2009 stimulus act mandates federal grants to only be awarded for purchasing domestically manufactured street cars. Enjoying its protected monopoly, Oregon Iron Works charges twice the market price for what could very well be a substantially inferior product. Portland was very happy to pay a premium price for the first streetcar Oregon Iron Works will have ever made. Usually rational economic actors demand a discount from start-up companies to compensate for the risk of quality uncertainty. So far the only quality problem Portland has experienced is delays in delivery time. We’ll see what actually gets delivered and how durable this protected product will be.

Of course we are just talking about the costs associated with the product itself here. While busses share the same roads as private vehicles, streetcars require the additional expenditure of the expensive removal of city streets to lay down track, leaving a permanent bumpy road for everyone that becomes more costly for the city to maintain.

One remarkably weak argument in support of spending more than six times the price of a bus, is the claim that streetcars’ operating costs are lower. This is in fact not true, but let’s imagine if it were. This would be no excuse to ignore the fixed costs. Here is a simple question that could be found on a Finance 101 quiz: “If you spend four million dollars on a vehicle that runs on electricity have you saved any money?” The failure to amortize fixed costs is one of the many reasons government planners lead us into one boondoggle after another.

It turns out streetcars’ operating costs are higher too. The people who sell them for a living, like Portland mayoral candidate Charlie Hales, try to steer the buyer’s attention away from total operating costs to focus on the few areas where savings seem plausible. One is of course the difference in price between electricity and petrol; the other is to compare the capacity of a streetcar that combines both seats and standing room, called “cramp space,” to a bus using only the bus’ seating capacity. This kind of deception is necessary because the cost per revenue mile of a brand new streetcar (from the Czech Republic) is $26 while the cost per revenue mile of a new bus is only $11. Only God knows what the cost per mile of Oregon Iron Work’s streetcars will be. The maintenance costs of streetcars are so high, for them to have lower operating costs than busses they would have to have more than twice the capacity, which they don’t, and we are just talking about the maintenance of the streetcar here, the maintenance costs of the rail-embedded city street becomes far higher than a regular street too.

While more expensive than busses, streetcars offer far less mobility. First, Streetcars’ average speed is 8mph and their maximum is 10mph. Compare this to a bus’ average in-city speed of 12mph and the ability to go much faster during long uninterrupted stretches. The fact that taxpayer money was going to be spent offering a 10mph option for travel to Lake Oswego from Portland speaks volumes of the quixotic nature of Portland’s regional planning.

Second, due to a safety requirement that requires streetcars to maintain a wide distance from each other, they present a low capacity ceiling of servicing a stop no more than 20 times an hour, while busses can service a stop 160 times an hour. When we take the seating capacity of streetcars and busses and multiply them with their different stop service rates it becomes immediately apparent that Portland regional planners are paying more than six-times the price of a bus for a product than cannot even deliver basic mobility for the kind of population density they are trying to force us all into.

Ironically, streetcars use more energy than busses and emit more carbon too! At 4,164 BTUs per passenger mile, streetcars offer no energy savings over busses’ use of 4,040 BTUs per passenger mile, or over automobiles either which burn 3,540 BTUs per passenger mile. In most regions of the country this electricity is created by burning coal. In Memphis for example, the electricity used to power its streetcars emits 966 grams of carbon emission per passenger mile compared to the average bus’ 290. Since wind and solar plants are so hopelessly inefficient sources of electric generation, those coal plants will eventually be replaced by natural gas, offering a slight reduction, but nothing close to a bus’ mere 290 grams of CO2 per passenger mile. Here in Oregon, in a time when we are tearing down damns rather than building them, these increases in demand for electricity that Portland planners’ streetcar dreams will create are going to be met by the construction of new natural gas plants here too.

Streetcars even have a higher carbon footprint than busses! Since ecofads are all about perception and image, this fact will probably never filter its way down to Portland area policymakers any time soon, certainly not with Charlie Hales as its mayor. We seem to see a similar dynamic with this sudden chance for the Columbia River to be an export hub for shipping coal to emerging markets in Asia: the symbolism of blocking this opportunity seeks to triumph over the substance of any real environmental impact at stake.

Ambre Energy seeks to invest $2 billion into the Oregon economy. Given that politicians insert the word “job” in every sentence they utter, you would think there would be cake and ribbon cutting to celebrate this development. Instead we see local politicians seeking opportunities to pander to Portland activists that romantically reject human industrial progress in general, and of course coal in particular. Since federal regulators are set to approve this project due to Ambre Energy’s meticulous compliance with EPA rules, local politicians seek to give Ambre the Chick-Fil-A treatment by setting up arbitrary regulatory hurdles that cannot be complied with. This is because, though Ambre can spend the money necessary to ship coal through our region without harming our environment, the real issue here is that we are enabling Asia to lift itself out of poverty with the most efficient energy source yet discovered: coal.

In addition to the 900 or so permanent high-paying dock related jobs this will create for Oregon, and the far more numerous but temporary construction jobs, this project will also create what politicians seem to consider the greatest job of them all, those heaven sent, highly coveted, and highly talked about manufacturing jobs. Gunderson Marine is a Portland based manufacturer that will be building most of the covered barges that this project will need. Unlike Oregon Iron Works trying to reinvent the streetcar as a domestically protected monopoly, Gunderson Marine faces global competition, but they are the best there is at what they do. The best and cheapest place to manufacture these custom built barges is right here in Portland! Indeed Gunderson’s only competition is another Portland manufacturer, Vigo Industrial, which will be building five of them. Given the banal narrative about trade we hear these days, that it’s all about outsourcing jobs to China, it seems a little ironic that we are trying to prevent the domestic manufacturing of a product that we build better than the Chinese do, which will be used for the purpose of shipping more exports to China.

By comparing Portland built streetcars to Portland built barges, we cut to the essence of the problem with treating the emission of CO2 as a pollutant: the marginal cost we incur on ourselves in any attempt at reducing CO2 emission always exceeds the marginal cost of that same amount of CO2’s actual impact as a negative externality. The amount of carbon emissions being reduced by investing in streetcars has no material impact on the course of anthropogenic global warming, but the billions of taxpayers’ dollars being spent to do so imposes serious opportunity costs on society.

Similarly, Asia will simply spend more for its coal by importing it from elsewhere if we choose not to export it to them, because the highest priced coal is far cheaper than any of its alternatives. The large populations of each Asian country’s political culture lack our romantic rejection of modernity. They have already figured out that it is far better to deal with a few degrees more in temperature than to continue living in poverty, and there is absolutely nothing we can do to stop them. So the impact of our choosing not to export coal to Asia is once again nil. This symbolic gesture will have no material impact on the global economy’s emission of CO2, but the opportunity cost of preventing the growth of good, un-taxpayer-subsidized jobs will have a material impact on the lives of real people.

Eric Shierman lives in southwest Portland and is the author of A Brief History of Political Cultural Change. He also writes for the Oregonian’s My Oregon blog.