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. 

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Posted by at 05:00 | Posted in Metro, Natural Resources, Public Transportation | 14 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Rupert in Springfield

    This is yet another example of something so stupid – the street car, especially the Oregon Iron Works version – that you have to wonder if it is not purposeful.

    Orwells 1984 had many messages against the totalitarian socialist state. One of those messages was the use of constant war in order to waste human productivity. Man could not realize the fruits of his labour as it was confiscated to pay for the war effort thus maintaining a constant near poverty state in the populace. This made the populace not only unable to rise up against the government, but also dependent on them.

    One begins to wonder if this situation does not have some paralells. This absurd wasting of money – billions now funneled through Obama’s green energy initiatives to well healed friends with bankrupt companies. Absurdities like this street car story. Things that on the face of it are so idiotic they are less likely the mistakes of the incompetent but rather the purposeful action of the criminal at the very least.

    Of course the frothing mouthed will tend to say double plus good to any action of Obama, and triple plus good to anything with the green stamp seal of idiocy on it. However at some point you begin to wonder how long a society can sustain this level of corruption.

    • valley person

      Which must why, after WW2, our most massive war effort led by liberal Democrats who had to be closet totalitarians, our feeble nation, totally reliant on a massively indebted government, gave up on democracy, and we are a totalitarian state today.

      Or wait…lets add this.

      But then Ronald Reagan was elected (in a totalitarian state?) and restored democracy, prosperity, and low tax rates for rich people.

      And then Obama came along and is trying to reinstate the previous totalitarian state by supporting yet more military spending.

      But wait…

  • Keith in Rainier

    The US coal intended for export to Asia is heavily subsidized by US taxpayers. Mined on public land with no-competition bids, selling for little more than $1 per ton. This taxpayer subsidy is the only reason it becomes competitive with other coal sources more readily available to Asia. Do you support US taxpayer subsidized coal mining for export?

    Also, your sad sack ‘there’s nothing we can do to stop them’ from exporting line is pathetic. Apparently, in your pandering to the coal industry, you have thrown aside a belief in American exceptionalism, and appear to believe that America is in decline and that our role in the world should be that of a third world nation, exporting our raw materials to growing super-powers.

    And wasn’t the ‘there’s nothing we can do to stop them’ line used by backers of LNG too? How did that work out?

    • Rupert in Springfield

      > This taxpayer subsidy is the only reason it becomes competitive with other coal sources more readily available to Asia.

      What sources are we talking about? What you are saying does make some degree of sense – how could it be cheaper for us to send Asia coal than for them to mine it themselves?

      However there could be a lot of reasons for this. Asia might not have sufficient coal reserves, they may not be as readily obtainable thus raising the cost of production, or it could be as you claim, somehow Asia charges its own produces mining rights fees that are so high they make American coal cheaper.

      This last proposal is frankly a little hard to believe. I have never run a coal mine, but I have a feeling the leasing rights are a small part of the cost. The labour and equipment involved is very expensive. It seems difficult for me to believe that the mining rights fees are so excessive in Asia, and so taxpayer subsidized in the US that it tilts the scales and makes it cheaper to ship coal over there than for them to mine locally.

      So what is your source on this?

      • Keith in Rainier

        Sources:

        Powder River Basin coal sold without competitive bidding for $1.10 per ton – https://www.blm.gov/wy/st/en/info/news_room/2012/june/28-coalsale.html

        How BLM’s incorrect calculations of ‘fair market value’ of PRB have cost US taxpayers nearly $30 billion over the past 30 years – https://missoulanews.bigskypress.com/missoula/coal-con/Content?oid=1665001

        Market info on Chinese coal use/sources – https://seekingalpha.com/article/769771-coal-stocks-will-recover-but-there-is-a-long-way-to-go

        • Rupert in Springfield

          OK,that does show what you are talking about. The US does seem to impose less net cost on coal producers than say Australia, as mentioned in the last article you cite.

          I would say in large part you are right in your analysis. However I would not say that a failure to tax, such as with Australia carbon tax amounts to a subsidy.

          Frankly I think that the export of coal combined with our policy to shut down of the coal fired power industry is insanity. However I think that the motivation for coal export is likely a very cynical one. The Obama administration is no friend at all of the coal industry. They could raise fees fairly readily so why would they not do so?

          The reason for that I think is because while they hate coal, they are scared to death of shutting down the jobs in both the mining and power generation aspects of that industry at the same time.

          My bet is should BO get reelected, you will likely see your solution, higher fees on coal mining, with subsequent loss of export and jobs soon to follow.

          • Rupert in Springfield

            The real irony in all of this has been that China’s massive building of coal fired plants is what has been suspected as the cause of the lack of global warming in recent years.

          • valley person

            Yes, dirty air deflects sunlight. Which is why we didn’t have much global warming in the 40s-60s despite massive amounts of CO2 going up.It was only after we started imposing pollution controls that we saw temperatures resume their rise.

            So, would you argue we ought to sow global warming by increasing soot? Or what?

          • valley person

            “I would not say that a failure to tax, such as with Australia carbon tax amounts to a subsidy.”

            Then what would you say? That allowing the global airshed to be polluted is just fair game? Internalizing pollution cost to the producer of that pollution is economics 101. If you don’t do it you are subsidizing the producer with other people’s health.

  • Bob Clark

    I would like to get the sources of the author’s calculations just for future reference. The major source of our current run of economic mediocrity is noneother than the excessive size of the federal government, and its misuse of the money printing machine. Local governments have abandoned trying to grow the private sector all in the pursuit of free federal monies. It is so bad. When is free money not a good deal? When it comes from the bloated federal government.
    This article hits on one of my arguments against carbon dioxide government policy. The government solution is worse than the problem because, for one, the government hasn’t demonstrated the ability to make a positive difference in the supposed problem other than to damage economic prosperity; and two, the loss of individual freedom is too high a cost to pay for minimal changes in man made carbon dioxide emissions. Three, the natural course of technological change is improving energy efficiency which is the most cost effective way to cut emmissions while maintaining prosperity (or what remains of it). Because of internet techonology, we already have displaced large chunks of energy consumption. Finally, here in Oregon we are blessed with a very natural resource which can offset most all our carbon dioxide emissions, namely, planting trees, sequestering carbon into lumber, and simply better managing against forest fires by managing the forests.
    When it comes to more government intervention, just say No; and be happy, don’t worry. “let it all hang out, baby!”

  • valley person

    Lowering the amount of carbon we dump into our shared atmosphere is a step by step, project by project, building by building, process Eric. You can point to any project that reduces carbon outputs and claim it is too small to make a difference. And it always costs more in the short run than not doing it because it is always cheaper to dump you costs onto the common environment.

  • scatcatpdx

    Let’s see we apply a 19th century technology to a 21st century mobile, urban /suburban landscape.
    What next, Portland goes back to the Horse drawn Street car? Horses run on bio-fuels and the waste is biodegradable. ( I hope I not giving them more stupid ideas)

  • Ripley

    Valley,
    Your remarks are preposterous as usual. You don’t apply value while assuming much.
    The cost could be 3, 4 or 5 times for Oregon Streetcars and your asinine justifications wold hold.
    Worse yet is your foolish assumption that these streetcars are lowering carbon, “step by step”.
    It is quite likely they are really causing an increase.

    It is also quite likely attempts to lower the amount of carbon we dump into our shared atmosphere is an unnecessary waste of time and money.
    But then you could care less about the cost of trying or whether it is achieving anything.

    Then there is your totalitarian advocacy for disallowing public votes on anything and everything you insist must be imposed upon our communities against their will.
    Wrong you are on all counts.

    • valley person

      Ok, so carbon is not a pollutant, the earth is not warming, and yadiyadit.

      Every National Science Academy on Planet Earth agree with me and disagree with you. Even the scientist hired by the Koch brothers to prove global warming is a fiction says I am right and you are wrong.

      You may as well be arguing that science got the whole earth is round thing wrong.

      And I wasn’t aware I ever advocated disallowing public votes on anything. But whatever…

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