Nearly every major project undertaken by the Oregon Department of Transportation has ended up costing at least double its initial estimate

As ODOT proposes a multi-billion dollar series of highway expansions, its estimates pose huge financial risks for the state

ODOT refuses to acknowledge its long record of cost-overruns, and has no management strategy to address this chronic problem

Costs are escalating rapidly for more recent and larger projects, indicating this problem is getting worse

The Oregon Department of Transportation is proposing to move forward with a multi-billion dollar series of highway expansion projects in the Portland metropolitan area, including the $5 billion Interstate Bridge Replacement project, the $1.45 billion Rose Quarter freeway widening project, the likely $1 billion I-205/Abernethy Bridge/I-205 widening project and an as yet un-priced Boone Bridge project.  Collectively, these projects would be by far the most expensive infrastructure investment in department’s history.  But the quoted prices for each project are just the tip of a looming financial iceberg.

A quick look at the agency’s history shows that it has invariably grossly underestimated the actual cost of the major projects it has undertaken in the past two decades.  Using data from ODOT’s own records and other public reports, we’ve compiled data on the initial project costs estimates (those quoted before construction commenced) and compared them with the latest estimates (either the actual final amount of spending in the case of completed projects, or the latest cost estimates for projects that have not yet been finished).  In every case, the ultimate price of a project was more than double the initial cost estimate.

This is important because ODOT is asking for permission to undertake a series of highway expansion projects, which, once started, will create a huge financial liability for the state of Oregon.  For three projects (the I-5 Bridge Replacement, the Rose Quarter and the Abernethy Bridge I-205 widening), ODOT is planning to sell toll-backed bonds to pay for part of project costs.  But if toll revenues are insufficient to pay bonds, or if costs escalate beyond current estimates, the state is fully liable to repay all these costs, and debt service on bonds, and these payments will take precedence over all other expenditures from state and federal transportation funds.  The failure to accurately forecast project costs for Portland freeway expansions, coupled with an unavoidable obligation to repay bondholders means that all other state transportation priorities, including even routine maintenance, would be in jeopardy.

Here is a closer look at seven major ODOT construction projects undertaken in the past twenty years.  Every one has experienced enormous cost overruns.

The Interstate 5 Rose Quarter Freeway project would widen a 1.5 mile stretch of freeway in Portland and was originally represented to the 2017 Oregon Legislature as costing $450 million. The latest estimates from the Oregon Department of Transportation are that the project could cost as much as $1.45 billion.   

The Legislature directed ODOT to prepare a “cost to complete” report for the I-205 Abernethy Bridge project.  The bridge connects Oregon City and West Linn, and would be widened and seismically strengthened.  ODOT’s 2018 report said the bridge would cost $248 million.  When the agency put the project out to bid in 2022, the actual cost came in at $495 million–essentially double ODOT’s estimate.

ODOT estimated the 5 mile long Highway 20 Pioneer Mountain-Eddyville project would cost $110 million when the project completed its environmental reviews in 2003 (Federal Highway Administration and Oregon Department of Transportation. (2003). Pioneer Mountain to Eddyville US 20, Lincoln County, Oregon, Draft Environmental Impact Statement, Executive Summary).  After years of delay, and including a design-build contractor withdrawing from the project, and ODOT having to demolish bridge structures and redesign significant parts of the project, its total cost was $360 million.

The Newberg-Dundee Bypass has been under consideration for almost two decades; a portion of the project was completed five years ago.  The initial estimate of the project’s total cost was $222 million (Oregon Department of Transportation. (2005). Newberg-Dundee Transportation Improvement Project Location (Tier 1) Final Environmental Impact Statement (News Release 06-132-R2).  The latest estimate of the cost of completing that full bypass project is now $752 million (Federal Highway Administration and Oregon Department of Transportation. (2010). Newberg Dundee Bypass, Tier 2 Draft Environmental Impact Statement (FHWA-OR-EIS-10-0-1D). Salem: Oregon Department of Transportation.

In 2002, the Oregon Department of Transportation told the City of Portland that rebuilding the Grand Avenue Viaduct (Highway 99E) in Southeast Portland would cost about $31.2 million (Leeson, Fred, “Council Backs Long Bridge in Viaduct’s Spot”  Portland Oregonian, July 19, 2002) .  The project was completed seven years at a total cost almost three times higher:  $91.8 million (ODOT, ARRA Project Data for ODOTas of 8/31/2010) .

When proposed in 1999, it was estimated that the I-5 South Medford Interchange would cost about $30 million  (Rogue Valley Area Commision on Transportation meeting notes, September 13, 2005).   In 2013, after the project was completed the agency said the cost was $96 million.

The original cost estimate for the I-5 Woodburn interchange project was $25 million in 2006 (FHWA & ODOT, Woodburn Interchange Project, Revised Environmental Assessment, November 2006).  The completed price was $68 million.

It’s always possible to make excuses for cost-overruns on any single project.  And if cost-overruns had happened only once, or maybe twice, it might make sense to dismiss them as aberrations.  But as the record of these seven projects makes abundantly clear, major ODOT highway projects almost invariably ending up costing twice as much as the original price quoted at the time the project is approved.  Cost overruns are a systematic and predictable feature of ODOT’s approach to highway building, not an aberrant bug.

No Accountability for Cost Overruns

In an attempt to quell concerns about the ODOT’s managerial competence, in 2015, Governor Kate Brown directed that the agency hire an outside auditor to examine its performance.  ODOT did nothing for the first five months of 2016, and said the project would cost as much as half a million dollars. Initially, ODOT awarded a $350,000 oversight contract to an insider, who as it turns out, was angling for then-ODOT director Matt Garrett’s job.  After this conflict-of-interest was exposed, the department rescinded the contract in instead gave a million dollar contract to McKinsey & Co, (so without irony, ODOT had at least a 100 percent cost overrun on the contract to perform their audit.)

McKinsey’s work consisted mostly of interviews with agency-identified “stakeholders” and a superficial analysis of ODOT date.  Its report focused on largely meaningless or trivial indicators such as “average time needed to process purchase orders.”  One part of the report purportedly addressed the agency’s ability to bring projects on time and under budget.  McKinsey presented this graphic, showing the variation between initial and finished costs for a series of mostly small projects.

There’s a striking omission, as revealed in the fine-print footnote:  McKinsey excluded data for the Highway 20 Pioneer Mountain Eddyville project.  This project, the single most expensive project that ODOT had undertaken, had a 300 percent cost-overrun, which the McKinsey report both failed to report correctly and which it described  as “performed 27 percent higher.”

The Oregon Department of Transportation doesn’t accurately forecast the cost of its projects, and refuses to be held accountable for a consistent pattern of errors.  Relying on ODOT’s cost estimates exposes the state to enormous financial risk, something that is likely to be magnified as the department moves ahead relentlessly with plans for billions of dollars of freeway expansion projects in the Portland area.

Portland and Oregon leaders shouldn’t commit to a $5 billion project without an investment grade analysis (IGA) of toll revenues

Not preparing an IGA exposes the state to huge financial risk: It will have to make up toll revenue shortfalls, 

The difference between an IGA and ODOT forecasts is huge:  half the traffic, double the toll rate.

There’s no reason to delay preparing the investment grade analysis:  The federal government and financial markets require it, and all of the needed information is available

If you don’t prepare an IGA before making a commitment to this project, you are flying blind

Portland are a leaders are being asked to greenlight the so-called Interstate Bridge Replacement Project, which is projected by its proponents to cost as much as $5 billion.  But they’re being asked to give a project a go-ahead with only the sketchiest financial information.  The project’s cost estimates are slightly warmed over versions of decade old estimates prepared for the failed Columbia River Crossing.  Ominously, the details of where the money will come from—who will pay and how much—are superficial and vague.

One thing project advocates grudgingly admit is that the I-5 bridge replacement can’t be financed without tolls.  Program administrator Greg Johnson and Oregon Transportation Commission Chair Bob Van Brocklin have repeatedly said as much.  But how much money tolls will produce and how high tolls will be are never clearly mentioned.  Johnson has said tolls will provide “about a third of project costs.”

Knowing how much money tolls will produce, and how high tolls will have to be to produce that revenue is the central financial question.

Currently the I-5 bridge carries about 130,000 vehicles per day.  But that volume is predicated on the bridge being free.  Charging people to use the bridge would dramatically reduce the number of crossings.  As we’ve documented at City Observatory, when tolls were added to a similar crossing, the I-65 bridges across the Ohio River in Louisville, traffic levels fell by half.

Because tolling depresses traffic, you can’t accurately estimate how much toll revenue a bridge will produce without a detailed model that accounts for this traffic depressing effect.

The models routinely used by state highway departments don’t accurately account for the effect of tolling on traffic volumes.  They tend to dramatically over-predict the amount of traffic on tolled roadways, which has led to over-built facilities that don’t generate enough toll-paying traffic to cover their costs.

Financial markets and the federal government, who are asked to loan money up-front (with a promise to be repaid by future tolls) simply refuse to believe state highway department traffic forecasts.  Instead, they insist that states pay for an “investment grade” traffic and revenue forecast.  You can’t sell toll-backed bonds on private financial markets, and you can’t even apply for federal TIFIA loans, without first getting an investment grade forecast.  In January, Portland’s Metro Council adopted a statement of Values, Outcomes and Actions governing the I-5 project, directing the Oregon Department of Transportation to prepare an Investment Grade Analysis of the project:

As the part of the finance plan, engage professionals with expertise in financing massive complex transportation infrastructure construction projects to conduct and deliver the results of an investment-grade traffic and revenue study of the design options.

That’s a critical step to making and informed decision.

What is an investment grade analysis?

Investment grade forecasts are generally prepared by one of a handful of financial consulting firms.  These studies start with the traffic models used by state highway departments, but make much more realistic assumptions about future population and employment growth, the likelihood of economic cycles, and critically, the effect of tolling on levels of traffic.  As a result, investment grade analyses invariably predict lower levels of traffic that the models used by state highway departments.  Because traffic levels are lower, tolls have to be higher to produce any given amount of revenue.

And the differences between investment grade analysis and highway department forecasts are not trivial:  they are huge.  The Oregon and Washington highway departments prepared traffic and toll estimates for the Columbia River Crossing’s Final Environmental Impact Statement published in 2011.  Those estimates were that the I-5 bridges would carry 178,000 vehicles per day in 2030, and that minimum tolls would be $1.34 to pay for about one-third of the cost of the project.  The Investment Grade Analysis for this project, prepared by CDM Smith on behalf of the two agencies in 2013 estimated that in 2030, the I-5 bridges would carry just 95,000 vehicles per day in 2030, and that tolls would be a minimum of $2.60 each way in order to cover a third of project costs.  In short, the initial highway department estimates overstated future traffic levels by double, and understated needed tolls by half.

The starkly different figures in the investment grade analysis called into question the size of the project, which was predicated on the exaggerated highway department forecasts.  If a tolled bridge would carry dramatically fewer vehicles than the existing bridge, there was no justification for building an expensive wider structure and approaches.  The money spent expanding capacity on the bridge would be wasted because fewer vehicles would use it.  Also, the dramatically different traffic figures also meant that the environmental analysis contained in the FEIS was simply wrong.

Investment Grade Analyses are required for financial prudence

The reason that the federal government and financial markets insist on the preparation of an investment grade analysis is so that they don’t get stuck holding the bag when traffic levels, and toll revenues fall short of the excessively optimistic expectations of state highway departments.  Around the county dozens of toll roads and bridges have failed to produce expected revenues, leading to delinquencies, defaults, and bankruptcies.

If anything, state lawmakers have an even larger financial stake in the IBR project than do financial markets or the federal government.  Financial markets, for example, will insist on additional state guarantees, besides repayment just from the stream of toll revenues.  They’ll require states to pledge other revenues to repay bonds, in addition to insisting on the investment grade analysis.  The 2021 Oregon Legislature passed HB 3055, which authorizes ODOT to pledge state gas tax revenues and future federal grant monies to repay holders of state-issued toll bonds.

Because the state is ultimately liable for any toll-revenue shortfalls, it has an even higher stake than private lenders or the federal government  in knowing the true level of future toll revenues as would be disclosed in an investment grade analysis.

Why ODOT doesn’t want the public to see the IGA first

ODOT and WSDOT are greatly resisting calls to prepare an investment grade analysis.  Their current project schedule doesn’t call for conducting the analysis until 2024 or 2025–well after the design of the bridge is settled and too late to consider a smaller or cheaper alternative.  The highway departments variously claim that its “too expensive” or “premature” to carry out the IGA.

There’s no technical reason it can’t be prepared now.  The base transportation data have been gathered, and the regional model exists.  The agencies say the IGA is expensive, but it’s far less costly than what the agency has spent already on public relations, and the money has to be spent anyhow.  And the IGA will continue to be valid for several years—and can easily be updated once it is complete, if that becomes necessary.  You can’t save any money by delaying.  The only real reason to put off preparing an IGA is because it will show that the IBR will carry vastly less traffic than the DOTs predict, and that tolls will have to be much higher than they’re implying.  In short, the DOTs don’t want the IGA because it will present a definitive case against the over-sized project that they’re building.  Financial markets and the Federal government will insist on the IGA before they make their decision:  the only ones being denied access to this vital financial information are local leaders and state lawmakers who will have to pay for the project.  According to DOT plans, they’ll find out the results of the IGA only after it’s too late to do any good.

Their plan is clearly to convince local and state leaders  irrevocably commit to the construction of a much larger project than could possibly be  justified it anyone saw the results of the investment grade analysis.  It’s obvious from the project’s unwillingness to do anything other than advance a single alternative (a 164-foot wide bridge, enough for ten or twelve lanes of traffic) into the next environmental analysis, that they don’t want the results of an investment grade analysis to undercut their contrived case for a massive structure.

State Highway Department Forecasts are Flawed

As we’ve written before, the IBR project is a scene-for-scene remake of the Columbia River Crossing debacle. Just as they are doing now, the state highway departments published grossly inflated traffic forecasts.  In 2010, the Oregon State Treasurer hired Rob Bain, an internationally recognized expert on toll revenue financing, and author of “Toll Road Traffic and Revenue Forecasts: An Interpreters Guide” to assist in the financial analysis of the CRC.   He found numerous flaws and biases–which prompted calls for the investment grade analysis that produced dramatically different results than the highway department projects.  Specifically, Bain reviewed the CRC traffic and revenue forecasts prepared for the project’s environmental impact statement on behalf of the Oregon State Treasurer.  He stated:

What City Observatory did this week

Oregon DOT’s “reign of error”—chronic cost overruns on highway projects.  The Oregon Department of Transportation is moving forward with a multi-billion dollar freeway expansion plan in Portland. That poses a huge risk to state finances because the agency has a demonstrated track record of cost overruns.  We show that virtually all of ODOT’s biggest projects have experienced cost overruns of more than 100 percent.

ODOT is compounding the financial risk by proposing to issue toll-backed bonds to pay for these projects, and the agency has no current experience in planning, financing or operating tolled facilities.  The agency has also failed to acknowledge its record of huge cost-overruns; even a management audit by McKinsey and company designed to address the problem had a 3x cost overrun, and conspicuously excluded ODOT’s most expensive project (and biggest cost overrun) from its analysis.

Must read

The safest place to live is . . . a big city.  Bloomberg’s Justin Fox tackles head on the popular myth that life in big cities is somehow more dangerous that in suburbs or smaller towns.  Regardless of what you see or hear in the media, big cities are safer than one or two decades ago; New York City has a very low murder rate.  And when you include statistics on automobile crash deaths, cities look even safer.  Here’s Fox’s data showing death rates per 100,000 for different places.

The key finding here is that overall death rates from murders and car crashes are no higher in the central counties of large metro areas (the red line) than they are in non-metro, small metro and medium metro areas.  And strikingly, the death rate in New York City (the gray line at the bottom of the chart) is markedly lower than anywhere else, a trend that persists even in Covid pandemic.  The data suggest it’s time to reconsider the common belief that big cities are somehow more dangerous:  they aren’t.

Bringing back single room occupancy buildings.  Through much of our history, a boarding houses and rented rooms were a major part of the housing stock, especially for single persons of modest means.  But for decades cities have been restricting, prohibiting or even demolishing single room occupancy (SRO) dwellings, partly out of concern for often unpleasant or unhealthy living conditions, but perhaps just as much as yet another form of exclusionary zoning (eliminating or keeping way poor persons by prohibiting housing they can afford.  Jake Blumgart writes at Governing about Philadelphia’s effort to re-legalize SRO housing in more places throughout the city.  It’s actually a modest proposal, just legalizing SRO’s in multi-family and commercial zones, not the city’s single-family districts.  But even that has prompted resistance, with Councilors in some Philadelphia wards seeking to continue to ban SRO’s in their neighborhoods:

District councilmembers represent specific swathes of the city and tend to be most responsive to neighborhood associations and homeowner groups. In a city like Philadelphia, owning a home and car doesn’t mean you are rich by any means, but you have more than many of your neighbors, you are more likely to vote, and more likely to have your voice heard. That voice is likely to express a desire for other single-family neighbors, not rooming houses. Multiple council sources have told Governing that three district councilmembers planned to introduce amendments to Green’s bill that would carve their neighborhoods out of his legislation.

Decent, if modest, housing is clearly preferable to living on the streets, but as with so much of our housing crisis, our wounds are self-inflicted, and amplified by our catering to NIMBY tendencies.

Stop requiring parking everywhere.  New York Times columnist Farhad Manjoo channels his inner Don Shoup in this column, making the case that parking requirements are inimical to building the kind of affordable, livable and sustainable urban neighborhoods we most desire.  It’s an oft-told story, but Manjoo makes it clear:

. . . by requiring parking spaces at every house, office and shopping mall — while not also requiring new bike lanes or bus routes or train stations near every major development — urban-planning rules give drivers an advantage in cost and convenience over every other way of getting around town.  . . . There are other ways parking wrecks the urban fabric. It creates its own sprawl— the more endless, often empty parking lots between businesses, the less walkable and more car-dependent the city becomes. And requiring parking worsens inequality. Because people whose income is less tend to drive less and use transit more, they’re essentially being forced to pay for infrastructure they don’t need — while wealthier car drivers get a break on the true costs of their car habit.

New Knowledge

The persistent of the racial wealth gap.  Few economic facts are as stark and enduring than the gap in wealth between Black and white US households.  A new study published by the National Bureau of Economic Research provides a detailed historical record of wealth trends that illustrates how wide–and intractable–the wealth gap has become.

The end of slavery, thanks to the Emancipation Proclamation eliminated the single biggest obstacle to Black wealth, and had immediate an important effects.  Black wealth, which was negligible in relation to typical white household wealth gained substantially in the first few decades after Emancipation.  But the pace of those gains slowed dramatically. Between 1860 and 1900, the gap between Black and white wealth fell from a factor of 50 to about a factor of ten.  Since then the pace of improvement has been muted.  Black wealth has converged on white wealth, but only slowly and since 1980, there’s been little change in the disparity.

The paper’s analysis shows that differential wealth holdings and capital gains play an important role in maintaining the racial wealth gap.  White households, as a group, own more equities, and enjoy higher average returns, meaning that the wealth gap declines slowly if at all.

. . . as the racial wealth gap decreases, convergence slows and differences in returns on wealth and savings begin to matter more for the shape of convergence. Given existing differences in the wealth-accumulating conditions for white and Black individuals, our analysis suggests that full wealth convergence is still an extremely distant or even unattainable scenario. Furthermore, rising asset prices have become an important driver of racial wealth inequality in recent decades. The average white household holds a significant share of their wealth in equity and has therefore benefited from booming stock prices while the average Black household, for whom housing continues to be the most important asset, has been largely left out of these gains.

Given the overall increase in inequality in US wealth in the past few decades, the author’s predict that there is likely to be little improvement in the racial wealth gap. Absent some significant changes in public policy (regarding either the tax treatment of capital gains, or reparations), the Black-white wealth gap is likely to diverge in the future.

Ellora Derenoncourt, Chi Hyun Kim, Moritz Kuhn & Moritz Schularick, Wealth of Two Nations: The U.S. Racial Wealth Gap, 1860-2020, NBER Working Paper 30101, June 2022.

What City Observatory did this week

The economics of fruit, time, and place.  It’s berry time in Portland, and that got us thinking about how special local products are in defining quality of life.  Recently, Paul Krugman, fresh off a European vacation, waxed poetic about the fleeting joy of summer fruit, and true to form, made an economic argument about how this illustrates the value of such perishable time-limited experiences. Here in Portland, we’re in the midst of the brief season of Hood strawberries, a fragile, juicy fruit that puts the crunchy industrial strawberry to shame, and which is available only for a few weeks just prior to the Solstice.

You can only enjoy the Hoods for a few weeks, and because they don’t travel, only in a few places. More broadly though, as Jane Jacobs pointed out, it’s that kind of distinctive, highly local attribute that’s one thing that places can’t have competed away. In an era of globalization and technology that makes so much of our lives ubiquitous and indistinguishable from place to place, it’s the little, local, time-limited things that will matter more and more.

Must read

The Gospel of Induced Demand.  We’re frequently at a loss to explain why transportation departments remain in deep denial about the fundamental science behind the idea of induced demand:  Building more roads, making it easier to drive, especially in dense urban settings, leads people to drive more.  Noting that its a “fundamental law” of road congestion has made little progress with engineers.  Perhaps now it’s time to elevate induced demand to a more revered status.

In a new article in Transfers Magazine, Nicholas Klein, Kelcie Ralph, Calvin Thigpen, and Anne Brown do this, in a way, in the “gospel of induced demand.”

We argue that part — though certainly not all — of the problem is that the public largely misunderstands induced demand. Given this misunderstanding, transportation planners, engineers, and other practitioners must become evangelical about induced demand. They should spread the gospel that widening roadways to mitigate congestion is almost certain to fail, and that building new transit to fight congestion will likewise be disappointing. We hope a greater public understanding of induced demand will help reorient transportation investments away from the idea that construction solves congestion.

The science is now quite clear.  The big challenge is to educated the public, in the author’s word to evangelize people into understanding that the simply minded notion that we can somehow build our way out of congestion is simply wrong.  We heartily agree, but we also know that this teaching will be strongly resisted by those who make a living building roads.

What can we learn from Europe about making roads safer.  The Urban Institute’s Yonah Freemark has an interesting trans-Atlantic perspective on road safety.  While road deaths are spiking in the US, they’ve been going down in most European countries.  Freemark takes a close look at France, which until a little over a decade ago had a higher road death toll (per mile/kilometer traveled) than the US.  That disparity has since reversed, and now France is notably safer.

There’s no single explanation for the difference, but Freemark points to several policies that contribute to safer streets and roads:  tougher speed limits, automated enforcement, and smaller vehicles.  Plus, there’s much more emphasis on pedestrianized areas where people on foot and bike are prioritized over cars.

The Left NIMBY meltdown.  Economist Noah Smith takes a look at the state of politics in the housing debate in his Substack newsletter, in a piece calling out the increasingly strident and decreasingly logical arguments left-wing NIMBYs make against policies to make it easier to build more housing in cities.  It’s getting harder, Smith argues, for Left-NIMBY’s (progressives who oppose liberalizing zoning) to make a coherent case.  He argues:

In the past couple of weeks, the Left-NIMBYs had a bit of a meltdown. And it’s illustrative of what a dead-end Left-NIMBYism is, and how more people are moving to the side of the YIMBYs. Which in turn tells us something about the emerging political economy of the United States.

Academic research has discredited oft-repeated, but simply wrong, claims that building more housing somehow leads to higher rents and displacement (the opposite is true).  And strategies to promote “public housing in my backyard (PHIMBY)” have inevitably foundered because these progressives really don’t want any new housing anywhere. Evidence from San Francisco, and other cities, shows that the politics are shifting in favor of more housing.

New Knowledge

The illusory carbon benefits of corn-based ethanol.  One of the most prominent technical fixes for automobile carbon pollution is the notion that bio-fuels will reduce carbon emissions from cars and trucks.  This idea is behind the “renewable fuel standard” adopted by the federal government, requiring refiners to mix ethanol with fossil-derived gasoline and diesel fuel.

In theory, plant-based ethanol doesn’t add net carbon to the atmosphere, because plants fix carbon from the air as they grow, and burning that carbon simply returns the carbon from photosynthesis.  Most ethanol in the US is derived from corn, and farming corn requires extensive fossil fuel inputs (both for fuel for tractors and other agriculture machinery, and for fertilizers).  In addition farming ties up valuable agricultural land, and the increased demand for corn tends to drive up the prices of corn and related commodities.

A new study from the University of Wisconsin takes a close look at the overall carbon balance of the renewable fuel standard in the US.  It finds that there’s little evidence that substituting ethanol for fossil fuels actually reduces carbon emissions.  The authors’ best estimate is that the net effect of the bio-fuels mandate is to actually increase carbon emissions about 24 percent over what they would be otherwise.

The RFS [Renewable Fuel Standard] increased corn prices by 30% and the prices of other crops by 20%, which, in turn, expanded US corn cultivation by 2.8 Mha (8.7%) and total cropland by 2.1 Mha (2.4%) in the years following policy enactment (2008 to 2016). These changes increased annual nationwide fertilizer use by 3 to 8%, increased water quality degradants by 3 to 5%, and caused enough domestic land use change emissions such that the carbon intensity of corn ethanol produced under the RFS is no less than gasoline and likely at least 24% higher.

The key reason for the poor net carbon performance of the renewable fuel standard is the land use changes triggered by the policy.  Rising prices increase land under cultivation, and the net effect is to increase total carbon emissions.  The author’s re-estimate the results of three earlier studies, undertaken by the EPA, the  California Air Resources Board, and Argonne National Labs.  They find that once land use changes (LUC) are allowed for, the net effect of the RFS is to increase carbon emissions.

Many states count the substitution of ethanol for gasoline as a reduction in their calculation of emissions reductions for purposes of establishing progress toward greenhouse gas reduction goals.  This research suggests that those savings are largely, if not entirely, illusory.

In the News

Perishable, special, and local: The economics of unique and fleeting experiences

I pity you, dear reader.  You likely have no idea what a real strawberry tastes like. Unless you spend the three weeks around  the Summer Solstice in the shadow of this mountain, chances are you have never tasted a Hood strawberry.

The Hood is a variety grown exclusively in the Northern Willamette Valley of Oregon, on family-owned farms scattered around the edges of Portland’s urban growth boundary.

The Hood is as different from an industrial strawberry as an heirloom tomato or a piccolo San Marzano is from their rubber factory-farm cousins.

You may not know, for example, that strawberries have juice.  They were meant to be a juicy fruit.  The industrial strawberry has been bred to be a fibrous, indestructible and infinitely shelf-stable.

You may also not know that a real strawberry is monochromatic:  It is red, without a trace of white.  When you cut a Hood  strawberry open, and it is red through and through (and bleeding, in consequence of its wound).

The hood is a fragile vessel for carrying strawberry juice.  It’s both delicate and perishable, taking about three days from being picked to dissolving. It can’t be shipped. You either get it at a farmer’s market, go to the farm and “U-pick” the berries yourself, or find one of a relative handful of markets who’ll stock the tender things. It’s one of the things–along with the ending of the rainy season, that marks the beginning of summer in Oregon.  And it’s just here for a few weeks: gone before the end of June. We’re not alone in our obsession: actual scientists say the same thing about the Hood.

The point here is not to brag on the Hood Strawberry (well, not entirely). The point is that in an increasingly globalized world, where everything is the same everywhere, thanks to a combination of the World Wide Web, Starbucks, and Fedex, there are still some things that a distinct and different about every single place. These local goods (and services) things that you can’t get unless you’re there, and that you are simply unlikely to know anything about, absent local knowledge, are what make that place special. Ubiquity is over-rated. What matters isn’t the ubiquitous, the interchangeable, the digital. What makes things interesting and desirable is that they are special, and different and even transitory. If you’re not in the right place and the right time, you’ll not discover or enjoy them.

A couple of years ago, on Twitter, Paul Krugman waxed poetic about fruit and economic theory.  Krugman is back from Europe, and thirsting for summer fruits coming into season. That led him to reflect on a fundamental flaw in economic logic, the notion that more choice is always better. The short, uncertain season for his mangoes and figs, makes them all the more valuable, not less so. He observes:

 . . . seasonal fruits — things that aren’t available all year round, at least in version you’d want to eat – have arrived. Mangoes! Fresh figs!  What makes them so great now is precisely the fact that you can’t get them most of the year. . . .The textbooks (mine included) tell you that more choice is always better. But a lot of things gain value precisely because they aren’t an option most of the time. I’d probably get tired of fresh figs and mangoes if I could get them all year round. But still, if you imagine that being rich enough to have anything you want, any time you want it, would make you happy, you’re almost surely wrong.

Krugman’s observation rings true.

Every city and every place has some special, idiosyncratic feature, it could be food, or music or plants or the smell of the forest after a rain. As Jane Jacobs observed:

“The greatest asset that a city can have is something that’s different from every other place.”

Maybe the thing we need to pay attention to in thinking about the global economy is not “the death of distance” but instead “the dearth of difference.” The more things and places and experiences become standardized, homogenized and universal, the less joy and stimulation we’re likely to get from them. I’m going to grab a handful of Hoods; I hope you’ll enjoy something fresh and local, too.

Here’s Krugman’s full ode to seasonal fruit, from Twitter:

Look, the planet and the Republic are both in grave danger, possibly doomed. But it’s Friday night, I’ve just had a couple of glasses of wine, so I’m going to talk briefly about … fruit and economic theory.

OK, two pieces of background. I recently got back from almost a month in Europe, cycling and vacationing, and while it’s nice to not be living out of a suitcase, the adjustment back to reality is proving a bit harder than in the past, for a variety of reasons

The other piece of background is that I’m really into breakfast. I start almost every day with fairly brutal exercise – I’m 66 and fighting it; today that meant an hour-long run in the park. Breakfast, usually starting with yoghurt and fruit, is the reward

So one of the best things about coming home is that some seasonal fruits — things that aren’t available all year round, at least in version you’d want to eat – have arrived. Mangoes! Fresh figs!

Are these fruits better than other fruits? Objectively, no. What makes them so great now is precisely the fact that you can’t get them most of the year. And that, of course, tells you that standard consumer choice theory is all wrong

The textbooks (mine included) tell you that more choice is always better. But a lot of things gain value precisely because they aren’t an option most of the time. I’d probably get tired of fresh figs and mangoes if I could get them all year round.

Does this have any policy implications? Probably not. What really really matters is being able to afford health care, decent housing, and good education; the things I’m talking about are trivial.

But still, if you imagine that being rich enough to have anything you want, any time you want it, would make you happy, you’re almost surely wrong. Limits are part of what makes life worth living. And the big question is, will those peaches be ripe by morning?