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| Photo Credit: Olivia Dorothy |
As lock and dam infrastructure on the upper Mississippi
River ages, we will be faced with some tough choices. Ultimately, Congress must decide whether or
not to replace the infrastructure. With
this in mind, I found a recent study[1]
from Oxford particularly fascinating.
Published in Energy Policy, researchers looked at the
benefits and costs of large dams. The
study focused on large hydropower dams, but included other dams and asked
whether large dams are worth it from a purely economic perspective, without
evaluating environmental and social costs.
The result: “Even before accounting for negative impacts on
human society and environment, the actual construction costs of large dams are
too high to yield a positive return.”
If the costs are so high and uneconomical, why are large dams
continuing to be planned and built? Because
project planners, like the Corps of Engineers, are “delusional” and “deceptive”
as they routinely fall into the “planning fallacy.”
The planning fallacy occurs during the project planning
process when experts (i.e. Army
Corps of Engineers) focus too much on what constituents
(i.e. Congress, barge industries) want to accomplish rather than evaluating similar
completed projects. Rewards (i.e. political
incentives) feed a delusional overconfidence, which is exacerbated by “strategic
misrepresentation by project promoters” (a.k.a. deception) to obtain funding
and approval for the project.
The study shows that the planning fallacy has and continues
to drive large dam cost underestimation and delays. Worldwide, the actual costs of dams were 96%
higher than the estimated costs on average – the U.S. had the lowest average
cost overrun at 11%. Eight out of every 10 large dams run over their scheduled completion
date. And we haven’t gotten better with
time, the magnitude of cost and scheduling inaccuracies have been consistent since
the early 1900s.
What does this mean for planning? The U.S., like most governments, requires
experts to develop benefit to cost ratios to determine whether a project is a
good economic investment. Water
resources projects require a minimum 2.5 ratio before the president recommends
Congressional funding. This means that
for every dollar invested in water resource projects, at least $2.50 must be
returned (for a net profit of $1.50).
The typical pre-construction benefit cost ratio worldwide for large dams
is 1.4. But the authors found that costs
for large dams are underestimated by 44-99%!
So, the actual benefit cost ratios for most dams were less than 1,
indicating net economic loss.
If governments were provided more accurate information about
dam costs, fewer large dams would be built.
This is why the authors are calling on planners and managers to develop
a comprehensive global database to track costs and performance. Such a database would help planners develop
more accurate cost estimates and timelines, prevent unnecessary dam
construction, and ultimately protect wildlife, habitat, cultural sites,
farmland, and other resources.
[1] Ansar,
A., et al. 2014. Should we build more
large dams? The actual costs of
hydropower megaproject development.
Energy Policy. http://dx.doi.org/10.1016/j.enpol.2013.10.069
