diff --git a/dbt/main.py b/dbt/main.py
index a5a18fa471f..44e424eaabe 100644
--- a/dbt/main.py
+++ b/dbt/main.py
@@ -214,6 +214,8 @@ def invoke_dbt(parsed):
         targets = proj.cfg.get('outputs', {}).keys()
         if parsed.target in targets:
             proj.cfg['target'] = parsed.target
+            # make sure we update the target if this is overriden on the cli
+            proj.compile_and_update_target()
         else:
             logger.info("Encountered an error while reading the project:")
             logger.info("  ERROR Specified target {} is not a valid option "
diff --git a/dbt/project.py b/dbt/project.py
index 8e3ec0f72bf..6cf58387cfb 100644
--- a/dbt/project.py
+++ b/dbt/project.py
@@ -80,6 +80,8 @@ def __init__(self, cfg, profiles, profiles_dir, profile_to_load=None,
 
         if self.profile_to_load in self.profiles:
             self.cfg.update(self.profiles[self.profile_to_load])
+            self.compile_and_update_target()
+
         else:
             raise DbtProjectError(
                 "Could not find profile named '{}'"
@@ -120,8 +122,7 @@ def compile_target(self, target_cfg):
             is_str = isinstance(value, dbt.compat.basestring)
 
             if is_str:
-                node = "config key: '{}'".format(key)
-                compiled_val = dbt.clients.jinja.get_rendered(value, ctx, node)
+                compiled_val = dbt.clients.jinja.get_rendered(value, ctx)
             else:
                 compiled_val = value
 
@@ -129,6 +130,10 @@ def compile_target(self, target_cfg):
 
         return compiled
 
+    def compile_and_update_target(self):
+        target = self.cfg['target']
+        self.cfg['outputs'][target].update(self.run_environment())
+
     def run_environment(self):
         target_name = self.cfg['target']
         if target_name in self.cfg['outputs']:
diff --git a/test/integration/013_context_var_tests/test_context_vars.py b/test/integration/013_context_var_tests/test_context_vars.py
index b2e8fe3df79..dc19d3583c8 100644
--- a/test/integration/013_context_var_tests/test_context_vars.py
+++ b/test/integration/013_context_var_tests/test_context_vars.py
@@ -10,6 +10,9 @@ def setUp(self):
         DBTIntegrationTest.setUp(self)
         os.environ["DBT_TEST_013_ENV_VAR"] = "1"
 
+        os.environ["DBT_TEST_013_USER"] = "root"
+        os.environ["DBT_TEST_013_PASS"] = "password"
+
         self.fields = [
             'this',
             'this.name',
@@ -42,13 +45,15 @@ def profile_config(self):
         return {
             'test': {
                 'outputs': {
+                    # don't use env_var's here so the integration tests can run
+                    # seed sql statements and the like. default target is used
                     'dev': {
                         'type': 'postgres',
                         'threads': 1,
                         'host': 'database',
                         'port': 5432,
-                        'user': 'root',
-                        'pass': 'password',
+                        'user': "root",
+                        'pass': "password",
                         'dbname': 'dbt',
                         'schema': self.unique_schema()
                     },
@@ -57,8 +62,9 @@ def profile_config(self):
                         'threads': 1,
                         'host': 'database',
                         'port': 5432,
-                        'user': 'root',
-                        'pass': 'password',
+                        # root/password
+                        'user': "{{ env_var('DBT_TEST_013_USER') }}",
+                        'pass': "{{ env_var('DBT_TEST_013_PASS') }}",
                         'dbname': 'dbt',
                         'schema': self.unique_schema()
                     }