MTPR

Economist: Ominous Report On Clean Power Plan 'Unrealistic'

Nov 19, 2015

A study released Wednesday says that complying with President Obama's Clean Power Plan will cost Montana more than 7,000 jobs and more than $2 billion in wages and sales. Those numbers were quickly trumpeted by Montana elected officials who oppose the nationwide plan to reduce carbon dioxide emissions, including Attorney General Tim Fox, who has joined Montana to a multi-state lawsuit to halt the plan.

But the study is also being criticized. It was commissioned by Montana's biggest utility company, Northwestern Energy, and done by the University of Montana's Bureau of Business and Economic Research. Among the critics are Tom Power, professor emeritus of economics at the University of Montana. He spoke with MTPR's Eric Whitney.

Eric Whitney: So this BBER study presents some pretty scary numbers, how realistic do you think those numbers are?

Tom Power: They're completely unrealistic, and that's not necessarily a comment on the work that the Bureau of Business and Economic Research has done. It's tied to the fact that they assumed the outcome before they stared turning the crank. If you assume a catastrophe and then feed catastrophic numbers into an economic model and turn the crank, it's not very informative to be told a catastrophe will occur.

There's no one I know who believes that the Clean Power Plan will force the state to do anything like what the report assumes the state will be forced to do, namely shut down all of the Colstrip facilities and the power line.

EW: If you're characterizing the BBER analysis as a worst-case scenario of what will happen in Montana under the Clean Power Plan, maybe what's a more realistic way to look at it? Because when I look at what the clean power plan calls for Montana to do to reduce carbon dioxide emissions by 47 percent — more than any other state in the nation, that's got to have some kind of negative economic impact in Montana?

TP: It certainly will have an economic impact. My point is it's not even a worse-case scenario. The Bureau didn't engage in any analysis as to what the Clean Power Plan would require the state to do. It accepted from NorthWestern Energy a depiction of what it would require the state to do. A depiction that hasn't been heard from any of the other owners of the Colstrip facility. NorthWestern owns about 10 percent. None of the other owners are suing EPA, nor are they projecting a catastrophic outcome.

The additional point that's very important is that Colstrip 1 and 2 have been — if not scheduled, heavily discussed as closing because they're the oldest and the dirtiest and least efficient of the generators. Not because of the Clean Power Plan, but because the states of Washington, Oregon and California don't want their utilities investing in maintaining, and operating dirty plants. They don't want any more investment in Colstrip 1 and 2. If Colstrip 1 and 2 are gonna be shut down anyway, there's a relatively small amount of additional reduction in greenhouse gasses that will be required. That could be acquired in a broad variety of different ways, including purchase from other utilities of carbon allowances; including expansion in energy efficiency investments in the state, including additional renewable energy.

EW: Maybe just a quick reminder for folks of what the Colstrip power plant is. It's four coal-fired electrical generating units out in eastern Montana. Produces about 2,300 megawatts. Most of that power's exported from Montana to the west coast.

TP: Thousands of workers associate with the generating facility, the power line, and the coal mine.

EW: And it's also the state's largest emitter of carbon dioxide, so the scenario that the BBER and many other opponents of the Clean Power Plan are painting is that because the reduction in CO2 that's called for is so large, of course it's going to me shutting down all four units of Colstrip. You're saying that's not the case?

TP: You can do that on the back of an envelope. If we're going to do nothing else, if we ignore all the alternatives ways in which the state of Montana could meet the Clean Power Plan regulations, if we take all of them off the table and only look at Colstrip, we need shut down only Colstrip 1 and 2, and a small part of Colstrip 3 or part of Colstrip 4, operate them less. So 3 and 4 hasn't been in anybody's calculus as necessary to be immediately shut down. At some point of course they'll be shut down. They're aging like all other coal plants around the nation. But there's no need of a shutdown of that size to meet that 47 percent reduction. NorthWestern won't claim that there is. There claim is that there's a domino effect; if you shut down Colstrip 1 and 2 that you will lose economies of scale, costs will go up, and that will cascade that you'll have to shut down Colstrip 3. If you shut down Colstrip 3, then Colstrip 4 isn't viable. Not because of the Clean Power Plan, this is their dominoes falling.

EW: So you mentioned other potential scenarios by which Montana could reduce its CO2 emissions and meet the target called for in the Clean Power Plan, specifically some sort of trading in pollution credits or CO2 reduction credits, because other states in the northwest have already met the CO2 emission targets. They don't have to reduce their CO2 emissions by anything at all, Montana has to by a lot. So explain to me how that might work that Montana might be able to do some kind of trading with other states.

TP: Just the shutdown of Colstrip 1 and 2 is gonna create credits that those over in the west coast aren't going to need. The thing that has many Montanans the most upset is that the reductions that are going to be required of Montana are not tied to electricity that Montanans use. They're tied to electricity being produced in the state, but being exported to people on the west coast. The reason I'm emphasizing that is that is seems to me it lays the basis for a trade. You're getting the benefits of this, we have to incur the costs. You have some obligation to help us by setting up a regional exchange so that we don't even have to back down Colstrip 3 and 4. NorthWestern has dismissed that on the grounds that it doesn't exist yet and it doesn't know what it'll look like once it comes into existence.

EW: And so that's no part of the BBER analysis. What we're hearing now that the study has come out, Senator Steve Daines and Attorney General Tim Fox have taken this analysis by BBER and said 'these are the consequences of the Clean Power Plan. These are the things that will happen.' You're saying that's mischaracterizing what BBER did?

TP: No, BBER mischaracterized what they did themselves. They characterized it as having analyzed the Clean Power Plan and its impact on what it would require Montana to do. It didn't talk to any of the other owners of Colstrip, it just took NorthWestern, an interested party who is involved in a suit, and modeled that as if that was the conclusions of the BBER's analysis. There's obviously some politics involved in the whole thing.

EW: I think the bottom line for a lot of Montanans is that they've heard about the Clean Power Plan, Montana has the highest target for CO2 emissions reductions, and they want to know what's it gonna mean? What's it gonna cost me in terms of my personal utility bill, what's it gonna cost me in terms of the state economy? At this point we don't know there's no credible analysis out there right now, or is there?

TP: No there isn't.

EW: Given that there's a lack of a comprehensive analysis of what this might mean, that 47 percent goal sounds really significant and I think a layman would say, 'if Montana's gonna meet that goal, it's gonna have some economic impact. Somebody's gonna have to pay that price. Either we're going to lose a bunch of jobs or people's utility bills are gonna go very high.' I hear people from the environmental community saying that's not gonna happen, that we can replace the coal economy with a green economy and there won't be a significant economic hit on Montana. What's your read at this point?

TP: Coal has been in trouble and facing declining market prospects for some time and Montana's going to be hurt by that. Our electric prices have been going up. The initial fly-up was all tied to Colstrip. Colstrip cost three, four, five times as much as hydroelectric energy we have relied on. We survived that transition to much more costly coal-fired generation. We certainly will successfully make the transition to a less carbon intensive form of energy too. And Montana's wind and sun is going to play a part in that too.

Tom Power was chair of the economics department at the University of Montana for 30 years, he’s now a private consultant. His clients include Northwestern Energy and the Montana Environmental Information Center.

You can read the BBER study here.