Saturday, October 25, 2014

Lower Carbon Emissions! Now Available at Low, Low Prices!

When the EPA proposed its Clean Power Plan last June, the usual special interest groups, including the Montana Chamber of Commerce, went on the attack. After all, the plan was intended to reduce carbon emissions from existing coal fired power plants, which surely meant that less coal would be mined, energy would be more expensive, and the economy would languish in depression and misery. To prove it, the US Chamber of Commerce trotted out a commissioned economic study of the EPA plan which showed that it would cost the economy something like $50 billion a year every year through 2030; that, from the Chamber’s perspective, was far too much to pay to secure the benefits of reducing carbon emissions (which the Chamber, by the way, made no attempt to quantify).

All that might’ve seemed scary - the Chamber certainly wanted you to be scared - but as it turned out, it was also overblown. For one thing, as I pointed out in a previous post, $50 billion may look like a pretty serious chunk of change, but when you consider what the US economy produces every year (currently about $16 trillion worth of goods and services), it shrivels in comparison. And then there was the inconvenient fact that the Chamber study examined the cost of a plan that reduced emissions by much more than the EPA was proposing to, and that meant that the EPA plan would not cost $50 billion, but something substantially less.*

The Chamber could offer only a wobbly defense for being less than completely straight forward with these cost estimates, so I’m sure you’ll be relieved to know that they bounced back earlier this week when Glenn Oppel at the Montana Chamber was able to tout a new study by NERA Economic Consulting.  You can find the NERA analysis here, and while I am happy to report that it does appear to assess the regulations that the EPA is actually proposing, there’s some bad news as well: the numbers are bigger and scarier than ever. As Oppel pointed out in a press release, the cost of complying with the EPA regulations is now estimated to be more than $366 billion! It looks like we're going to hell in a hand basket after all.

Now before you drive yourself crazy trying to figure out why smaller emissions reductions should cost 7.3 times more than larger ones, you need to recognize that we are comparing apples and oranges here. The first study said that the EPA plan would cost us $50 billion a year; the new study says that it will cost $366 billion a …well, who knows? If Oppel does, he’s not telling. So you need to read the study itself.

It turns out that $366 billion is the “present value...taken in 2014 using a 5% discount rate” of all the costs of compliance from 2017 to 2031. The “simple” way of explaining what all that gobbledygook means is this: $366 billion is the amount of money we would have to set aside this year - in a trust fund or bank account or some other investment earning 5% - in order to cover our total compliance costs from 2017 to 2031. It’s sort of like the wise parents of a new baby salting away enough money now (if that’s possible) to cover the astronomical college tuition the kid is going to have to pay in 2032.

Is $366 billion a lot of money? One way to look at it is to imagine that we really do want to prepay right away, this year, for our future emissions reductions: $366 billion, cash on the barrel head. How hard would that be? Well, as I said before, our GDP this year is about $16 trillion, so our emissions reductions nest egg would eat up about 2.3% of our total economic output. Not cheap, but doable.

Doable, but not very sensible. Why should we pay for all the costs of the next 17 years of emissions reductions out of this year’s GDP? After all, aren’t we going to be producing GDP like gang busters all those years as well? Shouldn’t we use some of that future GDP to pay our future emissions bill? Well, of course we should. And what we should compare that $366 billion to is the “present value...taken in 2014 using a 5% discount rate” of all the GDP that will be produced from 2017 to 2031. And that is about $196 trillion dollars.

So there you have it: according to numbers in the NERA analysis, complying with the Clean Power Plan over the next 17 years would cost a little less than 1/5th of 1% of GDP over the same period. That’s pretty darned cheap, and something to think about the next time somebody tells you that fighting climate change is going to lead to our economic ruination.

* None of this has deterred a number of Republican politicians from repeatedly using, and misusing, the Chamber study in the past few months. See my previous posts on this point concerning Rick Hill, Steve Daines, and Alan Olson and Keith Regier.

Monday, October 20, 2014

Emissions Fuzzy Math

When the Montana Department of Environmental Quality released its Options for Montana’s Energy Future white paper last month, I was expecting to hear a vast sigh of relief from just about every corner of the state. 

Back in June, the EPA  proposed, for the first time, regulations to limit carbon emissions from existing coal and gas fired electric generating plants, and assigned to each state an emissions reduction goal to be met between 2012 and 2030. For Montana, the goal was 21%, and while that meant Montana had to do less than most states, we certainly had to do something and we had to puzzle out how to do it. So DEQ sat down to solve that puzzle, and what they came up with in the white paper was a set of scenarios that complied with the EPA goal (or even more than complied with it) and which allowed all the existing coal fired power plants in the state* to continue to operate at current or even higher levels of output and to burn the same or a little less coal than they do right now.

What was there not to like in that?

For the folks at Count on Coal and the Chamber of Commerce and for legislators from coal country who had predicted that the EPA regulations would kill the coal industry and plunge the Montana economy into eternal darkness, this had to be good news. Producing more coal would have been better, of course, but at least these regulations were going to allow for business as usual.

It was good news as well for the politicians and editorial writers and other pundits who regularly offer us the bland assurance that we can “develop our natural resources” and at the same time enjoy a “clean and healthy environment.” The Missoulian doubled down on this possibility when it editorialized that we could reduce emissions and still maintain coal’s current share in electrical generation. Since our need for generation is presumably going to grow over time, maintaining coal’s share would mean burning more coal in the future. So, more coal, lower emissions!

But there seemed to be in all this an element of having-your-cake-and-eating-it-too. After all, haven’t guys like Steve Running been telling us for years that we’re never going to address the problem of climate change without sharply reducing our use of coal?  If almost every single pound of CO2 we pump into the atmosphere when we generate electricity comes from burning coal, is it really possible to burn more and pollute less? Isn’t this this just too good to be true? Well, yes it is. Kind of. Here’s what happened. This gets a little wonkish, but it’s important, so stick with me.

The 21% goal that the EPA proposed for Montana was not for a reduction in emissions, but for a reduction in the emissions rate, which is measured as the amount of emissions (in pounds) per megawatt hour of electricity generated. In 2012, Montana pumped about 35.9 billion pounds of CO2 into the atmosphere in the course of producing 16 million MWhs of electricity (included in that total is about 1.3 million MWhs from renewables).** So taking the ratio of those two numbers - (35.9 billion lbs. CO2)/(16 million  MWh) - you can calculate our 2012 emissions rate as 2,246 lbs/MWh. And what EPA wants us to do is take that rate down by 21%, to 1,771.

Now applying a little arithmetic it’s clear that you can take the rate down either by reducing actual emissions (the number in the numerator of the rate calculation) or by increasing total generation (the number in the denominator) or by some combination of the two.  What DEQ sketched out in its white paper were some of those possible combinations, which typically involve reducing emissions a little, by getting power plants to use coal more efficiently, while significantly increasing electrical generation from renewables and efficiency.*** That means we can meet the EPA target for a rate reduction without actually meaningfully reducing the mass of emissions. And while that’s good news for the coal industry, it’s bad news for Montanans concerned about climate change and who worry that we will in effect be doing almost nothing to reverse it. After all the fanfare that accompanied the EPA’s roll out of the regulations – finally, finally we were doing something about climate change – that's a bitter pill to swallow.

If it sounds like I am accusing DEQ of hoodwinking us here, forget it.  What EPA wanted us in Montana to do is figure out is how we can modestly reduce our emissions rate and that is what DEQ has done. And while the technical wonks at DEQ have made it clear as a bell that they were working with rates, they have also gone out of their way to calculate the (always small) change in the actual mass of emissions entailed in each of their rate reduction scenarios. They have also made available a handy dandy little planning model that allows you to design and test any emissions reduction scenario that suits your fancy. You tell the model what you want to see (carbon sequestration, nuclear plant, a fivefold increase in wind power, whatever) and it will spit out how far both the rate and mass of emissions will fall. You can download the model here, so get cracking. Even if EPA can't figure out how Montana can make a difference, maybe you can.

* All the scenarios did anticipate that the Corette power plant in Billings would be mothballed in 2015 as previously planned by PPL Montana.

** Not including hydro. EPA does not allow hydropower to be included in the total of generation from renewables.

*** The EPA allows power saved by increasing efficiency in transmission and end use to count in total generation.

Sunday, October 19, 2014

Prove It!

One of the canards about the Salish Kootenai Water Compact that opponents never tire of trotting out is that the compact will take away the water rights of private citizens living all over western Montana. If you attend enough public meetings up in the Flathead, or read the letters to the editor, or listen to Tea Party legislative candidates, you’ll hear this claim all the time, coming from all sorts of people, including a handful of legislators who should know better and be a lot more careful about their public pronouncements. I don’t know if these folks really believe what they are saying or are simply following the advice of the propagandist who claimed that if you say something often enough, people will begin to believe it, but I do know this:

I’m getting really fed up with this nonsense.

Part of the problem is that I serve on the Reserved Water Rights Compact Commission, which is the outfit that is negotiating the compact on behalf of the state. The Commission, and especially its staff, have put in endless hours negotiating a settlement that carefully protects the rights and interests of Montana citizens living on and off the Flathead Reservation, so when someone comes along and tells us that we have violated our oath of office, defiled the Constitution, exceeded our authority and sold our fellow citizens down the river, I take it pretty badly.

Of course the real problem here is not my ruffled feelings. It is, rather, the fact that the claim is just not true: The Compact doesn’t take anybody’s water or property rights away. Proving that is not as hard as it sounds but it does take some time. Obviously, there’s no clause I can steer you to saying “This compact doesn’t take away anybody’s water rights;” a list of clauses saying everything the compact doesn’t do would potentially be infinitely long. But if you comb through the document (I’m not suggesting you actually do that, but if you want to, here’s the link) and try to find a provision, any one little provision, that actually effects the taking of a water right, you won’t find one.

Now I can almost hear compact opponents howling that you most certainly will; that the fatal provision is in there somewhere and you just haven’t looked hard enough. But here’s the thing: not once, not one single time, have I ever heard anyone cite any provision in the compact to back up the claim that water rights are being taken. And if they can’t do that, the claim is hollow.

So here’s a challenge to the people who are going to stand up at negotiating sessions and public meetings and legislative hearings and claim, yet again, that the compact is a bundle of takings: Prove it. Show us the provisions you think make takings happen. Tell us clearly just what water rights you believe are being taken. In short, be responsible for the truth of what you say. That’s the price of admission to a civil and productive conversation about any issue we really care about.