Pushing the Panic Button

When it comes to bashing Barack Obama and the Clean Power Plan, Senator Steve Daines never misses the chance to push the panic button.

At least that’s what he appeared to be doing last week when he robo-called a whole bunch of Montanans (I was one of the lucky ones) to deliver the terrible news: a new “University of Montana” study had shown that implementing the Clean Power Plan would be calamitous for Montana’s economy. We needed to act, and act fast, if we were to stave off disaster! The EPA is running amok! It’s a War on Coal!

Now first things first: “The University of Montana” doesn’t study things and it doesn’t put its imprimatur on studies done by the folks who work there. What Daines was talking about was an analysis conducted by the University’s Bureau of Business and Economic Research and paid for by Northwest Energy. Take that for what it’s worth.

You’ve probably already heard a bit about the BBER paper, which has been, to put it mildly, something of a crazy-making puzzle. But the question about it that has vexed a lot of folks is really pretty simple: how can somebody study the impact of implementing the CPP when nobody knows how it is going to be implemented? And the answer is equally simple: somebody can’t, and so that’s not what BBER really did. No. Rather, at the behest of Northwest Energy, BBER simply assumed that implementation would require the shutdown of all the coal-fired power plants at Colstrip (and the transmission lines they ship power on) and the construction of a new gas-fired plant in Billings. Then they used a computer model to calculate how these events would cause the economy to veer from the path that it might otherwise be predicted to follow. It was this veering from the path that got Daines so het up.

Now whether or not this exercise tells us anything useful is an open question. After all, there are ways of implementing the CPP that don’t lead to Colstrip being totally abandoned, and any implementation plan is going to have effects that go well beyond what happens in Colstrip. So the BBER appears to be assuming both too much and too little, all at the same time. On the other hand, Colstrip closures could just happen, and it’s worth knowing what the results might be. Just how bad are things likely to get?

Well, the table above is a screen shot from the BBER report (which you can download here) which summarizes the bad news. The figures in the table detail what the BBER calls the “losses” we are going to experience from implementation of the CPP. So, for example, according to BBER, as a result of implementing the plan we will “lose” $516 million dollars of personal income* in 2025. That looks pretty bad, and frankly, BBER has presented the information in a way that makes it look as bad as possible. But before you get too alarmed about these results, realize this:

1. The numbers in the table refer to the estimated difference between what would happen with the CPP and without it. So, for example, we would “lose” $516 million in personal income as a result of the CPP only in the sense that in 2025, according to the BBER estimate, personal income would be that much higher without the plan than with it. It doesn’t mean that personal income will fall by that amount in 2025. So another, and better, word for these losses might be “shortfalls.”

2. If you compare the size of the shortfalls shown in the table to the total value of the corresponding measure in the absence of the CPP, they turn out to be relatively small. For example, according to the BBER’s own estimates, without the CPP, total personal income in 2025 would be $54.3 billion. Implementing the CPP would reduce that total by the shortfall - $516 million - or just .95%. And if you have the patience to wade through the BBER’s ocean of numbers, you will find that almost all the shortfalls listed in the table are in about that same size range, i.e. 1% or less.

3. Leaving aside employment and taxes for the moment (I’ll get back to them later), according to the BBER’s own estimates, all the measures of economic performance shown in the table increase every year for the next 40 years, even if the CPP is implemented.  What’s important about this consistent growth is that it will eventually erase the shortfalls.  But how long is eventually? Well, going back to the same example, according to the BBER’s own estimates, between 2025 and 2026, even with the CPP in place personal income will rise by $1.32 billion, from $53.8 to $55.1 billion. This increase will erase the 2025 personal income shortfall in about 5 months. Again, digging around in the BBER’s own data will show that economic growth will eliminate almost all of the shortfalls listed in the table in less than a year.  In the end, what the BBER is predicting is not that implementing the CPP will produce a crisis or even a moderate downturn in economic activity. All that will happen, according to the BBER’s own estimates, is that the CPP will slightly slow economic growth, meaning that with implementation, our enjoyment of any particular level of economic activity (however you want to measure it) will be delayed by only a few months.

Now what about employment? In the BBER’s projections employment – measured in numbers of jobs - grows very, very slowly, and that means that shortfalls in employment will not be eliminated quickly by growth. In fact, in the BBER projections, even without CPP implementation, employment almost completely stagnates during the decade of the 2020s; over the entire 36 year period of projection, 2019 to 2055, employment grows at an average annual rate of just .3%. This appears to be awfully low; by contrast, in the 34 years between 1980 and 2014, employment in Montana grew at an annual rate of 1.46%, almost 5 times as high as the BBER model predicts for the next 34 years.

In fact, the BBER model appears to be generally pessimistic: the growth rates it predicts for personal income, gross state product, population and per capita disposable personal income, as well as employment, all fall well short of the actual growth rates of those measures over the past 35 years. Why that should be is anyone’s guess (the answer is hidden in the black box containing the BBER’s model) but it’s an important question: understating the rate of economic growth has the effect of making shortfalls in income or production or employment seem more significant than they otherwise would. Stated the other way around, the more rapidly the economy grows, the more quickly these shortfalls are erased.

Finally, regarding taxes: BBER provides no data showing projected total tax collections or collections growth to accompany the tax shortfall figures you see in the table, so it’s a little difficult to judge just how worrisome those shortfalls might be. Suffice it to say that right now, total state and local government revenue is somewhat more than $8 billion; by 2025 it should be well more than $10 billion. That means the BBER revenue shortfall for 2025 will be somewhere between 1 and 2 percent.

When you look at it then, nothing in the BBER paper suggests that implementing the Clean Power Plan is going to devastate Montana’s economy. It will keep on growing, keep on providing families with incomes and economic opportunity, keep on providing workers with jobs. And all that will happen at just about the same pace as it would have if the Clean Power Plan had never darkened our doorstep. That’s not to say, of course, that some local economies will not be severely affected; if the Colstrip generators close down, there will be hell to pay in Rosebud County. But we do know that the economy will grow and provide the jobs and opportunities needed to help damaged local economies make it through the transition to a new, low emissions energy future.

Now getting back to Steve Daines. It’s probably too much to hope that he will ever change his mind about the Clean Power Plan or fighting climate change. It’s probably too much to hope that he will ever pay attention to the facts. Because for Daines, the Clean Power Plan is simply a vehicle for attacking Barack Obama, harassing Steve Bullock, and boosting the electoral prospects of Greg Gianforte. That has to be expected. What’s not to be expected, however, is the uncomfortable suspicion than in this effort, Daines is being aided and abetted by the folks at the BBER and Northwest Energy, using the ratepayers’ money.

*Personal income here is basically the total pre-tax income flowing to all households during a particular year. Disposable personal income is what is left over from personal income after households have paid their taxes.