Montana's Get-Out-of-Jail-Free Card

When the EPA laid out its plan for reducing carbon emissions from electrical generating plants last June, Montana got something of a get-out-of-jail-free card.

The  EPA’s Clean Power Plan calls on every state to reduce its carbon emissions rate –the amount of carbon it dumps in the atmosphere per megawatt hour of electricity it produces - with some states reducing rates quite a bit and others, like Montana, very little.  Specifically, the EPA wants us to reduce our rate by just 21%, which is less than what’s expected from all but a handful of states, as you can see from the map.* And as the Montana Department of Environmental quality reported in a white paper last month, we can achieve this rate reduction without reducing actual emissions very much at all; Montana’s coal fired power plants can continue to operate much as they have in the past and burn about the same amount of coal.

The DEQ white paper left many of the people who worry a lot about climate change (I’m one of them) mystified and a little disillusioned. How could a plan that was supposed to reduce US emissions by 30%** possibly leave coal unscathed? Why didn’t the EPA expect Montana to do more? And even if the EPA doesn’t think so, shouldn’t we do more anyway? Shouldn’t DEQ design some implementation scenarios that would make that happen?

The answer to the first question is pretty simple: What happens to coal is going to depend mainly on the implementation plans of the states that burn it, rather than the states that dig it out of the ground. Montana does some of both, of course, but a big part of Montana’s coal is sold to other states, and how they decide to control their emissions will determine how much coal they’ll want to buy in the future. There are a lot of unknowns here, but since total US power sector emissions need to decline by about 15% between now and 2030 to meet the EPA goal, it seems safe to conclude that the market for coal – including Montana’s - will contract slowly, but hardly disappear.

Why the EPA expects so little from Montana is a more complicated matter. To determine how much a state could reasonably be expected to reduce its emission rate, the EPA calculated how much the state could take advantage of four different “building blocks,” or strategies, to come up with a best system of emissions reductions (BSER in the jargon). These building blocks – which included more production of renewable energy, greater efficiency both in burning coal and in using electricity, and shifting generation to less polluting natural gas plants – were all ones that the EPA deemed both technically feasible and available at reasonable cost. So the EPA’s goal for Montana – the 21% reduction in our emissions rate – reflects what the agency thinks it’s actually possible for us to do at reasonable cost. And the reason that we are able to do relatively little is that we’re lacking one of the building blocks – the shifting of electrical generation to cleaner natural gas plants – for the simple reason that we have no natural gas plants to shift to.

There is then a method to the EPA’s madness in assigning the wide range of emission rate reductions you see on the map, and it’s this: if you required all states to reduce their emissions equally, some states, among them Montana, would be forced to resort to strategies, such as sequestration, that are believed to be costly and not very reliable. And making some states pay a lot for emissions reductions, while other states could do the job for much less, doesn’t make economic sense.

But bear in mind that the EPA is not requiring that states use only the four building blocks it has identified. On the contrary: a state can employ almost any strategy it wants to hit its emissions reduction target; those possible alternative strategies are what DEQ is running up the flag pole in its white paper. EPA appears to recognize that a top-down, one-size-fits-all BSER, making use of only the four building blocks, will often not be a good match for a particular state, either because it has available some effective, low cost way of reducing emissions that’s not one of the building blocks, or because it is willing to follow a higher cost strategy in order to protect some special interest.  Protecting the coal industry by relying on sequestration would be an example.

DEQ gave us five possible scenarios that would get us to Clean Power Plan compliance, as well as a planning model that lets folks come up with more scenarios of their own. Going forward, there are going to be people who will want us to reject the Clean Power Plan in any way, shape or form, out of hand. The rest of us have to take advantage of the flexibility we have been accorded to come up with a compliance plan that is low cost, equitable and allows us to make a meaningful contribution to reducing emissions and arresting climate change.

* I clipped this map from NERA Economic Consulting’s report, PotentialEnergy Impacts of the EPA Proposed Clean Power Plan.

** This is the EPA’s estimate of the reduction in emissions from the electric power sector that will occur between 2005 and 2030 if the plan is implemented. But because emissions have fallen about 15% since 2005, we are already half way to the EPA’s 2030 goal; the regulations are designed to get us the rest of the way.

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 1/5^th 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.

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.