Mercury Rules Will Lower the Cost of Generating Electricity from Coal

Last month, when the EPA announced new, tougher rules restricting mercury and particulate emissions from coal fired power plants, the power industry and Republican politicians responded with the usual dire warnings that the  costs of complying with the new rules would be disastrous for the industry, shuttering plants and killing jobs. What should we make of these claims?


For one thing, as my former colleague and UM economist Tom Power has pointed out over and over again, industry always responds to environmental regulations with these warnings of impending doom, and it doesn't happen. In this particular case it's true that the immediate future of coal  fired power generation is not particularly rosy, but as Tom made clear in a recent KUFM commentary, other factors, and not the EPA rules, are to blame for that (you can read the text of Tom's commentary here).


Another thing to bear in mind about these costs is that they represent jobs. People have to go to work to manufacture, install and operate the equipment that is going to bring plants into compliance with the new rules - or replace plants that cannot comply. Nobody should be surprised about this; environmentalists have been saying for years that cleaning up the environment, conserving energy and addressing climate change means "green jobs," and that's what we're seeing here. It's a lesson well worth remembering: more jobs means higher costs and higher costs mean more jobs. And the reason for incurring costs and putting people to work is the same - namely, that something of value is getting produced.


A significant feature of the costs of complying with the new EPA rules is that even though somebody - rate payers or coal haulers or coal owners or power company workers or, well, somebody - is going to have to cover those costs, from the point of view of the economy as a whole, the costs are minimal. That's because under current economic conditions, the resources that will be used to bring generating plants into compliance would otherwise be unemployed; putting them to work will not mean that production in some other part of the economy will have to be curtailed. Economists would say that the opportunity cost of complying with the rules is very small, and it's opportunity cost that counts.


But really, the most important thing to keep in mind about the question of costs is that it is already very costly to generate electricity with coal. It's just that much of this cost is hidden. It's the cost born by the people who suffer the adverse health effects of emissions from coal fired plants. These costs are every bit as real as, and a lot bigger than, the costs of complying with the new rules. So by eliminating these adverse health effects, the new rules will actually reduce the full net costs of generating electricity with coal. True, somebody benefiting from that process is going to have pick up the tab, but that's fair, isn't it? Surely we don't want to continue to expose children to mercury contamination just to keep a kilowatt hour of electricity a few cents cheaper.

The Time to Invest in Infrastructure is Now.

As Paul Krugman notes in a recent post, it makes a lot  of sense to invest in infrastructure in hard times, like we're going through right now. One reason is that borrowing costs are low. Another and more important one is that the resources, including labor, that are put to work building roads or schools or whatever would otherwise be unemployed. So infrastructure investments put people back to work, and do so without depriving other sectors of the economy of the resources they need to do what they do.


Make sense? Unfortunately, as Krugman points out, state and local government investment in infrastructure has contracted over the past three years. Here's his chart showing the trends:





What happened here is that since state and local governments are usually required to balance their budgets, as the economy tanked and tax revenue dropped sharply, spending had to go down as well. This is one of the real pitfalls of requiring budgets to be strictly balanced over, say, a single year. When the economy turns down, balancing the budget means that states and local governments do exactly the wrong thing and reduce spending, which only makes the downturn that much greater. And it doesn't help at all if Republican legislators, as they did in Montana, grossly underestimate tax revenues (despite compelling evidence to the contrary) or promote fiscal austerity and "reducing the size of government" as a matter of ideology.


In the 2011 session, Republicans in the Montana legislature killed a bill to issue $100 million of bonds to finance infrastructure investment.. The state General Fund cost of issuing and servicing these bonds during the current biennium would have been a little less than $4 million, but even that the Republican majority, in a fit of misguided austerity, found unaffordable. Ironically, it turns out we have a lot more revenue - about $275 million worth - than we were willing to recognize we would when we balanced the budget. That's enough to pay the for infrastructure investments outright, without bonding. But when Democrats in early December asked the Revenue and Transportation Interim Committee to simply consider asking the 2013 legislature to do just that, the motion died on a party line tie vote.


The other irony here is that infrastructure investments not only stimulate the economy in the short run, they position it for sustained growth in the long run. One of the projects that would have been funded was the new College of Technology building in Missoula. The COT would have trained workers to prosper in a new, dynamic and changing post-recession economy. But for the moment, it appears, that's not  an investment in our kids' future we are prepared to make.


"Fiscal austerity," may sound good, but at best it's penny wise. And pound foolish. 

Education and unemployment

The Montana Legislative Branch posted a chart today showing the relationship between education and unemployment. Here it is:





No surprises here, really. At any time, a worker's risk of being unemployed is always higher, the lower his or her educational attainment. And less educated workers have seen a much bigger run-up in unemployment during the Great Recession. That goes part of the way in explaining the recent growth of poverty and inequality: less educated workers earn less when they do get jobs, and of course even less still when they can't find work.


The situation may be a little worse than it looks. Part of the reason that unemployment rates have  fallen in the past two years is that workers, when they can't find jobs, get discouraged and stop looking for work. At that point, in the official statistics, they are no longer included in the labor force or counted as unemployed, although they should be, and the official unemployment figure understates the true rate. In the past couple of years, labor force participation has declined at every educational level, but more so among less educated workers. So for those workers, there's somewhat more understatement of the true unemployment rate than there is for highly educated folks.


The bottom line for me in all this is that one of the ways we can get Montanans working again is to provide them with the skills and education they need to survive and maybe even get ahead in a bad labor market. Need I say that to do that we have to bite the bullet and fund education adequately at every level?