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.

Wanting to Govern

Greg Gianforte, whose gubernatorial campaign up until now has been soporifically bland, finally took an oblique shot at Steve Bullock this past week.  And really, if that’s the best that Gianforte’s got,  I don’t think the governor has much to worry about.

To be clear, Gianforte has yet to admit that his hat is in the ring. Rather, he has been conducting an “exploratory” campaign, which seems to involve running around the state glad handing the voters and asking them if they think he should run for real.  He’s been soliciting contributions to support this endeavor, which seems to me a bit odd - please support me so I can come round and ask if you support me - but what’s really up with this strategy appears to be that it allows Gianforte to campaign without saying anything of substance. Given the extremity of his views, that’s probably a good move, and he’s pretty much stuck to it. There have been a few bobbles, such as when he opined that “the concept of retirement is not biblical,” but generally he has avoided controversy by confining himself to uttering platitudes about the importance of good jobs.

So it was a departure from the norm when earlier this week Gianforte sent out an email (text below) announcing his support for Attorney General Tim Fox and his suit challenging the Clean Power Plan. And taking a whack at Steve Bullock, Gianforte said that had he been governor, he would have been standing right alongside Fox, unlike “some of our own state leaders” who are “silent … when it comes to taking a stand for Montana’s rights.”

Here's Gianforte's missive:

We all know the West is a special place - we make our living here.  Susan and I raised all four of our children here in Montana.

But the special beauty we’re privileged to enjoy makes special demands on our stewardship of the land - demands that are often misunderstood by DC bureaucrats and liberal interests.

Perhaps the first thing they misunderstand is that those who make their living off the land have the greatest incentive and obligation to protect it.

That DC does not understand this is, sadly, not a surprise. But how can some of our own state leaders be silent on the question when it comes to taking a stand for Montana’s rights?

Just last week, our Attorney General Tim Fox joined Montana as party to a lawsuit challenging the EPA’s new carbon regulations - regulations designed to cripple Montana’s coal industry and take jobs from our state. I can assure you, if I were Governor, I would have been standing alongside Attorney General Fox and his effort to block President Obama’s plan.

President Obama’s plan will shut down Colstrip, and high wage coal jobs all across the state. The threats from Washington must be defeated.

If I decide to run and become your next Governor, you can bet I’ll take a defiant tone in the face of EPA intrusion. I’ll fight wherever and however I can to ensure Montana’s future.

And the more I hear from you, the more encouraged I am to run to take on these challenges.

We’ll be holding our state’s leadership accountable as I travel the state and hear your concerns.

If you share my concern for the future of Colstrip and high wage mining jobs all across Montana, join me on Facebook and follow us on Twitter. Also, please sign this this petition to stand up for Colstrip and high wage Montana jobs.

And forward this email to like-minded Montanans - we need them to join the team.

Let’s demand more from our leadership, together.

Thanks as always,

Greg

Like Steve Daines, Gianforte seems to think that President Obama is shoving the Clean Power Plan down our throats just “to cripple Montana’s coal industry and take jobs from our state.” He doesn’t mention a single word about climate change and doesn’t seem to know that the Clean Power Plan would produce billions of dollars of public health and climate benefits. And he fails to recognize that unless the United States is committed to seriously reducing carbon emissions - and Montana, like other states, is prepared to do its part - we will never be in a position to demand international cooperation for climate action.

That’s all pretty standard stuff, but Gianforte rings the changes on the Republican message with results that are downright bizarre. For one thing, he appears to think that the Clean Power Plan has something to do with stewardship of the land!  It’s hard to believe that he has really gone that far astray - maybe all he’s trying to do is perk up the ears of the Sage Brush Rebels  – but either way, it’s worrisome. And then there’s this business about “high wage coal jobs all across the state." You’d think that after all that exploratory campaigning he’s done, Gianforte would know where the coal mines are and aren’t.

And what is he going to do about this terrible plan? Well, besides standing resolutely alongside Tim Fox, if Gianforte decides to run and becomes our next governor, we can “bet” that he’ll take a “defiant tone in the face of EPA intrusion.” Wow, that’ll help.

The fact of the matter is that Gianforte doesn’t really look like someone who wants or is able to govern. He doesn’t see the dimensions of the crisis we are facing; he is willing to cede the lead to the attorney general; he is prepared only to stamp his feet and just say no; he doesn’t appear to recognize the importance of coming up with Montana made solutions; he’s not sure he wants to be governor; and if he is, all he can tell us is that he’ll take a “defiant tone” with the EPA.  And in going up against Steve Bullock, he’s taking on a guy who not only wants to govern, but actually has; a guy that in the face of do-nothing opposition has brought on Medicaid expansion and campaign finance reform and the water compact and a bunch of other stuff. In short, Bullock has governed and Gianforte doesn’t even seem to know what governing is all about. 

Coal Tax Reality Check

When it comes to coal taxes, Duane Ankney needs to run a reality check.

Senator Ankney, who hails from Colstrip and is proud to be a retired coal miner, was in Longview, Washington this week promoting the construction of a terminal through which, he hopes, millions of tons of Powder River coal will someday be exported to Asia.

It’s easy to understand Ankney’s enthusiasm for this project. The coal industry has been taking it on the chin recently.  In the face of competition from renewables and, especially, natural gas, the electric power industry is moving away from coal as a fuel, and domestic coal consumption is falling. As the Clean Power Plan goes into effect and states are required to reduce their carbon emissions, the decline will almost certainly accelerate. So the only potential bright spot for coal – such as it may be - is exports.

Now nobody in their right mind is going to deny that coal exports will be good for the economy of Colstrip and Rosebud County, or for the miners and their families who Ankney represents. And it’s certainly okay for Ankney to be promoting those exports however he can – after all, all politics being local, the guy’s just doing his job.

But what’s not okay is for the senator to make a bunch of fanciful claims about the importance of coal to the whole rest of the state in order to scare people into propping the industry up, no matter what the consequences. And that’s apparently what happened in Washington. According to the Longview Daily News, Ankney told the local folks who are worried about the effects of the terminal on their community, that “Montana depends on coal taxes.” Those taxes “pretty much keeps the wheels greased and the Montana economy running.”

This is simply outlandish. In 2013, the last year for which I can find complete data from the US Census Bureau, the state and Montana local governments collected a total of about $3.85 billion in taxes. That same year, according to the latest Montana Department of Revenue Biennial Report, coal paid severance and gross proceeds taxes of a tad more than $76 million, or 1.9 percent of the total. That, by way of comparison, is about the same as smokers paid in cigarette taxes.

But wait, there’s more! Taxes are actually a relatively modest proportion of the total revenue of the state and local governments. There’s also boatloads of money from the Federal government, hunting license fees, University system tuition, interest earnings, property sales, etc., etc. Add all those revenues, including taxes, up, and you come up with a total for 2013 of $8.06 billion, about .9 percent of which comes from coal. In case you can’t quite wrap your head around that number, the picture above shows the total revenue pie, including the slice of revenue coming from coal. If you’re having trouble seeing that slice, well, that’s the point. And if you’re having trouble figuring out how we can possibly be dependent on that miniscule slice to "pretty much" keep the "wheels greased and the Montana economy running," that’s also the point.

Senator Ankney will no doubt want to argue that because some coal severance tax revenues are earmarked for programs like Long Range Building, those programs are dependent on coal taxes. But it’s not true. If the coal tax revenue we are collecting today were to disappear overnight, we could continue to fund every expenditure we are funding right now, and still have a hefty surplus and money in the bank.

I’m not denying that declining coal production means real trouble for coal miners and their families and communities. But in thinking about the future of coal and climate policy, we shouldn’t be stampeded into thinking that lower production spells disaster for the state’s economy or the public purse, because it just isn’t so.