Opinion: Montana’s Bumpy Road to Clean Power Plan Compliance

November 19, 2015

By Patrick M. Barkey

What would it take for Montana to produce electricity in a way that reduced carbon dioxide emissions by 47 percent? It’s not a hypothetical question. It’s the mandate set for the state in the Environmental Protection Agency’s final version of its Clean Power Plan, released in August 2015.

And compliance with that mandate – which requires a larger percentage of CO2 reductions in Montana than any other state – is more than a technological or engineering challenge. It could involve walking away from assets that have provided low-cost power and supported thousands of jobs for years, as well as spending hundreds of millions of dollars to build the capacity to replace them in a short period of time. In short, it could be the biggest economic event to occur in our state in decades.

The road to compliance is difficult for Montana. The regulation specifically targets existing fossil fuel-power electric generators, and the largest of those is the four-unit Colstrip coal-fired generating station in southeast Montana, whose 2,300 megawatts of baseload capacity have anchored our state’s power grid for decades. A future where those assets are no longer available is a real possibility.

How real? Consider the challenge. The number of tons of annual CO2 emissions that Montana is required to eliminate – about 8.5 million tons – is roughly equal to the annual emissions of the two older, smaller Colstrip units plus the output of half of one of the newer, larger units.

In reality, that really wouldn’t work. For reasons both engineering and economic, that facility would be difficult to operate in a configuration where only one and a half of its units survived. That leaves only one other option for compliance that could help the facility survive. That is to rely on the existence and the affordability of emissions credits – essentially licenses to emit CO2 – that other states may have to sell. If you think that responsible power planning requires more than relying on nonexistent markets so that others can provide for our needs, you are not alone.

The Bureau of Business and Economic Research at the University of Montana has prepared a research report on what the early retirement of Colstrip to meet the CO2 emissions mandate would mean for the Montana economy. The results are sobering. Even when set against the job gains that would occur when new, compliant generation is built and operated to replace the Montana-dedicated power lost from Colstrip, the net impact is to reduce jobs, income, output, population and tax revenues by significant amounts.

Particularly of note are the kinds of jobs that Montana would lose. Of the 7,157 jobs that compliance with the EPA’s regulation would destroy, the average earnings are almost $66,000 per job. And while more than 4,000 of those lost jobs would come from eastern Montana, all regions of the state would see meaningful declines. At the mid-point of the next decade, the compliance scenario analyzed by BBER would result in a loss in annual income received by Montana households of over a half billion dollars. To put that into context, that’s about half as large as the decline that occurred during the Great Recession.

Why are the impacts so harsh? You really need to read the entire report to find that out.  But it all comes back to the many important roles played by Colstrip. It is the single largest emitter of CO2 in the state, yes. But it also is the backstop of our electrical grid, as well as the state’s single largest industrial facility. Its baseload power generation role in our system is one that newer technologies like wind and solar cannot yet replace. And any mandate that does not recognize that will cause the economy to pay a heavy price.

Patrick Barkey is the director of the Bureau of Business and Economic Research at the University of Montana. The full report is available at http://www.bber.umt.edu/Econ/Industry.asp

Contact: Patrick Barkey, director, UM Bureau of Business and Economic Research, 406-243-5113, patrick.barkey@mso.umt.edu.