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BBER Defends Gloomy Clean Power Plan Analysis for Montana

Patrick Barkey, Director of the Bureau of Business and Economic Research.
Courtesy UM Bureau of Business and Economic Research
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Last week a study of what could happen to Montana’s economy under President Obama’s Clean Power Plan came out of the University of Montana’s Bureau of Business and Economic Research. Opponents of the carbon dioxide reduction plan say it proves dire consequences. Backers of the plan say the study merely reached the predetermined conclusion of the utility company that sponsored it.

Patrick Barkey, author of the study and director of the Bureau of Business and Economic Research joined us for an interview about it.

Eric Whitney: What is it you're trying to accomplish with this study?

Patrick Barkey: What I'm trying to do is raise awareness of Montana policymakers and businesses and even households of the potential implications for the final rule announced by the EPA in August, in terms of their economic and financial security.

EW: This is the plan from the Obama administration to reduce greenhouse gases nationwide. It assigns each state a target to reduce its carbon dioxide emissions, Montana's [target] is higher than any other state. Your study is trying to explain, in order for us to achieve that target, what are the economic implications, is that right?

PB: That's essentially it. It's not all carbon emissions, it's emissions from new and existing electric generating power plants, 47% is actually the percentage reduction in carbon emission rates that would be required in Montana by EPA calculations.

EW: Your study is a snapshot of what that's going to look like?

PB: What it could look like. There's a lot of unknowables out there. Montana's plan won't be due until next year, so we can't analyze Montana's plan because it's not there yet. But we can look at the setting for that plan, what the requirements are, and what the actions are.

EW: When it was released, political leaders, elected officials in Montana said: If the Clean Power Plan is implemented in Montana, this is what's going to happen, and that's not an entirely accurate portrayal of what the study is?

PB: Correct. It's the analysis of the scenario, and I would underscore that it's a rather complete scenario. It's looking at, from an both engineering and economic perspective, a scenario which would comply with the requirements of the final rule, as well as keeping Montana's power system whole. But it's certainly not a prediction, and it's not a recommendation.

EW: The underlying assumption for how you believe Montana could or would achieve these goals set under the Clean Power Plan, basically means shutting down all four units of the Colstrip coal-fired power plant, correct?

PB: Yes. The required reductions are large, they're pretty onerous, and they're a pretty big surprise. The second thing, which is not as well understood, is that Montana has few options. Over 95% of our fossil fuel plants, which is what is targeted, comes from coal. Meaning the rule requires actually reducing what's called the mass, the tonnage that comes from that plant. So the only way to do that is to burn less coal. Now how could that happen?

There's a large facility in Colstrip, and there's a number of small ones sprinkled throughout the state. So, in terms of the scale of the problem, you're talking about a 4 unit generating station in Colstrip, the first two are smaller and 3 and 4 are the larger ones. If you shut down 1 and 2 and half of 3, by our calculation, that just barely makes the mass reduction.

That calculation is actually different than what the EPA did. The EPA used a baseline year of 2012 to base emissions on. 2012 was a high hydro year, there's a lot of reasons why 2012 was atypical.

So units 1 and 2 do not get you close to the reduction you need, there's still quite a ways to go. In fact, if you added every other coal facility in Montana, you shut them all off, you would just barely get there.

EW: In order to meet the target set in the Clean Power Plan, it's necessary to shut down all 4 units of Colstrip?

PB: I'm not saying it's necessary, I'm saying it's a reasonable scenario to analyze, because we are told by the operator of that plant that it is difficult economically to operate with only one-and-half units allowed to operate.

EW: Told by all the operators, or by Northwestern Energy?

PB: The operator of the plant is Talen, Northwestern is an owner.

EW: A part-owner, there's like 6 utilities that share ownership?

PB: Correct. [Northwestern's] share is not that large, they own I think it's 30% of unit 4.

EW: Is Northwestern operating on the assumption that the Clean Power Plan will require the shutdown of all 4 units, and do the other owners of Colstrip share that assumption?

PB: [I] didn't work with the other owners of Colstrip, I have on previous studies.

EW: What is it that you think is important for people in Montana to take away from your study?

PB: The first thing is that Colstrip is a pretty fundamental part of the Montana electrical grid, and that's really important to bring up, because most of us don't really understand what's going on with our electrical grid, because it's pretty reliable, and things that aren't broke usually don't get a lot of attention.

I think the second reason is that, Colstrip has been around a long time. So there's a lot of things that we take for granted that exist because of Colstrip. We have industrial customers throughout Montana that purchase power at a discount, because we have a surplus of energy in Montana. We export electricity. So if Colstrip was gone, that discount would be replaced by a surcharge. They would have to pay for the electricity to come from some place else.

EW: Did your study look at, might we be able to shave a few percentage points off with efficiency or alternative energy or other strategies?

PB: First off, I would freely admit that any study like my own is really a product of the assumption, so the short answer to your question is no. First off, when you're pursuing this mass-based compliance. Energy efficiency just means you need less energy which you need to burn less coal.

EW: Which means fewer carbon dioxide emissions.

PB: Correct, but like I say, the only way always remains less coal. So efficiency becomes part of what I call the replacement scenario. Yes we did consider renewables.
We didn't consider energy efficiency, but we could have, for a variety of reasons if you have time I can go into them. They didn't go into our replacement scenario for what could take the place at least of what Montana loses for Colstrip to go down. We seriously considered putting them in, we had every reason to put them in. When I talk about a scenario, I'm talking about a complete scenario. I'm talking about the addition of power and where it goes, how much it takes to build it. How much it takes to permit it. How much employment is involved. How it connects the electrical grid and how it replaces what we're losing. Because coal power is base load. Wind is intermittent so for that reason, wind power just didn't make the cut. Not that it doesn't contribute to the system but in terms of replacing what's left that was our criteria for being considered in a scenario for replacement.

EW: People are going to hear our conversation and they're going to hear that you have considered other alternatives to reduce carbon dioxide emissions in Montana and you've decided that those are not feasible and really the only the feasible way to make those targets is to shut down all of Colstrip and I have a feeling that's not what you're saying.

PB: Well it's not what I'm saying, its what the plan is saying.

EW: The Clean Power Plan.

PB: Sure, it's targeting new and existing fossil fuel burning coal plants and the only option for Montana to pursue is this mass-based option. That's my opinion, but I think if you read the report you could see the reason for that. You have to burn less coal. How do you do that?

One thing we haven't discussed yet is purchasing credits from other states. And that certainly is another option.

EW: Because Washington and I believe Oregon, they don't have to reduce their CO2 emissions at all to meet the target of the Clean Power Plan. It might be a reasonable scenario where Washington would be able to transfer some of those benefits over to Montana, but as of yet that market doesn't exist.

PB: Yeah, and put this in practical terms. Next year the state of Montana has to file a plan. So what is the plan? We shut down these two units and we buy these credits. Who do we buy them from? Don't know. What are we going to pay for them? Don't know. Mind you there are regulated utilities involved in this and if it turns out to be not in the best interest of consumers, there's all kinds of things that interplay there. The compliance period starts in '22.

EW: 2022.

PB: In terms of power planning, oh my gosh is that right around the corner. I think the biggest unknown from my point of view would be - one is technology, coal sequestration. By the time we have to pull the trigger on what we are doing, I don't know if we could ever break through that quick. But certainly that's a possibility.

Another one, quite sadly, and I hate to bring this one up, but that's load growth. If big consumers of electricity looked around in this country and they say, 'Gosh, you know, this market has got some real big uncertainties all of a sudden. It's time to move my production off shore.' Or something like that. Now those are just two I can specify off the top of my head.

EW: There's nothing out there that, if they could figure out alternative ways to figure out these targets it might blow up the conclusions that you've come to in your analysis?

PB: It would be hard to. Fundamentally what you're doing in this plan is you're changing Montana from being an exporter of electricity to being to one that has to occasionally import. That exists because we have coal. And that coal is shipped by wire to other states that demand it.

We may come up with the technologies to serve our own needs but in terms of being able to have an energy surplus of the kind that we enjoy today, that one's kind of hard to see. We do have some advantages in wind, of course, but they're not as big as they are with coal. And wind is not one that is so easily scaled. A facility in southeast Montana [that] produces more than the whole state of Montana needs - you know how big of a wind farm it would take to do that? 150 square miles, I've computed it.

Patrick Barkey is the director of the Bureau of Business and Economic Research at the University of Montana.

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