Barhaugh v. Montana: Answer to Petition – Exhibit B

Challenging the Economics of Montana’s Climate Change Action Plan

A Peer Review by Benjamin Powell, Montana Policy Institute

Introduction

The Montana Climate Change Advisory Group partnered with the Center for Climate Strategies (CCS) to create the Montana Climate Change Action Plan (MCCAP) to develop recommendations to reduce emissions of greenhouse gases (GHG) in Montana and to estimate the costs and benefits of their recommendations.

The Beacon Hill Institute has previously reviewed the cost-benefit methodology employed by CCS in four other states, and found three serious problems:

  1. CCS failed to quantify benefits in a way that they can be meaningfully compared to costs;
  2. CCS misinterpreted costs to be benefits when estimating economic impacts,; and
  3. CCS understates the true costs of its recommendations because its estimates of costs left out important factors.

Unfortunately for Montana policy makers, these same three problems plague the MCCAP study, rendering it unsuitable for making any informed policy decisions. In this brief document, we first summarize the main findings of the MCCAP report. We then briefly review problems (1) and (2), before providing a more detailed analysis of problem (3), where we examine the individual cost and benefit assumptions made in the four programs proposed in the MCCAP report which had the highest net savings associated with them.

The MCCAP Plan The MCCAP report contains 54 recommended policy actions to reduce GHG emissions. These policy options are classified as falling into five areas:

  1. Residential, Commercial, Institutional and Industrial;
  2. Energy Supply;
  3. Transportation and Land Use;
  4. Agriculture, Forestry, and Waste Management;
  5. Cross-Cutting Issues (policies that impact more than one of the above sectors).

CCS facilitated and provided technical assistance in studying the five sectors. The MCCAP report quantifies forecasted emissions reductions for 37 of their recommended policies. They estimate that, if fully implemented, their recommendations would reduce Montana’s GHG emissions by the year 2020 to a level 11.5 MMtCO2e lower than the level that would otherwise occur if the policies were not implemented.

The MCCAP report claims that the implementation of these measures would result in only a modest net cost for the State’s economy. The MCCAP report quantifies costs for 31 of the 54 recommended options. Surprisingly MCCAP claims that 15 of these options would generate net cost savings. If all options were implemented, the MCCAP estimates that the recommendations would cost the state of Montana between $93 million and $691 million2 (in present value terms) between now and 2020.

The estimated cost of between $93 million and $691 million grossly underestimates the true costs of implementing the policy options recommended by the MCCAP for GHG mitigation.

As we show below, the cost-benefit methodology employed by CCS omits significant costs and frequently misconstrues certain costs to be benefits causing them to underestimate the true costs of their recommendations.

[To read full report, click here for PDF.]

Conclusion

When it comes to the desirability of policies aimed at reducing GHG emissions, the MCCAP report provides zero guidance to policy makers. It fails to perform the most basic task of any cost-benefit analysis – quantifying both the costs and benefits in monetary terms so that they can be directly compared. The MCCAP report also finds net economic savings from many policies intended to reduce greenhouse gasses, even without counting the value of those reduced emissions.

In this peer review, we briefly examined the cost-benefit assumptions for the four proposed policies that are forecast to generate the largest net cost savings. In each case, we have found the analysis is seriously flawed.

Despite the MCCAP claim that these four programs have a net benefit of $812 million, we can find no sound scientific basis for their claim. MCCAP’s cost savings estimates are not just wildly optimistic; they are the product of a purely fictitious analysis. MCCAP’s cost (savings) estimates of other mitigation options suffer from similar problems causing their estimate of a $93 to $691 million cost to their overall package to grossly understate the true costs. In fact, by just eliminating the savings from the four policies analyzed above, the cost of MCCAP’s proposed package more than doubles.

For policy makers, there is no worthwhile guidance in the MCCAP report. Its cost-savings estimates cannot be believed. Moreover, it fails to quantify the monetary benefits of reduced carbon emissions. As a result, policy makers are left with no basis on which to judge the merits of the MCCAP recommendations on how to mitigate the emissions of greenhouse gases.

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