January 25, 2015
Rockport Bill Is a Net Job Killer
A decade ago, I was part of a Department of Energy team that studied the feasibility and economic impact of an electric power plant. This plant was designed to process coal into synthetic natural gas while capturing and storing much of the carbon emissions into the closed mines that littered West Virginia.
We studied a variety of options for the plant, from the production of hydrogen for a new network of vehicles, to the use of by-products to make brick-like building materials to an array of products such as fertilizer additives. What we ultimately discovered was that under the very best scenario, with the government subsidizing 90 percent of the construction cost and with natural gas prices almost three times their current level, the plant would still need a subsidy of a few million dollars each year to stay open. Other studies in other places found the same thing.
However, the local benefits of this plant in West Virginia were large. Several hundred jobs would be created, so it is plain to understand why local officials and residents would like to see the plant built. Still, West Virginia, which was not a paragon of fiscal prudence, chose not to invest in the plant. Many other states also toyed with, but ultimately rejected funding this type of power plant. In Indiana, this idea became the Rockport coal gasification plant.
My study was prepared a decade ago. In the years since, large-scale natural gas discoveries in North America now guarantee low natural gas prices for a generation. Today you can purchase natural gas futures at less than half the 2005 prices for delivery more than a decade from now. This is an important development because the revenues to the Rockport plant depend upon selling electricity. Lower natural gas prices means that the profitability of a coal gasification plant will be less feasible than it was in 2005.
Sadly, Rockport was not a privately feasible operation in 2005, so the state offered a number of energy purchase agreements to support its construction. There isn’t space to go through the unpleasant details of the Rockport power plant. Suffice it to say that what was a marginally bad idea in 2005 is a profoundly bad idea in 2015. A recent and very fine study by Indiana University explains why in detail.
This is in part why the General Assembly wisely stopped subsidizing the Rockport facility in 2013 by preventing a long-term energy purchase agreement by state government. This would have left taxpayers and energy customers across Indiana stuck with much higher costs for the next 30 years. Sadly, bad ideas have a way of returning and another effort to subsidize Rockport has just been introduced in the state senate.
No doubt this bill would be great for Rockport investors and two or three counties in Indiana, so it is natural that local legislators would support it. Sadly though, this bill (SB 360) is a big net job killer. All the local job gains would be erased by job losses across Indiana. It is time to end this bad idea once and for all.
About the Author
Educational Attainment, the 21st Century Fund and the Future of SchoolingIndiana ranks 42nd in educational attainment.
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