March 4, 2010

Click here to view and here to listen to Dr. Roy Cordato discussing this Spotlight report.

RALEIGH — North Carolina’s centerpiece air-quality regulation is expected to cost electric customers more than $3.2 billion, far more than supporters ever projected. Meanwhile, the state has offered no proof that the measure has produced any air-quality improvements, according to a new John Locke Foundation Spotlight report.

“This measure dubbed the Clean Smokestacks Bill offers the worst of both worlds: skyrocketing costs and no evidence that all those costs make any difference in improving air quality,” said report co-author Dr. Roy Cordato, JLF Vice President for Research and Resident Scholar. “This report paints a far different picture than the one the N.C. Department of Environment and Natural Resources would like to present.”

Cordato and JLF research intern Kamen Nikolaev dug through publicly available information that estimates the Clean Smokestacks Bill’s costs and benefits. Approved in 2002, the measure required utility companies to make “dramatic reductions” in nitrogen oxide and sulfur dioxide emissions from the state’s 14 coal-fired power plants. Duke Power and Progress Energy approached that goal by installing scrubbers on power plant smokestacks, Cordato said.

“When this measure started as a demand from the left-wing pressure group Environmental Defense, the cost was estimated at less than $450 million,” Cordato said. “By the time Duke Power and Progress Energy offered their own estimates in 2002, the price tag had jumped to $2.3 billion. As of June 2009, the cost estimates had climbed by nearly another $1 billion to a total of $3.2 billion.”

That larger figure does not capture all costs, Cordato said. “The real cost of the Clean Smokestacks Bill might be significantly higher than even these revised estimates,” he said. “For one thing, the $3.2 billion does not include the $1.5 billion Progress Energy estimates it will spend converting two coal-fired power plants to natural gas plants. Newspaper reports suggest the conversions are designed to help Progress Energy avoid the costs of complying with Clean Smokestacks requirements.”

Those costs will likely translate into higher utility bills, Cordato said. “That’s not the end of the story,” he said. “In 2008 the costs of generating electricity from natural gas were about three times greater than the costs from coal. This means future electricity rates will be higher with natural gas than with coal. All of those extra costs should be attributed to the Clean Smokestacks Bill.”

With higher costs creating an extra burden for electricity customers, DENR has offered no proof that the Clean Smokestacks Bill makes any positive difference in air quality, Cordato said. “Since 2005, DENR has implied in press releases that the Clean Smokestacks Bill has had a positive impact, especially when touting improvements in the number of high-ozone days,” he said. “DENR has cited no evidence to support those claims.”

While DENR has offered no evidence or analysis, publicly available ozone data offers some clues, Cordato said.

“North Carolina is the only state that bought into Environmental Defense’s efforts to push this legislation back in the early 2000s,” he said. “It’s easy to compare North Carolina’s ozone record with the records of all four neighboring states. None of them has Clean Smokestacks legislation. If North Carolina’s bill really makes a difference, that difference should show up in state-to-state comparisons.”

Cordato and Nikolaev ran the numbers. They compared North Carolina to its neighbors from 1999 to 2009. “It was important to look at how North Carolina’s ozone record stacked up against neighboring states from both 1999 to 2004, when the Clean Smokestacks Bill was nonexistent or relatively new, and from 2005 to 2009, when DENR claimed the bill was having a positive impact.”

The results show no difference in North Carolina’s relative performance, Cordato said. “In the first five-year period, North Carolina’s year-over-year improvement rate was better than the median state once, at the median twice, and below the median state twice,” he said. “This is exactly the same pattern seen in the five-year period since the Clean Smokestacks Bill has been touted as making a difference. Using this measure, it appears DENR’s claims are not validated.”

The Clean Smokestacks Bill is not living up to expectations, Cordato said. “This legislation’s costs are far greater than anticipated, and the benefits are not obvious when comparing North Carolina to neighboring states,” he said. “This is despite the fact that year after year DENR’s public relations machine goes out of its way to attribute improving air-quality conditions to Clean Smokestacks requirements.”

“If DENR is going to make such claims, it is incumbent upon the agency to prove its assertions with rigorous analysis,” Cordato added. “It has not done so.”

Dr. Roy Cordato and Kamen Nikolaev’s Spotlight report, “The Clean Smokestacks Bill: A Retrospective,” is available at the JLF Web site. For more information, please contact Cordato at (919) 828-3876 or [email protected]. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or [email protected].