Last week the United Nations Intergovernmental Panel on Climate Change released its latest report, this one detailing the current and expected impacts from climate change. The report is the latest in a series of undeniable signals that the U.S. and the world will and must get serious about addressing climate change and the carbon emissions that primarily drive it. Another signal comes from the Environmental Protection Agency’s expected greenhouse gas regulations on existing coal plants. With these signals coming from world agencies like the United Nations in the form of reports, or from U.S. agencies in the form of proposed future regulation, it might be tempting to think that these signals aren’t yet affecting real on-the-ground business decisions, and certainly not in Montana.
Actually, they are.
ExxonMobil, one of the world’s largest petroleum producers with business interests in Montana, assumes a future price of $60 per ton of carbon emissions for all of their internal business planning. In fact, in releasing two reports focused on managing climate risk last week, ExxonMobil’s vice president of corporate strategic planning William Colton acknowledged that "the risk of climate change is clear and the risk warrants action."
Mega-corporations like ExxonMobil aren’t the only ones planning on a future where carbon emissions come with a specific economic cost. Right here at home, NorthWestern Energy’s economic justification for the purchase of 11 hydroelectric dams from PPL Montana for $900 million presumes a cost of $21 per ton on carbon emissions beginning in 2021, and escalating every year thereafter by 5%.
NorthWestern’s carbon cost assumption of $21 per ton of emissions is far more conservative than ExxonMobil’s assumption of $60 per ton. Yet, even with this more modest assumption, NorthWestern’s supporting analysis of the acquisition clearly demonstrates the value to ratepayers of adding long-term resources that do not emit carbon to their portfolio.
Assumed future carbon costs also support NorthWestern’s decision not to acquire PPL’s ownership in the Colstrip and Corette coal plants. NorthWestern’s analysis concluded that the plants would have a negative value to ratepayers, particularly considering all of the carbon costs and other environmental liabilities facing the plants. NorthWestern’s decision to pass on purchasing the coal plants protects ratepayers from future carbon costs and environmental liabilities.
Diversify power supply
Renewable energy advocates, including Renewable Northwest, support policies that result in diversifying our power supply with new renewable energy technologies like wind and solar. Like wind and sunshine, water that fuels the hydroelectric dams is essentially free, and naturally renewable. Like wind and solar, hydropower is carbon free. Those attributes alone should help keep rates stable for NorthWestern ratepayers, by shielding ratepayers from the volatility of rising fossil fuel prices over the coming decades.
Ultimately, the Public Service Commission will have to look under the hood and answer the question of whether this particular hydroelectric resource acquisition — a major one — is right for NorthWestern’s Montana ratepayers. But NorthWestern Energy took the right perspective on future carbon risk. It’s not often that utilities, renewable advocates and oil and gas companies like Exxon Mobil agree, but one thing is for sure: carbon emissions come at a cost, and we should be planning for it now.