A decade ago, I was part of a U.S. Department of Energy team that studied the feasibility and economic impact of an electric power plant designed to process coal into synthetic natural gas while capturing and storing much of the carbon emissions in closed mines littering West Virginia.
We studied a variety of options for the plant, from the production of hydrogen for a new network of vehicles, to using byproducts to make brick-like building materials to an array of products such as fertilizer additives.
We discovered 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.
Several hundred jobs would be created. Still, West Virginia, which was not a paragon of fiscal prudence, chose not to invest in the plant.
Many other states rejected funding this type of plant. In Indiana, this idea became the Rockport coal gasification plant.
In the years since the study, large-scale natural gas discoveries in North America now guarantee low natural gas prices for a generation.
This is an important development because revenue to the Rockport plant depends upon selling electricity. Lower natural gas prices means 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. 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 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, Senate Bill 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.•
Hicks is the George and Frances Ball distinguished professor of economics and director of the Center for Business and Economic Research at Ball State University. His column appears weekly. He can be reached at [email protected]