Study:

The Economic Impact of a Power Plant
Proposed By Sempra Energy for Adamstown, Maryland

I.  Summary and Conclusions

Literature Review Leaves No Doubt That Power Plants Cause Economic Damages

Herein, we present a recent, exceptionally thorough, expert review of the literature by Boyle and Kiel, both professors at the Massachusetts Institute of Technology [MIT] regarding how economic damages always result when large industrial disamenities such as power plants are built in or near residential areas, and how such damages are calculated.  This review demonstrably refutes assertions by Sempra that power plants cause no economic damages, and by the Maryland Power Plant Research Program that the body of literature on the topic offers conflicting findings.

One Or the Other: County-Authorized Residential Development Means No Industrial Disamenities Nearby

Michael Strategic Analysis’s 2002 economic impact analysis of the proposed Sempra plant showed the plant as proposed at that time to be marginal with regard to overall economic impact.  Using a restricted list of types of economic damages, we showed the Sempra plant as yielding net positive economic impact as of 2002, and a comprehensive, more justifiable list of types of economic impact as yielding net negative economic impact.  Since our analysis, two occurrences have made the Sempra proposal starkly negative in overall net economic impact.  These two factors are [1] more homes having been built and authorized to be built in the area around the proposed Sempra plant, and [2] significantly appreciated home and land values there since 2002.  The newly authorized development, well within the zone of influence of the proposed Sempra plant, increases the number of homes within the Sempra zone of influence above the 712 of our 2002 analysis.  As a matter of public policy, the Board of County Commissioners can authorize homes to be built in an area, or agree to a large industrial disamenity being built there, but not both because of the very large economic damages which the disamenity deals to the nearby home and property owners.

The Public Service Commission Decision: Adamstown Growth Negates Earlier Feasibility of the Power Plant

The Maryland Public Service Commission can ignore local zoning and the wishes of a board of county commissioners in siting power plants.  Nevertheless, the same argument applies to the Public Service Commission in the Sempra application as holds for the Frederick County Board of County Commissioners:  significant net economic impact would occur if the Sempra plant were allowed to be built because of its proximity to the  now large number of homes, and because of the collective value of the homes.

Sempra Proposal Would Yield Heavy Net Economic Loss

Our analysis calculates the amounts of 15 types of economic damage that would derive from the power plant, and enumerates the numbers of residences, farms and businesses which would suffer the economic damages within the zone of influence of the proposed plant. The analysis also examines the amounts of economic damage which would be suffered by other harmed parties including the County of Frederick, the State of Maryland, developers, lenders and real estate firms.  Our analysis of economic damages does not include several types of economic damage which would be more difficult to calculate, the largest being economic damage to the environment. The analysis goes on to provide calculations of economic benefit and net economic impact of the proposed plant.  Our analysis shows an overall net economic impact of $29,610,639 in damages, i.e., economic damages exceed economic benefits by this amount.

Analysis Corroborates Clear Public Policy Choices

The analysis concludes with the elucidation of the underlying determinants which govern whether a power plant will yield net economic damages or net economic benefit.  The two primary determinants are the proximity of residences, farms and businesses to a plant site, and the value and density of residences, farms and businesses within the area near a plant site.  The analysis shows that there is no way a power plant or other large industrial disamenity can avoid high net economic damages if allowed to be built amidst residences, farms and businesses in close proximity (emphasis added).  In contrast, a plant built where there is already sufficient geographic buffering between it and the nearest residences, farms and businesses may yield net economic benefit.  If buffering is present, it will almost always be in the form of sufficiently large existing industrial zoning.

 

III.  Summary of Evidence of Economic Damages Caused By Large Industrial Disamenities

In a study[i] published in The Journal of Real Estate Literature in 2001, Boyle and Kiel of the Massachusetts Institute of technology [MIT] examined 51 studies going back 27 years which investigated the affect which various kinds of disamenities, all being large industrial facilities or industrial detritus, had on housing prices [and, in one study, rents].   These disamenities included power plants, refineries, Super Fund clean-up sites, chemical processing plants, and other large industrial facilities.  The disamenities’ detritus examined included undesirable land uses, poor air quality, poor water quality, noise, and multiple environmental pollutants.  Of the 51 studies, the following 16 studies deal specifically with disamenities’ undesirable land uses such as siting a disamenity on or near agriculturally or residentially zoned land. 

A seventeenth unpublished study not cited by Boyle and Kiel directly relevant to the present analysis is a consulting report[iii] authored by Professor George S. Tolley, an economist at the University of Chicago who also serves as a consultant with RCF Economic Consultants  The University of Chicago’s Department of Economics is widely regarded as one of the best in the world.  The Tolley study showed the following.

Study

Year

Loss

Economic Damages or Damages Gradient for House Values

Tolley 2000

Yes

Damages of $150,800,000 from a particular power plant

 

All but one of these seventeen studies showed either a loss associated with proximity to an industrial disamenity, or a rise in residential values as a disamenity was removed or cleaned up.  Only one of the seventeen studies was inconclusive, and none concluded that a disamenity had no negative economic affect on residential and agricultural values.  In the face of such overwhelming expert evidence, there is no room for doubt that large industrial disamenities cause loss in residential and agricultural value, a stark form of economic damage for all but the wealthiest of people (emphasis added).  [One can readily conclude that this is another example of extensive research corroborating common sense.]



[i] Melissa A. Boyle and Katherine A. Kiel, “A Survey of House Price Hedonic Studies of the Impact of Environmental Externalities,”  Journal of Real Estate Literature, January, 2001, pp. 117-144.

[ii] A gradient is a rate or slope.  More precisely, a gradient is “a change in the value of a quantity with change in a given variable and especially per unit distance in a specified direction.”  [Webster’s]

[iii] George S. Tolley, “Effects of the Proposed Indeck Facility on Property Values, Land Use and Tax Revenues,”  RCF Economic and Financial Consulting, Inc., May, 2000.

 

For complete copy of this study please contact nocoal@nocoalcoalition.org

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