Energy Reform

Mitch Daniels: Heartland Reformer

Energy Policy: From Non-Existent to Innovative Leader

Before Governor Daniels took office, Indiana had no existing energy policy to speak of. Eight years later, the Hoosier State is among the fastest growing wind power states and is on track to meet its future energy needs like never before. Indiana is not blessed with natural energy resources at the levels enjoyed by some of its Midwestern neighbors, and yet it had massive levels of unrealized potential that had been ignored or dismissed.

Daniels and his team launched a comprehensive plan that focused the state on utilizing its own resources and lessening the state’s dependence on others.  In the process of employing Indiana’s resources, Daniels in essence pushed the state to adopt a proactive approach to the state’s energy needs, which in turn has created jobs for Hoosiers and improved the state’s energy efficiency.

Hoosier Ingenuity Generates a Homegrown Plan

When Daniels first came to office, energy was essentially a non-state issue, so Indiana’s Utility Regulatory Commission was not guided by a distinct set of policies. Yet Indiana was – and continues to be – the most manufacturing-intensive state in America.  Daniels immediately viewed this gap in energy policy as a liability, given manufacturing’s intensive energy needs.  Indiana had grown accustomed to its manufacturing sector’s performance depending in part on fluctuations in coal and energy prices. If those prices ever increased dramatically, Indiana would be hit hard and have no other option but to pay whatever rates energy-exporting states were charging.

Instead of accepting the status quo as Indiana’s fate, Daniels rejected the historically passive posture of Indiana’s leaders with regard to energy. He resolved to proactively introduce a new energy policy and put Indiana on the map as an energy innovator.

His administration soon produced “Hoosier Homegrown Energy: Indiana’s Strategic Energy Plan.”  It was Indiana’s first comprehensive energy plan in 20 years and sought to produce more energy within the state using Indiana’s own natural resources.  In doing so, an important secondary goal was also to connect energy with economic development and lead to job growth within the state.  The plan contained a strong focus on conservation and energy efficiency as well.  Through Executive Order Daniels then established the Interagency Council on Energy, directing the group to develop and implement the strategic energy plan.

The council soon turned to the first goal of Hoosier Homegrown Energy, which insisted on trading current energy imports for future Indiana economic growth.  Indiana, after all, produced coal, but the state spent 75 percent of its energy expenditures on outside coal, natural gas, and oil.  In 2006, that expenditure totaled around $16 billion.  This importation meant that Indiana strongly relied on other states and was losing numerous job opportunities to utilize its own resources.  A new 650-megawatt coal gasification power plant alone can create 800-900 construction jobs, 700 new mining and related jobs, requires 70 full-time operators, and consumes $40 million in coal annually.

Utilizing the State’s Resources:  Indiana Corn and Soybeans

To achieve that first objective, the Hoosier Homegrown Energy plan next set out the goal to produce electricity, natural gas, and transportation fuels from bioenergy and clean coal.  To begin producing bioenergy, which is renewable energy made from biological sources, the state wanted to make use of its corn and soybeans, of which it is a top producer in the country.  Despite this abundance in resources, however, Indiana had no ethanol plants and no biodiesel plants.

The legislature assisted in the effort to create such plants and soon passed incentives for biofuel producers that set up production in Indiana.  Indiana now houses six operating ethanol plants, four operating biodiesel plants, seven more completed ethanol plants, and one more completed biodiesel plant.  The production of ethanol alone currently exceeds one billion gallons annually, and the byproducts are worth more than $2.5 billion at current prices. Criticism arose, as it has elsewhere in the country, that diverting corn and soybeans for energy purposes took away those resources for animals and people, so the state eventually put a moratorium on the tax credits, as they had fulfilled their purpose.  Tax credits are now reserved for those biofuel producers who use only the corn stover.

Utilizing the State’s Resources:  400 Years Worth of Coal

Even amidst great strides in alternative energy, the Daniels team found it problematic that Indiana had built no baseload power plants, which utilize coal or nuclear power, for over 20 years. Forecasters predicted that Indiana would need an additional 10,600 megawatts of electricity by 2023.

Private industry had no plan yet in place for how to deal with this impending increase in demand, and so Daniels brought together utility industry leaders and regulators to tackle the issue early in his first term.  Instead of relying on outside markets, the plan, being true to utilizing Indiana’s own resources, called for using the state’s coal reserves.  Those coal resources, however, were high in sulfur content and did not meet EPA standards.  Indiana had therefore been importing 50 percent of the coal it used, bringing the expenditure on out-of-state coal to about $1 billion annually, even though Indiana boasts enough coal reserves to meet the state’s energy demand for over 400 years.  Daniels saw this as a clear loss of opportunity to keep those funds within Indiana, and thus investment in clean coal technology was the next priority in Indiana’s energy policy.

The General Assembly again assisted by passing legislation to support investments in clean coal technology, and continually updated that legislation, leading the National Conference of State Legislatures to recognize Indiana as having “the most comprehensive, aggressive and diversified portfolio of [clean coal] financial incentives.”

By the end of Daniels’ tenure, two plants with clean coal technology were underway which will convert Indiana’s sulfuric coal into gas as a clean source of fuel for electricity generation.   The Edwardsport Plant is a 630-megawatt facility that will be the first new baseload plant in 20 years and the first to use clean coal technology.  The Rockport SNG Plant is the second such plant and will supply more than 20 percent of future commercial and residential gas demand in the state.  While the plants have entertained criticism for their building costs, the original policy to meet Indiana’s growing needs with Indiana’s own resources so that funds stay in the state and jobs are generated has been a success.

Utilizing the State’s Resources:  Those Constant Northern Winds

Targeting wind power as a renewable energy source comprised a significant component of Daniels’ vision for the future of Indiana energy.  Similar to the absence of ethanol plants and new baseload power plants when Daniels took office, Indiana had no wind farms either.  The northern part of the state has long had strong wind conditions that had gone unharnessed.

Daniels soon pursued wind developers and a plan to develop farms in the windy north.  He attracted developers without the use of tax incentives, as the conditions were ripe enough for fast growth.  By 2008, Indiana was the fastest growing state for wind power in the nation and continued to be one of the fast growing states in 2009 and 2010. As wind power expanded, between 3,000-4,000 new jobs were added to the state in 2009 alone. By 2010, the wind projects powered over 1,330 megawatts, enough to provide electricity for 300,000 homes.

Utilizing Indiana’s Resources Efficiently

Beyond these energy production initiatives, Daniels’ team also focused on energy efficiency measures.  Daniels issued an Executive Order directing that public buildings be constructed and maintained to meet maximum energy efficiency. The state has since constructed a half dozen new facilities in accordance with the new standards and refurbished many more accordingly. Government computers were upgraded and have generated millions of dollars in savings as a result. The legislature made rebates available to homeowners who install geothermal heat pump systems and enacted tax credits for those who purchased EnergyStar-rated appliances.  Indiana has also significantly invested in E85 gas pumps.  Indiana now boasts 136 E85 pumps, up from zero in 2005.  All of these actions demonstrate the state’s commitment to a comprehensive energy policy that not only includes meeting Indiana’s energy needs, but that is also concerned with efficiency as well.

Mitch Daniels has developed a national reputation for his fiscal, education and healthcare reforms, while his energy innovation has been under-appreciated given the speed and breadth of the new measures Indiana adopted. As a state without the resources to support the types of booms experienced in regions containing natural gas and oil sands, Indiana has become a national model of how to harness available resources in a way that promotes greater self-sufficiency as a state, creates new jobs, and furthers sustainability.