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Manufacturers blast new climate bill

by Liam Martin
May 01, 2008

Manufacturers are stepping up efforts at the federal and state levels to fight environmental legislation that they say poses a significant threat to the industry and the economy as a whole.

The debate has centered, most recently, on a Senate bill proposed by Sens. Joseph Lieberman, Ind-Conn., and John Warner, R-Va., that would institute a nationwide cap-and-trade program for greenhouse gases, aiming to reduce emissions to about 70 percent below 2005 levels by 2050. The plan, which would begin instituting caps in 2012, gained committee approval in December and hits the Senate floor in early June.

While proponents of the America’s Climate Security Act, or Lieberman-Warner bill, have said trades and auctions of pollution allowances would minimize costs, manufacturing officials contend the legislation would inflate energy prices and operating costs, crimping demand at home and making U.S. companies less competitive overseas.

“You’re going to have prices driven up dramatically,” said Keith McCoy, a spokesman for the National Association of Manufacturers in Washington, D.C. “With these short timelines, coal-based utilities will have to switch to natural gas. That’s a very valuable commodity for manufacturers, and the price will get bumped up.”

According to NAM, manufacturing is the most natural gas-intensive sector, as companies use it for powering plants and machinery, and as a basic building-block in the production of fertilizers and plastics. NAM expects coal and oil prices would rise under the proposed bill, as well.

A report released Tuesday by the Energy Information Administration, the research arm of the U.S. Department of Energy, has stoked those fears.

The EIA, in its analysis of the economic and environmental effects of the Lieberman-Warner bill, concluded that stricter emissions standards could raise energy prices and drive natural gas, currently at $11 per million British Thermal Units, to as high as $19 per MMBTU by 2030, the last year explicitly modeled in the study.

According to the EIA, industrial shipments during that time would likely decrease by 2.9 percent because of increased input prices, and could drop by as much as 7.4 percent compared with the EIA’s reference case, which begins in 2008 and assumes the continuation of current laws and regulations.

Proponents of the bill have disputed that interpretation of the EIA study. Lieberman, in a statement following the release of the report, said economic growth will be largely unchanged and highlighted provisions in the proposal designed to protect manufacturers and consumers from higher costs.

While the EIA found cumulative losses in gross domestic product between 2009 and 2030 would range from $444 billion to $1.3 trillion compared with a business-as-usual scenario — the lower figure reflecting pessimistic assumptions about the cost and availability of alternative energy sources — revenues generated from allowance auctions and sales would range from $326 billion to $853 billion. Under the bill, those proceeds would be used to fund alternative-energy programs and offset higher energy costs for companies and low-income families.

Proponents also contend that the expansion of wind and solar energy and better carbon capture and storage technology would prevent overuse of high-cost natural gas and say the estimated 11 percent rise in electricity rates by 2030 would be gradual.

The debate, then, has been staged on opposing interpretations of the EIA study, which, because of the complexity of both the bill and the domestic and global economic environment, estimates a broad range of outcomes.

“Lieberman says the costs will be minimal and NAM says it will be much worse,” said Chicago Manufacturing Center spokeswoman Helen Gagel. “My guess is it’s somewhere in between.”

NAM, however, has said the EIA report corroborates the findings of its own research, released March 13.

In a joint study with Washington, D.C.-based American Council for Capital Formation, NAM found the price of carbon permits could reach between $55 and $64 per metric ton of carbon dioxide by 2020, and between $227 per MT and $271 per MT by 2030, leading to higher natural-gas prices and reducing total manufacturing output by between 2.5 percent and 4 percent by as early as 2020, compared with the business-as-usual scenario.

The specter of those effects is particularly distressing for a struggling U.S. manufacturing industry. New orders for durable goods, a major indicator of the sector’s health, have declined in three straight months, according to the U.S. Census Bureau, with the automotive sector taking a 6.6 percent hit to new orders in March.

Concerns over any additional setbacks have set off a firestorm of activity among manufacturing officials in an attempt to block Lieberman-Warner, and indeed any environmental legislation that could negatively impact the industry.

In all, manufacturers spent $80 million on Washington lobbying efforts in 2007, more than they have in any other year, according to an April 10 report from the nonpartisan Center for Responsive Politics. And while figures for spending on specific issues were not available, NAM, which spent $6.2 million in 2007 and was outspent only by General Electric Co., says fighting environmental initiatives like the one proposed by Lieberman-Warner has become one of its central causes.

“Since we released our report, we have been very active in getting the word out to our members, encouraging them to communicate with their members of Congress,” said Laura Narvaiz, a NAM spokeswoman. “Our president [John Engler, former governor of Michigan] has personally been on the Hill, lobbying legislators. We have lobbyists meeting with members of Congress to push this point.”

In Illinois, industry officials are fighting their own battle against a law that would effectively adopt California’s stringent emissions standards for passenger vehicles. While the Illinois Clean Car Act, currently being considered in the state House and Senate, would apply only to vehicles for the 2011 model year and afterward, manufacturers say the costs could be devastating to an already-struggling automotive sector.

“If this becomes law, it will add $3,000 to the consumer cost of a car,” said Jim Nelson, a spokesman for the Illinois Manufacturers’ Association. “In general, environmental laws like this one are an area that we watch very closely. We’re approaching members of the legislature to make them aware of our concerns.”

According to NAM’s McCoy, manufacturing officials at the state level are staging similar battles across the country, saying that “with individual state climate laws springing up everywhere, our guys are constantly putting out fires.”

Patrick Bennett, vice president of environment, energy and infrastructure at the Indiana Manufacturers Association, said his group constantly has its eyes on bills moving through the state legislature, and takes its cues on federal issues from the national association.

“We echo a lot of the concerns that NAM has,” Bennett said. “We’re obviously a highly industrialized state, and the cost of energy affects manufacturers, so we do watch these things.”

Where these officials have been less outspoken is in offering alternative climate- change proposals. According to the EIA study, the Lieberman-Warner bill, despite its costs, would reduce greenhouse-gas emissions by as much as 56 percent, compared with the business-as-usual scenario, by 2030, and would contribute significantly to research of renewable-energy sources.

NAM’s McCoy said the group is working internally to come up with a plan that addresses the concerns of climate change without threatening the economy. He declined to discuss specifics but said NAM hopes to release its proposal before June, when the Senate will begin debating Lieberman-Warner.