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May 13, 2010

Industry welcomes US climate bill, but fears for manufacturing jobs

Senator John Kerry unveiling the Clean Energy Jobs & American Power Act outside Congress yesterday

Yesterday’s unveiling of major new energy and climate legislation drew a broad welcome from the US power sector and industry at large.

But warm words for the benefits of the bill from Senators Joe Lieberman and John Kerry were tempered by fears from the manufacturing industry that without the right controls, high compliance costs could cost American jobs.

Electricity companies and energy utilities were all positive about the prospects for a new cap-and-trade scheme to limit carbon emissions, one of the key measures of bill S.1733, which is known as the Clean Energy Jobs & American Power Act.

Although they will be among the first industry sectors to be forced to cut their greenhouse gas emissions power companies are at least assured of a level playing field if the American Power Act is approved by Congress. They may require substantial investment to close aging coal power stations and build new wind farms and solar plants, but so will their competitors.

It is the US manufacturing sector that is most nervous of the Kerry-Lieberman proposals. For them, the danger is one of “carbon leakage” – that the extra costs of compliance with the carbon emission restrictions will make them less competitive compared to foreign competitors in the global market.

As well as losing American jobs, carbon leakage would mean higher carbon emissions as companies get round restrictions by locating in countries that have weaker controls in place.

Manufacturers and employment unions favor additional controls that would, perhaps, see import tariffs placed on products made in countries that are not cutting carbon emissions to the same extent as the US.

Manufacturers

The American Materials Manufacturing Alliance, a group of energy-intensive industries that would be obligated under the proposed carbon cap-and-trade scheme, said yesterday that the Kerry-Lieberman did improve on previous attempts at US energy and climate legislation.

However, in a statement the Alliance said several key areas within the proposals needed another look.

It said more funding assistance was needed to boost energy efficiency, renewable energy production and other cleaner energy technologies, and was unhappy at the way limits on carbon emissions are to be set.

The manufacturers’ group also objected to the bill’s failure to prevent the US Environmental Protection Agency from regulating greenhouse gases under the 2007 Clean Air Act – something seen as a potential headache for industry.

This leakage of emissions and jobs has the potential to undermine both the economic and environmental goals of energy and climate legislation” - Leo Gerard, United Steelworkers

The Alliance said: “Cost containment is key to preventing the transfer of U.S. manufacturing production and jobs to more carbon-intensive developing nations, known as ‘carbon leakage.’ Carbon leakage results in higher net global greenhouse gas emissions.”

United Steelworkers, the largest union in the US, also urged Senators to include controls to limit carbon leakage.

Leo W Gerard, the union’s International President, said: “This leakage of emissions and jobs has the potential to undermine both the economic and environmental goals of energy and climate legislation, and it is critical that any climate bill include a comprehensive and fully-funded package of policies to prevent it.”

Mr Gerard said short-term and long-term measures were needed to help US manufacturers counter any potential disadvantage from the carbon cap-and-trade system.

“At the beginning of the US program, a robust and fully-funded transition assistance program of output-based allocations for at-risk manufacturers is necessary,” he said.

“They must be backed up by a border allowance requirement on products from countries that do not share America’s commitment to reducing greenhouse gas emissions through effective, meaningful and comparable policies.”

Dow Corning, the chemicals giant that makes materials used by renewable energy manufacturers including solar panel makers, said the American Power Act was welcome, but added a note of caution that the legislation should not penalize US manufacturers supplying the renewable energy sector.

Dow Corning Chairman, President and CEO Stephanie A. Burns, said: “We welcome the elements of the proposal which encourage further development of domestic renewable energy manufacturing and implementation while emphasizing the need to find a legislative solution to reduce carbon emissions, rather than forcing the EPA to regulate.”

Power companies

The nation’s major energy suppliers were more positive about the legislation, stating yesterday that the Kerry-Lieberman proposals were on the right track.

Jim Rogers, Chairman, President and CEO of North Carolina firm Duke Energy, said the legislation could help the US get its “economic mojo” back.

If we delay, the costs will only be greater, and the environmental impacts more severe” - John Rowe, Exelon

Mr Rogers said: “Senators Kerry and Lieberman’s bill helps get our transition right to clean modern energy in a manner that protects American families and protects American factories, both of which depend on affordable power.

“It also gives our electric industry the policy roadmap we need to invest tens of billions of private capital to retire and replace aging power plant fleets with modern, efficient and clean plants. The sooner senators from both parties weigh in to constructively debate and move this legislation forward, the faster the private sector can put people to work and help get our economy moving again.”

Lew Hay, chairman and CEO of Florida firm FPL Group said the American Power Act’s setting of a price for carbon emissions – of between $12 and $25 a ton – was the “most essential step”.

“With a gradually escalating price on carbon that begins to reflect the full social costs of emitting greenhouse gases, the country will make a smooth transition from the high-carbon fuel sources of the past to the next generation of low- and zero-emitting domestic energy sources,” he said.

Exelon Chairman and CEO John Rowe said the move to a price for carbon would mean a low-carbon economy “for an incremental 3 to 5 cents per kilowatt hour”.

Mr Rowe said: “Pricing carbon is the only long-term, economically rational solution. And if we delay, the costs will only be greater, and the environmental impacts more severe.”

Newark, NJ-based PSEG said the oil spill in the Gulf of Mexico was a “reminder” that Congress should not delay a move to a comprehensive energy policy.

Chairman Ralph Izzo said: “PSEG is ready to make significant investments that would help combat climate change, but we need the regulatory certainty that the passage of this legislation would provide.”