Industry On Board

Industry On Board

October 12, 2009

Ken Silverstein
EnergyBiz Insider
Editor-in-Chief

Call it the one-two punch that proponents say will advance the climate change agenda. The U.S. Senate is now debating a measure similar to that of the House while the U.S. EPA has proposed that utilities install modern pollution control equipment on all facilities they modify or build.

Their mutual goal is to give the issue momentum before the global climate change talks in December. While they will underscore the sense of urgency, lawmakers will probably not be able to resolve their complex differences by then. Opponents of the Obama's EPA proposal, furthermore, will challenge that plan in court.

For that matter, those nations around the globe supporting reductions in greenhouse gases won't get the type of hard, firm and meaningful commitments from the United States in time for Copenhagen where the summit is to occur. But what is clear, however, is just how unyielding these climate change negotiations have become.

"We see this climate bill as the main opportunity for carbon capture and sequestration," says John Thompson, director of the coal transition program for the Clean Air Task Force during a talk he gave at the Indiana Energy Conference. "Government will need to pony-up so that the private sector can do this."

At issue is how the country -- indeed the world -- will deal with coal, which accounts for about a third of the greenhouse gas emissions here but which supplies more than half of the nation's electric generation. Thompson says that while the question of whether carbon can be geologically sequestered remains open, he does say that the tools to gasify coal before it is combusted are proven.

The technological hurdles are one matter. The political obstacles are another. While the Obama administration wants Congress to move ahead, it is not waiting. Its EPA proposal would force about 7,500 industrial facilities that include coal plants to come under new regulations that are tougher than those on record.

Democrats in the House and Senate have gotten the message, although they have slightly different thresholds by which industry would have to reduce its heat-trapping emissions. Because the Senate is a more conservative body that requires 60 votes to avoid filibuster and pass a bill, any final legislation would make increasing concessions to the coal sector -- an industry to which many key Democrats are in synch, given their districts.

Both bodies are using the free-market approach to achieve reductions, namely cap-and-trade. While conservative members of the Congress say that such a tactic will increase energy prices and force companies to implement expensive technologies, proponents say it will be effective. Roughly 85 percent of all greenhouse gas emissions would be regulated -- a tool that aims to reduce such releases by 83 percent by 2050.

Business Decides

The studies tend to be skewed based on the positions advocated. The National Association of Manufacturers conducted an analysis that showed the House legislation would result in up to 2.4 million lost jobs, higher energy prices for businesses and consumers, and cumulative GDP losses of up to 3.1 trillion dollars over an 18-year period. The U.S. Energy Information Administration, meantime, predicts economic output would be reduced by .8 percent, while it says that electricity prices will rise by 2 cents a kilowatt hour, all by 2030, if the House bill passes.

"Is it prudent to pursue these things at this time?" asks Barry Naum, a lawyer with the McNees Wallace & Nurick firm in Pennsylvania representing industrial interests at the Indiana Conference.

Consider ArcelorMittal Steel USA: It says that international competition has caused it to find ways to cut drastically its energy consumption, and that it will continue to do so. But it says that tough economic times mean the payback for new technologies will take longer. If new climate change laws would require it make those investments then it says that the same must apply to the developing world.

Advocates of immediate action say that the ultimate economic implications of doing nothing would harm food and water supplies while destabilizing some countries. Overall, says the Pew Center on Climate Change, GDP will take a hit over time. Conversely, as the nation and world transition to a carbon-constrained economy, new industries would develop and consequently spawn new jobs and sustained growth.

Speaking at the Indiana Energy Conference, Manik Roy, who is vice president of federal government outreach for the Pew Center, said that the country has no choice but to regulate greenhouse gas emissions. It then becomes a question of how to do so and under what time frame. He emphasizes that the process must get started right away and that the cap-and-trade approach whereby limits are set -- and lowered over time -- on greenhouse gases will deliver environmental gains and economic benefits.

The free market will reward or penalize generation types based on their carbon content. The best example of just how effective cap-and-trade can be is the program used to reduce sulfur dioxide, or acid rain. Since the measure was enacted as part of the Clean Air Act of 1990, such pollutants have fallen by 50 percent from 1980 levels, says Leigh Raymond, a professor at Purdue University's Climate Change Research Center. He adds that compliance is nearly 100 percent and that the benefits of the program are four-to-five times greater than the costs.

"We think cap-and-trade is the key element to reducing greenhouse gas emissions," adds Pew's Roy. "Business will pick the winners -- not the government." In the sulfur program, for instance, utilities had the choice of installing scrubbers at their plants or implementing fuel-switching and using cleaner generation forms.

Despite stiff opposition and legitimate fears, carbon constraints are coming. Industrial concerns interested in shaping the outcome are joining the current government and other advocates to come up with practical solutions.