In the quest for 60 votes for climate and energy legislation, one essential group is a manufacturing caucus of about a dozen Senators, led by Sherrod Brown (D-OH). Last summer, and again last month, the “Brown Dogs” (as they are known in some circles) wrote important letters – one to the President, and one to the sponsors of the American Power Act – addressing their concerns and steps needed to get them to “yes” on new legislation.
Now that Senators John Kerry (D-MA) and Joe Lieberman (I-CT) have unveiled their draft climate and energy legislation, it’s time to see how the bill’s measures address the concerns of Senator Brown’s manufacturing caucus about enhancing competitiveness and promoting innovation and job creation. I covered those provisions briefly a few days ago in NRDC’s first read of the American Power Act. Now let’s look more deeply.
NRDC has just published a new policy brief on designing a manufacturing-friendly climate and energy policy. So let’s start with a few fast facts on manufacturing and carbon emissions:
FAST FACTS ON MANUFACTURING AND EMISSIONS
The entire manufacturing sector directly emits 17 percent of U.S. carbon dioxide pollution, and is indirectly responsible for another 10 percent due to emissions from purchased electricity.
For the vast majority – 96 percent of manufacturing firms, employing 93 percent of America’s 13 million manufacturing workers and accounting for 85 percent of all shipment values – energy costs are a small fraction (averaging less than 2 percent) of the value of the goods they produce, and costs associated with curbing carbon pollution are just a fraction of that fraction.
About 3 percent of manufacturing firms – accounting for 6 percent of manufacturing jobs – are responsible for 46 percent of the entire sector’s CO2 emissions. These energy-intensive firms have greater energy costs (more than 5 percent of the value of goods produced). Many of them face significant import competition from countries that do not all have comparable carbon policies.
The American Power Act will help both groups of American manufacturers.
- Manufacturers in the first group – making up more than 19 out of 20 manufacturing firms – will see little or no cost increases because their energy costs are small to start with, and under the bill they will receive rebates and other benefits delivered through their electricity and natural gas utilities.
- Manufacturers that are energy-intensive and internationally-competitive will receive the same utility-delivered benefits, plus two extra benefits to offset their direct compliance costs and level the international trade playing field.
- The bill will also help both groups by providing incentives to become more efficient, cleaner, and more competitive, and by creating new markets and demand for American-made advanced materials and products at the core of our 21st century clean energy economy.
The American Power Act’s manufacturing provisions are built on similar ones in the House-passed climate and energy bill (H.R. 2454) and they reflect lots of input from Senator Brown’s manufacturing caucus. Let’s look more closely at the bill’s provisions, and their effects.
Rebates and benefits to all manufacturers delivered by their utilities. The vast majority of American manufacturing firms won’t have any direct compliance obligations under new legislation because they emit less than the threshold amount of 25,000 tons of carbon pollution per year. The energy these firms use, which they get mainly from local electricity and natural gas utilities, amounts on average to less than 2 percent of their shipment values. Nonetheless, to protect these firms against cost increases, the American Power Act gives free allowances to their electricity and natural gas utilities. The bill requires those utilities under penalty of law to pass the savings from those free allowances on to their customers, including their manufacturing customers, in the form of energy cost rebates or money-saving incentives to become more energy efficient. These are the reasons that a federal interagency report last year found (pp. 1-2) that the “vast majority of U.S. industry will be largely unaffected by proposed legislation.”
More help for energy-intensive, trade-exposed manufacturers. An important subgroup (about 3 percent) of American manufacturing firms – producers of commodities such as steel, aluminum, and cement – use much more energy. According to the federal interagency report, these industries employ about 780,000 workers (nearly 6 percent of all industrial workers) in 46 sectors and produce roughly half of all industrial carbon emissions. Many of these firms have very large fuel combustion and process emissions, while some (such as aluminum smelters) are very large electricity consumers. When they compete with goods imported from countries without comparable pollution requirements, these firms have to absorb carbon control costs those foreign competitors don’t face. These companies receive the same rebates and benefits available to all manufacturers through electric and gas utilities. In addition, the American Power Act includes two further provisions to ensure these energy-intensive, trade-exposed firms are not disadvantaged – to make sure that they can both clean up and keep production and jobs at home.
- Allowance rebates. First, the bill gives energy-intensive, trade-exposed firms free allowances to cover (1) their direct emissions and (2) any indirect electricity-related costs not already covered by the allocation to utilities described above. The federal interagency report evaluated similar provisions in the House-passed bill (H.R. 2454) and concluded that they “can eliminate almost all – and, in some cases, potentially more than all – of the cost impacts” of the climate bill through 2025. (See the figure below and the explanation provided in the box below on page 3 of our manufacturing policy brief). Energy-intensive, trade-exposed firms are even better protected under the American Power Act for two reasons. First, the Senate bill sets aside more allowances for them than the House bill. And second, the Senate bill doesn’t limit these firms’ carbon emissions until 2016 – two years later than the House bill. For these reasons, the allowances provided to energy-intensive, trade-exposed industries will fully cover them well past 2025, and even longer if they take advantage of incentives to become cleaner and more efficient.
- Border adjustments. Second, the American Power Act provides for a “border adjustment,” consistent with our trade agreements, requiring importers of steel, aluminum, cement, or similar commodities to buy carbon allowances if those products come from countries without comparable carbon programs. Under the Senate bill, the border adjustment will take effect in 2025 (as opposed to 2020 in the House-passed bill), but not if other countries have stepped up to the plate by then with appropriate carbon-reducing policies.
With these provisions, energy-intensive manufacturers are actually better off inside the carbon tent than out.
Winning the race for rapidly growing clean energy markets. Comprehensive clean energy and climate legislation can help America create millions of new jobs, while building a stronger, cleaner economy. The American Power Act contains incentives for American manufacturers to become more efficient, cleaner, and more competitive and to seize a leadership position in the rapidly growing global market for clean energy technologies. The global clean energy market is already larger than the aerospace and defense markets combined and could grow from $500 billion now to more than $2 trillion by 2020, according to an HSBC bank study. There are also huge opportunities to rebuild American infrastructure.
The American Power Act invests billions to help achieve American manufacturers retool and capture market share in the global clean energy economy, including support for R&D, low-cost loans, and other assistance to help modernize plants, retrain workers, and become more energy efficient. The bill also offers manufacturing firms – including steel, fertilizer, refining, and cement – billion dollar incentives to apply carbon capture and storage (CCS) technology to industrial facilities. With these and other complementary clean energy policies, we can create up to 1.9 million good new jobs over the next decade.
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Senator Brown and his manufacturing caucus rightly call the global race for the clean energy markets of the 21st century “a contest that America cannot afford to lose.” This bill will help American manufacturers win that race.