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As the Senate prepares to discuss the Lieberman-Warner climate bill in early June, the debate over the economic effects of this legislation continues. During today's OnPoint, Jack Gerard, president and chief executive of the American Chemistry Council, discusses the impact he believes the Lieberman-Warner climate bill will have on the chemical industry. Gerard explains how the chemical industry has been affected by rising oil and gas prices and also discusses the energy and climate policy outlook for 2009.
Monica Trauzzi: Welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Jack Gerard, president and CEO of the American Chemistry Council. Jack, thanks for coming back on the show.
Jack Gerard: Monica, thank you for having me.
Monica Trauzzi: Jack, oil prices are front page of every newspaper. How are rising oil and gas prices impacting your industry, the chemical industry?
Jack Gerard: Well, since 2000 the price of natural gas in the United States has increased 460 percent and that increase has had a very detrimental impact on those of us in the business of chemistry. We use natural gas as a feedstock or a raw material where we take it and convert its molecular structure, if you will, and convert it into all the products we enjoy every day, the plastics, the paints and coatings on our automobiles, on our homes, etc. And so it's had a pretty negative impact on us. We've lost about 120,000 jobs since 2000 when that price started to skyrocket because of increased demand. So it's a real problem in the business of chemistry. It's a real problem across our entire economy. It's estimated we've lost over 3 million jobs in just the manufacturing sector as a result of this big spike up in natural gas. Unfortunately, there's no short-term answer to it. We're pushing hard in the Congress to move forward to bring additional supply in to balance that increased demand and try to bring that price back down. So currently it's a real problem and it's got to be addressed.
Monica Trauzzi: Supply from where? You're talking offshore drilling?
Jack Gerard: Domestic supply. Natural gas is not traded on a world market like oil is. So the oil price is set on a global basis. The natural gas price is set on a regional basis. So what we do in the United States greatly impacts the price of natural gas. For example, in Saudi Arabia a you can get natural gas for $0.75. Today, in the United States, it trades for about $11.50. So when you look at a business like ours, where we have to complete globally, we're competing now with the emerging nations of China, of India, and others. So it tends to push us to those parts of the world where we can secure that feedstock or about raw material, in this case, natural gas at the least cost. So the Congress has the ability in the United States to bring more supply on. Today, over 85 percent of our Outer Continental Shelf is off limits to supply and development. So we think the answer is at home and the power rests with the Congress to fix that concern. So we're strongly encouraging them to break beyond, if you will, the partisan politics of the past and to exert some bold leadership and find answers to these tough questions.
Monica Trauzzi: There's a big push to use more and more natural gas though as a solution ...
Jack Gerard: There is.
Monica Trauzzi: ... to our energy dependence issues. Do you see a problem arising down the line with not enough supplies and the price continuing to be high?
Jack Gerard: Yes. In fact, what's happened in the United States is we actually have a dramatic increase in the demand for natural gas. At the same time, the Congress' failure to bring more supply online has depressed the supply. And so in the electric utility industry, for example, those who bring electricity to our homes and the natural gas that comes into our home for heating, cooling, and all the rest of it, in the electric utility sector, over the last 10 years, the consumption of natural gas has gone up 54 percent. Now why are they doing that? They're doing it because it's a cleaner burning fuel and it's cost effective. As they go out to increase their production of electricity they look at the clean air standards and others and they say, well, the best way to meet these environmental standards is to go to a cleaner burning fuel. Unfortunately, the supply of that natural gas today is capped and limited by the Congress and the administration. And so as that demand continues to rise we're unable to compete globally because the price for us, like I mentioned earlier, has gone up 460 percent. So as utilities use this more, as it's used more in our homes, our price goes up and we have to move elsewhere around the world.
Monica Trauzzi: OK. And this all ties into the discussion about emissions.
Jack Gerard: It does.
Monica Trauzzi: What's your take on the Lieberman-Warner bill which is set to hit the floor the beginning of June?
Jack Gerard: Well, we think it's important to have a carbon debate in the United States about the whole climate change question. However, we think there's one key dimension of this debate that's currently missing and that's the points we've been talking about in terms of energy supply. As we address the carbon questions we address the climate change issue. If the Congress fails to couple that with an appropriate energy policy, it will have devastating effects on our economy. Let me tell you why. As I mentioned earlier, we're driving our utility sector to burn more and more natural gas, yet we're failing to bring enough supply online to meet that demand. And so what happens is that natural gas price goes up, industries like ours, industries like the fertilizer industry, which are so important to increase corn production, to produce ethanol in this country. Natural gas goes into stripping sulfur from diesel to have new, clean diesel formulas. All the technologies necessary to capture and control carbon, by and large, come through our industry. We create the insulations of the world. We create the vinyls and coatings, if you will, that make us more energy-efficient. But if you drive our sector overseas, if you put us elsewhere, we're going to be unable, if you will, to help our domestic economy meet that carbon question or challenge before us. So, we're strongly suggesting you've got to couple the climate change debate with a strong energy policy and the two together will serve as a comprehensive answer for this very tough challenge.
Monica Trauzzi: Where do you see the bill going once it is in the Senate? Do you want to make a prediction of how long it will be debated?
Jack Gerard: Well, at this point in time, I think it's very clear nothing will be enacted in this particular Congress. I think with the prices of energy, particularly the price of gasoline, now is not the time, if you will, to put further challenges or burdens if you will on domestic industries or on the consumers. At the end of the day this price gets borne by the consumer. Since 2000, as energy prices have begun to spike, the average taxpayer has doubled their individual costs in providing or paying for energy. So they, the average taxpayer, has to pay $4,500 a year to meet their energy demand. That's double what it was just a decade ago. So now is not the clime in which to have the climate debate, if you will. My prediction is what you'll see in the Senate is two or three days, maybe a week, of extensive debate, depending upon how much time they can spare knowing they have a number of items to do, like appropriations bills, budget bills, and the rest of it. But I think it's unlikely to go anywhere. But it will be an opportunity for all of us to frame some issues, have some discussion about what does this really mean and is this the right approach? At the end of the day it could be a healthy debate. I think the more debate we have the more informed people become. And we're going to start moving away from these polar opposites, if you will, where there's a lot of rhetoric on the far left and a lot of rhetoric on the far right. And we've got to move to a center where we break out of the partisan molds of the past and start to really look at this question as a serious public policy issue that must be dealt with in a global environment.
Monica Trauzzi: And to that point, there are many competing analyses of the economic and ...
Jack Gerard: Yes.
Monica Trauzzi: ... and job impacts of the Lieberman-Warner bill. And a lot of people would disagree with what you said. People think that green-collar jobs will be created and that there won't be as big of an impact on the economy. Is there any merit to those comments?
Jack Gerard: Well, I respect everyone's opinion and everybody is entitled to their own opinion, but they're not entitled to their own facts. And the facts suggest, and there's strong compelling facts based on good, solid research by independent sources, that tell you that unless we get this right in the way we develop climate policy, that it will have a significant impact on our economy. Some recent data has suggested it would as much as reduce our GDP by 2.6 percent. A 2.6 percent reduction in GDP in the United States is equal to all the social security payments that are currently being paid to recipients. So, it's not insignificant. A few ticks in a GDP number is devastating to a lot of rank-and-file moms and dads trying to make ends meet, trying to afford the pickup truck to take care of their local farm or ranch or to just get to work on time. So we've got to think seriously about this. And, again, is there an issue there? Absolutely, but when we address this question we have to be comprehensive in our approach and we have to realize, there may be some new job creation out of this, we'll concede that point, but it's not going to replace the high paying jobs, the manufacturing jobs like in my industry that today are some of the highest-paid jobs in our society, if we start pushing all of those overseas. The economic activity needs to originate, begin here in the United States, and then we add value to those various functions throughout our economy. If you start pushing groups like ours out of the country it's going to impact employment, it's going to impact state tax revenues, your costs at your hospitals, your local schools, and the list goes on and on. So, people have to take a deep breath, think seriously, and handle this one well.
Monica Trauzzi: Has the chemical industry been adequately engaged in the discussions leading up to this June debate?
Jack Gerard: Well, we've been very vocal and we've been working very hard on a lot of fronts to educate people as to what our industry means to our economy. A few people recognize, and perhaps that's our own fault and we are doing better at it, 96 percent of everything manufactured in the United States is touched by the business of chemistry in one way or another. If you think of everything we enjoy in our modern day life, from pharmaceuticals and medicines down to the plastics we enjoy, the laminations on our tables and the ceilings and the coatings, the fabrics in our clothes, everything is touched by the business of chemistry. So, we're a very important part to our domestic economy. Some economists estimate that we touch and influence close to 30 percent of our domestic economy. We employ close to a million people in our industry collectively in the United States. Revenue is about $635 billion. So it's industries like ours that people need to pay attention to. I think this natural gas price spike over the last five or six years has gotten a lot more people's attention. I think there are a lot more public policy officials, particularly here in the Congress and Washington, who are starting to better understand the interrelationships between industries like ours and their daily well-being and their daily standard of living.
Monica Trauzzi: Renewable energy tax incentives, what's your take on the debate? I mean this has been a long debate, a lot more difficult than a lot of people thought it would be. What's your take on where things stand now?
Jack Gerard: Well, my guess is by the end of this Congress we'll once again grapple with that question and deal with it in one way or another. I would say though that it's important when you look at an issue like that, too often the Congresses look for, if you will, a single silver bullet to address the entire concern. What needs to happen is we need to break this paradigm of the past, which was strongly on the left, where people said no more supply and those on the right saying supply is the answer. It has to be a combination of those two. We've got to give up those corners of the boxing ring, if you will, and move to the center and shake hands and say, 'OK, I'll give a little bit on this side and you give a little bit on that side.' Renewable energy is a perfect example. We're going to need all we can get. We need renewable energy in this country. We need to increase it. We need to improve our energy efficiencies. We need to expand and develop better ways to conserve energy. But at the same time, as that demand continues to grow, as our society continues to expand, as our economy expands and we're now competing with the Chinas and the Indias of the world, we've also got two bring more supply into that equation. The great irony in the debate is we have total control over that supply. We hear a lot of rhetoric about, gee, we need OPEC to open up and send us more oil. And we hear the same rhetoric about we can't rely on those foreign sources, yet we have that supply in this country and with a little bit of political courage we could open those supplies up and help solve this broader equation.
Monica Trauzzi: So, looking towards the November elections and a new president coming into power in January of 2009, what do you think the energy and climate outlook is for 2009?
Jack Gerard: Well, I think we are really, in many ways, in an energy crisis and it's not going to be resolved anytime soon. It's not going to be fixed with any single silver bullet. So whoever wins the White House, whoever controls the Congress this fall, my hope is that the partisan wrangling will settle out a little bit and that people will settle down and again begin to focus on the facts, that all sides will move away from those extreme ends of the continuum and start to say what is in the best interest of this country? What can we do for American society generally, recognizing we're in a global economy? We can no longer stand here and think that we're an island unto ourselves. Every day this energy equation is influenced by what the Chinese are doing. It's influenced by what goes on in the Middle East. We no longer have total control of that and we've got to think first about what's in America's best interest. What's in the best interest of providing good, high paying jobs in this country and providing for our demands and our needs, but in an energy thoughtful way, if you will? So when the dust settles after this fall I think there's a lot of partisan wrangling that will continue through the fall. When that settles I hope cooler heads will prevail, regardless who's running the country, and we can sit down and have a candid debate about how to fix this challenge.
Monica Trauzzi: All right, we'll end it right there. Thanks for coming on the show.
Jack Gerard: Thank you, Monica.
Monica Trauzzi: This is OnPoint. I'm Monica Trauzzi. Thanks for watching.
[End of Audio]
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