With the Democrats promising to make significant changes to energy policy this year, some trade groups would prefer one large comprehensive bill to address all of the United States' energy-related issues. During today's OnPoint, John Engler, president of the National Association of Manufacturers, discusses his organization's new legislative proposal, "Energy Security for American Competitiveness." Engler explains why America's "energy intelligence" needs to be increased. He also comments on the recent U.S. Climate Action Partnership and weighs in on the various pieces of climate change legislation that have been introduced this year.
Monica Trauzzi: Welcome to OnPoint. I'm Monica Trauzzi. Joining me today is John Engler, president of the National Association of Manufacturers and a former Republican governor of Michigan. John, thanks for joining me.
John Engler: Monica, it's great to be with you.
Monica Trauzzi: John, NAM recently released energy security legislation entitled Energy Security for American Competitiveness. Explain why NAM felt it was so important to contribute this piece of legislation.
John Engler: Manufacturing is hit hard today by rising energy costs. We have manufacturers who have energy needs, both for the operation of their enterprise or in the case of say the chemical industry, natural gas is an important component. It's a feedstock for the industry. We've seen, in many of our manufacturing sectors, thousands of jobs lost, in the chemical industry approaching 100,000 jobs because that natural gas costs, which used to be an advantage to be based in the U.S., now is a terrific disadvantage. Some of this really was in the run-up after Katrina but they've stayed high. And we think that there's a series of policy choices, or in many cases choices not made, that have led to sort of a drift in energy policy in America. With the consequence that we're really concerned, both about the cost of energy and the availability at times.
Monica Trauzzi: So how do you think increasing fuel efficiency standards might affect the bottom line of NAM members?
John Engler: One of the things we tried to point out is that that's part of it and so are a dozen other things. In other words, we think there's both, on the supply side and the demand side, actions and strategies that are important. We don't believe that you can just conserve your way out. So fuel efficiency, while important, is also related to the overall energy efficiency of the production process or the energy efficiency of the homeowner. It all comes into play because you want to try to reduce the demand, but at the same time recognize that our supply, oil, gas, coal, and nuclear, dominate today and will likely do so in the future. But at the same time there's a future we see with alternatives and new options that are emerging. And so a research agenda is important. You put that altogether, Monica, and I think you've got the makings of what could be an aggressive U.S. energy policy.
Monica Trauzzi: And like you're saying, it's very aggressive. How do you fund all of this?
John Engler: Well, much of it, again, we look at the high cost that we're enduring, take a manufacturer. We have a fellow out in Nebraska, a longtime member Baylin Manufacturing. And the young man who's running that company today said, "Look, our process of just heating the plant to keep warm in a cold winter is expensive. The trucks that have to come all the way to Nebraska to move our products, they're charging us more because of their fuel costs. And then the energy that's involved in the actual production, the ovens and the heating, that's gone up." So he's being stressed, literally, on every aspect of his operation, so he's paying high costs. So he looks at this from a standpoint of saying we need to make the investments now, so I can do something to become more competitive before it becomes too late. So I think we look at it as a wise, prudent, upfront investment for long-term, and we used the word competitiveness.
Monica Trauzzi: The proposal faults Congress. It specifically mentions actions that have been taken on ANWR, offshore drilling, and the research and implementation of hydrogen. If Congress hasn't been cooperative up until this point and agreed with necessarily what you're putting out in the legislative proposal, do you think, are you confident that there will be a shift during the 110th Congress?
John Engler: Well, I'm not confident of that on all items. I think ANWR is a very tough sell because even with the Republican-controlled Congress action wasn't taken; although, at various times, both the House and Senate acted favorably. We simply wanted to put on the table, recognizing that 2008 is also a presidential election, but that's begun in 2007, the most robust and comprehensive plan that we could. And so by putting that down we're not suggesting we support everything that's in there. We'd like to see members of Congress, the majority of the House and Senate, do the same. But the idea is to have all of these options in front of the Congress. But let's stop approaching this in these small bite-size pieces because the problem is severe. The President said it. We're addicted to oil, but that is not something that's new. And our dependency on foreign energy sources is actually growing, so that's a national security concern. So let's do some things that we can control right here in the United States. So that U.S.-based manufacturing can compete globally and we can continue to have a 1.5 trillion dollar manufacturing economy.
Monica Trauzzi: And what has the response been so far?
John Engler: Well, I think the response has been pretty good. There's a recognition there's an awful lot in this and I think some people were actually surprised to see, as you pointed out earlier in a question, there is some cost. I mean there's a research part of this. Now the President has talked about research. He, just a week ago, was visiting a fuels research facility. Members of Congress, all have, at various times, talked about that we think there is a major federal role. For example, and I'll give you two, in coal, the whole gasification and liquification of coal, impressive new technologies, and, you know, we've got an unlimited, lifetime supply of coal out there, so if we can use that in a more environmentally friendly way that's an enormous gain. In natural gas production, the Bartlett shale down in the Fort Worth, Texas area, in 2000 we weren't sure that shale had gas. And if we've had known that we wouldn't know how to produce it. Today 1.6 billion cubic feet of gas coming out of that field, the largest new natural gas discovery in a long time in the domestic United States, all because of new technologies and new production techniques. So we've got to push the needle.
Monica Trauzzi: Do you think though the push for alternatives will be hurt by the fact that you're wanting to get all these domestic sources of oil and coal? Will the push for alternatives not be as strong as it should be?
John Engler: I don't think that the push for alternatives can simply be built on a complex web of subsidies that would take something that's not economic and try to make it so. Take ethanol, we support using ethanol, but if you planted corn fence row to fence row across America maybe you'd have enough today to do an E10 mandated blend across the US. There'd be no way we could, at least with today's technologies, say do E85, even though we've got a few of those stations around the country. What we need to do though is to recognize that's a part of the answer. And windmills may be a part, except nobody wants them in their backyard. You've got this NIMBY problem with a lot of these energy sources. I personally think nuclear power is going to come back in a very big way in this country. I think that is an environmentally clean, important technology that, frankly, other nations have moved way past us. So it is going to be a debate where there's no single answer. I think there's a lot of right answers, and the clear wrong answer is to do nothing but talk, because we can't even harness that into wind energy.
Monica Trauzzi: And you think it's more effective if there's one comprehensive energy plan, rather than just approaching things separately?
John Engler: Well, I do, because what happens so often in the congressional process is it shifts down and you end up with one or two things only being done. And I think that the crises, and I think that it is a crises. It's a crisis in terms of costs and it's a crisis in terms of what it means for our dependence globally. And I think we can address these, but we've got to do it comprehensively. There's no reason not to. And we would argue, from the health of the U.S. economy, we've been going through a very good period of late, but why assume that's forever? Why not take steps to try to strengthen our potential and to send the right signal that we get it? Because right now you're seeing, I mentioned the chemical industry, paper and pulp products, you know, those mills have closed; again, heavy energy users. And we want those jobs and we can afford to have them in the US, they can compete here, but only with the right kind of energy and the right price for it.
Monica Trauzzi: The report talks about increasing America's energy intelligence. What does that mean and how do you do that?
John Engler: Part of it is that we want to take this success story to industrial America represents and transport that everywhere. We've actually, over roughly a 20 year period, 25 year period, increased output, doubled it, per Btu of fuel consumed. So everybody has been evaluating and using what's called lean manufacturing at times, high quality, but very careful, analytical assessment of how much energy am I using? How can I squeeze that? How can I stretch it? And so we've seen energy output, and that is new pumps, new technologies often are part of the answer. And so while the private sector is doing this, we have a fight over something like New Source Review, which says that you can't take existing power plants, put up-to-date, modern pumps and engines and turbine blades in, without doing a whole chemical plant up on top of the stack. Let's get the efficiency. You can always debate the environmental standards. Doing nothing doesn't change what goes up the stack, so let's at least make it efficient.
Monica Trauzzi: NAM member company Caterpillar recently signed on to the U.S. Climate Action Partnership and it backed 60 to 80 percent emissions cuts by 2050. Is that something that NAM supports? Do you think that it can be done in an economically sound way?
John Engler: Well, I don't think anyone knows for sure, but we certainly know that those are important goals. There is an important debate that's taking place and many of our big companies want a seat at the table. Many of them have great contributions to bring. Look at our truck engines now with the requirements that are in place for heavy-duty truck diesel engines. By 2010, when the latest technology will be on the highways those big trucks going down the road will actually be air cleaning machines. They'll take in ambient air and what they emit will be cleaner than the air they took in. That's how far that technology has been pushed. When those regulations were put in place there wasn't even the technology to do that. One of the concerns though manufacturers have, imagine if each of the 50 states tried to have their own regulation for a truck that's traveling from the East Coast to the West Coast. And increasingly what we are finding, I think, is a little bit of one-upmanship at the states. And I spent a lot of time at the state level, so I have great affection, but you can't, in a global commerce, burden people sort of from state line to state line with some of these things. And so we have to have some national policies. And that's another motivation for some companies to join in the conversation.
Monica Trauzzi: And the Democrats are trying to get some national policy on climate change legislation. Which piece of legislation, that's on the table right now, would you specifically support?
John Engler: Well, climate change is the one area, and several people have said, well, everything is in the report. You've got a comprehensive energy plan. What about climate change? That is not in this report and that's something that we don't have a consensus. Again, what we've started to do is say, all right, let's develop key principles by which we would evaluate how we conduct the debate. We know that's a global issue, so that's problematic right there. And one of the criticisms that I fully shared on Kyoto was the idea if you're going to leave the rapidly developing economies, like China and India out, where most of the new coal plants, where they're starting, literally, in China a coal plant every week, you're not doing much for global climate change. You can make yourself further noncompetitive, and I say further noncompetitive. We face, for a U.S.-based manufacturer today, a 31.7 percent structural cost disadvantage. And that is energy and healthcare and litigation, climate regulation, all of those things. But let's say, in climate, just pick any bill. Pick the most extreme bill and say, well, let's have that. If that adds another 10 or 15 percent sort of cost burden, how many thousands of jobs does that cost? So what we would argue is let's approach the climate change debate from a rational perspective and say what's our objective? How does it fit into global climate change? Clearly the first principle would be one I mentioned earlier. It has to be a national policy. You can't have room for California to have a different policy from Florida or Texas to be different than Massachusetts. That has to be part of it.
Monica Trauzzi: So Feinstein, Boxer, Lieberman, McCain, Bingaman, Waxman, they all have proposals on the table. Any one that stands out to you that would ...
John Engler: Not at this point, not at this point. I mean we're going to be participating in that debate. I've talked to Chairman Dingell in the House. I mean, clearly, he's going to play a big role in this. He doesn't want it to fall only on one part of the economy too. It can't go all on power plants or it can't go all on trucks and cars. It can't go all on agriculture. So that's part of it. We also think that it's incremental, that the United States cannot attempt to have the most rigorous policies in the world and look over their shoulder and see that nobody's following because then that means, for a global economy it's easy to increase production over in this country or that country and reduce it here. Because we do know that the one way you can reduce the impact on climate is shut plants down and park cars and trucks.
Monica Trauzzi: All right. We will end it there. John, thanks for coming on the show.
John Engler: Thank you very much.
Monica Trauzzi: This is OnPoint. I'm Monica Trauzzi. Thanks for watching.
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