Manufacturers of chemicals, plastics, steel and other energy-intensive commodities wouldn’t be regulated directly by U.S. EPA’s Clean Power Plan for power plants, but they’re openly fretting that the rules are going to take a bite out of their bottom lines.
Some are warning they’ll pack up and move abroad if the regulations hit them too hard.
"If [states] do not get enough emission reductions by the utilities reducing, and they still have not met their reduction quota by the EPA, then they’re going to start looking around for other ways to get those reductions," Paul Cicio, president of the Industrial Energy Consumers of America (IECA), told a gathering of state utility commissioners in Washington last week.
"We’re concerned they will look to us and say, ‘We’ll mandate you to reduce your greenhouse gas emissions by X’ or mandate us to improve our efficiency by X, reducing greenhouse gas emissions that they’ll apply against their target with the Clean Power Plan."
Manufacturers that need large amounts of electricity want to keep power costs low. IECA comprises almost 3,000 facilities that account for more than $1 trillion in annual sales. That sector consumes almost a quarter of the country’s electricity and almost a third of its natural gas.
The Clean Power Plan would use Section 111(d) of the Clean Air Act to cut carbon emissions from the power sector by 30 percent from 2005 levels by 2030. The plan gives states the flexibility to use various elements to comply, including efficiency.
While acknowledging that the rule directly affects power plants, manufacturers are concerned they’re next and that EPA is setting a precedent for how it will regulate energy-intensive companies. Manufacturers are also worried they’ll be indirectly regulated as EPA’s rule reaches "beyond the fence line" of power plants to force reductions in demand for coal-fired power by laying out how states could use more natural gas, build up renewable power and cut back on electricity.
"When states are faced with the inability to meet generator quota, they have the full flexibility to fulfill that rule any way they want," Cicio said. "They could mandate us to improve energy efficiency, and we’d become indirectly regulated."
The manufacturing group is slated to lay out its case for changes to the Clean Power Plan at a meeting with EPA officials in about a month, he said. IECA will likely refer to comments it submitted to EPA last year, arguing that the agency doesn’t have the authority to regulate greenhouse gas emissions "outside the fence" and calling for a new proposal following a judicial review.
The Chamber of Commerce, the National Association of Manufacturers (NAM) and the American Petroleum Institute are among a dozen or so trade groups arguing that the framework of the draft rule is outside EPA’s authority. They say that if the courts uphold the rule, it will set a precedent for how the agency might limit carbon emissions from other sources, including petroleum refiners and iron, steel and cement manufacturers (ClimateWire, Dec. 23, 2014).
"If the rule goes into effect the way it’s proposed, some of the compliance obligations will have to be imposed on nontraditional actors, including manufacturers," said William Scherman, the Federal Energy Regulatory Commission’s former general counsel and a partner with Gibson, Dunn & Crutcher LLP. "There’s no other way to meet the targets."
But EPA insists it’s not telling states how to pursue emission cuts; it’s just offering a menu of options.
The agency also maintains that the proposal wouldn’t broaden EPA authority but rather would extend Clean Air Act regulations that have been in place for decades.
"I’d like to be very clear that the CPP is only focused on the power sector, not manufacturers," EPA spokeswoman Liz Purchia said in an email. "Businesses are investing billions in clean energy. And utilities like Exelon and Entergy are weaving climate considerations into business plans. This means more jobs, not less."
Purchia said the country will need "thousands of American workers, in construction, transmission, and more, to make cleaner power a reality."
Some green groups say the industry is taking the wrong approach.
David Doniger, who directs climate policy for the Natural Resources Defense Council, said he favors a market-oriented approach that turns the sector’s fear into opportunity. Companies could push state utility commissions to set up a system through which manufacturers can generate valuable credits — and sell them to power plants — for reducing power demand, he said.
"This should be a plus and not a minus for companies that use electricity from the grid," he said.
But Cicio said such an approach could force manufacturers to make steeper emissions reductions overall.
"We’re in the business of making widgets, not in the business of making [renewable energy credits] and offsets," he said. "We can’t be constrained by carbon limits."
IECA members — steel producer Gerdau Ameristeel, industrial gas supplier the Linde Group and metals manufacturer Alcoa — warned at the utility commissioners’ gathering last week that higher costs and stringent state regulations could force manufacturing jobs offshore to countries with laws and air regulations that are not as strict.
"We’ll move offshore," Cicio told the utility commissioners. "That’s the bottom line."
Doniger shrugged off that threat.
"I think the threat is an empty one," he said. "If they look at this, turn the dark cloud over and look at the sunny side, they’ll see this is an opportunity to get a revenue flow for energy efficiency measures."