Climate legislation threatens to bankrupt iron, paper, petrochemical and other companies in the United States that require a lot of energy, according to a new report.
The analysis finds that many energy-intensive businesses would fall far below a financial tipping point if Congress were to pass climate legislation similar to a bill that stalled in Congress last year sponsored by Sen. Joe Lieberman (I-Conn.) and the now retired Sen. John Warner (R-Va.).
For many companies, that tipping point appears when the company's operating surplus drops about 10 percent or more, which the study found would happen with many under a scenario of a carbon price of $61 per metric ton by 2030. According to federal government data, $61 falls in the middle price range that could have resulted from the Lieberman-Warner approach.
If a carbon price shot higher, it would have an even harsher impact on businesses dependent on high energy use, according to study co-author Joel Yudken of High Road Strategies, an economic consulting firm. Yudken compiled the assessment with Andrea Bassi of the Millennium Institute by dissecting computer data from the Energy Information Administration and industry sources.
"If nothing is done to help these companies, many of them will close or move offshore," Yudken said during a panel discussion on his analysis Friday at a green jobs conference in Washington, D.C.
Endgame: installing Russian-made wind turbines?
The problem with the potential movement of iron, steel and other energy-hungry businesses overseas is that they provide the components for a wide range of products used by Americans, including things such as solar panels, Yudken said. He expressed concern that the United States would end up installing wind turbines with steel imported from Russian factories spewing twice as much C02 pollution as American ones.
Amid the ongoing financial crisis, Congress has yet to take up major climate legislation this year. President Barack Obama publicly supports a cap-and-trade system that would put a lid on total greenhouse gas emission and would force companies to trade allowances for the right to pollute.
House Energy and Commerce Chairman Henry Waxman (D-Calif.) and Senate Environment and Public Works Chairwoman Barbara Boxer (D-Calif.) have pledged to move climate legislation through their committees by the end of 2009.
To ease the pain of any potential bill, the panelists at Friday's event offered various recommendations, depending on their particular industry's point of view. All agreed that more than one complementary policy was necessary to protect companies from the impact of a potential cap-and-trade scheme.
For Leeann Anderson of the United Steelworkers, a top priority is making sure that any bill has a border adjustment mechanism penalizing the imports of countries that don't curb their greenhouse gas emissions. For Larry Kavanaugh, vice president of environment and technology at the American Iron and Steel Institute, an international approach is critical to make sure companies in the same part of the economy are experiencing similar impacts simultaneously.
"We need a sectoral agreement where you have commitments from other countries and how much they are going to reduce [carbon dioxide emissions] and by when," he said.
How to keep companies that make material for basics in the U.S.?
Thomas Swift, an economist at the American Chemistry Council, said lawmakers need to devise climate policies that stabilize the price of natural gas, which chemical companies depend on for their manufacturing processes. Yudken recommended that revenues from a potential cap-and-trade system be used to compensate for as much as 90 percent of additional costs for industries such as aluminum and steel, considering their unusual situation.
They all agreed that a key solution was ramping up energy research funding, since energy efficiency can only do so much for factories chugging through a lot of fuel. Under a cap, many would struggle to figure out how to cut emissions beyond what they are already doing, they said.
"Existing technologies can't do it," said Yudken.
The difficulty, though, is that there is disagreement about the best way to boost research dollars to develop the next generation of equipment in the manufacturing process.
Some prefer a boost to existing Energy Department programs; others want a new agency modeled after the Defense Department's research arm. Groups such as the Brookings Institution, a liberal-leaning think tank, want a whole new network of research hubs consisting of academic, corporate and federal laboratories to address the issue (ClimateWire, Jan. 22).
Furthermore, the concept of border adjustment fees has been a source of controversy, with detractors such as outgoing Treasury Secretary Henry Paulson decrying a potential return to protectionism. It also is not guaranteed that the revenues from any potential bill would be available to help out individual sectors struggling for cash.
Yudken said, though, that part of his goal was to make policymakers aware of the dilemma facing industries that are at the beginning of the supply chain for "almost all things that are made."
"The bottom line is that we want these industries to stay in the United States," he said.