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Climate and Energy Policies that Threaten Manufacturing Competitiveness Paul Cicio President Industrial Energy Consumers of America October, 2008.

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Presentation on theme: "Climate and Energy Policies that Threaten Manufacturing Competitiveness Paul Cicio President Industrial Energy Consumers of America October, 2008."— Presentation transcript:

1 Climate and Energy Policies that Threaten Manufacturing Competitiveness Paul Cicio President Industrial Energy Consumers of America October, 2008

2 IECA- Testified Before Congress & Federal Energy Agencies (3) Climate policy (3) Increase domestic supply of natural gas (4) Excessive energy speculation (1) Industrial energy efficiency (2) Federal Energy Regulatory Commission (2) Commodity Futures Trading Commission

3 IECA Appointments  Department of Interior, Outer Continental Shelf Advisory Committee  Department of Energy, National Coal Council  Commodity Futures Trading Commission, Energy Market Oversight Committee  Department of Energy, Ulta Deep Drilling Advisory Committee

4 Who Are Energy Price Sensitive Industries? Commercial & Consumer Products  Food Production  Detergents  Automobiles  Computers  Construction  Medical Supplies  Paint  Pharmaceuticals  Cosmetics  Telecommunication Convert to Building Block Industries  Chemicals  Plastics  Fertilizer  Glass / ceramics  Brick  Steel  Aluminum  Pulp and Paper  Cement  Food Processing

5 Energy Competitiveness Issues  Climate change mandates  Supply of natural gas / exports of LNG  Power sector demand for natural gas  Excessive energy speculation  T. Boone Pickens - Financial incentives for use of natural gas in motor vehicles  Electricity decoupling

6 Natural Gas Production (Volumes in Trillion Cubic Feet) 20002001200220032004200520062007Difference Dry Production 19.219.618.919.118.618.118.519.30% Source: EIA

7 Natural Gas Production-2008 (Volumes in Trillion Cubic Feet) JanFebMarAprMayJuneJuly Dry Production 1.701.621.751.681.731.711.78 Source: EIA

8 Natural Gas Consumption by End Use (TCF) 20002001200220032004200520062007Difference Total Consumption 21.522.223.022.322.422.221.923.6+9.8% Residential5. Commercial3. 2.93.1-3% Industrial8. Electric Power5. Source: EIA


10 Great Concern- Continued Increased Use of Natural Gas by Power Sector  It raises the price of both natural gas and electricity for all consumers  Natural gas fired power is increasingly setting the marginal price for electricity  For the next 10 years or so, there is no other short term low-carbon fuel other than natural gas

11 Electric Power Research Institute “Even though natural gas is used to produce only 20 percent of the electricity, it accounts for 55% of the electric industry’s entire fuel expense ($50B out of $91B).”

12 Relationship of High Natural Gas Prices to Lost Manufacturing Jobs 20002001200220032004200520062007% Employment (MM) 17.216.415.214.514.314.214.113.9-19.2% Natural Gas Wholesale Price ($ per MCF) 4.505.204.005.906.508.607.906.85+52% Natural Gas Consumption (TCF)

13 Lost Manufacturing Jobs  YTD 2008 losses are 344,000

14 US manufacturing is already under siege by energy intensive imports  Analyzed sixteen energy intensive product categories under the “Industrial Supplies and Materials” of the U.S. Census Bureau  Imports from 2000 to 2003 were about unchanged while imports from 2003 to 2007 rose a staggering 78.3%. Imports rose from $87.3 billion in 2003 to $155.7 billion in 2007.  Timing is consistent with rise in US natural gas price

15 Planned Nameplate Capacity Additions from New Generation (MW) Energy Source200620072008 Coal60215891056 Petroleum26978168 Natural Gas106571689215050 Other gases03911160 Nuclear000 Hydro834 Other Renewable 30272454695 Total145732140718133 Source: EIA

16 Existing Electricity Generation Capacity 2006 (MW)- Would Consume 22 TCF Energy SourceNameplate Capacity Coal335,830 Petroleum 64,318 Natural Gas442,945 Other Gases 2,563 Nuclear105,585 Hydro 77,419 Other Renewable 26,470 Pumped Storage 19,569 Other 976 Total1,075,677 Source: EIA

17 Climate Change Mandates

18 Climate Change Policies are Complex Climate change is an environmental issue…but the policies to deal with it are energy, trade and economic policy issues.

19 Climate Change Regulations The single most important issue that the manufacturing sector has ever faced.  Will determine manufacturing’s competitiveness for years to come.  Unfortunately, the US Congress, key states and many countries are focused only on “cap & trade” as the policy of choice.

20 19902006Difference Residential953.71253.8+31.4% Commercial780.71050.6+34.6% Industrial1683.61682.3< 0% Transportation1566.81958.6+25% Electricity1803.12375+31.7% Total Carbon Dioxide Emission (Million Metric Tons of Carbon Dioxide) Source: EIA

21 Energy Purchasing Managers  Carbon management is an essential element to managing total energy cost risk.  Understanding carbon regulation and management options is now a competitive advantage for companies.

22 Climate Change Regulations What will it cost my company?


24 Calculate Your Cost Increase. CO2 Allowance Prices CO2 Allowance Price $40$50$75$100 Gasoline/gallon. Natural Gas/MCF 2.192.744.105.47 Short Ton Bituminous Coal 89.44111.80167.70223.60 Sub-bituminous Coal 67.4084.25126.38168.50 Anthricite Coal 69.8887.35131.03174.70 Source: EIA

25 Cap & Trade Increases Energy Costs Example: Senator Lieberman “Cap and Trade” Bill - On average, would have increased natural gas, electricity and transportation fuels by about 33% in 2012 and increase from there.

26 Cap & Trade – Impacts energy prices in four ways  It increases the cost of energy when the price of carbon is added.  Increases natural gas costs by increasing demand.  Compliance costs. (Management of ghg accounting; offsets; third party verification)

27 Cap & Trade – Distorts Markets It will impact relative competitiveness between:  Companies in your business.  Companies in the same sector and other competing products.  US industry and imported products that is not equally regulated.

28 Cap & Trade- Requires Absolute Reduction  Energy efficiency improvements do not result in absolute ghg reductions. Key Question: Can you reduce absolute ghg emissions if your production of steel is increasing?

29 Cap & Trade- Other issues  There is no effective border adjustment policy.  No reward for past energy efficiency.  Capital spending will be centered on compliance deadlines.  Must compete with electric utilities to purchase carbon allowances.

30 Alternative Policy Options  Carbon tax Sector Approaches:  Energy efficiency improvement mandates  GHG intensity improvement mandates  Best available technology (BAT)  Some combination of above policy coupled with tax incentives to speed capital stock turnover

31 Alternative Policy Options IECA favors these alternatives.  Greater transparency and predictability  Carbon tax is border adjustable to deal with imports  Lower costs to reduce ghg emissions  More consistent with how and when we spend capital  Less energy and product market distortions

32 Call to Action ! Paul N. Cicio President Industrial Energy Consumers of America 202-223-1661

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