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Climate and Energy Policies that Threaten Manufacturing
Competitiveness
Paul CicioPresident
Industrial Energy Consumers of America October, 2008
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
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
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
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
Natural Gas Production(Volumes in Trillion Cubic Feet)
2000 2001 2002 2003 2004 2005 2006 2007 Difference
Dry Production
19.2 19.6 18.9 19.1 18.6 18.1 18.5 19.3 0%
Source: EIA
Natural Gas Production-2008(Volumes in Trillion Cubic Feet)
Jan Feb Mar Apr May June July
Dry Production
1.70 1.62 1.75 1.68 1.73 1.71 1.78
Source: EIA
Natural Gas Consumption by End Use(TCF)
2000 2001 2002 2003 2004 2005 2006 2007 Difference
Total Consumption
21.5 22.2 23.0 22.3 22.4 22.2 21.9 23.6 +9.8%
Residential 5.0 4.8 4.9 5.1 4.9 4.8 4.4 4.9 -2%
Commercial 3.2 3.0 3.1 3.2 3.1 3.1 2.9 3.1 -3%
Industrial 8.1 7.3 7.5 7.2 7.2 6.7 6.6 6.8 -16%
Electric Power 5.2 5.3 5.7 5.1 5.5 5.9 6.2 7.0 +35%
Source: EIA
Natural Gas Prices-(NYMEX Prices mmBTU)
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
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
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 $91B).”
Relationship of High Natural Gas Prices to Lost Manufacturing Jobs
2000 2001 2002 2003 2004 2005 2006 2007 %
Employment (MM)
17.2 16.4 15.2 14.5 14.3 14.2 14.1 13.9 -19.2%
Natural Gas
Wholesale Price ($ per MCF)4.50 5.20 4.00 5.90 6.50 8.60 7.90 6.85 +52%
Natural Gas
Consumption (TCF)8.1 7.3 7.5 7.2 7.2 6.7 6.6 6.8 -16%
Lost Manufacturing Jobs YTD 2008 losses are 344,000
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 $155.7 billion in 2007.
Timing is consistent with rise in US natural gas price
Planned Nameplate Capacity Additions from New Generation (MW)
Energy Source 2006 2007 2008
Coal 602 1589 1056
Petroleum 269 78 168
Natural Gas 10657 16892 15050
Other gases 0 391 1160
Nuclear 0 0 0
Hydro 8 3 4
Other Renewable
3027 2454 695
Total 14573 21407 18133
Source: EIA
Existing Electricity Generation Capacity 2006 (MW)- Would Consume 22 TCF
Energy Source Nameplate Capacity
Coal 335,830
Petroleum 64,318
Natural Gas 442,945
Other Gases 2,563
Nuclear 105,585
Hydro 77,419
Other Renewable 26,470
Pumped Storage 19,569
Other 976
Total 1,075,677 Source: EIA
Climate Change Mandates
Climate Change Policies are Complex
Climate change is an environmental issue…but the policies to deal with it are energy, trade
and economic policy issues.
Climate Change Regulations The single most important issue that the
manufacturing sector has ever faced. Will determine manufacturing’s
competitiveness for years to come. Unfortunately, the US Congress, key states
and many countries are focused only on “cap & trade” as the policy of choice.
1990 2006 Difference
Residential 953.7 1253.8 +31.4%
Commercial 780.7 1050.6 +34.6%
Industrial 1683.6 1682.3 < 0%
Transportation 1566.8 1958.6 +25%
Electricity 1803.1 2375 +31.7%
Total Carbon Dioxide Emission(Million Metric Tons of Carbon Dioxide)
Source: EIA
Energy Purchasing Managers Carbon management is an essential element to
managing total energy cost risk. Understanding carbon regulation and
management options is now a competitive advantage for companies.
Climate Change Regulations
What will it cost my company?
Allowance Prices in 2007$ through 2030
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
CRA
MIT L-W w/15% Offsets & CCS Subsidy
MIT L-W w/ CCS Subsidy
MIT L-W w/ 15% Offsets
MIT L-W w/o 15% Offsets, w/o CCS Subsidy
EPA Scen 2 ADAGE
EPA Scen 2 IGEM
EPA Scen 5 (No Offsets) IGEM
EPA Scen 7 (Less Nucl/Bio/CCS) ADAGE
Calculate Your Cost Increase. CO2 Allowance Prices
CO2 Allowance Price $40 $50 $75 $100
Gasoline/gallon.35 .44 .67 .89
Natural Gas/MCF2.19 2.74 4.10 5.47
Short Ton
Bituminous Coal89.44 111.80 167.70 223.60
Sub-bituminous
Coal67.40 84.25 126.38 168.50
Anthricite Coal69.88 87.35 131.03 174.70
Source: EIA
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.
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)
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.
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?
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.
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
Alternative Policy OptionsIECA 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
Call to Action !
Paul N. Cicio
President
Industrial Energy Consumers of America
202-223-1661
www.ieca-us.org