Climate change should not be fought on the backs of U.S. manufacturers
January 2016 - Democrats and Republicans often emphasize their support for a strong U.S. manufacturing sector. Indeed, after years of being ignored as a sector disappearing due to offshoring, it is back in vogue after rising from recessionary depths. Industrial companies are competitive again for a variety of reasons, including the desire to have suppliers close by, rising costs in China and elsewhere, rising ocean freight costs and, most importantly, the ability of the U.S. workforce to lead in technology and innovation.
Unfortunately, despite all the approbation heard inside the Beltway, the Obama administration is about to sock U.S. manufacturers with a 20 percent hike in their electricity bills thanks to pending regulations.
The administration advanced its regulations to reduce carbon dioxide and other emissions from U.S. sources just before December’s Paris climate conference. New rules are meant to help meet a pledge to reduce U.S. net greenhouse gas emissions by 26 to 28 percent from 2005 levels by 2025. Each new regulation has been seen as part of the broader effort to ensure successful international cooperation on climate change. The centerpiece of the Obama administration’s efforts has been the Clean Power Plan (CPP), released by the Environment Protection Agency in August. The CPP strives to reduce pollution from utilities by requiring each state submit an implementation plan or a more stringent federal plan will be imposed upon them.
CPP’s cost could approach $300 billion and raise electricity rates by up to 20 percent, a recent study by NERA Economic Consulting found. In fact, the annual cost of CPP is almost three times greater than the cost of EPA’s Mercury and Air Toxics rule, which the U.S. Supreme Court recently criticized by ruling that: “It is not rational … to impose billions of dollars in economic costs in return for a few dollars in … benefits.”
For U.S. manufacturers, including the $137 billion metalforming industry, higher electricity bills may diminish their global competitiveness and profitability. Manufacturing consumes almost a quarter of the country’s electricity and almost a third of its natural gas. After making great strides to compete with overseas industries that enjoy subsidized electricity and other government support, U.S. suppliers again face the threat of their OEM customers outsourcing to nations with lower energy costs. That could result in another exodus of American jobs. As reliable baseload power is taken off line in favor of intermittent renewables with insufficient backup capacity, the electric grid may become more fragile, NERA analysts suggest. A weakened grid may result in cascading brownouts and blackouts. Industries with high fixed costs that cannot just idle and restart with the touch of a button—that includes metalformers, ferrous and nonferrous metal producers and processors—will particularly suffer.
Twenty-seven states and scores of private entities have filed lawsuits challenging the Clean Power Plan. Legal questions will likely be settled by the Supreme Court as it addresses the appropriate role of the federal government in dictating state-based policy outcomes.
The administration also proposed or finalized rules on ground-level ozone, oil and gas sector methane, agriculture, landfills, trucks and household appliances. In October, the EPA strengthened the National Ambient Air Quality Standards for ground-level ozone to 70 parts per billion (ppb), down from a 75 ppb standard.
The collective weight of these regulations, according to an analysis by the U.S. Chamber of Commerce Institute for 21st Century Energy, still remains far short of the administration’s 28 percent reduction goal. Does that mean additional regulations will follow or might the U.S. simply renege on its Paris pledge?
Even if the U.S. managed to reach its emission reduction goal, the impact on climate change would be minimal. As America’s carbon emissions declined over the past 10 years, Chinese and Indian emissions rose 170 and 90 percent, respectively, dwarfing U.S. actions.
In addition, there is slim evidence other countries will follow U.S. leadership and any action that is taken is likely to be fraught with deficiency. For example, in China local entities are known to balk at top-down mandates from Beijing, while statewide reporting entities cannot even adequately measure their contribution to global emissions.
The New York Times reported late last year that China was burning up to 17 percent more coal than the government officially disclosed. Similar reporting gaps occur in other developing nations. Holding up U.S. action as pivotal misses the nature of climate change. As presidential candidate Marco Rubio stated during one of the Republican debates: “America is not a planet.”
If we truly want a strong manufacturing sector that can compete on a global basis, Washington should not create regulatory impediments, making it more expensive to keep production facilities and jobs here in the U.S.
William E. Gaskin is president of the Precision Metalforming Association, Independence, Ohio.
