STATEMENT OF
LEE P. HUGHES
VICE PRESIDENT
CORPORATE ENVIRONMENTAL CONTROL
BAYER CORPORATION
on behalf of the
AMERICAN CHEMISTRY COUNCIL
before the
SENATE ENVIRONMENT AND PUBLIC WORKS COMMITTEE
on
S. 556
THE CLEAN POWER ACT OF 2001COST-BENEFIT ANALYSIS
OF MULTI-POLLUTANT LEGISLATION
June 12, 2002
My name is Lee Hughes and I am Vice President of Corporate Environmental Control
for Bayer Corporation. I am responsible
for the environmental matters of Bayer’s U.S. operations. This includes compliance with the Clean Air
Act. Thank you for the opportunity to appear before you
today.
I am here today
representing the American Chemistry Council.
Leading companies engaged in the
business of chemistry make-up the membership of the Council. TheConsistent with our goal of continuous improvement
in our environmental performance, the chemical industry supported the 1990 Clean
Air Act Amendments. For over a decade
we have worked with EPA to implement its many programs and in the development
of programs that continuously make people’s lives better, healthier, and safer.
Council members have a big stake in the continued
success of the environmental programs, including the Clean Air
Act and have done more than their fair share to ensure that success. Overall environmental, health and safety
spending by Council members has exceeded $36 billionenvironmental
programs, including the Clean Air Act, and have worked hard to ensure
that success. Overall environmental, health and safety
spending by Council members for the year 2000 alone was roughly 3.4 billion
dollars. We have steadily reduced dollars
since 1970 on pollution abatement and control including $3.4 billion in
2000. Not only have we reduced our
emissions while increasing production, Council members have used
“combined-heat-and power” (CHP or co-generation) units, to (decrease the demand
for) increase our energy efficiency and
cut emissions from power generation as well.
As a
major user of energy and contributor to the success of the Clean Air Act,
Council members also have a large stake in Senate Bill 556, which puts forth
innovative (sounds too positive)market market-based trading approaches to
reducing emissions from power plants.
Our stake, however, might not be what you would think, i.e., benefiting
from the reduced emissions achieved.
While we might benefit from that aspect of the Bill, the real impact of
S. 556 will likely be on our purchasing of electricity and the Bill’s impact on
the availability of our industry’s lifeblood, natural gas. Unfortunately, given the current stringency
of the bill’s suggested emission cuts and timing, we expect a significant
adverse effect both for our industry as well as for the broader economy.
As
the Committee knows, natural gas is becoming the “fuel of choice” for achieving
air emission limits from power plants.
That popularity, however, affects its availability to — and price paid
by all consumers — including the business of chemistry. In our opinion, the limits imposed by, and
the timing of, Senate Bill 556, will adversely affect both the cost of
electricity generation and the availability of natural gas. Because of these reasons, the American Chemistry
Council is opposed to S.556. The 3
primary reasons are:
1)
Fuel diversity. It is critical to the
business of chemistry that S.556 and similar proposals not result in an over
over-reliance on natural gas to generate our nation’s electricity needs. The business of chemistry relies on natural
gas as an energy source and as
a feedstockraw material. When the
supplies of natural gas are short and prices rise, the impact on the industry
is devastating. During the winter, 2000
runup in gas prices, the US chemical trade surplus plummeted from ___ to ____.To the extent that multi emission
proposals are premised on or result inemissions while
increasing production, thereby increasing economic productivity while reducing our
environmental footprint. One-way
Council members have accomplished this is by using “combined-heat-and power” (“CHP” or “co-generation”) units to increase
our energy efficiency and cut emissions from power generation as well.
While we have improved our energy efficiency for
decades, we remain an energy intensive industry. Not only do we use a lot of electricity, we are major consumers
of natural gas, both to power our energy efficient operations and as a raw
material. In fact, we are the
major user of natural gas for non-energy purpose. This
makes our businesses very sensitive to energy prices and to the
availability of natural gas as one of our core materials. While S. 556’s provisions are aimed largely
at the utility sector, some of our operations would be directly affected. Moreover, as major users of energy, Council members will be
directly impacted by any increase and availability of critical raw
materials such as
natural gas that are driven by the provisions of S. 556.
General
Position and Concerns
We support the goal of continued improvement in air quality,
building on significant progress to date.
We also support the use of market-based mechanisms to achieve
these goals. However, we are very
concerned about S. 556’s potential impact on our industry and the broader
economy. The one million employees of
the business of chemistry are just beginning to rebound from two very tough
years of economic slowdown, and are poised for an upturn. We are concerned that this bill’s impact on
energy prices and natural gas availability could send us the other way by driving many
utilities to switch to natural gas as a fuel source. We think it is important to set our goals and timetables for
additional emissions reductions in a way that takes account of and minimizes
these sorts of economic impacts while delivering improved air quality. We also believe it is important to harmonize
any new requirements with existing provisions of the Clean Air Act, rather than
to simply layer an entire set of new provisions over an already complex
matrix of existing
requirements.
Because of these reasons, the American Chemistry Council is opposed to S. 556 in its current form. We believe that S. 556 needs to be reconsidered and
amended. Our three primary
concerns are:
1. Ensuring fuel diversity.
2. Recognizing the benefits of CHP Units.
3. Harmonizing the various
sections of Clean Air Act with new requirements.
The Need for Continued Fuel Diversity
It is critical to the
business of chemistry that S. 556 and similar proposals not result in an over-reliance on natural
gas to generate our nation’s electricity needs unless there is simultaneous government
action to ensure access to an adequate supply of natural gas. The business of chemistry relies on natural
gas as an energy source and as a basic raw material. For many utilities, the most cost-effective,
or perhaps only,
way to meet the stringent targets in S. 556 would be to switch to natural gas,
accelerating the trend towards gas as a preferred fuel. Without any increased initiatives, the
Energy Information Agency (EIA) is predicting that the use of natural gas to
power our utilities will increase three-fold by 2020 in their “business as
usual” case. This increasing demand
for gas is occurring at the same time we are restricting access to supplies of
natural gas. S. 556 would
exacerbate this shift.
When the supplies of
natural gas are short and demand is high, prices rise with a significant impact
on our industry. In fact, each dollar
rise in the price of natural gas means about $1 billion in additional annual
cost for our members — costs that we cannot recover in the price of our
products in the global marketplace in which we compete. When U.S. companies cannot compete in the global market,
we lose jobs and investment in the U.S. (and production increases in parts of the world
where local companies may be allowed to have much higher emissions). Last year’s spike in gas prices was disastrous for
our U.S.-based industry.
When the price of
natural gasrises above around approaches $4.00 per MBTU,million Btu, and it
increased to over $10.00 a unitper million Btu during the winter of 2000-2001,
the U.S. chemical industry’s costs of production rise to the point where we are
no longer competitive with foreign producers.
Gas prices
increased to over $10.00 per MBTU during our most recent spell of demand-supply
imbalance, the winter of 2000-2001, and the industry had one of its worst years
in 50 years. Last year we saw
several plant closings because of that price spike.
To the extent that
multi emission proposals result in significant fuel switching by utilities from
coal to natural gas and public policies do not provide for adequate gas
supplies, demand for gas massive fuel switching
by utilities from coal to natural gas, demand for gas will outpace supply and
prices will rise.can reasonably be projected to outpace supply. Growth in demand for electricity is already
affecting the supply/demand balance for natural gas before any additional fuel
switching is encouraged. EIA reports
that 90% of our new electric power facilities will rely on natural gas as their
basic fuel. Actions tothat further alter our basic fuel
mix for electricity and drive up demand for natural gas are
not prudent, especially given Congress’ demonstrated reluctance to seriously
address domestic natural gas supply.create significant problems for our industry
and we urge this Committee to evaluate them carefully.
Given the levels
of reduction mandated bycurrently required
by S. 556, and the time lines for meeting these levels, wecan
conclude that enactment of this legislation will result in significant
additional fuel switching by the utilities.
In particular, the CO2 component of the bill would virtually guarantee
that the utilities would need to abandon coal use in favor of natural gas. Existing technology cannot accomplish the
CO2 reductions currently
sought by S.556 and a fuel switchS. 556, and the bill’s
timetable does not provide for adequate technology development. to natural gas would be the only viable alternative
for the utilities – at the expense of the broader US economy. Further, theThe short
deadline for meeting S. 556 deadlines in 2007 will notdoes not allow newer
and developing technology-- based solutions to come on line in
time to make a difference – again leading to the same result –
fuel switching.difference.
2)
Combined Heat and
Power. The U.S. chemical industry has
made and continues to make significant investments in the use of combined heat
and power technology to provide much of its electrical and thermal energy
needs. The advantages of CHP cannot be
underestimated. A typical CHP unit
produces power twice as efficiently as a traditional utility and emits at least
50% less pollution. In this regard,
generation of energy needs by CHP technology is extraordinarily beneficial
toward meeting the nation’s air quality and climate change goals. We know members of this Committee appreciate
the role of CHP, since ,(most of its members supported Senators Caper and
Collins amendment to restore the incentives for CHP in the recently passed
energy bill. Chairman Jeffords, we
appreciated your co-sponsorship of that important amendment.
UnfortunatelyIt
is most surprising, then that, S.556 appears to ignore the beneficial aspects
of CHP because it includes these units within its coverage and seemingly
ignores that theseare already tightly controlled units with very little low
emissions. These units would be put in
a competitively disadvantaged position of needing to buy credits – essentially
penalized for being well-controlled and low emitters. CHP units should be exempt from any multipollutant
legislation.
3) Clean Air Act
Regulatory Reform. One of the issues we
see with ways that S.556 is fundamentally flawed ( I
would not use this phrase with this group) is that it merely imposes yet
another set of emission reduction requirements on industry over and above what
currently is called for in the Clean Air Act.
ACC is generally (I would
prefer) can be supportive of a market based trading approach for managing
certain emissions in an existing appropriate regulatory framework. We believe the market will do a significantly
better job of allocating scarce resources to accomplish the goals of the Clean
Air Act than a confusing, overlapping, and constantly changing command and
control regulatory regime. However, to
achieve the true benefits of a market-based system, it must be properly
structured and it must be allowed to work.
And it must not penalize the good performers. S.556 meets neither none of these tests. The compliance timelines are too short to
allow the market to develop and function; the emissions reduction requirements
are so stringent that they will preclude the opportunity for overcontrol- one
of the main reasons the Acid Rain emissions trading program was
successful. And, it does not replace
any of the command and control requirements of the Clean Air Act. Trading mechanisms have been successfully
used and our country already has a number of areas where trading programs will
be expanded this decade, but our experience with trading programs across
industries with different margins and a constrained allocation is almost
non-existent. This means that a source
subject to S.556 will still face the uncertainty of meeting all other Clean Air
Act requirements for the same pollutants in addition to meeting S.556 requirements. Not only does this remove any incentive for
an industry to support S.556, but also it eliminates any perceived benefit of
certainty and cost-effectiveness that a properly crafted multipollutant
approach could provide.
As
support for our views, the Committee should consider the following:
The Clean Air Act, now
nearing thirty years old and with amendments through the years, is a complex,
command &and control- driven series of requirements and deadlines. For all
the complexities and cost, the Act has worked.
Emissions have dramatically reduced since the early 1970’s and the
Nation’s air quality keeps improving as demonstrated by declines in annual
emissions declining in all measured categories over the past 14 years! The 1990 amendments added significant
control requirements and deadlines extending the scope and reach of the
Act. Combined with EPA’s 1997 decision
to tighten standards for ozone and add a standard for fine particulates – we see
a continued stream of requirements through 2020.
Unlike thirty years
ago, most of the low cost reductions have occurred and Because of this
improvement, decisions about what to control, and the stringency of the control
can have a critical impact on entire business sectors. The chemical industry is a prime example of
a highly regulated and controlled industry that now faces significantcosts for
any additional incremental environmental gains in from programs such as the
multipollutant approach.
With that context, ACC
members have made considerable progress in cleaning up the air and the Chemical
industry has been a leader of environmental progress. Council members support protecting human health and
the environment, including
the air resources of the Nation. Over
the past twenty-five years, Council members have made their operations
more energy efficient and reduced
their air emissions. (Too much
boilerplate?)
During
that period, Council members constructed
many cogeneration or “combined heat and power” systems —a significantly more
efficient way of producing power than conventional electric generating
units — and co-generation units produced 80 billion kilowatt-hours of electricity
in 1998 - and our members contributed nearly 45 billion kilowatt-hours of that
total. These and other projects helped
make the chemistry business 41% more energy efficient
per unit of output than it was in 1974.
Council members have also dramatically
reduced air emissions while increasing
production. For example,
core Toxic Reduction Inventory (TRI) emissions are down 63% since 1988 even
though production was up 27%. According
to EPA data, ACC members also led all of industry in cutting emissions
of 30 key hazardous air pollutants —including mercury, since 1990. Likewise, ACC members have aggressively reduced
our SO2 and NOx
emissions.
Even as Council members are highly regulated under
the Clean Air Act, we are constantly upgrading
our facilities to comply with its various provisions. [JCD comment- does this statement beg an implication that we
routinely do not comply with NSR? If
that is possible, we probably should either delete it or further refine it to
specifically state that those are additional requirements to reduce
emissions.]Our members (and others) are reducing mercury emissions
pursuant to section 112 of the Clean
Air Act[JCD comment- if this reference to Hg emissions refers to chlor-alkali
Hg reductions, it may be okay but I am not familiar with those rules; if it
refers to upcoming boiler/process heater MACT rules, this should be deleted
since the proposal is not out yet and reductions would not be required until
maybe 2007, and we should not imply that we expect actual reductions to be
required yet.], NOx emissions through Section 126 and EPA’s “NOx “SIP cCall”
and some have opted into the Act’s Title IV acid rain program.
As you move forward with the development of
multipollutant legislation, we ask the committee to carefully consider the
progress that has already been made in reducing emissions, the increasingly
complex and costly requirements still under development, and the need for
equity in determining the scope of the program. Manyfacilities, like those in the chemical industry are highly
regulated and tightly controlled and sweeping one-size fits all approaches will
put us at an further economic
disadvantage. In fact, structuring a
program that doesn’t provide credit for previous emission reductions penalizes
sources and industries that have dramatically reduced their emissions in favor
of those who currently use energy less efficiently. have less regulation or
control.
Multipollutant legislation needs to be carefully
crafted to address the following critical issues:
The Need for Continued
Diversity and Balance in our Nation’s Energy Mix
The crippling run up of energy prices in 2000-2001
is still fresh in our minds and we still face a continuing threat of a repeat
of that crisis. Current natural gas production and the recent decline in
exploration almost guarantee it. A
cCarefully crafted multipollutant legislation could help minimize this
threat. In turn, bBy statutorily
driving up or down the delicate balance of supply and demand for energy
resources, multipollutant legislation could plunge the nation back into an
energy crisis.
The basic chemicals part of the business of
chemistry converts certain petroleum products, natural gas, and other naturally
occurring raw materials into a wide variety of basic chemicals. These basic chemicals are then converted by
other sectors of the chemical industry into chemical intermediates and final
chemical products such as plastics, synthetic fibers, and rubber. In turn, these chemical products are
fabricated by many different industries into thousands of essential products
for consumers. Consumers use these
products to make their lives better, healthier, and safer, meeting their needs
more efficiently. This creates the
demand for our products. Our level of
production is driven by this consumer demand, need not the reverse.
1)
Fuel switching to natural gas would be the only
viable alternative for the utilities, at the expense of the broader U.S.
economy.
Congress Must Not
Penalize Co-generation or Combined Heat and Power (CHP) Units
S. 556 covers more
than power generating units in the electric utility industry. It also covers combined heat and power units
(CHP) that produce thermal energy and electricity for on-site consumption, but
who may also sell small amounts to the electric grid. This puts these already
efficiently operating units in a competitively disadvantaged position of now
needing to buy credits
– essentially penalized for being “ahead of the curve.”
The U.S. chemical
industry continues to make significant investments in the use of combined heat
and power (CHP) technology to provide much of its electrical and
thermal energy needs. CHP, also
referred to as “co-generation,” produces both thermal power and electricity,
from the same fuel input. Where
utilities generally discard the thermal energy produced from combustion, CHP
units capture it for use in a manufacturing plant.
The advantages of CHP
cannot be overestimated.
A typical CHP unit produces power twice as efficiently as a traditional
utility and emits at least 50% less pollution.
In this regard, generation of energy needs by CHP technology is
extraordinarily beneficial toward meeting the nation’s air quality goals.
We know members of
the Environment and Public Works Committee appreciate the role of CHP, since
most of them, including the Committee’s Chairman, supported Senators Carper and
Collins on their amendment to restore the incentives for CHP in the recently
passed energy bill. It is most
surprising then that S. 556 appears to ignore the beneficial aspects of CHP
units because it
includes them
within its coverage. CHP units
should not be included in S. 556, but should be provided with an opportunity to
opt-in to the program.
Harmonize New
Requirements With The
Clean Air Act
We support using a
market driven approach to achieve the goals of the Clean Air Act. We believe the market will do a
significantly better job of allocating scarce resources to accomplish the goals
of the Clean Air Act than a confusing, overlapping, and constantly changing
command and control regulatory regime.
However, to achieve the true benefits of a market-based system, it must
be properly structured and it must be allowed to work. And, it must not penalize good
performers.
Currently, S.
556 meets
neither of these tests. Its compliance timelines are too short to allow the
market to develop and function.
Further, by not providing relief from any of the command and
control requirements of the Clean Air Act, the uncertainty of meeting the
various regulatory program requirements in the coming years will discourage
facilities from participating in market-based trading. Companies will likely decide that they need any “credits”
within their company – or worse, they simply may not be able to generate
credits because of other overlapping regulatory requirements.
The trading mechanisms
of the Clean Air Act acid rain program were successful because that program
was the mechanism for reducing acid rain and the program focused only on
a single, similar sector, i.e., utilities.
By design, S. 556 isn’t the only program that will apply to a
facility,
and S. 556
will also cover non-utilities such as combined heat and power units
from the chemical sector and others.
These two factors will
contribute to a higher cost program and severe inequities between industrial
sectors with different margins and a constrained allocation. This means that a source subject to S.
556 will still
face the uncertainty of meeting all other Clean Air Act requirements for the
same pollutants in addition to meeting S. 556 requirements. Not only does this remove any incentive for
an industry to support S. 556, but also it eliminates any perceived benefit of
certainty and cost-effectiveness that a properly crafted market-based system
could provide.
Finally,
because S. 556
adds another mechanism for meeting Clean Air Act emission goals without
ensuring that these programs will work in concert, sources will not be able to benefit
from the market-based approach of S. 556. Instead, they will still be required to adopt each additional command and
control approach implemented by the CAA over the next two decades.
As additional support for our views, the Committee should
consider that,
·
the
Clean Air Act is working and air quality has improved;
·
the
Nation needs to maintain diversity of fuel sources;
·
the business of chemistry is vitally important to the U.S. economy;
· the business of
chemistry is competitively disadvantaged by high natural gas prices; and
· including combined heat & power
units in S. 556 will add significant burden to these highly
efficient and well-controlled units.
The Clean Air Act, now
nearing thirty years old and with amendments through the years, is a complex, command and
control driven series of requirements and deadlines. While fraught with cumbersome programs, such as new source
review, and full of complex and costly requirements, emissions have been
dramatically reduced since the early 1970’s. Furthermore, the Nation’s air quality keeps improving as demonstrated by
declines in annual
emissions for
all measured categories over the past 14 years. The 1990 amendments added significant
control requirements and deadlines extending the scope and reach of the
Act. Combined with EPA’s 1997 decision
to tighten standards for ozone and add a standard for fine particulates – we
see a continued stream of requirements through 2020.
Because of
this improvement, decisions about what to control, and the stringency of the
control can have a critical impact on entire business sectors. The chemical industry is a prime example of
a highly regulated and controlled industry that may now have to face
significant raw material cost increases if a bill like S. 556 attempts to move too
far too fast. In addition, S.
556, in its current form, would regulate combined heat and power units from the
chemical and
other industries. The cost of achieving
any incremental
environmental gains in emission reductions from these units will
be prohibitive.
As you move forward
with the development of multi-pollutant legislation, we ask the committee to carefully
consider the progress that has already been made in reducing emissions, the
increasingly complex and costly requirements still under development, and the
need for equity in determining the scope of the program. Many combined heat and power facilities,
like those in the chemical industry, are highly regulated and tightly
controlled. Sweeping one-size fits
all approaches will put us at a further economic disadvantage. In fact, structuring a program that doesn’t
provide credit for previous emission reductions penalizes sources and
industries that have dramatically reduced their emissions in favor of those who
currently use energy less efficiently.
The Need for
Continued Diversity and Balance in our Nation’s Energy Mix
The crippling run-up of energy prices in
2001 is still fresh in our minds and we still face a continuing threat of a
repeat of that crisis. Current natural gas
production and the recent decline in exploration almost guarantee it. Carefully crafted multi-pollutant legislation could
help minimize this threat. In turn, by
statutorily influencing the delicate balance of supply and demand for
energy resources, multi-pollutant legislation could have a detrimental impact on our
efforts to address our Nation’s basic energy needs.
Our industry is an example of one that uses energy efficiently to
make products that consumers use to make their lives better and in many
cases, help our Nation improve the efficiencies of energy generation and
utilization. The business of chemistry converts certain
petroleum products, natural gas, and other naturally occurring raw materials
into a wide variety of basic chemicals.
These basic chemicals are then converted by other sectors of the
chemical industry into chemical intermediates and final chemical products such
as plastics, synthetic fibers, and rubber.
In turn, these chemical products are fabricated by many different
industries into thousands of essentialFor example, the
business of chemistry converts natural gas liquids into ethylene, which is used
to make hundreds of other chemical products that, in turn, are used to make
thousands of consumer products such as detergents,
antifreeze, medical and sanitary products including sterile medical
applications,PVC windows, detergents, anti-freeze, energy-saving
insulation, packaging to keep food fresh, textiles, agricultural films and
computer housings. (courtesy of Huntsman)
food packaging, swimming pool liners, carpet, antifreeze, paper
coatings, crayons, and window frames.
The business of chemistry is vitally important to
the U.S. economy.It is the nation’s largest exporting sector, larger than
agriculture, computers, or aircraft/aerospace.
Exports grew 13.4% to a record $79.9 billion in 2000. The $6.3 billion trade surpluscontinued a
seventy-year-old tradition. In the United States, more than ten cents of every
export dollar are due to chemicals and related products. This surplus was nearly wiped out by the
last spike in natural gas prices.
More
than one million people are employed by the business of chemistry, and
companies that purchase the products of the business of chemistry employ more
than 36 million workers.
To
maintain this position, the business of chemistry depends onraw materials, also
known as feedstocks. Among feedstocks,
natural gas is one of the most important.
The chemical industry is the nation’s biggest industrial user of natural
gas, accounting for 11% of total U.S. consumption, and 30% of industrial
consumption. The business of chemistry
uses natural gas directly to produce ammonia, and methanol and their derivatives
and indirectly (when ethane and other constituents are removed from the gas) to
produce ethylene and other basic building-block chemicals.
High
natural gas prices have an adverse effect on the business of chemistry in the
United States. Although the market for
chemicals is global, the price of natural gas is not. Because U.S. firms are paying higherprices for natural gas,
chemical products made in the United States are at a competitive disadvantage
in the global marketplace.
Not
only does the relative price of natural gas affect chemical producers, so does
the degree to which chemical producers rely on natural gas as a feedstock. For example, 70% of U.S. ethylene production
relies on natural gas liquids as a feedstock, whereas 70% of global ethylene
production relies on heavy liquids such as naphtha and gas oil. Therefore, as the price of natural gas
rises, the competitive position of U.S. ethylene producers isweakened.
Last
year’s price shocks greatly affected U.S. production. The price of natural gas liquids (ethane, propane, butane) rose
such that heavier feedstock chemicals (naphtha, gas oil, condensate) became
more attractive economically.
Unfortunately, few chemical production facilities that use natural gas
as a feedstock could use these heavier liquids. [Should we mention the environmental ramifications of switching
to heavier feedstocks?][JCD response to question- No] [Molinaro response: No]
In
the short run, these high natural gas prices in the United States had a
dramatic effect on companies in the business of chemistry:
·Shut down almost
one-half the nation’s methanol capacity and one-third of its ammonia
capacity. (Side note: about 5 years ago
the US was self sufficient in methanol now we import as much as we do oil)
·Ethylene capacity
dropped between 10% and 15%, with at least 5% of this drop due to permanent (?)
plant shutdowns. Net trade in ethylene
was at one-fifth the 1997 level in 2001.
·The inherent Hhigh
electrical power requirements of and cost adversely affected chor-alkali,
atmospheric gas, and ethylene oxide production facilities caused them to be
particularly hard hit by increased electrical costs.
·The Gulf Coast region,
where most of the U.S. petrochemical industry is located, was hit particularly
hard. [This may be a
positive to the Senators on this committee – we may want to drop]
·The combined effect of
higher natural gas prices led to fewer U.S. exports, greater U.S. imports, and
a rising U.S. trade deficit. Net trade
for the United States last year fell at least $13.5 billion (4.5 billion
attributable to the business of chemistry) as a result of higher input costs.
·The Unlike the
regulated utility sector, International competition sluggish U.S. economy
prevents chemical companies from passing through the full cost of increased
natural gas prices.
In the long-term, the outlook already remains
uncertain prior to any multi-emission requirements:
·Domestic natural gas
prices that remain year-on-year above $4 per mmillion BTU will severely damage
U.S. basice chemical producers’ ability to participate in world trade.,
creating slower production growth. Over time this competitive disadvantage will
move this industry from the United States.
This impact is predicated on oil prices remaining below $25 per
barrel. Plant closures, employment
loss, reduced international investment in U.S. capacity, and an increased in
semi- and finished goods imports will occur.
·Capital investment
will be negatively affected. For
example, a new ethylene plant costs about $400 million to build, but the rising
price of natural gas in the USis country, coupled with the historically flat
global price of ethylene (the 1999 price was the same as the 1980 price) makes
new investment here unlikely. Not sure
about this. Could still be more
investment, but with greater capacity to swing to naptha. gas oil, etc. Can generally be said that investments in
asia, and other places where there is “stranded gas” are more likely to attract
the next dollar of investment.
·Rising natural gas
prices are inherently inflationary and have ripple effects on other products
and services. An acceleration in
inflation proceeded every post-World War II recession. If chemical companies are able, in the long run, to
pass through the full cost of higher raw material costs, the prices of many
consumer products will increase by one or two percent. This does not help us – it will be viewed as
no cost change to this group – I also question this level of contribution to
consumer cost by the time this cost works through four or so mark ups to reach
the consumer. [JCD comment- I agree-
also said above that cost could not be passed through] [Molinaro comment – I
agree too]
·If chemical companies
cannot pass on the cost increase to their customers, more plant shutdowns will
occur, exports will continue to diminish, and more jobs will be lost. .
Manufacturing and the
chemical industry create the demand at our colleges and universities for
scientists and engineers. (Martha Moore had put together some information on
the size of our R&D and the education level of our workforce that might be
appropriate to insert here – I could not find it readily) As we continue to diminish these sectors in
our economy we hurt the technological base we often look to for solving the
issues we face.
These facts convey the critical nature of
developing a multipollutant program that doesn’t upset our balanced energy
supply.
Combine Heat &and Power Units
Combined heat and power (CHP) generating systems,
also known as
cogeneration, are cost effective and environmentally beneficial projects that
provide both electricity and steam power.
They are over 50% more efficient thant typical power production
units. A form of distributed
generation, CHP plants are located at or near manufacturing facilities that
require large amounts of electricity and steam. They offer several advantages over purchasing utility-generated
power to run manufacturing processes:
CHP systems are more reliable and require fewer
down times than utility power plants.
Also, since they are located at or near the site of the consumer there
is no reliance on the transmission system to move these large blocks of
power. The result is fewer bottlenecks
and greater available transmission capacity for utilities to serve other
customers.
CHP systems are, on average, twice as fuel
efficient as conventional utility power plants because the heat that is wasted
in a utility plant is captured for use in the associated manufacturing facility
in the form of steam. So far we cover CHP
in at least 3 places, and repetitiously so.
Need to boil it down to the essence.
By getting twice the amount of power from the same
fuel input, CHP systems generally produce less than half the emissions of
conventional utility power plants.
Combined
heat and power systems offer benefits beyond those realized by the
manufacturing community. Because it is
distributed generation, CHP offers communities an additional option for power
in times of emergencies. Furthermore,
since the cost of building an industrial CHP plant is borne by the
manufacturing plant, consumers are not held responsible for recovery of that
capital investment, as with monopoly (regulated ?) utility plant investments.
The
future of CHP is generally bright. The
Department of Energy and the Environmental Protection Agency set a goal of
doubling U.S. CHP capacity by 2010 to over 100,000 MW. This would represent 14 percent of total
U.S. generating capacity. The
Environmental Protection Agency has established its Combined Heat and Power
Partnership with both small and large industrial participants seeking to
expedite permitting and removing other regulatory barriers to building new,
highly efficient CHP systems.
Because
of their numerous benefits in energy generation and minimal environmental
footprint, CHP units cannot be considered in the same vein as electric power
generating units. Multipollutant
legislation that encompasses CHP units would put them at a significant economic
disadvantage as they are already highly controlled. Cost per ton of emissions removed would range well over $5,000
per ton removed as compared to electric generating units where cost per ton
removed would average under $1500 per ton removed.
Some
have suggested that these units would be “credit generators” under a
multipollutant approach. In fact, these
highly controlled units would be purchasers because uncontrolled electric
utility units would generate more credits, and much more cheaply. By not accounting for the relative
efficiency of various units the unintentional result is to reward the less
efficient production.
CHP
units should not be included in multipollutant legislation. A provision should
be added however, that would allow these units and other industrial boilers to
“opt-in” to the rule if a facility determines that they could benefit from
participating in the program.
ACC
members believe that a carefully crafted multipollutant program could work and
provide air quality benefits to the nation as well as an economic incentive to
participating industries. The program
would need to 1) ensure a continued and diverse fuel supply that doesn’t
undermine the natural gas supply or raise energy prices, 2) exempt CHP units
from the requirement, but allow an opt-in provision, 3) address three
pollutants, SOx, NOx and mercury, but not CO2, and 4) address the conflicts and
overlaps between multipollutant initiatives and existing Clean Air Act
requirements. We oppose S.556, as this
bill does not meet any of these criteria.
We would be willing to work with the committee to develop an alternative
to S.556. Thank You.
food-packaging, and energy efficient uses such as insulation. All segments of our society use these products to make their lives better, safer and more energy efficient.
The Business of Chemistry is Vitally Important to the
U.S. Economy
We are the nation’s largest exporting sector,
larger than agriculture, computers, or aircraft/aerospace. Exports grew 13.4% to a record $79.9 billion
in 2000. The $6.3 billion trade surplus
in 2000 continued a seventy-year-old tradition. In
the United States, more than ten cents of every export dollar are due to
chemicals and related products. That
said, all
of these numbers are down dramatically in the past year due largely to the run
up of natural gas prices during the energy crisis of 2000 – 2001.
More than one million people are employed by the
business of chemistry, and companies that purchase the products of the business
of chemistry employ more than 36 million workers.
To maintain our position, the business of chemistry
depends on reasonable prices and a secure supply of raw materials. Among these raw materials, natural gas is one of
the most important. The chemical
industry is the nation’s biggest industrial user of natural gas, accounting for
11% of total U.S. consumption, and 30% of industrial consumption.
High natural gas prices have an adverse effect on
the business of chemistry in the United States. Although the market for chemicals is global, the price of natural
gas is not. When U.S. firms are paying
higher disproportionate prices for natural gas, chemical products made in the
United States are at a competitive disadvantage in the global
marketplace.
Not only does the relative price of natural gas
affect chemical producers, so does the degree to which chemical producers rely
on natural gas as a feedstock. For
example, 70% of U.S. ethylene production relies on natural gas liquids as a
feedstock, whereas 70% of global ethylene production relies on heavy liquids
such as naphtha and gas oil. Therefore,
as the price of natural gas rises disproportionately to that of heavy liquid
feedstocks, the competitive position of U.S. ethylene producers is further weakened.
Last year’s price shocks greatly affected U.S.
production. The price of natural gas
liquids (ethane, propane, butane) rose such that heavier feedstock chemicals
(naphtha, gas oil, condensate) became more attractive economically. Unfortunately, few chemical production
facilities that use natural gas as a feedstock could use these heavier liquids.
In the short run, these high natural gas prices in
the United States had a dramatic effect on companies in the business of
chemistry. Here are some examples:
·
Shut down
almost one-half the nation’s methanol capacity and one-third of its ammonia
capacity. Five years ago, the U.S. was
self sufficient in methanol. Now we
import about the same amount of methanol as we do oil.
·
Ethylene
capacity dropped between 10% and 15%, with at least 5% of this drop due to
plant
shutdowns. Net trade in ethylene was at
one-fifth the 1997 level in 2001.
·
High
electrical power requirements and cost adversely affected choralkali, atmospheric
gas, and ethylene oxide production facilities.
·
The Gulf
Coast region’s economy, where most of the U.S. petrochemical industry is
located, was hit particularly hard with widespread job losses due to plant
shutdowns.
·
The
combined effect of higher natural gas prices led to fewer U.S. exports, greater
U.S. imports, and a rising U.S. trade deficit.
As a result, net trade for the United States last year fell at least
$13.5 billion (4.5 billion attributable to the business of chemistry).
In the long-term, the outlook remains uncertain:
·
Domestic
natural gas prices that remain year-on-year above $4 per mm BTU will severely
damage U.S. based chemical producers ability to participate in world
trade. This impact is predicated on oil prices
remaining below $25 per barrel. Plant
closures, employment loss, reduced international investment in U.S. capacity,
and an increase in semi- and finished goods imports will occur.
·
Capital
investment will be negatively affected.
For example, a new ethylene plant costs about $400 million to build, but
the rising price
of natural gas in this country, coupled with the historically flat global price
of ethylene (the 1999 price was the same as the 1980 price) makes new
investment in the United States unlikely.
·
Rising
natural gas prices are inherently inflationary and have ripple effects on other
products and services. An acceleration
in inflation preceded every post-World War II recession.
·
If
chemical companies cannot pass on the cost increase to their customers, more
plant shutdowns will occur, exports will continue to diminish, and more jobs
will be lost.
Manufacturing and the
chemical industry create the demand at our colleges and universities for
scientists and engineers. As we continue to
diminish these sectors in our economy, we hurt the technological base we often look to
for solving the issues we face.
These facts convey the
critical nature of developing a multi-pollutant program that doesn’t
upset our balanced energy supply.
Legislation should not discourage further development of CHP facilities.
Including Combined Heat & Power
Units in S. 556 Will Add a Significant Burden To
These Highly Efficient and Well-controlled Units
Combined heat and
power (CHP) generating systems, also known as
cogeneration, are cost effective and environmentally beneficial projects that
provide both electricity and steam power.
They are over 50% more efficient than typical power production
units. A form of distributed
generation, CHP plants are located at or near manufacturing facilities that
require large amounts of electricity and steam. They offer several advantages over purchasing utility-generated
power to run manufacturing processes:
CHP systems are more
reliable and require fewer down times than utility power plants. In addition, since they are
located at or near the site of the consumer there is no reliance on the
transmission system to move these large blocks of power. The result is fewer bottlenecks and greater
available transmission capacity for utilities to serve other customers.
CHP systems are, on average, twice as fuel
efficient as conventional utility power plants because the heat that is wasted
in a utility plant is captured for use in the associated manufacturing facility
in the form of steam. By getting twice the
amount of power from the same fuel input, CHP systems generally produce less
than half the emissions of conventional utility power plants.
Combined heat and power systems offer benefits
beyond those realized by the manufacturing community. Because it is distributed generation, CHP offers
communities an additional option for power in times of emergencies. Furthermore, since the cost of building an
industrial CHP plant is borne by the manufacturing plant, consumers are not
held responsible for recovery of that capital investment, as with regulated
utility plant investments.
Because of their numerous benefits in energy
generation and minimal environmental footprint, CHP units cannot be considered
in the same vein as electric power generating units. Multi-pollutant legislation that encompasses CHP units would put
them at a significant economic disadvantage as they are already highly
controlled. Cost per ton of emissions
removed range
well over $5,000 per ton removed as compared to electric generating units where
cost per ton removed would average under $1500 per ton removed.
Some have suggested that these units would be
“credit generators” under a multi-pollutant approach.
In fact, these highly controlled units would be purchasers because
uncontrolled units
would generate more credits, and much more cheaply. By not accounting for the relative efficiency of various units, the unintentional
result is to reward the less efficient production.
In summary, the Council’s members believe that a
carefully crafted multi-pollutant program could work and could provide air
quality benefits to the nation without serious economic disruption. To succeed, however, the program must:
1) avoid creating
supply/demand imbalances for critical fuels such as natural gas,
2) avoid significant increases in electricity costs,
3) not include CHP units,
4) allow CHP and other sources not covered to
voluntarily opt-in,
5) address three pollutants, SOx, NOx and mercury,
and
6) harmonize these
provisions with existing CAA requirements to ensure that market mechanisms
function properly.
We oppose S. 556 in its current form, as this bill
does not meet these criteria. We would
be happy to work with the committee to amend or develop an alternative to S.
556.