Clean air vs. jobs

Posted on Jul 1, 2014 :: Cover Story
Posted by , Insight on Manufacturing Staff Writer

In June, the Environmental Protection Agency announced a proposal to decrease carbon emissions from power plants 30 percent by 2030. Manufacturers immediately expressed concern about the potential impact on jobs and the U.S. economy. The EPA says that 38 percent – or the largest source of carbon dioxide production – comes from electricity produced by burning fossil fuels, particularly coal. It adds that reducing CO2 emissions from power plants will lead to climate and health cost savings of up to $93 billion by 2030, including prevention of up to 6,600 premature deaths and 150,000 childhood asthma attacks. While the U.S. Chamber of Commerce estimates the plan could cost $51 billion a year in GDP and prevent the creation of more than 224,000 jobs per year, the Natural Resources Defense Council counters it will create some 250,000 jobs involving the installation of solar panels, wind energy and other alternative energy sources. Because manufacturers are some of the biggest utility customers, they – and the people who work for them – have a large stake in the issue. Those stakes are even higher in Wisconsin, one of the leading states for manufacturing. The public comment period on the EPA proposal is open through Oct. 16. IOM asked five regional industry leaders to share their thoughts on the issue.

Thomas Riordan, CEO

I’m on the executive board of the National Association of Manufacturers, so I’ve been reasonably involved in this topic. I think the challenge in Wisconsin for our business and industry specifically is we’ve got a lot of unknowns on the real implications from an electric rate standpoint, availability and so on, which I think over time and a number of years, that’ll get worked through.

The broader concern that I’ve got is what’s not being said on the fundamental war on coal. For a lot of industries, it’s a critical element of their process. As an example, the vast majority of the foundry industries use a coal derivative as a part of their process, both for energy and adding carbon back into recycling steel that’s being burned. My longer-term concern is driven around the impact on the coal industry, and if that continues to deteriorate, what does it do to availability of metallurgical coal and other elements that we need in order to keep open?

I’m not going to dispute the broader climate change argument. At the end of the day, it’s probably not helpful to continue to have excess CO2, excess ozone and so on. It’s a question of balance and recognizing that the United States or state of Wisconsin by itself is not going to solve the problem. The broader concern is the argument that we’ll have moral high ground to convince others to follow our lead. It’s unclear to me that’s really going to happen.

The problem becomes one of overreach. As an example, the ozone regulations where it’s currently at 75 parts per billion, they’re talking about taking it down to somewhere between 60 to 70. Then approximately 97 percent of the U.S. will be in a nonattainment zone. It will put – I won’t say a deep freeze – but certainly a very cold blanket over any continued development of industrial production here. The problem becomes those jobs are going to go overseas. I’m not suggesting that we need to ignore the climate side but I think it needs to be done in a much more cooperative, collaborative, transparent manner.

A lot of environmentalists are focused on the upside, but they’re really not being clear and balanced and truthful relative to the downside. How do we, on a more balanced basis, move in that direction, recognizing it’s a global problem, not just a Wisconsin or a U.S. problem?

Keith Reopelle, executive director

We need to do something about carbon emissions, about climate change, and the rule that EPA has proposed is critical because it gets at the largest source. The EPA looked at each state’s current emissions and their ability to reduce carbon emissions. So the way they developed this rule was with one sort of guiding principle – what are the options for getting carbon reductions at the lowest cost? And that’s the reason that you see pretty wildly different types of budgets in different states. Some states have just huge reductions required, and the primary reason for that is the difference in unused natural gas capacity.

As a region we could save maybe as much as a couple billion dollars by having a regional compliance plan instead of each state kind of going it on its own. Our Public Service Commission and our Department of Natural Resources are talking to other states where they have started discussing regional options.

The other thing in terms of cost that I would think manufacturers would have the greatest interest in, is making sure that as much of our carbon reduction as a state comes from investments in energy efficiency, and manufacturers as an industrial sector take as great advantage as possible of energy efficiency investments that will flow from these carbon pollution limits. Because that’s really a way to reduce the cost of this. In fact, I think there will be some businesses and facilities out there which in the end will see lower energy bills as a result of this rule. There’s probably going to be others that will see higher energy bills.

But EPA’s own analysis of the rule says that they believe as a nation, on average, customers will see an 8 percent reduction in their energy bills as a result of this rule by the year 2030, which is sort of the final compliance point. The biggest potential reductions in energy usage for manufacturing businesses are process changes, a kind of holistic restructuring of their processes.

We’re working hand in hand with the utilities, and it’s really different from past battles with clean air regulations. Part of the reason is because we can’t afford to get this wrong. The longer we wait to regulate carbon emissions, the more expensive it’s going to be. We need to do this now in order to make sure it can be done at the lowest cost possible.

Steve Jenkins, president

The question that’s on everybody’s mind is how much will this add to operating costs? The large electric users are concerned that they don’t seem to have any answers. I know there’s some issue surrounding some of the plants that are the greatest offenders of the emissions standards not being scheduled to close down or phase out for 20, 25 years. So if you put  greater emission requirements on them, it’s going to boost electrical costs. There’s always that question mark out there and how that impacts Wisconsin’s competitiveness as a manufacturing state.

Most companies realize this was inevitable, and they’re doing what they can do to cut back on energy use or to look at more green sources of energy production. So that’s the good thing and benefits everyone long term because the consumption of energy will go down and it will be cleaner. But it all depends on whether you can afford to do that. My concern is with the small- and mid-sized manufacturers. Do they have the ability to begin a transfer over and what’s it going to cost long term to move into that sphere so that they can continue to operate in this state? That’s the real concern.

I think companies are going to be searching for, “How do I unshackle myself from things like power costs, where I have little control over it, whether it be through sustainable energy or other factors like biomass facility?” I had a facility in Kansas (Frito Lay in Topeka) that used a lot of natural gas, and they put in a cogeneration facility using biomass and they completely severed their reliance on natural gas for energy in the plant, and it was huge.

I think it’s important for all of us to be in the mix of solving the energy issue for employers, whether it be manufacturing or a hospital or whatever, particularly the primary employers. I think that we need to be in the forefront of new, innovative thought and ideas about how we generate efficient power for our companies, and we need to be doing that in a partnership with the state, local communities and local economic development organizations. I think that would be the most beneficial thing that we can do, because the cost of energy is going to go up.

Randy Oswald, WPS manager of environmental programs

We haven’t figured out exactly how it affects WPS because there is so much information and because it’s so early in the process. We are putting in a lot of time and effort trying to understand everything that’s in it. But it’s a long rule and there’s a lot of back-up information provided by the EPA.

It’s a proposed rule at this point – it’ll be a final rule in a year. Then each of the individual states has to develop plans for implementing the rule. A lot of things could still change between now and then based on comments EPA receives and more analysis by all the stakeholders.

The EPA has developed standards for each state that are dependent on what type of power generation exists in each of the states, and what the EPA view is on availability of renewable expansion. Overall it’s projected to be a 30 percent reduction in CO2 emissions, but some states have larger percentages, and some states have smaller percentage goals. The size of the goal doesn’t necessarily mean that they have a harder time to achieve it. For instance, I think the state of Washington has one coal-fired power plant, and that plant is already scheduled to retire, so the EPA sees a projected decrease in that state of a fairly large magnitude.

We expect costs to go up, because currently we are generating energy at the lowest cost that we can identify, and we’re going to have to change that mix of generation. So we expect that the cost will go up for all of our customers, but it’s really too early to quantify what those impacts will be at this time.

A few months ago, we had announced the expansion of one of our gas-fired facilities here in Wisconsin. Our plans, if they are approved by the state, would be a significant increase in our gas-fired energy generation capability.

We have seen some gaps in the assumptions the EPA used in coming up with their projections, things such as assumptions on efficiency improvements that plants can make. We also have questions about how the rule deals with renewable energy that’s produced outside the state or outside the country. We’ve been looking for many years at potentially entering into contracts with Manitoba Hydro for power. We don’t know whether or not that type of energy would help us or hurt us, or how it’ll be dealt with in the rule. Those kinds of things need to be fleshed out more. We have to learn more from the EPA on how that’s going to be dealt with, so it helps us set a path for being in compliance with the rule.

WALKER FORGE, Clintonville
Rick Recktenwald, president

The electric industry is a primary supplier and one of our largest input manufacturing costs. Obviously, it’s a subject better left to the Public Service Commission as it tries to balance the extraordinary number of regulations that impact the cost to the energy consumer. They haven’t even digested the renewable energy impact and how they will acquire that type of volume of electricity to meet the mandated 20 percent of renewables. I think Wisconsin is in a particularly challenging position because so much of our energy is coal-based.

We use a lot of electricity. Being in northern Wisconsin, many of the products we ship go far away now. As you look at energy surcharges and carbon footprint surcharges, this mandate – it’s just about one industry. But if you look at the largest carbon footprint, it’s the transportation industry. So if you’re going to maintain the regulatory fervor for carbon reduction, you’re going to have to impact trucks, and now the first thing someone will say is, “Then we’ll go to trains.”

We have probably one of the highest power factors (how efficiently power is used) in industry. While we buy a lot of used equipment for forging, we buy almost no used equipment that has electronic controls.

If energy costs go up, it would be a negative for us. We’d have to do our best to find other extraordinary ways – and believe me they are extraordinary, because if we’re not working on them right now, it means we don’t know what they are yet. We’ll have to find something. It seems like we’re always able to do that to a certain extent. I just wonder, I know that this is hotly debated in the media, whether anybody really has a good feel for what it does to the overall competitiveness of the United States of America.

Walker Forge would be against an increase in electricity (costs) for no reason. We believe that you have to take care of the environment and do everything you can to make it better. It’s just that if none of us have jobs because we’re the only ones making it better, it’ll be very hard to think it’s better. It’s quite a balance.