INSIGHT: US producers face an energy shotgun

15 November 2007 16:30  [Source: ICIS news]

US Congress set to hammer energyBy Joe Kamalick

 

WASHINGTON (ICIS news)--The chemicals sector and broad array of US manufacturing are facing double-barrelled federal legislative initiatives that could both increase demand for energy and limit its production.

 

One barrel of the shotgun is loaded with Democrat-sponsored energy bills now pending in Congress that would increase fees and taxes on domestic hydrocarbon production to fund expanded research and development of biofuels, energy efficiencies and conservation.

 

US chemical producers are largely dependent on natural gas as both a feedstock and energy source. Amid a four-fold increase in the North American price of natural gas since 2000, chemical firms and other US manufacturers have been pressing Congress to end a 26-year-old moratorium on offshore energy development.

 

Representative Roy Blunt (Republican-Missouri), the second-ranking Republican in the House, told a press meeting: “Part of the reason gas prices are higher is that every proposal the Democrats have put on the table reduces energy production and doesn’t increase energy production anywhere in the country. A lot of what happens in the energy market is what people think is going to happen, and there is no energy production in the Democrats’ energy bill.”

 

Joe Barton (Republican-Texas), ranking member on the House Energy and Commerce Committee, charged that Democrats blocked earlier efforts in Congress to open areas in Alaska and in US offshore regions to oil and gas production, adding: “If those areas were in production today, and the US were producing not eight million barrels a day but 12 or 13 million barrels a day, would the price of oil be $98 and would gasoline be over $5 a gallon?”

 

Oddly enough, leading congressional Democrats concede that their energy bills generally are not meant to increase energy production and that higher energy costs must be endured in order to curb global warming.

 

Representative Rick Boucher (Democrat-Virginia), chairman of the Energy and Air Quality Subcommittee in the House Energy and Commerce Committee, said this week that “The basic goal of the Democrats’ energy bill is not energy production.”

 

Boucher said that the Energy Policy Act of 2005 “was largely a production bill, and we believe the time now has come to focus on other aspects of the energy equation, including conservation and energy efficiencies - which should not be lightly dismissed.”

 

The Democrats’ pending energy bill - which is not likely to emerge from Congress before the end of this year and will be revisited in 2008 - is to Boucher the first of a two-step energy legislative process.

 

“The second step for us is cap and trade,” he said, referring to climate change legislation his committee is drafting and a similar bill pending in the US Senate.

 

Although a cap and trade bill ordinarily would not be classified as an energy measure, it nonetheless constitutes the second shotgun barrel now confronting the US manufacturing sector because almost any climate change law would significantly raise energy prices across the US economy.

 

Senator Jeff Bingaman (Democrat-New Mexico), chairman of the powerful Senate Energy and Natural Resources Committee, told a press conference that global warming “is an issue we need to confront and deal with”.

 

“I think we need to confront this issue of increasing greenhouse gas emissions, and I think cap and trade as a mechanism to do that is probably the most promising of the various options I’ve seen,” Bingaman said.

 

Under a cap and trade system, the federal government would set limits or caps on the amount of greenhouse gas (GHG) emissions that would be allowed and auction or give emissions permits to individual companies. Those firms that emit less GHG than they are allowed could sell their excess permits to companies that exceed their allocations.

 

In theory, a cap and trade system would use market forces and incentives to drive technology advances that would reduce GHG emissions in electric power production, manufacturing and refining.

 

Bingaman acknowledged that a nation-wide cap and trade system would raise energy costs for industry and consumers.

 

“I think, realistically, if we adopt a cap and trade system, you’re going to see an increase in the price of energy across the board in this country,” Bingaman said. “I think that is a reality that people need to accept if they are willing to embrace some significant effort to reduce greenhouse gas emissions. It is going to increase the price of energy, and that’s all kinds of energy, not just natural gas.”

 

However, in the eyes of Senator George Voinovich (Republican-Ohio), a senior member of the Senate Environment and Public Works Committee, cap and trade just won’t work.

 

“Cap and trade can’t be achieved with available technology, and it can’t be achieved before we have the technology for carbon capture and sequestration,” Voinovich told a press conference.

 

“If carbon capture were a realistic option,” Voinovich said, “the Department of Energy would not now be spending $500m [€350m] on a ten-year research programme in hopes of solving the carbon capture problem.”

 

“If Congress were to impose a cap and trade system now, the first thing companies will do is fuel-switching, shifting their power sources from coal to natural gas, and this would have a troubling effect for industry and labour and would ripple throughout our economy,” he said.

 

Speaking at a press conference co-hosted by the American Chemistry Council (ACC), Voinovich said the impact of increased US natural gas demand for power generation and consequent gas price increases has already had telling impact on the US chemicals industry. 

 

He noted that the US chemicals industry was a major exporting sector until the late 1990s when the increasing cost of natural gas - a principal feedstock for the industry - began to climb sharply. The US has been a net importer of chemicals since 2002.

 

The increasing cost of natural gas has in part contributed to the loss of more than 3m US manufacturing jobs in recent years, he said, arguing that that impact would be aggravated under a mandatory cap and trade system.

 

“I’m not suggesting that there should be no legislation to deal with climate control,” Voinovich said, “but we need a new approach, a better way.”

 

He said he will work in the Senate to try to build consensus for a climate control bill that would focus instead on incentives for technical advances - such as carbon capture and sequestration - that would reduce emissions without sacrificing the economy.

 

“This is the only viable way to go with this,” Voinovich said. “We could provide tax incentives, loan guarantees, science prizes, government procurement programmes, all sorts of things to help advance the technology.”

 

“The goal then would be to get those emissions controls technologies - and technologies for alternatives to oil - and then go out and sell them to the world, and in the process we will maintain our economic and technical leadership,” he said.

 

Voinovich indicated that the cap and trade legislation now being advanced in his committee will likely fail in the full Senate. 

 

“A lot of these senators who back this are going to hear from their people back home in their states and come back and want this or that change made, and if they feel they are being ignored, they will not support it,” he said.


By: Joe Kamalick
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