INSIGHT: President Obama bows to King Coal

16 April 2009 20:35  [Source: ICIS news]

President Obama greeting King Abdullah in LondonBy Joe Kamalick

WASHINGTON (ICIS news)--Congressional passage of a substantive climate control bill that would impose ever-tightening limits on US emissions of carbon dioxide (CO2) looks increasingly less likely as policymakers gauge the cost.

Even President Barack Obama, who as a presidential candidate beat the climate control drum in practically every stump speech, has grown decidedly cool to the issue of global warming.

And if he did indeed want to press Congress for a climate bill, he likely would face fierce if quiet rejection from his fellow Democrats in the House and Senate in addition to already solid Republican opposition.

The reason: coal.

Any climate control cap-and-trade emissions mandate worthy of the name would of necessity put the greatest limitations on US coal consumption, and in so doing would raise electric energy prices significantly and burden both industry and consumers with higher costs and jeopardise jobs across the country.

Coal is the nation’s most common fuel for electric power generation and accounts for almost half of all electricity produced in the US.  It also sees significant use in the broad US manufacturing sector.

If the increased costs of a cap-and-trade mandate - which could double the expense of coal-fired power by some estimates - could be confined to utilities and industry without pass-through to consumers, many members of Congress might find enough cover to vote for a climate bill.

However, electric utilities and manufacturers invariably would pass those increased costs on to their customers - with a note explaining why the customer’s bill is being doubled and providing relevant congressional phone numbers.

Among the 50 US states, 31 rely on coal for 50% or more of their electric power generation, according to the US Energy Information Administration (EIA).  That figure alone means that 62 US senators would be put on the spot with their constituents if they were to approve legislation that boosts utility prices for consumers by as much as 100%.

Within those 31 coal-dependent states, nine of them get 80% of their in-state electric power from coal.  And of those, seven states - New Mexico, North Dakota, Ohio, West Virginia, Wyoming, Indiana and Kentucky - source more than 90% of their electric power in coal.

Even among the 19 states that use coal for less than half of their in-state power generation, many rely on coal for a third, 40% or more of their electricity.  Alabama, for example, falls below the 50% coal-fired power measure, but the state still relies on coal for 48% of its electricity.

Only two states, Vermont and Rhode Island, have no coal-fired electric utilities.

Even some states that have low percentage use of coal for power generation within their borders still are dependent on coal-fired electricity because they import juice from neighbouring states that are coal-dependant, according to the EIA.

Mississippi, for example, uses coal to generate only 33% of its in-state electric power, but the state does not have enough of its own generating capacity to meet demand, so it imports electricity from nearby states that burn coal.

All manufacturing industries in the country require electric power to one extent or another, so they too would face increased utility rates under a cap-and-trade mandate. 

In addition, however, many major manufacturing sectors are direct consumers of coal.

Chemical manufacturers directly consumed 9.3m short tons of coal in 2008, according to the EIA.  But chemical companies are by no means the leading or only coal consumers.

Paper manufacturing consumed nearly 10m short tons of coal last year.  Non-metallic minerals production ate up 11.8m short tons, metal manufacturing burned 6.6m short tons and food production made direct use of 8.6m short tons of coal.

Other industrial sectors - such as fabricated metals and machinery manufacturing - also were direct consumers of coal in 2008, but the EIA said consumption totals for those were “withheld to avoid disclosure”.

From power generation to industrial use, coal permeates the US energy and manufacturing sectors, and business leaders warn that any national policy that penalises coal use by heavily taxing its carbon content will have substantial, quick and attributable cost impact on consumers, industries and jobs.

Not surprisingly, the fervour for climate control in Congress and the Obama administration has cooled considerably. It is one thing to tout the glorious goals of climate change on the campaign trail and quite another to impose a very costly emissions mandate on voters.

To be sure, the president talks about global warming and climate control, and members of Congress will pound their desktops demanding urgent action.  But of course talk is cheap, even free - not so with action and voting.

In his major address on the economy on Tuesday this week, Obama declared that he wants Congress to give him a bill reforming health care before the end of this year. And he said he also wants the legislature to complete work on and pass a bill reforming regulation of banks and financial markets before year end.

In his speech the president did renew his call for “a gradual, market-based cap on carbon pollution”, but he pointedly avoided any demand on Congress for a bill this year.

On Wednesday this week in a speech on taxes, Obama noted that he had ordered his Economic Recovery Board - a group of private sector advisors and former high-level government finance types - to find a way to simplify the US tax code “and report back to me by the end of this year”.

So there is quite a bit that the president wants to accomplish this year - but cap-and-trade clearly is not on his right-now list.

Obama did put a cap-and-trade emissions reduction plan in his proposed $3,600bn (€2,736bn) fiscal year 2010 budget, sent to Congress on 26 February.  That measure projected some $650bn in revenue from the tax on carbon emissions, a price that many in industry project would actually be more like $2,000bn.

Interestingly, when the Democrat majorities in the House and Senate put their own budget proposals forward earlier this month, cap-and-trade was missing from both.

There will be new hearings early next week before a panel of the House Energy and Commerce Committee on a bill that would impose an emissions cap, and certainly there will be a great deal of declamations and posturing and sound-bites for the news media about the need for swift action to save the climate.

A bill may well be completed by the committee by the third quarter this year and passed on to the full House. But will Congress vote for it?  Don’t count on it.

If Congress does not pass a cap-and-trade bill this year, and with President Obama clearly indicating he doesn’t want one right now, the matter will roll over into the 2010 session of the 111th Congress. 

As next year is an election year for every member of the House and one-third of senators, it’s a sure bet that there will be no passage of cap-and-trade in 2010 either.  House members tend to avoid controversial measures in election years.

There was a bit of furore earlier this month when President Obama appeared to bow when greeting Saudi King Abdullah at the G20 meeting in London. 

Whether the US chief executive actually made such an obeisance to the Saudi monarch is debatable, but President Obama has most assuredly bowed to King Coal on the climate issue.

($1 = €0.76)

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By: Joe Kamalick
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