US chemicals would be hard hit by climate bill - experts

08 July 2009 20:24  [Source: ICIS news]

WASHINGTON (ICIS news)--US chemical manufacturers would be among those hardest hit by the trade impact of climate change legislation under consideration in Congress, government and private sector experts said on Wednesday.

Loren Yager, director of international affairs and trade at the US Government Accountability Office (GAO), told a Senate hearing that if the US imposes limits on emissions of greenhouse gases (GHG), “production costs could rise for certain industries and could cause output, profits or employment to fall”.

The GAO is the investigative and auditing arm of the US Congress.

“Estimates of adverse competitiveness effects are generally larger for industries that are both relatively energy and trade intensive,” Yager told the Senate Finance Committee, noting that “most of the industries that meet these criteria are in primary metals, non-metallic minerals, paper and chemicals.”

Those industries would face not only greater domestic costs but also a competitive loss in international markets, Yager said in his testimony, especially if the US enacts stiff emissions controls but developing nations fail to do so.

“If domestic greenhouse gas emissions pricing were to make emissions more expensive in the US than in other countries, production costs for domestic industries would likely increase relative to their international competitors, potentially disadvantaging industries in the US,” Yager said.

“As a result, some domestic production could shift abroad, through changes in consumption or investment patterns, to countries where greenhouse gas emissions are less stringently regulated,” he added.

“Similarly, investment patterns could shift more strongly in favour of new capacity in countries where greenhouse gas emissions are regulated less stringently than in the US,” he said.

Eileen Claussen, president of the Pew Center on Global Climate Change, also testified that climate change legislation - chiefly in the form of a cap-and-trade plan that would force emissions reductions and essentially impose taxes on industries that do not cut emissions - would adversely affect “a relatively narrow segment of the US economy”.

The Pew Center is a strong advocate of climate change legislation and a federal emissions mandate.

That narrow segment, she said, includes “energy-intensive industries whose goods are traded globally, such as steel, aluminium, cement, paper, glass and chemicals”.

“As heavy users of energy, these industries will face higher costs as a result of domestic GHG constraints; however, as the prices of their goods are set globally, their ability to pass along these price increases is limited,” Claussen said.

“Competitiveness impacts can be experienced as a loss in market share to foreign producers, a shift in new investment, or, in extreme cases, the relocation of manufacturing facilities overseas,” she said in her testimony.

If greenhouse gases are regulated, “the additional cost to firms could include the compliance cost of purchasing allowances to cover direct emissions; indirect compliance costs embedded in higher fuel or electricity prices; further demand-driven price increases for lower-GHG fuels such as natural gas; and the costs of equipment and process changes to abate emissions or reduce energy use,” Claussen said.

The US chemicals industry is heavily dependent on natural gas as a feedstock and power fuel. Consequently, many leaders in the sector oppose climate change legislation, fearing it will both drive up their operating costs and reduce their global market opportunities.

Several Senate committees are holding hearings on climate change, and a final Senate vote on such a bill - which has yet to be drafted - is not thought likely before the fourth quarter this year.

The US House narrowly approved its controversial climate change bill last month with a vote of 219-212.

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