OUTLOOK ’13: Rocky regulatory road ahead for chemicals, others

02 January 2013 22:00  [Source: ICIS news]

WASHINGTON (ICIS)--With the national elections finally over, the US chemicals sector and a broad array of other manufacturers are decidedly wary about what lies ahead for legislative and regulatory affairs under a second Obama administration.

A variety of trade associations were quick to offer congratulations to Barack Obama for his electoral victory on 6 November, but process industries and others also expressed concern about the possible regulatory consequences of another four-year term for the president, whom some have called an enemy of energy and fossil fuels.

"We look forward to working with President Obama and bipartisan leaders in Congress to advance an agenda that will enable strong economic growth, domestic energy security and rational, science-based approaches to regulation," said Cal Dooley, president of the American Chemistry Council (ACC).

"Sound policies and regulations will be critical to continuing the recent growth our industry has experienced," he added.

Since Obama has been in office, Dooley and other chemical and energy industry leaders have been critical of policies, legislation and regulations that they contend could choke off development of new US natural gas supplies and stifle manufacturing innovation.

"With the right approach to economic, energy and environmental policy from the administration and Congress, the chemical industry can serve as an engine that drives growth throughout the country," Dooley said.

Larry Sloan, president of the Society of Chemical Manufacturers and Affiliates (SOCMA), also congratulated Obama on his electoral win and said: "We look forward to working with the Obama administration and Congress to find common ground on advancing our industry’s priorities."

In an apparent reference to earlier concerns voiced about regulatory risks to proprietary business information and innovation, Sloan urged that the administration and Congress pursue "policies that help our members remain competitive and expand their markets".

Charles Drevna, president of the American Fuel & Petrochemical Manufacturers (AFPM), said: "We hope that in his second term, the president will truly work to advance an ‘all of the above’ energy strategy that recognises the importance of domestic energy resources and fuel and petrochemical manufacturers in rebuilding our nation’s economy."

During Obama’s first term, Drevna often had charged that the president and his administration were conducting a campaign against fossil energy resources in favour of non-hydrocarbon alternatives.

"President Obama should take actions in his second term to ensure our nation becomes a major force in the global energy picture," Drevna said, adding: "Such actions should include regulatory reforms necessary to maintain a strong American energy sector and immediate approval for the Keystone XL Pipeline, which will create thousands of domestic jobs."

The American Petroleum Institute (API) also offered congratulations to the president and said it was looking forward to working with Obama in his second term.

But API president Jack Gerard urged Obama to "avoid the temptation to impose duplicative and unnecessary regulations on hydraulic fracturing" and to "follow through on his own executive order to eliminate overly burdensome regulations".

Gerard, who earlier was head of the ACC, also asked the president to "rein in EPA’s plans to impose regulatory burdens that could cost businesses hundreds of billions of dollars and chill economic growth".

Jay Timmons, president of the National Association of Manufacturers (NAM), noted that "it is no secret that the business community has had reservations about the president’s agenda of the last four years".

"But the election is over, and now American competitiveness is truly at stake," Timmons said.

In a conference call with reporters, Timmons said that whether the business community is disappointed that Obama won a second four-year term in the White House is beside the point.

"It is what it is," Timmons said, "and hindsight is irrelevant.

"The bottom line is that we have to grow jobs, and now that the political season is over, we have an opportunity to start working with the administration to focus on a blueprint for growth," he said.

But Timmons argued that the US tax environment and regulatory burdens are making domestic firms less competitive in the global marketplace.

"Businesses have to operate in an environment of certainty, and our competitor nations are attracting investment to their countries because it is 20% more expensive to manufacture products here in this country, and that is even after taking out higher US labour costs," he said, adding that part of that increased cost is regulations.

John Engler, president of the Business Roundtable and former governor of Michigan, said that US federal taxes impede the potential for domestic businesses.

"We are competing with countries around the world, and we have the highest statutory corporate tax rate in the world," Engler noted, citing the US business tax rate of up to 35%. 

Other industrialised nations have corporate tax levies as low as 11%, although some are only marginally lower than the US rate. Many other industrial countries used to have higher corporate tax rates.

"The reason our corporate tax rate is so high is that other countries got smart and reduced theirs in order to attract businesses, investments and jobs," Engler said.

NAM said in a statement that while it welcomed the opportunity to work further with Obama and his administration, "we will also continue to make our case for pro-growth energy and tax policies and for common-sense regulations".

The NAM, API, SOCMA, ACC, AFPM and a broad range of other business interests have earlier been harshly critical of Obama administration policies and proposals affecting energy, electric power generation and manufacturing.

NAM’s Timmons noted that "for the manufacturing community, it was heartening that during the election campaign everyone in both parties was talking about manufacturing and the importance of a strong manufacturing base being necessary to economic growth".

"But over the last 20 years, there have been some 2,000 federal regulations imposed on US manufacturers," he said. "Just in terms of what are termed economically significant regulations, the cost to manufacturers has been three-quarters of a trillion dollars."

The federal government deems a regulation as "economically significant" if it will impose compliance costs of $100m (€76m) or more on business.

Engler said that he believes Obama was awarded a second term by voters "because he pledged to grow the economy and create jobs".

"But there are a lot of federal regulations that are pending, tons of regulations, and the impact of various pollution rules and many others could have significant impact on manufacturers and impede their ability to invest and hire workers,” he said.

"I hope the Obama administration now takes a fresh look and does a true cost-benefit analysis of its regulations," Engler added.

For Timmons, "the first thing that the administration and Congress must do is to work on a growth package".

"Until you figure out how to grow the economy, business is at a standstill," he said. "We don’t know what the future holds."

Timmons said that NAM staffers were already working with Obama administration officials on trade and energy issues, noting that "President Obama has said that he advocates an ‘all of the above’ energy strategy, and we want to help him achieve that goal".

Citing the newly abundant US natural gas resources being developed from shale formations, Engler said that the second-term Obama administration "doesn’t need to do anything, just stay out of the way."

Bill Allmond, SOCMA’s vice president for government relations, argues that industry is facing an increasing regulatory burden that has accelerated in recent years.

Referring to “economically significant” regulations, those with compliance costs of $100m or more, Allmond described a snowball effect.

“Over the last ten years, the number of economically significant regulations issued by the federal government has increased by 137%,” Allmond said.

“In the period of 1993 to 2008 there was an average of 36 economically significant regulations issued each year,” he said, “but in the period 2009-2011, the annual average has jumped to 72.”

Allmond said that over the next few years, SOCMA will be focused on trying to secure regulatory reform to lower the cost of doing business in the US and to get government to protect rather than jeopardise American business interests.

Among the areas to be pressed, he said, are concerns about energy and feedstock costs and avoiding government interference. 

For example, while shale gas development has significantly lowered the cost of that feedstock for chemicals producers, he said, the federal government has mounted more than a dozen regulatory initiatives regarding hydraulic fracturing (fracking), the technology that is crucial in shale gas production.

Regulatory issues affecting shale gas production not only raise concerns about the long-term availability of shale gas feedstocks, said Allmond, they also would put in jeopardy a downstream market for specialty chemicals manufacturers who are selling products to shale gas drilling and production companies.

Allmond said that efforts by the Environmental Protection Agency (EPA) to require broad disclosure of confidential business information (CBI) when producers register new chemical products with the agency will undermine chemical industry innovation.

He said that if the EPA prevails in its disclosure requirement, the advanced chemical technologies developed by US companies would essentially be given away to foreign competitors.

Allmond also said that there are areas where government policies could help business if policymakers were to take action. In particular, he said SOCMA was working to try to get Congress to restore the federal tax credit for research and development (R&D) spending.

He said some in Congress contend that the R&D tax credit, which expired last year, represents a subsidy to industry. But Allmond argued that the tax credit would indirectly generate more tax revenue to government by spurring the development and sale of new products and processes.

($1 = €0.7)

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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