AFPM Supplement: Clouds on the horizon

The US legislative and regulatory outlook is brightening with progress in CFATS and TSCA, but EPA rules still threaten the US petrochemicals sector

The legislative outlook for the US chemicals sector looks better in 2015 than it has for years, but the horizon is still clouded by multiple pending rules from the US Environmental Protection Agency (EPA).

Even before the new year dawned, the industry secured an important legislative goal when the House in December 2014 gave final congressional approval to legislation extending the federal mandate for chemical facility anti-terrorism precautions for a full four years. President Barack Obama has since signed the measure into law.

Although the legislative climate over the US is improving, there are still significant clouds on the horizon Copyright: Rex Features

In addition to the four-year renewal – long sought by the chemicals sector – the legislation, HR-4007, the “Protecting and Securing Chemical Facilities from Terrorist Attacks Act”, also made some minor changes to the Chemical Facility Anti-Terrorism Standards (CFATS), enforced by the Department of Homeland Security (DHS).

First put in place in 2007, the CFATS programme requires some 4,000 US chemical facilities to meet certain DHS security standards to thwart a possible attack by terrorists seeking to cause massive off-site casualties and damage.

However, since 2007 the CFATS programme had been renewed chiefly with annual votes by Congress, a practice that chemical manufacturers complained has created continuing uncertainty about the rules, making it difficult for plant operators to make long-term investments to meet those federal standards.

The Society of Chemical Manufacturers and Affiliates (SOCMA) welcomed passage of HR-4007, saying that: “A multi-year CFATS authorisation will provide much-needed certainty for chemical owners and operators”.

The American Chemistry Council (ACC) also welcomed final congressional approval, saying that HR-4007 is “a long-term solution for regulating security that will help create a stronger foundation for CFATS”.

With CFATS extension secured, the chemicals sector is focused on the single most important piece of industry legislation in four decades, modernisation of the Toxic Substances Control Act (TSCA), the principal federal law governing chemicals in commerce.

Prospects for final congressional work on badly needed reforms for the 39-year-old TSCA are seen as especially improved now that Republicans have a complete majority in Congress.

In the November 2014 election, Republicans won a majority in the 100-seat US Senate and solidified their hold in the 435-member House of Representatives.

ACC president Cal Dooley says that his 
association’s members now are largely confident that the new political balance in the US Senate will enable completion of a bipartisan TSCA modernisation bill in that chamber perhaps by the end of 2015.

Everyone – producers, environmentalists, regulators – agrees that the law badly needs updating, but finding common ground on legislative language that would pass muster in the Republican House and last year’s Democrat-majority Senate proved hopeless.

With both chambers now in Republican hands, says ACC vice president for communications Anne Kolton, “we believe that TSCA reform may be the one issue that could benefit most dramatically”.

While a bipartisan TSCA reform bill, crafted chiefly by Republican Senator David Vitter of Louisiana, has won support in the House, it had grounded on Senate rocks where California Democrat Senator Barbara Boxer, former chair of the Senate Environment and Public Works Committee (EPW), was adamantly opposed to the bill’s provision to largely pre-empt state rules governing chemicals in commerce.

But in the 114th Congress, long-time 
Nebraska Republican Senator James Inhofe is again chairman of the EPW Committee.

“This is significant,” says Bill Allmond, vice president for government and public affairs at SOCMA. It is significant, he adds “because for the last two years Boxer has blocked the bipartisan effort to reform TSCA”.

While Boxer remains on the EPW Committee, she no longer controls what bills the panel will or will not consider, and Inhofe is likely to advance the Vitter TSCA reform measure or at least allow it to come up for consideration before the committee.

Dooley says he is equally certain of House passage of a bipartisan TSCA reform bill and that, once Congress has sent the measure to the White House, “we are confident the president would sign a balanced measure”.

SOCMA’s Allmond also thinks the new 
Republican Senate could help advance TSCA reform, but it still might not be easy.

“Even under the best circumstances, with a small Republican majority in the Senate,” he says “you still have to work with Democrats to get congressional passage of any significant legislation of interest to the chemicals industry.”

RAIL TRANSPORT ISSUES
In rail transport, Dooley says he also has increased expectations that the Republican Congress will advance legislation to revise the manner in which the Surface Transportation Board (STB) decides freight rail rate disputes between railroad operators and high-volume rail shippers such as chemicals manufacturers.

Dooley says that a measure already pending on Capitol Hill could well be passed that would “address some of the financial and regulatory barriers to shippers being able to secure timely and equitable rate resolution processes” at the STB.

In addition, he says he has hopes the 114th Congress will move to influence pending plans by the EPA to toughen the federal standards on atmospheric ozone and proposed rules by EPA to sharply restrict carbon dioxide emissions by existing US electric power plants.

On the pending EPA ozone rule, Dooley says he wishes that the agency would instead focus on implementing the existing ozone standards “before imposing a reduced level that could create uncertainty for industry”.

In December last year EPA formally proposed its new, lower standard for ground-level ozone concentrations, saying that it is considering lowering the maximum allowed level to within a range of 0.065 to 0.070 parts per million (ppm), down from the existing 0.075 ppm mandate that was set in 2008.

The agency also said that it was still willing to consider an even lower standard of 0.060 ppm.

US industry officials have warned repeatedly that such a low standard would be unachievable, noting that in some parts of the country – such as national parks where there is no commerce or industry – natural background ozone concentrations often are above the agency’s new proposed standard.

But the agency seems determined to impose the new, tougher ozone mandate.

So too with the EPA’s plans to sharply reduce CO2 emissions by the nation’s electric power plants; the agency appears unmoved by industry appeals and even the Republican-majority Congress is unlikely to intervene.

Dooley says he does not think that Congress would move to completely reverse EPA plans to sharply reduce CO2 emissions by power plants because such a move would unquestionably draw a presidential veto.

Dooley notes that chemicals manufacturers are concerned about EPA’s move to restrict power plant emissions because his industry is one of the most energy-intense sectors in the country.

He says he is also concerned that EPA’s CO2 power plant restrictions might accelerate fuel-switching – as more and more coal-fired power plants switch to lower-carbon natural gas as a generating fuel – that could elevate the cost of natural gas and natural gas liquids, the primary feedstocks of chemicals production in the US.

For SOCMA’s specialty and batch chemicals producers, there is a lot that they would like to see happen in the 114th US Congress.

PROGRESS NEEDED ON TRADE
“One issue of importance to us, the trade issue, likely will be seen more favourably in a Republican Congress,” Allmond says.

He would like to see Congress finally renew trade promotion authority (TPA) for the president, also known as fast-track trade authorisation. That once long-standing authority for the White House expired years ago and its lack has hampered trade negotiations.

Under TPA, when the president negotiates a trade deal with one or more other nations, Congress may only approve or reject the trade agreement as-is without amendments.

Prospects for another key trade matter also might improve in a Republican-controlled Congress, renewal of the miscellaneous tariffs bill (MTB).

Under that measure, US tariffs on hundreds, even thousands of imported substances would be eliminated, reducing costs for domestic chemicals manufacturers who require feedstocks or elements of one sort or another that are not produced domestically but used in production of or as end-product components in US manufactured goods and materials.

The MTB expired in 2012, Allmond notes, and restoring it would make US producers more competitive in the global marketplace.

“It’s not that congressional Democrats are against MTB,” Allmond says, “and in fact many of them support it, but with the two chambers split between the two parties, it has been hard to pass this and other trade measures because of uncertainties about what the other chamber will do.”

With both the Senate and House in Republican hands, says Allmond, that reluctance to act may change.

So too with tax reform, he says. “There have been a number of tax reform proposals on both sides, but as with so many other issues they did not advance” because of the party split between the two chambers.

“I think a Republican Congress will try to take this up again, likely in a comprehensive approach,” Allmond says.

US chemicals producers and a legion of other companies have long complained that US corporate income taxes – nearly 40% when most state-level taxes are included – are far higher than all but a couple of other industrialised nations and undermine US companies’ competitive standing abroad.