May 15, 2009

Steel Industry Protests Cap-and-Trade Legislation

Despite recent polls showing soaring approval ratings for the president, there's one subset of the U.S. population that has a bone to pick with President Obama: steel manufacturers.

Although officially commended by the Environmental Protection Agency for having cut their carbon dioxide output by roughly one-third in the last 15 years, leaders of the steel industry say that the president' s proposed cap-and-trade-rules would punish them for something that they had already been doing voluntarily.

They also contend that their industry is being indiscriminately grouped together with utilities and other heavy industries that produce much higher levels of pollution than steel production.

"Cap and trade?  We have not seen one [proposal] we can support right now," said Tom Gibson, president and chief executive of the American Iron and Steel Institute (AISI), a trade and lobby group for the industry.

"If a cap-and-trade bill addresses competition issues, we might support it," Gibson added.

If Obama's plan is passed, companies will have to purchase carbon emission credits for any amount of pollutants that they emit over a predetermined limit.

One particularly vociferous opponent of the legislation has been Ward Timken Jr. of Timken Co., a company producing specialty steel products and industrial bearings.  He has sternly urged legislators to be cautious and circumspect when considering the ramifications that the policy could have on the industry.

"The national policy of cap-and-trade has serious implications for the competitiveness of American manufacturing and I urge Washington legislators to pause in the rush to approve cap-and-trade," he said.

Nancy Gravatt, a spokeswoman for AISI, has argued that emissions from steel production constitute only a "relatively modest" proportion of overall carbon dioxide emissions in the U.S. "“ barely over 1 percent according to official estimates "“ while other sources such as vehicles and coal-burning power plants release exponentially greater amounts of the greenhouse gas into the atmosphere.

According to official figures from the EPA, the combined emissions from the iron and steel industry fell from 87.2 billion kilograms of carbon dioxide in 1990 to 51.3 billion in 2007.  By comparison, American automobiles released some 1.89 trillion kilograms of CO2, while electricity-generating power plants emitted almost 2.4 trillion.

The EPA gave a tacit tip-of-the-hat to steel producers recently when it released its official data contrasting the industry's decreased emissions with the ever rising output from other sectors like cement, waste incineration and lime production.

"Despite rising production and product values in the steel industry "¦ emissions dropped as a result of new steel plant technologies and greater operational and control efficiencies," said Tom Tyler, head of EPA's division for iron and steel.

Taking Cues From The EU?

American steel producers are hoping that Congress might take a cue from their transatlantic counterparts in the European Union who pushed through similar cap-and-trade legislation last year while making partial exemptions for steelmakers.  As a result, the European steel industry received over $1 billion worth of unneeded carbon permits last year which they were then able to sell to other industries or hold on to for future years.

"Steelmakers received a third more permits than they emitted," explained Olivier Lejeune, an analyst for New Carbon Finance.

Though the details of the U.S. legislation are still being ironed out, it appears that a large number of the permits will be given away, despite Obama's hopes that they would be sold to generate federal revenue.  Congressional Democrats say they fear that charging for all the permits would create too great a financial burden for utilities and heavy industry, which they would then be forced to pass on to their customers.

Officials have not yet determined what will be charged for the carbon emission credits, but current estimates from the EPA and Congress have ranged between $13 and $17 per ton.  A survey conducted by Pew Center on Global Climate Change has estimated that this would lead to an average decline in production of 1.3 percent for U.S. manufacturing and a corresponding drop in consumption of 0.6 percent, resulting in a "competitiveness factor" of 0.7 percent.

The iron and steel industries, however, would see a slightly higher increase in competitiveness impact at 0.8 percent.
Gibson has criticized the Pew estimates as "flawed", claiming that most of their data came from the period between 1986 and 1994 which would not have adequately accounted for the effects of China's recent booming growth on the competitiveness factor.

"The steel industry today is fundamentally different in structure, operations and energy" than it was 25 years ago said Gibson, also making mention of the fact that steel production was showing strong growth prior to last year's economic downturn.

At Odds With The Unions

Ironically, despite industry leaders' opposition to the proposed legislation, most of their workers' unions stand firmly behind the bill.
"We support cap-and-trade, [but] there are two big issues over and above the broad principles.  One is borders:  How do you set standards for countries and enforce them?" said Gary Hubbard of the United Steelworkers Union.

The other issue troubling unions is the question of how allocations of the permits based on carbon dioxide emissions will be made for the steel industry, when roughly half of the nation's steel manufacturers don't use coal in their production process.


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