The American Clean Energy and Security Act of 2009, also known as ‘ACES’, is a comprehensive bill that includes a cap-and-trade global warming reduction plan designed to reduce economy-wide greenhouse gas emissions 17 percent by 2020. Up for debate this fall, the bill will potentially create energy and emissions regulations that will have a significant effect on manufacturers.
Manufacturing.net sat down with Casey Whelan, Vice President of U.S. Energy Services, an energy management company, to discuss how manufacturers will be affected by this potential new law.
Mnet: How will the ACES bill, if passed into law, impact manufacturers in the short term?
Whelan: Right now, carbon cap-and-trade is voluntarily -- if you want to reduce your carbon footprint, you can, but there is no meaningful financial reward to do so. On the flip side, you don’t pay today if you emit more carbon, but in the future -- and probably not too distant future -- there will be costs and incentives associated with your carbon emissions profile.
The short term will likely have more of an administrative impact than a cost impact. Starting in 2010, businesses that emit more than 25,000 tons of carbon per year will have to report those emissions to the EPA. That is step one as we go down the road from voluntarily carbon to a mandatory compliance market.
Mnet: And the long term?
Whelan: If the bill is passed, then in 2012 businesses that emit carbon will essentially receive an allowance to cover those emissions. Some businesses will be impacted more greatly than others; some sectors will get different treatment because they are subject to import competition, and other sectors that will be allocated free allowances. The market will define what the value of that allowance is through a carbon cap and trade program.
Mnet: Some reports show that climate change bills will result in a significant increase in electricity and other energy costs over the years. Is there anything manufacturers can do to prevent or offset these increases?
Whelan: What they should start to look at are alternatives to reduce energy usage because for the most part, the carbon costs are tied to the utilization of energy. Carbon emissions are associated with the combustion of fossil fuels, and a way to reduce and mitigate your costs is to consume less energy whether it be on site or through the import or purchase of electricity from the grid.
The cost of energy will go up significantly and that affects the economics of capital projects to reduce energy usage. But in advance of that it makes sense to put together an assessment of what your risk is under different policy and legislative scenarios. Once you assessed your risk you should ask: “What can I do today?” “What should I be prepared to do tomorrow?” And even, “If the risk is small enough, should I just keep operating as I have?”
Mnet: What other changes should manufacturers make to prepare for this potential new law?
Whelan: Once you’re aware of your carbon emissions profile, assess the risk and find opportunities to reduce your energy usage. You should also consider evaluating your energy source. This may only apply to a limited number of manufacturers -- but look into whether there is an organic, renewable source that can be used to create energy on site. Are you in an area that has a very favorable wind profile where you could put up a wind turbine? If you’re in southern California, you could consider solar. So another option besides reducing your energy usage is to create energy from a renewable source.
By using renewable resources, manufacturers can work towards becoming carbon-neutral -- which is a way of balancing your energy usage along with the purchase of carbon offsets, to get as close to net zero carbon emissions as possible.
Mnet: But what about the cost factors involved in creating renewable energy?
Whelan: Generally, it’s not feasible for most manufacturers. However, under the stimulus bill, there are some opportunities for significant funding through federal and state grants and loans.
Mnet: Are there other, ‘simpler’ investment opportunities for manufacturers looking to consume less energy within their own operations?
Whelan: Absolutely. There are a lot of options and opportunities to reduce energy usage which then reduces costs -- high efficiency motors, motor controls, higher efficiency refrigeration controls -- every year there is new technology that can help increase the energy efficiency of processes used in the plant.
Mnet: How will legislation affect various sectors of the manufacturing industry? Will some companies be hurt more than others?
Whelan: The more cap-and-trade intensive and the more international competition there is for a sector, the more they will be impacted. If other plants around the globe are not subject to these kinds of costs like plants in the U.S. are, then in a world economy they are less competitive.
However, in the bill they attempted to create a mechanism to dampen the blow on industries that are subject to import competition, but to what extent that will be successful is unknown. Energy-intensive industries, like fertilizer, steel and iron production, will be impacted strongly.
Mnet: Are there any indirect results the bill might produce?
Whelan: Food processing is very energy intensive and food prices will certainly be impacted. First, a large amount of energy is used to produce fertilizer, which is typically made from a fossil fuel. It takes diesel fuel in tractors to fertilize, plant and harvest crops. Diesel trucks transport it to the elevator where it’s put on a train, then taken to a processing plant which consumes a tremendous amount of energy. And finally it is shipped again to the grocery store. If you look at the production chain for food, it’s a very energy intensive process.
In fact, supply chains of any product will be affected. Assess how much energy use that supply chain involves and you can get a thoroughly clear assessment of the potential impact.
U.S. Energy is an energy management company that evaluates and manages the energy requirements of large industrial customers throughout the U.S. For more information visit, www.usenergyservices.com