Nucor Steel, here today...
a case against Washington State (WCI) Cap & Trade…..
In an effort to take a leadership role in the WCI the Washington State legislature is holding committee hearings on House Bill 1819 and its companion bill, Senate Bill 5735.
These bills introduce a Statewide Cap & Trade “market” system for greenhouse emission on manufacturing & industry designed to meet the standards of a regional cap and trade program. Washington State is in partnership with six other states and four Canadian provinces, under a coalition called the Western Climate Initiative (WCI).
The basic idea of a Cap & Trade system is to restrict or cap the total greenhouse emissions allowed by a plant or facility, but then allow that facility to “purchase” emission credits from other companies who have room under their “cap”, allowing them to emit above the restricted levels.
There is a couple of issue with the legislation that the bill sponsors want to pass.
First, the legislation is vague, and purposively so. The fact of the matter is that many questions, standards and methods are still in discussion in the WCI. This legislation cannot be specific or clear because the authors really have no idea what the regional WCI agreement will look like.
Kyle Davis, environmental director of Pacific Power, a utility that serves Yakima and Walla Walla, said that the proposed cap and trade design would be a “risky recipe for paralysis.”
Second, Washington State, with this legislation, would impose a system not currently in-use nationally or even regionally (via WCI). Industry in Washington State will be held to a standard second to none globally, nationally or even regionally.
This will impact productivity and competitiveness for Washington business. Either through the cost of expensive upgrades to “smoke stacks” or the purchase of allowances or credits, Washington State businesses will be at a competitive disadvantage at a time when every single job should count.
The trickle down effect of this legislation may not be measurable. Take Nucor Steel Seattle, Inc. for example.
Nucor manufacturers steel products in Seattle. These products include bar, angle and other construction grade steel. They are a regional steel producer supporting a litany of downstream business and jobs. They are the only steel manufacturer in Washington State and are providing living wage jobs.
Nucor has expressed serious doubts about their future in Washington if this legislation passes. They will be at a competitive disadvantage with other national producers, not to mention the market pressure from global producers that have little or no environmental controls (more on that later).
If Nucor were to leave, what will be the cost effect on construction in the state? What of the additional carbon that will be belched into the air by the trucks and rail moving steel from further distances?
Another example of unintended consequences is the effect on Cardinal Glass. Cardinal Glass has three Washington state plants and produces residential and commercial glass (energy efficient products) as well as glass components of solar panels.
Steve Smith, manager of Cardinal Glass, has said “Glassmaking is an energy-intensive process,”. When expressing serious concerns about a statewide or regional cap & trade system Smith said. “There are no other alternative energy techniques … within the industry.” Cardinal Glass will have two choices with this legislation: purchase credits or move out of the state. Only one of those choices will allow the company to stay competitive.
Here again we have to ask the downstream questions. What cost effects will the Cardinal Glass decision have on local construction and what carbon effect will we incur with the additional transportation of glass into Washington? What of the “green jobs” that will be gone with the loss of the manufacturing of solar panels components (panels that are already too expensive to manufacture in the state)?
The third issue that I see is the obfuscation of the state legislature’s ability to change, amend or tailor rules, specifications or methods. By passing vague and open ended legislation the legislature is punting the details, leaving that to the WCI workgroups. This would severely limit the states ability to address real problems that may (will?) arise for Washington state business and jobs.
Gary Chandler, vice president of governmental affairs for AWB, said they would rather have a national program because conflicts could arise between states and provinces since they would all have to follow the same design if the proposed regional program took effect, which may leave little flexibility if one state or province wanted to do things differently.
“Even if the (Washington) Legislature wanted to make changes in the program, they could not,” he said.
Many industries will be affected by this system (Pulp & Paper, Food Packaging, and Manufacturing of all types); many jobs will be in jeopardy. It is already difficult to compete in the global market and now the proponents are looking to make that job nearly impossible.
This brings me to my final point. I am generally against any form of Cap & Trade, especially regional or state mandates. Like many other environmental policies the cost to affect ratio is just too high.
It is simply not enough to raise standards or reduce emissions on such a small scale (when compared to global standards and emissions) to positively effect climate change. And with the inevitable rearrangement the deck chairs (the manufacturing simply moving to unrestricted regions/nations) the impact is further reduced, if not worsened.
The United States has some of the highest environmental standards in the world, but we also have some of the highest costs of production. It is becoming increasingly cost effective to manufacture in China or Mexico and that manufacturing is much worse on the environment.
My proposal would be to focus energies on the production of goods in the U.S. where we know higher environmental standards already exist. If we could reduce the total production in China or Mexico and shift it to U.S. facilities not only would we have a global impact on emissions, we would bring much needed jobs back to U.S. soil. This can be done in a number of ways.
1. Invest in Nuclear & Hydro power production. This would be a clean and renewable energy production with lower environmental impact and lower cost to industry.
Power costs in this nation are skyrocketing, affecting our competitive advantage in all type of manufacturing. The cost of environmental impact mitigation with these technologies is much lower than other forms of energy production and the infrastructure already exists.
2. Reduce regulation/bureaucracy (cost of government). By streamlining necessary regulation and “burdens” we can increase the productivity of business. Elimination of duplicated and unnecessary regulations and burdens will have the same effect on a larger scale.
3. Cut the corporate tax rate from 35% to 25% and reduce employment taxes, remove the Washington B&O tax.
By lowering the overall cost of doing business in the U.S. & Washington State we can have a real, positive impact on the global climate and the environment as a whole. Not just in lowering emissions from manufacturing, but also by shortening transportation lines and with better waste/recycle management.
In the meantime we will be bringing jobs back to our nation and state, reduce the trading deficit with countries like China and make longterm, high ROI investments in our future.