Industry leaders join Obama on emissions limits
Sprawling across about 9,000 acres of rolling farmland in southwestern Indiana is one of the world’s biggest aluminum smelters, operated by Alcoa Inc. The maze of rectangular buildings and giant smokestacks consumes enough electricity to supply a city of 200,000 -- power generated by burning more than 2 million tons of coal a year.
So it may be surprising that company executives are pushing Congress to pass a version of President Obama’s plan for combating global warming. After all, Obama wants to slap hefty fees on facilities like Alcoa’s that pump millions of tons of carbon dioxide and other pollutants into the air. Those fees could raise costs for the company and leave it vulnerable to foreign competitors.
But a growing number of coal users have come to believe that, with the right tweaks, Obama’s plan would not only help the environment but boost their profits.
“If we act wisely and swiftly,” Alcoa global issues director Meg McDonald told a House committee last month, climate legislation “will assist in restoring growth and provide the means for America to be the global leader in low-carbon technology.”
Politically, the decision to get behind the broad outlines of climate legislation mirrors the push by insurers and pharmaceutical companies to remake the nation’s healthcare system: In both cases, corporate strategists concluded that some government action was likely, and they might fare better at the table than on the sidelines.
“Many leaders in both areas are willing to break out of what has been conventional wisdom, and as a result we’ve been able to build coalitions of CEOs,” said Rep. Edward J. Markey (D-Mass.), a top Democrat on the Energy and Commerce Committee who co-wrote the House version of Obama’s climate plan.
Companies such as Alcoa and Duke Energy, the nation’s largest producer of electricity generated by burning coal, have been marshaling votes on Capitol Hill, working behind the scenes with committee negotiators and providing what House leaders call a blueprint for compromise.
Alcoa is a charter member of the United States Climate Action Partnership, a collection of large environmental groups, utilities, manufacturers and other big businesses. Two coalition members -- the Environmental Defense Fund and Duke Energy -- last week launched a television advertising blitz in support of warming legislation.
“Their support is indispensable,” Markey said of the companies.
Not everyone in the business world is on board -- the U.S. Chamber of Commerce, for instance, is not. And some environmentalists have objected to concessions lawmakers have made to industry.
But without a large dose of corporate support, leading Democrats say, Obama has little chance of attracting enough votes to get his plan through Congress. The swing votes belong to senators and representatives from manufacturing and coal- and oil-producing states that almost certainly would face higher costs under the “cap and trade” system Obama wants to create.
The president is proposing nationwide limits on greenhouse emissions that become more stringent over time. Companies would have to obtain government permits to cover their excess emissions.
“There are two issues to get the bill passed,” said Sen. Sherrod Brown (D-Ohio). “One is, the states that are heavily dependent on coal need some relief if their energy bills spike, which they will.
“The other is, how do you deal with manufacturing?”
Alcoa’s aluminum operations across the U.S. generated 23 million metric tons of greenhouse gas in 2007. The cost per ton of emissions permits hasn’t been determined yet, but if it starts at $20 -- a number that falls in the middle of recent Environmental Protection Agency projections -- then cap and trade might add $460 million a year to Alcoa’s annual operating costs.
Under an approach favored by industry, the government could soften the blow by giving companies like Alcoa nearly enough free permits in the early years of cap and trade to cover emissions.
The aluminum manufacturer has already cut emissions by a third from 1990 levels. If it continued to reduce emissions -- through such measures as replacing petroleum lubricants in its rolling mills with advanced vegetable oils -- while keeping its full quota of free permits, it would have surplus permits that it could sell to other emitters. Those profits could help pay for greener technology.
In effect, a cap and trade system designed that way would stimulate the drive to reduce emissions, advocates say.
And Alcoa officials see another benefit: Government pressure for cleaner air would increase consumer demand for lightweight cars and more efficient buildings -- boosting the market for aluminum.
The White House has signaled a willingness to provide financial offsets and other relief to the states and companies that would be hit hardest by new cap and trade rules.
At the moment, Obama’s budget calls for selling all the emissions permits, a position backed by many environmentalists. The proceeds would fund research on renewable energy and a middle-class tax cut of $400 per person.
Many large manufacturers worry that the system could drive the energy-intensive production of steel, glass, cement and other goods overseas.
“We’ve lost 5 million manufacturing jobs in this country,” said Alan McCoy, a spokesman for Ohio-based AK Steel. “This kind of legislation, poorly crafted, would eliminate the rest of them.”
The House version of the legislation would initially hand out more than a third of the permits to utilities, another 3% to automakers and 15% to companies such as Alcoa that consume vast amounts of energy and are exposed to foreign competition. In all, 30% of permits would be sold at the start.
As for “how that pie ends up sliced at the end of the day,” said Heather Zichal, deputy assistant to the president in the Office of Energy and Climate Change, “I think we’re open to discussions.”
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Defining ‘cap and trade’
It’s shorthand for government initiatives designed to cut pollution. The “cap” refers to the limit the government imposes on industrial emissions.
Major emitters, such as power plants and factories, obtain permits from the government or from other companies. That’s the “trade.” It’s also the incentive: Companies that reduce emissions by investing in efficiency or renewable power can sell permits to others.
Cap and trade programs in Europe and in the northeastern United States operate in a wide variety of ways. The Environmental Protection Agency describes them on its website at www.epa.gov/captrade.
-- Jim Tankersley