On behalf of the National Association of Manufacturers (NAM), I would like to thank the Subcommittee on Clean Air, Climate Change and Nuclear Safety for conducting an oversight hearing on implementation of the National Ambient Air Quality Standards (NAAQS) for particulate matter (PM) and ozone. As you know, air quality has improved dramatically over the past 33 years as hundreds of communities have complied with current rules. However, new standards for ozone and fine particulate matter (PM2.5) will put hundreds of additional communities into non-compliance with the Clean Air Act. In order to reduce production costs and improve the condition of U.S. manufacturing and its millions of workers, Congress must ensure that implementation of the NAAQS does not drive up the cost or reduce supplies of natural gas, transportation fuels or electricity, discourage businesses from investing in nonattainment communities or otherwise negatively affect the economy.
The NAM is the nation's largest industrial trade association. The NAM represents 14,000 members (including 10,000 small and mid-sized companies) and 350 member associations serving manufacturers and employees in every industrial sector and all 50 states. The NAM's mission is to enhance the competitiveness of manufacturers and to improve American living standards by shaping a legislative and regulatory environment conducive to U.S. economic growth and to increase understanding among policymakers, the media and the public about the importance of manufacturing to America's economic strength. Accordingly, the NAM has a vested interest in the implementation of air quality standards in a cost-effective manner that does not interfere with affordable and reliable energy for American manufacturers, consumers and others.
Manufacturing is on the front line in the unprecedented competition we are seeing in the world marketplace. More and more frequently, domestic manufacturers cannot pass through increased operation costs, making it more difficult to stay competitive in the United States or sell products in export markets. Our analysis shows that weak exports, coupled with low capital investments, have been prolonging the anemic recovery in the manufacturing sector. The economic situation in the manufacturing sector is serious, as shown by 43 consecutive months of employment decline that has totaled 3 million lost jobs.
External overhead costs from taxes, health and pension benefits, tort litigation, regulation and rising energy prices add approximately 22 percent to U.S. manufacturers' unit labor costs (nearly $5 per hour worked) relative to their major foreign competitors. A NAM study comparing costs faced by manufacturers in the U.S. and its nine leading trading partners shows that, contrary to much national and international political rhetoric, United States spending for pollution abatement is higher than that of other countries purporting to be more conscientious about the environment. As a percentage of output, American manufacturers spend considerably more on pollution abatement than do their competitors in Germany, Japan, France, the U.K., Canada, Mexico, China, South Korea and Taiwan. Manufacturers even spend more on the environment as a percentage of overall GDP. In light of global deflationary pressures that prevent American manufacturers from raising the prices of their products, it becomes increasingly clear that Congress must do more to help us remain competitive. With ozone non-attainment area designations slated to be finalized this month, we must take this opportunity to urge adoption of a common-sense and reasonable NAAQS implementation approach.
In 1997, the Environmental Protection Agency (EPA) issued new NAAQS governing ozone and PM2.5. On February 27, 2001, the U.S. Supreme Court upheld the EPA's ability to set air quality standards, without consideration of costs, but ruled that the agency's implementation of the ozone standard was unlawful. The issue was sent back to the EPA to develop a reasonable ozone implementation strategy. The EPA appears to be ready to finalize its ozone implementation rule at the same time that it makes final designations of ozone non-attainment areas on April 15, 2004. Last year, the EPA proposed an ozone implementation rule intended to provide flexibility to states and tribal governments as they address their unique air quality problems. In summer 2004, the EPA plans to propose its PM2.5 implementation strategy, with a deadline to follow in December 2004, to designate areas in and out of attainment with the PM2.5 standards. However, the new ozone and PM2.5 standards may be difficult, or in some cases impossible, to meet without shutting down new development altogether and perhaps curtailing some existing economic activity.
Hundreds of counties nationwide are expected to be designated as non-attainment for the new 8-hour ozone standard. A designation of "non-attainment" will create a black mark on communities in those areas. A non-attainment designation will substantially reduce business opportunities, investments and competitiveness in a particular area. Once an area is designated to be out of compliance with air quality standards, businesses already located in those areas face additional and more expensive pollution control requirements. Manufacturers and small businesses will need to carefully analyze how much the additional costs, increased permitting and reporting requirements and higher fines for potential violations will affect their ability to operate in the newly designated area. Meanwhile, companies seeking to locate or expand will see these factors as a disincentive to invest in non-attainment areas. Cost estimates to comply with the PM2.5 and 8-hour ozone standards range from $48 billion to hundreds of billions of dollars.
From an energy security standpoint, implementation of the NAAQS must be consistent with the need for reliable and affordable electric power. Energy prices have been identified by the NAM as one of the significant competitive disadvantages facing U.S. manufactures in the world marketplace. During the late 1990s, the historic surplus of natural gas disappeared due to a growing economy, governmental access restrictions to large gas deposits onshore and offshore and clean air regulations that encouraged electric generators to build almost all new capacity to use natural gas. By 2000, spot market prices soared and the average annual prices for gas have continued to be more than double the average natural gas prices of the 1990s. The manufacturing sector, unable to pass through costs, has been hit bard. U.S. natural gas production is not keeping pace with the demands of a growing population and a slowly recovering economy. Due to the current supply/demand imbalance, domestic natural gas prices are substantially higher than the equivalent prices paid by most foreign manufactures. These high natural gas prices are undermining U.S. economic recovery and pushing jobs offshore in gas-dependent industries and are increasing the cost of electricity to most consumers.
Electricity prices being paid by U_S. manufacturers continuing to rise due not only to high natural gas prices, but also the ever-increasing burden of Clean Air Act (CAA) regulations. During the past dozen years, CAA regulations have played a major role in pushing electric generators to build natural gas units instead of new coal units. Yet, coal is the most abundant and inexpensive domestic energy-providing natural resource in the United States Coal-fired generation still provides approximately 52 percent of the nation's electricity, with no other energy source able to replace it in the near-term.
Accordingly, coal must be maintained and expanded as a viable and affordable energy source if we are to keep natural gas from becoming increasingly more expensive and potentially less readily available for homeowners, manufacturers and electric generators. Implementation of the new ozone and PM2.5 NAAQS must not aggravate the already precarious natural gas supply and price situation by allowing the market to select coal-fired generation for new electricity capacity, as well as avoiding any wholesale switching from existing coal-fired generating capacity to natural gas. The United States must maintain a diverse fuel supply that includes affordable coal options if the economy is to continue to rebound and prosperity is to continue.
States and the EPA need maximum flexibility to adopt controls and other requirements that will contribute to the timely achievement of attainment of the 8-hour standard, in light of current knowledge regarding controls that may help or hinder progress toward attainment of that standard. The EPA should implement the necessary policy and administrative options to recognize and fully credit within the state implementation plan planning process the significant air quality progress that will be made by new federal measures such as cleaner fuels and engines. Such a process will help minimize the burden of this very expensive implementation on state and local entities.
Specifically, there are currently various regulatory mandates in effect, or about to come online, that will further reduce air emissions. Before we implement the next set of stringent expensive controls, we should realize the local controls that are currently in effect. Attainment deadlines should be linked to when reductions will occur from transport and mobile source controls (e.g., on-road and off-road diesel rule in 2006-10 timeframe; clean gasoline and engine standards in the 2012-15 timeframe; transport emissions from the proposed Interstate Air Quality Rule in the 2010-15 timeframe).
In your oversight and authorization capacity, please take into account the following suggestions to mitigate the impact of the stringent NAAQS on businesses in non-attainment areas. First, consider options that would make it easier to extend attainment deadlines that may be economically or technically infeasible for areas to meet. Second, as the EPA continues its review of the current ozone and PM NAAQS, please consider legislation to ease the rigid deadlines and control requirements flowing from NAAQS standard-setting which ignores actual health benefits, compliance costs and technical feasibility.
Third, we urge you to continue to oppose all efforts to weaken, delay or block the EPA's New Source Review (NSR) reforms. NSR reform is needed for business certainty, energy security and environmental quality. The reforms would encourage emissions reductions, promote pollution prevention and provide incentives for energy efficiency improvements. For more than two decades, states, industry and the EPA have recognized that the NSR program needs serious repair. The final NSR rules will help promote safer, cleaner and more efficient factories, refineries and power plants.
Finally, we urge that you continue to support multi-emissions legislation that will reduce emissions while replacing conflicting and problematic regulations with one clear set of rules that will improve upon the gauntlet of CAA requirements and litigation. Such legislation must provide electricity generators with regulatory certainty that will allow investment decisions needed to meet both objectives of cleaner air and affordable power from a diverse fuel base. To be successful, any multi-emissions legislation must be consistent with a viable and affordable fuel mix for growing the economy, including manufacturing.
Since 1970, all of the major pollutants targeted by the CAA have been drastically reduced by 48 percent against the backdrop of a 164 percent growth in gross domestic product, 42 percent increase in energy consumption, 155 percent increase in vehicle-miles traveled and 38 percent rise in population. There is certainly much work ahead for Americans as leaders in the stewardship of our global environment. And we must remain vigilant and relentless in our efforts to create cleaner and safer technologies and efficient energy sources for a more secure and healthy future. But we also must insist that sound science - not political scare tactics - drives our environmental regulations. And with a clear understanding that economic growth and a cleaner environment do indeed go hand-in-hand, we must resist the scare tactics of those who would have us believe the sky is falling when, in fact, science tells us we can all breathe a little easier.
We request that you make this letter a part of the record for the subcommittee hearing on NAAQS implementation. If you have any questions, please have your staff contact Jeffrey Marks at (202) 6373176.
Michael E. Baroody
Executive Vice President
National Association of Manufacturers