Good morning, Mr. Chairman and members of the committee. I am Fred Parady, Manager of Environmental Services for OCI Wyoming, L.P. Since 1962, we have operated a 400-employee, 4-million-ton-per-year underground trona mine and 2.3-million-ton-per-year soda ash refinery located near Green River, Wyo. Today, I am pleased to testify on behalf of the National Association of Manufacturers (NAM) in support of the Clear Skies Act of 2005, which you, Mr. Chairman, and full committee Chairman Jim Inhofe have just introduced.
As you undoubtedly are aware, the NAM is the nation’s largest industrial trade association representing small and large manufacturers in every industrial sector and in all 50 states. The NAM’s mission is to enhance the competitiveness of manufacturers and improve American living standards by shaping a legislative and regulatory environment conducive to U.S. economic growth. In light of our dedication to that mission, the NAM commends the subcommittee chairman and Chairman Inhofe for preparing legislation intended to provide increased emissions reductions in a way that will also provide greater regulatory certainty and flexibility.
A number of the NAM’s members are electric generators and coal producers, and they would be directly affected by this legislation. Other NAM members have large industrial boilers and would be eligible for the “opt in” provisions in your legislation. However, virtually all the members of NAM members use electricity as a major source of energy, and for the vast majority of them electricity is the largest energy cost. In fact, the manufacturing sector (excluding electric generation) uses about one-quarter of the nation’s energy, including almost one-third of its natural gas and 30 percent of its electricity. According to a recent NAM study, external overhead costs, including regulation and rising energy prices, add approximately 22 percent to U.S. manufacturers’ unit labor costs (nearly $5.00 per hour worked) relative to their major foreign competitors. More specifically, as a percentage of output, American manufacturers spend considerably more on pollution abatement than do their competitors in Germany, Japan, France, the United Kingdom, Canada, Mexico, China, South Korea and Taiwan. Therefore, NAM member companies’ ability to compete in the highly competitive international marketplace is directly affected by any legislation that would have a major impact on such a broadly used and a significant input cost as electricity.
I would like to briefly address specifics germane to the soda ash industry in southwest Wyoming. For more than 50 years, Sweetwater County has been home to the domestic soda ash industry. The industry is predicated on three fundamentals: affordable energy, the availability of trona ore and water supply. The world’s largest natural deposits of trona ore are found in our county, with an estimated 600 years of reserves at current economics and consumption rates. Soda ash is the fifth largest bulk commodity chemical in the world, used in all types of glass manufacturing (container, consumer, etc.) pollution controls, and as a chemical feedstock. Mr. Chairman, soda ash is the most costly raw material for glass plants operating in your home state of Ohio, such as Libby Glass in Columbus and Thompson Electric, a television manufacturer near Columbus.
Four operations currently mine approximately 16 million tons of trona ore and refine it into more than 10 million tons of soda ash, employing more than 2,300 people in the process with solid jobs that build retirements, support kids in college and pay the bills. The industry is Wyoming’s leading international export, accounting for 85 percent of Wyoming’s export trade. Soda ash is shipped from Sweetwater County to more than 30 countries, contributing more than $500 million as a surplus to the overall U.S. balance of trade. The domestic market for soda ash, however, has been stagnant for nearly 20 years (increased use in some markets has been offset by the increased use of plastic bottles and other factors). The prospects for growth in our industry hinge on growing our markets offshore, and therefore, hinge on stable energy prices at home.
To put things in perspective, in the 15 years between 1982 and 1997, this industry enjoyed a steady and significant growth in exports. Just in the five years from 1992 to 1997, export growth volume grew 100 percent. Since then, export growth has been marginal, with exports in 2003 only 4 percent above their 1997 levels. The natural soda ash industry is the cleanest in the world, yet faces intense competition from China. Chinese soda ash operations do not meet our environmental or labor standards, yet compete voraciously on the world market for our customers. As recently as 1989, China imported more than 1 million tons per year of soda ash. Next year, we expect them to be a 1.5-million-ton exporter. I should note that the Chinese produce soda ash synthetically, using salt, coal and limestone, which are readily available but also produce substantial environmental problems in their system.
The year 2003 marked a milestone for our industry, as China overtook the United States for world leadership in soda ash production for the first time in history. China has quadrupled their soda ash capacity in the last decade, from less than 3 million tons per year to more than 11 million tons. China’s undervalued currency, unregulated environment and unfair labor practices are undermining this core Wyoming — and U.S. — industry.
Finally, I would like to briefly address energy costs directly for our industry. Energy price volatility, for both electricity and natural gas, are causing the soda ash industry to lose its ability to reinvest in the industry. Natural gas price volatility and annual rate increases from our electrical utility are forcing our site to consider retrofitting our calciners to coal. The Clear Skies initiative would strengthen our ability to pursue this project, thus assuring both investment and long-term energy price stability.
Returning to the general energy picture in the United States, should the maze of current clean air requirements and the litigation that inevitably adds uncertainty and delay have the effect of forcing electric utilities to switch from coal to natural gas, the consequences to industry — and to the general public — could be devastating, and already has had a significant impact. Already, the 66 percent increase in natural gas used to generate electricity since 1990 has contributed to the high cost of natural gas, which has had an adverse impact on the manufacturing sector since mid-2000.
The chemical industry alone estimates that 100,000 jobs were lost since 2000 as a direct result of the high natural gas prices due to the gas supply and demand imbalance. More than half of the fertilizer capacity in the United States is shut in or closed permanently. The chemical industry has gone from the lead net export industry in the United States to a net importer of chemicals. Other industries, including plastics, aluminum, steel, metal heat treating, glass and paper are struggling to stay afloat in the current natural gas cost environment. Unless there is a rational investment future for coal-burning electricity generation, prudent electricity providers will be continuing to build units using natural gas or restart the many natural gas electricity units that are currently not operating because of the high costs of natural gas. Clearly, more generation of electricity with natural gas will create even more upward pressure on natural gas prices and electricity prices, which would impede the manufacturing recovery now fully underway after a loss of almost three million manufacturing jobs between 2000 and early 2004. The NAM certainly supports nuclear power as another form of electricity generation to meet our future energy needs, but the long lead times and required changes in the public attitude make it difficult to significantly expand nuclear power for the next decade or so.
The National Association of Manufacturers supports the concept of multi-emissions legislation, and supports the changes that you, Mr. Chairman and Chairman Inhofe, have made to the Administration’s original legislative proposal. The goal of effective multi-emissions legislation must be to reduce pollution while replacing conflicting and problematic regulations for the electric utility industry with one clear set of rules that will improve upon the gauntlet of current requirements and litigation. The U.S. economy must have adequate, reliable and affordable supplies of electricity. Clear Skies legislation would provide electricity generators with the regulatory certainty and flexibility that is essential for rational investment decisions needed to meet both objectives of cleaner air and affordable power from coal.
Your legislation, the Clear Skies Act of 2005, represents the most rational and realistic multi-emissions proposal introduced in more than a decade. Other bills that were proposed in the last Congress, such as S.366, The Clean Power Act, and S. 843, The Clean Air Planning Act, represent unacceptable approaches. They included carbon dioxide (CO2) mandates and set unreasonable emissions targets and timetables superimposed on top of existing Clean Air Act regulations, which would result in the loss of more valuable U.S. manufacturing jobs. Such oppressive versions of multi-emissions legislation would unnecessarily raise energy costs while providing no compelling benefits to human health, the environment or national security beyond the benefits that the Clear Skies Act would provide. Unreasonably stringent emission-reduction targets would waste capital dollars that otherwise can be dedicated to increasing productivity, energy efficiency and employment and raise energy costs for all consumers. In addition, mandatory CO2 cuts would limit the use of fossil fuels — particularly the use of abundant and affordable domestic coal, which has severely damaged our economy while yielding infinitesimal, if any, benefits to the global climate system.
“Business-as-usual” under the current archeological pile of Clean Air Act provisions and regulations, some almost 35 years old, is also an unacceptable alternative. The overlapping, conflicting, burdensome, single-emission provisions of the existing Clean Air Act will continue to result in significant uncertainty, delays for legal challenges, short planning and construction time periods and, ultimately, higher electricity costs and unstable natural gas markets. In general, the Clear Skies Act balances the various needs we have detailed above in a more effective manner than other multi-emissions proposals or current law.
Importantly, the chairman’s legislation would enact reforms that expressly replace many of the current Clean Air Act requirements for electric generators. The current regulatory structure of the Clean Air Act encourages litigation, discourages innovation and reduces utilities’ flexibility to effectively plan to reduce air emissions in the most cost-effective manner. In addition, numerous ongoing and anticipated future rulemakings further jeopardize the viability of coal by injecting uncertainty in the future use of coal for electricity generation. As it phases in increasingly strict emissions requirements, the Clear Skies Act must replace — not just be added onto — current Clean Air Act regulation. Simply imposing additional reduction requirements as overlays to the current regulatory structure will further complicate the regulatory maze now governing power plants. Specifically, the Clear Skies Act supports the use of cap and trade for mercury controls, rather than a unit-by-unit “maximum achievable control technology” (MACT) requirement; coordinates the Section 126 petition process with the reductions and schedule in the bill; reforms new source review (NSR) for new and existing electric generators; and also addresses the redundant control requirements established under the “best available retrofit technology” (BART) and the regional haze program.
The NAM believes that a Clear Skies Act that is consistent with the following principles provides the best opportunity to make further progress on emission reductions in an economically and environmentally sound manner.
· The Clear Skies Act must remain a three-emission bill — sulfur dioxide (SO2), nitrogen oxides (NOX) and mercury. The NAM does not believe it is appropriate to include carbon dioxide (CO2) provisions in this legislation, since CO2 is not a pollutant and is not regulated, nor required to be regulated, under the Clean Air Act. More importantly, the NAM strongly opposes any legislative proposal that would establish CO2 mandates. Creating any new regulatory scheme for CO2 emissions would severely depress the U.S. economy. Instead, the NAM believes that the best way to develop and implement the goals of climate change policy is through a strong economy with incentives coupled with removal of disincentives for energy efficiency and environmental improvements. For the record, the NAM notes that the majorities in the Congress and this Administration are on record as opposing regulation of carbon emissions. We urge the committee to avoid encumbering this vitally important legislation with such controversial provisions.
· The Clear Skies Act should not extend its mandates to either current or future industrial boilers or non-utility combined-heat-and-power systems (CHP), but should provide such industrial units with the opportunity to voluntarily opt in to the benefits and obligations of the cap-and-trade program. In virtually all cases, CHP units are a source of highly efficient power with correspondingly low emissions. Hundreds of industrial facilities depend on the economic efficiencies of CHP. In fact, the President’s National Energy Policy recommends the increased use of CHP systems to improve energy efficiency and decrease air emissions. Also, the President’s global climate change initiative relies on more energy-efficient technologies, like CHP, to achieve its goals. The ability of CHP units to receive an allocation incentive and opt in to meet the rigors of multi-emissions limitations without infringing on the otherwise available pool of emissions credits would not only encourage additional investments in CHP emission controls, but also meet the energy security goals of the United States.
· The Clear Skies Act must support the continued and increased use of coal for electric power generation. The NAM in the strongest terms urges the Congress to ensure that any emissions caps and timetables mandated in final Clear Skies legislation avoid causing investors in electricity generation to choose scarce natural gas over abundant and more affordable coal for the preferred energy source to power America’s ever-growing energy needs.
In this context, Mr. Chairman, the NAM is particularly concerned about the mercury emission levels that would be part of final Clear Skies legislation. Significant reductions of mercury will occur under the current bill’s Phase I caps for SO2 and NOX. Going beyond this level of control too soon could force the premature closing of many existing coal-fired power plants in favor of new natural gas facilities, further straining already limited natural gas supplies. In addition to control technology concerns, emerging scientific research suggests that reducing mercury emissions from the U.S. power generating sector does little to reduce the amount of mercury deposition in the United States and has even less effect on the levels of methylmercury in fish that is consumed by Americans. For these reasons, we support the Phase I mercury reduction objective in the Clear Skies Act that is set at the level achieved as a cobenefit from sulfur dioxide and nitrogen oxides controls, without establishing a “hard-cap” reduction requirement. Phase II mercury reductions should be based on the progress in developing affordable mercury emission control technology and on a public, peer-reviewed investigation and determination into whether additional mercury regulation will produce net public health benefits. Further, the Clear Skies act must recognize that the various grades of coal (lignite, subbituminous and bituminous coals) contain different levels and species of mercury. The legislation currently recognizes these differences and any efforts to eliminate the mercury allocation adjustment factors must be resisted. My company operates in the western United States, an area that contains these various grades of coal. We want to ensure that we have the ability to select an appropriate coal and have certainty that we can meet the emission limits.
Being from the West, we are also aware of the Western Regional Air Partnership (WRAP) SO2 reduction plan that is included in the proposed legislation. Unfortunately, several additional states have been added to the WRAP plan in the proposed legislation, without a corresponding adjustment in the SO2 reduction milestones. This problem needs to be corrected.
For the Record, Mr. Chairman, the NAM is greatly concerned about the barrage of misinformation being put forth regarding the contribution of U.S. coal-burning powerplants to the levels of methymercury in fish, as well as the misinformation regarding the net benefits to the American public of eating fish. The NAM urges the committee to ensure that any final Clear Skies legislation direct the HHS, in coordination with the EPA and other health organizations, to review in an open and peer-reviewed process the most recent scientific evidence regarding the sources of methymercury in fish — including natural sources, foreign sources and U.S. electricity generation sources — to evaluate the net beneficial health benefits of eating fish for Americans, including pregnant women. The NAM is on record with the EPA to urge that the agency reanalyze its increasingly suspect conclusions regarding an appropriate methymercury reference dose, which is many times lower than the reference dose determined to be appropriate by the FDA and at least four other national and international health organizations. Most importantly, the critical question that must be asked is whether reducing elemental mercury emissions from U.S. power plants will have any measurable impact on the methylmercury levels in fish broadly consumed by the American public.
The business community has been a good steward of our environment, investing hundreds of billions of dollars over the past three decades to help our nation achieve its unprecedented and unparalleled clean air progress. As a trip through Ohio would document, however, some manufacturers have closed or moved elsewhere because the high costs of environmental progress cannot always be absorbed in this era of intense international competition. The NAM strongly supports the Clear Skies Act as a way to avoid excessive energy costs while mandating dramatic future reductions in SO2, NOx and mercury. We believe the Clear Skies Act successfully employs market forces to achieve these reductions; ensures the expanded use of coal, which provides reliable and affordable energy to the nation; provides certainty for ratepayers and business and utility planners; and, redirects precious resources from fighting the regulatory and legal battles of the current confused and duplicative system to investments that ensure real air pollution reductions.
Mr. Chairman, the NAM and the workers and the prosperity that we represent, urge your attention to these concerns. Thank you, I would appreciate an opportunity to respond to any questions that the committee may have.