What EPA Clean Power Plan Will Cost US Manufacturers—And How to Plan For It

MetalMiner interviewed Ross Eisenberg, Vice President, Energy and Resources Policy at National Association of Manufacturers (NAM); Brett Smith, Sr. Director, Government Relations at American Iron and Steel Institute (AISI); Jennifer Diggins, Director, Public Affairs, Nucor Corp.; and Mark Pruitt, Principal at Power Bureau on why US manufacturers are concerned about the Environmental Protection Agency (EPA)’s Clean Power Plan final rule going into effect mid-summer 2015. Also, learn how electricity costs and other compliance costs could go up for US manufacturers and steel producers, and why price volatility is such a big issue.

How Best to Prepare For Compliance:

EPAwebinarlogoFor a complete educational experience on the main concerns highlighted above – including best practices for procurement/purchasing professionals dealing with regulatory risks such as those posed by EPA’s CPP – please register for our interactive video program, What EPA’s Clean Power Plan Could Cost US Businesses (and What Procurement Can Do About It).

Register for the recording here, and we’ll send it to you.

EPA Clean Power Plan Now Finalized

On Monday, August 3, President Obama unveiled the agency’s final rule, which contains a few pertinent changes compared to the initial proposed rule. “Those with standing will be able to challenge the legality of the final rule at that point, and we can expect to see continued, significant opposition to the Plan,” according to this article. Indeed, the final rule hangs in limbo, as it has not yet been published in the Federal Register, and as such, states cannot technically file a petition for review against the EPA under the Clean Air Act, nor bring a lawsuit against the rule yet – although more than 20 states have so far indicated their intent to do so.

What EPA’s Clean Power Plan Entails in a Nutshell

30-percent-carbon-emissions-cutIn a very general sense, what EPA has set is a carbon emissions goal for every state in the country, with the rule ultimately finalized in August 2015. The goal – a 32% reduction in carbon emissions from existing stationary power plants – seeks to have full compliance at the state level by 2030, with compliance periods starting in 2022 based on approved statewide plans to be completed by June 2018.

What’s contained in the proposed rule is a recommendation from the EPA for states to generate plans that contemplate (but are not limited to) four building blocks.

The 4 Building Blocks: EPA Clean Power Plan

epa-white-boardTo save you the hassle of reading through the regulation-ese of Rule 111(d) – the subsection of the Clean Air Act which is essentially synonymous with the Clean Power Plan – here we distill for you the 4 building blocks proposed in the rule, and why it matters to utilities and downstream energy buyers of all types, including manufacturers:

  • Building Block 1: Improving thermal efficiency at existing power plants. The challenge posed by this building block: There’s no real way for a state to act to improve thermal efficiency of coal plants.
  • Building Block 2: Replacing use of coal power plants with natural gas combined-cycle dispatch. The challenge posed by this building block: Determining whether to increase natural gas operation is up to regional transmission organizations (RTOs), not the states.
  • Building Block 3: Expanding renewable energy generating capacity, e.g. wind and solar. The challenge posed by this building block: Structuring incentives for nuclear plants alongside renewables is a bit tricky.
  • Building Block 4: Increasing (overall) energy efficiency. The challenge posed by this building block: Certain states are determining their energy efficiency portfolio standards are not very cost-effective.

Why US Manufacturers Are Concerned

flaming molten steelIf you want the nuances and details behind why US manufacturing organizations should be worried about the plan going into effect, please watch the video above. (Besides, it’s only 8 minutes long – less time than it takes you to eat your footlong Cold Cut Trio sub for lunch!) However, if you want the CliffsNotes version, here it is:

  • Increased compliance and energy costs (especially for large energy buyers/consumers such as those in the US steel industry). For example, for every ton of steel Nucor Corp. produces, roughly 20% relates to energy costs. Many estimates of the total costs in dollars are mind-boggling…more on that in the video.
  • Future lower energy demand scenarios may boost plant retirements and raise electricity prices. 
  • Compliance timeline as proposed by EPA will be practically impossible to achieve. Experts point to the monumental task of increasing natural gas transmission infrastructure, for example, to get even close to what EPA set out in its timeline up through 2030.
  • Loss of global cost-competitiveness for US manufacturers. This may be perhaps the biggest knock-on effect of this regulation – creating higher total cost of ownership for domestic manufacturers, while certain foreign manufacturers operate with not only with the luxury of heavily subsidized energy, but less stringent environmental compliance hurdles as well.

How Could the US Steel Industry Be Hit?

Brett Smith of AISI and Jennifer Diggins of Nucor give us the 1000-foot-view, while Andrzej Kotas of Metals Consulting International Ltd. breaks down a steel cost model to shed light on how higher energy costs could drastically affect producers’ bottom lines. Watch:

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