As Goes Montana's Chemical Industry, So Goes all Industry

Chemical industry representatives are worried about what the increased costs and limits on emissions will mean to their business, to consumers, and even to the possibility of actually increasing carbon emissions worldwide.

Montana will not be left untouched by the implications of "cap and trade," especially not when one considers the degree of impact on its basic industries, according to Dr. Kevin Swift, Chief Economist and Senior Director of the American Chemistry Council (ACC). "The chemical industry as a whole has a very small production foot print in Montana, said Dr. Swift, "However, the footprint of the use of chemistry is quite extensive."

Chemistry companies in Montana directly employ 806 people, and indirectly contribute 2,144 jobs to the economy of the state. For every chemistry industry job in Montana, an additional 2.7 jobs are created within the state. The average wage of a chemistry industry employee in Montana is $54,926, which is 38% higher than the average manufacturing wage. These jobs generate $44 million in earnings and $6 million in state and local taxes on personal income and $7 million in Social Security and Medicare contributions.

Few industries are as dependent on chemicals as is agriculture, one of Montana’s most basic of industries. Price increases in fertilizers and pesticides will hugely impact farming, just as increases in the cost of other chemicals will impact the state’s other basic industries like mining, wood, construction and electric utilities. "They all use chemistry," said Dr. Swift in a recent interview with the Big Sky Business Journal.

The American Chemical Council is not opposed to the legislation – the Waxman-Markey bill (HB2454). Officially, the organization is neutral, explained Dr. Swift’s cohort, Jennifer Scott, ACC Communications Director, but there are aspects of it that they would like to see changed – most especially higher emission allowances during the earlier years of the program. "It is important to us and to the country to consider all of the impacts of various policies," said Scott.

The membership of the ACC is very broad, and while some aspects of the proposed legislation poses challenges to some of its membership, the business of conservation and reducing emissions is very important to other members of the chemistry industry. "They make chemistry that goes into energy efficient materials, so it is a demand driver for those industries," said Scott.

The organization supports energy diversity, low emission energy and technology, nuclear power, carbon capture and storage, said Scott.

Increasing the cost of energy – of oil and gas -- poses a double-whammy for chemical producers. Besides its need for power, the raw materials are "feed stock" -- used as components of the products they produce.

Oil and natural gas are converted into chemistry products, using processes which change the molecular structure of these materials but does not emit green house gases. A lot of those products, as Scott pointed out, are products which contribute to energy efficiencies for other industries and are used in the production of things like energy efficient lights, solar panels, wind turbine blades, automotive lubricants, etc.

Most important to the chemical industry is natural gas. "We rely on natural gas and we need to produce it domestically. Natural gas prices are set on a regional basis and there is a variable price from country to country which depends on supply and demand. The price is often lower in other countries, making it difficult for US manufacturers to compete. We need to develop our supply," said Scott.

The threat which the Waxman-Markey legislation poses to the coal industry (another basic industry in Montana) is another point of contention for ACC, which advocates for a diversity in energy sources. So stringent are the restrictions on coal that the legislation is predicted to eliminate 94 to 96 percent of the production of coal – virtually eliminating the industry in Montana. Removal of coal as an alternative energy will force an over-reliance on natural gas, which will push up its price even more.

Dr. Swift pointed out that a 10 percent increase in natural gas prices means a 5.4 percent increase in the cost of nitrogenous fertilizer.

Part of the structure of the Waxman-Markey bill is to allow for certain levels of carbon emissions, which become tighter and tighter, over a period of years. The allowances differ for different industries. For the chemical industry, initially, said Scott, the bill set aside 15 percent, but in "markup," legislators reduced it to 13.5 percent – which amounts to $19 billion in "additional costs for energy-intensive industries, including chemistry."

Energy-intensive industries are treated differently from every other U.S. sector, having been assigned the lower allowance schedule, explained Scott. The already low allowances will be reduced over time "unfairly depriving" energy-intensive manufacturers of receiving approximately 960 million allowances through 2035. That means in order to operate and produce, the industry will have to purchase "credits," a tax paid to government which grants them permission to emit the higher levels of emissions, imposing an estimated cost of more than $19 billion based on a $20 allowance price.

Crafters of the legislation hope that various technologies will come on line which will make attaining the higher goals possible, without needing to purchase credits. But -- "They aren’t there yet, in the early years of the climate program and we need the allowances," said Scott.

What if the new technologies never materialize? "Then we are at a disadvantage and US manufacturing production will shift to other areas of the world that don’t have the same green house gas controls. We will end up with a loss of jobs, and we will lose on the economic front," said Scott.

We would also lose on the environmental front, according to Dr. Swift. With the production moving to countries without the same standards and the same level of technology, "We would be buying more imports and over-all greenhouse gas emissions worldwide would actually go up."

Other changes in the legislation would also be welcomed by ACC. If hopes are being pinned to new technology, the ACC would like to see a greater emphasize placed on developing that technology. Scott said that they would like to see incentives that would help foster innovation. Programs that would utilize private and public investment to research clean energy technology, which "if accelerated and boosted could reduce the harmful consequences of a cap and trade bill."