Midwest plays role in energy legislation

Crain's Cleveland Business - August 3, 2009

by Wendy Patton, in Crain’s Cleveland Business 

There is unusual unanimity in the scientific community that global warming is real. There is less unanimity in political and business communities. Fears about climate change legislation are well publicized; less known is the extent to which concerns of the Midwest shaped the American Clean Energy and Security Act of 2009.

At the heart of the legislation are carrots and sticks. The renewable energy and energy efficiency standard provides incentives to expand renewable energy sources and increase energy efficiency. New markets will emerge from demand for components and equipment related to these provisions, a “carrot” for the Midwestern manufacturing economy.

To help plants in Ohio and across America seize this new market opportunity, U.S. Sen. Sherrod Brown and U.S. Reps. John Boccieri and Zack Space of Ohio introduced legislation that provides capital to allow domestic companies to take advantage of these new markets. The Investments for Manufacturing Progress and Clean Technology (IMPACT) legislation would provide $30 billion over 2010 and 2011 for retooling and retrofitting of manufacturing firms. Ohio could be among the largest recipients of IMPACT funds of up to $1 billion for economic development in these two years.

The “stick” is the market price assigned to emissions through the cap and trade mechanism, but the blow is softened by free allowances: 85% of emission allowances will be provided at no cost in the first years of the program.

For example:

* Energy-intensive industries that produce more than 25,000 tons of emissions annually (iron and steel, paper, glass, chemicals, cement, for example) receive 15% of allowances to prevent downstream price shock to the customers.

* Utilities will receive 43% of allowances to mitigate price impact to customers. This value is allocated by class of customer; industrial users comprise 37% of the customer base.

Other elements of the legislation for business development include $190 billion for new clean energy technol-ogies by 2025, including $90 billion in energy efficiency and renewable energy, $60 billion for carbon capture and sequestration, $20 billion for electric and advanced technology vehicles and $20 billion in basic scientific R&D. Other programs include:

* Coal: The American Clean Energy and Security Act establishes a national strategy to support Carbon Capture and Sequestration, supported through 1.75% of auction proceeds through 2017 and 5% thereafter.

* Automotive: The Vehicle Manufacturing Assistance Program provides financial assistance to auto manufacturers for retooling and purchasing domestic vehicle batteries; sup- ported by auction proceeds of 3% through 2017 and 1% thereafter.

* Economic development: One percent of emission allowances will be used to create eight Energy Innovation Hubs comprised of nonprofit research, university and venture capital consortia, to encourage and finance innovative research toward commercialization of clean energy technology.

* Energy efficiency: Provides for investments in renewable energy and energy efficiency through 9.5% of auction proceeds through 2015, decreasing to 1% in 2025, increasing to 4.5% through 2050.

* International trade: Companies that sell into international markets will be eligible for export rebates if the cost of emissions boosts production costs over international market prices. By the time the cap and trade program is phased in, border adjustments may be placed on products of countries that do not regulate pollution.

Many provisions of the American Clean Energy and Security Act of 2009 will stimulate domestic production or mitigate price shock to industry. The bill provides so much for business and industry that it is accused by some of being too weak. However, given the crucial role that energy and manufacturing play in our economy, the assistance is warranted and should make the carbon cap and our economy both more effective in the long run.

Ms. Patton is a senior associate with public policy group Policy Matters Ohio.

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