Unbalanced climate-change policy

In a few weeks, Congress will begin to tackle one of the more complex policy challenges in memory — climate change. The stakes are high, the consequences far-reaching, and many of those close to the effort have expressed a strong desire to “get it right the first time.” What will that mean? Not only will policymakers want to make sure the forthcoming policy works — that the mix of solutions actually leads to lower greenhouse gas emissions — but they will also want to avoid harmful unintended consequences. As a result, Congress will need to take a deliberate approach and develop climate policy in a comprehensive way.

Getting energy policy right is the best, indeed the only, way to start. The House and Senate passed energy legislation this summer, and conferees will shortly set out to combine the two bills into one to send to the president. The problem is, the legislation fails the balance test, making it a weak foundation for national climate policy development to follow. While the energy legislation contains welcome new proposals to improve energy efficiency and diversity, it neglects domestic energy supply so vital to progress on Congress’s climate goals. In fact, the House bill heads in the opposite direction, rolling back existing access to domestic energy supplies just as they were beginning to do the nation some good.

What does domestic energy supply have to do with reducing greenhouse gas emissions? A lot. Large amounts of natural gas, for example, are required to achieve most of Congress’s top climate priorities. Natural gas is used in renewable energy processing and is a significant component of nitrogen fertilizer used to grow crops for ethanol, yet 36 percent of the U.S. fertilizer industry has been shut down due to high U.S. natural gas prices caused by tight supplies. Natural gas is used to remove sulfur for ultra-low sulfur diesel to create cleaner transportation fuels. Natural gas is what electricity generators use to get to lower greenhouse gas emissions.

Natural gas demand for electricity generation is up 42 percent from 1997 to 2005, according to the U.S. Energy Information Administration. Hydrogen is made from methane derived from natural gas. And natural gas is the key raw material, or feedstock, that the business of chemistry uses to make energy-saving materials for the nation. Insulation, wind and solar power equipment, lightweight vehicle parts, compact fluorescent light bulbs, energy-efficient appliances — all are made with chemistry that relies on natural gas. In the business of chemistry, we use energy to help America save energy — because our products are essential to energy efficiency in the U.S. economy. Greater energy efficiency, in turn, yields lower greenhouse gas emissions.

Congress’s emerging energy policies — around renewable fuels, energy efficiency and cleaner electricity, among others — are creating enormous new demand for natural gas. Lawmakers have clearly indicated where they want the nation to go — lower greenhouse gas emissions. Now Congress has a responsibility to develop the policies to get us there. Sometimes called “enabling policies,” these measures include access to domestic energy resources, especially natural gas, as well as the development of new, lower-emission energy sources and technologies. Government-sponsored research and development, carbon capture and sequestration (CCS), nuclear energy, combined heat and power (CHP), and energy efficiency and renewable energy programs will be essential pieces of the puzzle as we seek to reduce emissions. And because reducing greenhouse gas emissions is a global challenge, it requires a global approach that includes other nations with large emissions. If we leave out China and India, we’re bound to fail.

As one of America’s most energy-intensive sectors, the business of chemistry is “walking the walk” in our own operations. We’re improving energy efficiency and reducing greenhouse gas emissions while publicly reporting our performance. Since 1974, we’ve reduced our fuel and power energy consumed per unit of output by nearly half. Since 1990, energy efficiency has improved nearly 27 percent. Our direct carbon dioxide emissions fell 12.5 percent in real terms between 1990 and 2006, far exceeding even what the Kyoto Protocol would have required.

While the challenges related to creating effective climate policy are substantial, the economic issues involved are equally important. A poorly designed climate policy has significant potential to export U.S. manufacturing production and jobs and make America less competitive globally. Over the past decade, competition for scarce supplies of natural gas drove its price to record levels in the United States. For chemistry and other industrials – which compete in global markets – higher U.S. natural gas prices have meant significant “demand destruction,” curtailed operations, plant closings and job losses. Since the year 2000 these high costs imposed $425 billion in added costs to consumers and contributed to the loss of three million jobs in the manufacturing economy. Natural gas is far more affordable in Russia, the Middle East and South America than the United States, and large U.S. chemical makers are signing joint ventures in Libya, Saudi Arabia and China rather than expanding production here at home. Given today’s constrained natural gas market, any climate policy that causes utilities and other non-industrial sectors to use more natural gas – known as ‘fuel switching’ — will increase these damaging effects throughout the economy.

It would be a shame if Congress develops policies intended to reduce greenhouse gas emissions, only to find out “you can’t get there from here.” Under current law, domestic natural gas supplies are woefully inadequate to meet today’s demand, let alone the huge requirements associated with a lower-emission economy. Congress needs to make addressing this issue one of its first orders of business as it takes up climate policy.

Gerard is president and CEO of the American Chemistry Council.