Heavy Industries Not Likely to Bolt Over Cap and Trade

May 7, 2009

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Heavy industries likely will not pull up shop and head overseas if the U.S. implements a cap and trade system for carbon emissions, as the Obama Administration seeks.

By and large, energy-intensive heavy industry companies would not move overseas if climate legislation along the lines of what the House of Representatives is considering is enacted, the study from the Pew Center on Global Climate Change finds.

Additionally, the industrial sector is not expected to lose significant market share to foreign competitors operating without carbon-capping regulation, according to the study. The study finds the prospect of less than 1 percent in market share loss.

However, the companies may be harmed if consumers switch to lower-emission products, notes the report, “The Competitiveness Impacts of Climate Change Mitigation Policies.” The report bases its projections on an econometric analysis of the historical relationship between fluctuations in energy prices and shipments, trade, and employment within more than 400 energy-intensive manufacturing industries

Critics might presume a bias in the study, however, in favor of President Obama’s policies.

The study was performed by economists Joseph Aldy and William Pizer on behalf of the Pew Center before leaving Resources for the Future, a think tank, to serve in the Obama administration, according to the New York Times. Aldy now serves as an energy and environment aide to Obama, while Pizer has the role of deputy assistant secretary for environment and energy at the Treasury Department.

The statistical analysis in the study was based on an assumed price of $15 per ton of carbon emissions by 2012. The U.S. Energy Information Administration, in its analysis of a Lieberman-Warner cap-and-trade bill, estimated a 2012 price allowance of $16.88 per ton.

At $15 a ton, the report suggests that U.S. manufacturing would decline 1.3 percent, but that consumption also would fall by 0.6 percent. The report says this means only 0.7 percent of production might move overseas.

The report finds that glass and paper manufactures, metal foundries and cement and lime producers would be most adversely impacted, because their energy costs exceed 10 percent of shipment value.

The report finds that the following industries would see declines.

Bulk glass – 3.4 percent decline
Paper – 3.3 percent decline
Iron and steel – 2.7 percent decline
Aluminum – 2 percent decline
Cement – 1.6 percent decline

To level the playing field for U.S. industry, Energy Secretary Steven Chu has espoused a carbon tariff on products from nations with heavy emissions.

Some industry leaders, such as Fred Smith, CEO of FedEx, want the government to simply tax carbon, instead of instituting cap and trade policies.

Canada and Mexico, the United States’ NAFTA trading partners, are considering adding carbon trading markets.

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Reader Comments

If it’s cheaper to do business overseas, they absolutly will leave. NO DOUBT ABOUT IT.

Matt | May 7th, 2009

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