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                                                                                         ...
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      The Honorable Spencer Abraham
      December 24, 2002
      Page 2


                                     ...
U.S. Chemical Industry Rsponse to the President's
                 Global Climate Buisiness Challenge

EXECUTIVE SUMMARY
 ...
a generation ago., That's largely
appliances are far more energy efficient today than
                                    ...
intensity reduction
 3.Provide valid and reliable data ensuring that greenhouse gas
   numbers are complete, transparent, ...
and the Federal Energy
10. Work with and support the Admrinisttaiol Congress
                                             ...
U.S. Chemical Industry R$esponse to the President's
                 Global Climate Business Challenge
Background
        ...
per
The U.S. business of chemistry has reduced the fuel~and power energy it consumnes
unit of output by 41 percent since 1...
Building on a Solid Performance Record ofEnergyy Efficiency
               and GreenhousIe Gas Reduction
                 ...
conducted programs and looked for and taken advantage of opportunities to achieve those
reductions and efficiencies. Becau...
Beginnin~g In 2003,, A CC will be
this inidex to illustrate historicalgreenhouse gsintensity.
makin~g the measurement usin...
Enabling Other Industries to Improve Energy Efficiency and
            Decrease Greenhouse Gas Intensity
Refrigerators and...
1.
Growth in Light Vehicle Sales and Housin g Starts
        1,700                                                 I17.0
 ...
Opportunities for Government To Encourage Chemical
        Industry Greenhouse Gas Intensity Reductions
                  ...
Affect Energy Supply,
Orders 13 211 ("Actions Concerning Regulations that Significantly
                                  ...
AND
         Appendix I: PRiESIDENT'S POLICY ENCOURAGES
                                                                  ...
Ma; 200],oChapter3
                                National Enrg Poictrop
[Excerptedfrom the report of the Sustaling the N...
the EPA Administrator to
         The NEPD Group recommends that ifhe President direct
         promote Clip through flexi...
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                                                       reducing energy consumption,
     greater level of overall e...
Appendix II: REGULATORY BARRIERS
                                                        in environmental improvements.
Th...
that result in energy efficiency
      maintain and repair existing units, for changes
                                   ...
Appendix III: jAX BARRIERS
                                                                 capital formation,
As currentl...
expense incurred for energy and
     * Alow ta
           RD        crdits for every dollar of research                 vr...
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Letter from American Chemistry Council 12.24.02 (a)

  1. 1. Ai~~~~~~~~~~~~~~~~~~~~~~~~~- merican GREGoRi LEBEDEV Chemistry PRESIDENT AND i CHIEF EXECUTIVE OFFICER couflcI Psssbie MO05ite Decembe 24, 2002 The Honorable Spencer Abraham Secretary of Energy Department of Energy 100 Independence Avenue, SW Washington, DC 20585 Dear Secretary Abraham: On behalf of the American Chemistry Council (ACC) I am pleased to transmit the attached "US Chemical Industry Response to the President's Global Climate Business Challenge." This voluntary commritment has been approved by our Board of Directors, pursuant to President Bush's call for an American industrial response to the issue of global climate change. We applaud President Bush's leadership in harnessing the entrepreneurial spirit of th~US private sector in addressing this significant issue.I American Chemistry Council (ACC) members are proud to do their share to help the President and the country achieve the overall 18 percent reduction in greenhouse gas intensity by 2012, as called for in the Business Challenge. In 2001, the US chemical industry had nearly half a trillion dollars in sales, and half of that was of products that are hydrocarbon-based. It's an energy-intensive industry, but it is unique because it uses energy both in the manufaturing process and also as a raw material. No other industry adds as much value to is energy inputs as the business of chemistry. Energy efficiency and greenhouse gas intensity reduction are not new to the chemical industry. As you know, it has reduced the fuel and power energy it consumes per unit of output by 41 percent since 1974. Carbon emissions per unit of output have declined by more that 45 percent during the same period. The 'IREsponshibe Cares 1300 Wilson Boulevard, Arfington, VA 22209 Telephone 703-741 -31I00 * Fax 703-741-6086
  2. 2. aV 4k The Honorable Spencer Abraham December 24, 2002 Page 2 industry for efficient use of energy has been an economnic imperative of the chemical improve decades, driven by the need to compete globally and the desire to constantly our operations. Business The centerpiece of our 12-part response to te President's Global Climate overall Challenge is to pursue reductions in greenose gas intensity toward an as the target of 18 percent by 2012, using a baseieof 1990 emissions intensity directly President suggests. From 2003 through 2012?, the ACC will collect data will from members to measure progress. But that's not the only way our intensity to continue to help the country achieve its intensity reduc Ition target. We also pledge and manufacture products and pursue innovativeenew ways to help other industries through sectors achieve the president's goal. We pan to work with the government; the Department of Energy, to develop a credile methodology for estimating use chemical greenhouse gas efficiency improvements in sectors of the economy that policy industry products. Our response also highlighits areas in which government can assist in achieving designated greenhouse gas intensity reductions. We look forward to working with the Deppirtment of Energy and the Administration free to in implementing this commitment. If you have any questions, please feel 741-5900. contact -C- iersident of Federal Relations, Mark Nelson, at (703) S cerey GregL e President and Chief Execitive Officer cc: The Honorable James L. Connaught on, Chairman Council on Environmental Quality
  3. 3. U.S. Chemical Industry Rsponse to the President's Global Climate Buisiness Challenge EXECUTIVE SUMMARY the nation to "cutting On February 14, 2002, President George W. 'Bush committed economic activity - by 18 greenhouse gas intensity - how much we em It per unit of he challenged American percent over the next 10 years." As part of that commitment, the response of the members businesses to further reduce emissions. This Ipaper contains of the American Chemistry Council to that callenge. and half of that was of The U.S. chemical industry had 5454 billion in sales last year, industry, but products that are hydrocarbon based. Obviously, it's an energy-intensive as a raw and also it's unique because it uses energy in the manufaturing process coal and electricity to power its material. While using natural gas, natural gs liquids, oil, sources as te pnimary plants and processes, it also draws upon thos same energy adds as much value to its ingredient in the products we use every day. No other industry energy inputs as the business of chemistry. energy it consumes per The U.S. business of chemistry has reduced~the fuel and power per unit of output have unit of output by 41 percent since 1974. C rbon emissions The efficient use of energy has declined by more than 45 percent during the same period. decades, driven by the need to been an economic imperative of the chemica industry for operations. compete globally and the desire to constantll improve our of programs that have ACC members have had the opportunity to akprtin a number them: helped to achieve these savings since the mid-19s Amtong is encouraged to *ACC's Climate Action Program - where each ACC member measures to reduce inventory and examine greenhouse gas emissions and take them. Gas Emissions *ACC's voluntary annual Energy Efficiency and Greenhouse yearly. ACC Survey - which collects data from mtemibers that ACC compiles efficiency and then shares aggregate indicators of eeg consumption, of Energy. greenhouse gas intensity with the public through the Department companies for *ACC's Energy Efficiency Awards Program - which recognizes energy efficiency achievements. and greenhouse gas intensity Along with compiling their own record of energy efficiency and bringing to market improvement. ACC's members also have been developing refrigerators and other products that help other industries do the skme. For example, 1
  4. 4. a generation ago., That's largely appliances are far more energy efficient today than derived from oil and gas, have because insulation materials, made from chemcals themn. The same is true for dramatically redtced the electricity needed tA run made from the same type of chemicals, automnobiles, where parts and engine equipminert Chemicals also make today's cars make them lighter, increasing their energy efcency, more durable. economnical and The ways we heat and cool our homes are moeefficient, Chemical insulation material envirormnentally friendly thanks to chemical products. with paints and coatings, offer a wrapped around houses as they're being built, along and air. The Department of Energy protective envelope that keeps out water, mo isture inassociated C02emissions from 2000 projects that the areas with the largest increases Chemical industry products that to 2020 are the transportation and buildings 'sectors. contnibute greatly to U.S. efforts to improve the energy efficiency for these sectors will achieve greater greenhouse gas intensity redu ctions. have made and will continue to While members of the American Chemistry Council intensity reductions, government can make their best efforts to achieve greenhous~e gas upgrades and by providing incentives help by removing barriers that impede efficiency Without an aggressive for companies to implement state-of-the-arttechnololgy. providing incentives, it will be government role in removing barriers to pr gesand to do its share to reach the difficult, if not impossible for the business ochmistry g-as intensity by IS percent duning the president's goal of reducing national greenhuse 2002-2012 timieframe. The Rsponse Business Challenge, mnembers of the As its response to the president's Global Ciate American Chemistry Council commit to:I intensity toward an overall target of 1. Pursue additional reductions in greenhouse gas as the baseline. Government data 18 percent by 2012, using 1990 ernissicns intensity 2002, the U.S. chemistry business shows that fromn 1990 to 2000, with poeton to From 2003 through 2012, will reduce its greenhouse gas intensiyb 12 percent. measure progress. Greenhouse gas ACC will collect data directly from m brs to of net greenhouse gas emissions to intensity for the business of chemistr ~s the ratio production. innovative new ways to help other 2. Continue to manufacture products and pursue ACC will work with the industries and sectors achieve the president's goal. for estimating the greenhouse gas government to develop a credible metlkdology that use chemical industry efficiency improvements in sectors of te economy products.
  5. 5. intensity reduction 3.Provide valid and reliable data ensuring that greenhouse gas numbers are complete, transparent, and cover actual condition.ACaswilor and methodologies with the Department of Energy to develo p consistent definitions program under for its voluntary emission reduction ad Isequestration registration ACC will support efforts section 1605(b) of the 1992 Energy Poli~ Act. In addition, and industries of the Administration to provide appropriate recognition to businesses gas for voluntary actions that are taken in 200 an eodteuegreenhouse intensity. on progress. Member-wide 4. Provide regular reports to the public andIthe government reports will be made annually to the Department of Energy and contain what we're for improvement doing, how we're doing, difficulties encountered and suggestions when reporting within the 1605(b) procelss. ACC will participate and provide data for provide data directly to the duration of the program and also encourage members to program. the government through the 1605 (b) vokluntary emission reduction of membership through 5. Make participation in the ACC reporting programn a condition the recently revamped Responsible Car4®( performance improvement initiative to Among the proposed strengthen energy efficiency and environmental perfonrnance. and greenhouse gas new "mnetrics" is public reporting of aggregated energy efficiency emissions. program -- including open 6. Develop an ACC member education and mutual assistance greenhouse g-as workshops -- to share methodologies and best practices to achieve to other energy intensity reductions. This information also would be made available users. gas intensity as it 7. Support activities that increase our undestanding of greenhouse relates to our products and processes by: activities. • Participating in new and continuing research and development to assess the * Providing expertise on priorities for taxpayer-ffinded research and products value Of C0 2 and other greenhouse gases for new processes as well as sequestration opporturnites. reduction * Educating customers on greenhouse gas and energy emission benefits of chemical products. of ACC to join our programn 8. Encourage chemical manufacturers that are not members or to make their own commitment. to implement legislation and 9. Work with and support the Administration and Congress new technologies and regulations that enhance industry's ability to install and operate gas emissions- equipment that can increase energy efficiency and reduce greenhouse An example of and enhance industry's ability to com Iete in the global marketplace. New Source Review this cooperative effort is implementation of the Administration's reforms.
  6. 6. and the Federal Energy 10. Work with and support the Admrinisttaiol Congress regulations that enable even Regulatory Commission to implement leilation and without prohibitive market greater application of hig~hly efficient CPequipment access restrictiofls. coal gasification technology. 11. Promote the further development and deloyment of energy resources, as well ACC members also will promote cost-effective, renewable industry. as bio-based processes and product recycling in the chemnical by stepping up education 12 Encourage our employees to practice ene-rgy conservation efforts concerning energy savings at wor-k and at home. 4
  7. 7. U.S. Chemical Industry R$esponse to the President's Global Climate Business Challenge Background in his approach to The U.S. chemical industry agrees with President George W. Bush to harness the address the challenge of global climate change. His method, "designed the philosophy of the power of markets and technological innovation," fits perfectly with providing business of chemistry, which is made up ofj problemn-solving companies This paper solutions to make a better, healthier and safer world through chemistry. Business Challenge, contains the industry's response to the president's Global Climate issued February 14, 2002. half of that was of The U.S. chemical industry had $454 billioln in sales last year, and h nutis products that are hydrocarbon based. It is one of the nation'skytn of innovative industry uses the science of chemistry to piroduce tens of thousands safer. Among those products and services that make people's lv~es better. healthier and technology-enhanced products are life-saving medicines, health iprovement products, materials, synthetic agricultural products, improved foods, mor protective packaging adhesives, faster fibers and permanent press-clothing, longer--lasting paints, stronger parts, and stronger microprocessors, more durable and safer tir-es, lightweight automobile composite materials for aircraft and spacec raft. business of Along with being the world's largest chemnical manufacturer, the U.S. turned in a positive chemistry is also the nation's largest exporlter and has consistently accounts for one out trade balance. It is a research and development-driven industry, and more than a million of every seven patents issued in this country each year. It employs than five million others workers directly, and also contributes to the employment of more Care~o, a safety, health in downstreamn industries. The industry is guided by Responsible and environmental performance improvem ent initiative that represents the ethical framework for its operations. unique because it uses The business of chemistry is an energy-intesive industry, but it's using natural gas, energy in the manufacturing process and aso as a raw material. While processes, it also draws natural gas liquids, oil, coal and electricit to power its plants and we use every upon those same energy sources as the primary ingredient in the products day. No other industry adds as much Val e to its energy inputs as the business of chemistry.I Using energy natural resources as a rawl- material is essential to the U.S. economy. In has actually helped fact, the chemical industry's use of these resources in its products make other industries and the nation more energy efficient. For example, energy refrigerators and other resource-derived materials from the chemical industry have made energy efficient, and appliances far more energy-efficient, automobiles lighter, and more friendly. home heating and cooling more efficient.,economical and environnientally 5
  8. 8. per The U.S. business of chemistry has reduced the fuel~and power energy it consumnes unit of output by 41 percent since 1974. Caron emissions per unit of output have of energy has declined by more than 45 percent during the, same period. The efficient use the need to been an economic imperative of the chemnieal industry for decades, driven by compete globally, and the desire to constant ly improve, our operations. the use One important way the industry has accompished these improvements is through industry of combined heat and power (CHP) teceo gwhich was first used in the during the 1920s. CHP units produce stem adelectricity together and attain double the the amount fuel efficiencies of a typia elcrcuiiypwrplant. Along with reducing of energy used per unit of output, these facilities also have led to a large reduction in reducing carbon emissions per unit of output. The indstry also has been successful in other greenhouse gases. This paper looks at the industry's performanIce record to date in increasing energy enabling role efficiency and decreasing greenhouse gas intensity and also focuses on the objective. the industry plays in creating products that help ot'her industries attain the same Government barriers and incentives also are examined.
  9. 9. Building on a Solid Performance Record ofEnergyy Efficiency and GreenhousIe Gas Reduction greenhouse gas U.S. chemnical companies are not new to measuning and improving has and energy~efficiency. WFhile the American Chemistry Council reduction intensity the President's developed this response to make voluntary commitments in meeting had programs in these "Business Challenge" on climate change, 44CC members have areas since the mid-1I9'70s. a premise that differing ACC's Climate Action Program, started in 1994, is based on evaluation of which circumnstances within companies warrant indIvidual members' and achievable. greenhouse gas emissions reduction measures are most appropriate encouraged to inventory and Through the Climate Action Program, each! ACC member is sound examine greenhouse gas emissions and take appropriate and economically to report those reductions measures to reduce them. The comnpanies also are encouraged through the "Voluntary Reporting of Greenlhouse Gases 1605(b)" program, established by the Enert gy Policy Act of 1992. Efficiency and CO Since 1989, ACC also has conducted a voluntary annual Energy their energy consumption Emissions Survey. That survey collects data fromn members on related CO 2 emissions, based on purchased energy used for fuel, plower and steam, and produce a product; on-site consumption of "feedstock," energy used as a raw material to and other greenhouse gas produced fuel energy (mostly from byproduct energy streams); aggregate indicators of the emissions. ACC compiles that data and produces yearlygenouse gas intensity. The companies' energy consumption, energy el-fici~ency an of Energy and other summary results of the survey are shared With the Department government agencies.I in an Energy Efficiency ACC also makes available and encourages members to take part assist companies in Continuous Improvement Program. ACC voluntary guidelines participating in energy efficiency efforts. ACC Energy Efficiency Since 1994, companies also have been able to take part in the outstanding energy Awards Program. This program recognizes companies for their efficiency achievements. It also offers otecopns examples of actions they could take to increase efficiency. improvement The industry recently revamnped its Responsible Care® performance Among the initiative to strengthen energy efficiencyan environmental performance. and greenhouse gas proposed new "Imetrics" is public reporting of energy efficiency emissions. reducing greenhouse gas The industry has a history of increasing e iergy efficiency and major investments, emissions. During the past 12 years, ACC members have made '7
  10. 10. conducted programs and looked for and taken advantage of opportunities to achieve those reductions and efficiencies. Because of that effort, and of special opportunities such as changes in production processes that have reduced nitrous oxide emissions, the industry is expected to achieve about a 12 percent reduction in greenhouse gas intensity emissions through 2002. The chart below depicts greenhouse gas emission intensity since 1990. Performance to date required substantial R&D, improvemeInts in process and energy technology and significant investment. Sustaining this level of improvement into the future will depend on substantial additional introduction of ne w technology and processes, removal of govemrnment barriers, and access to tax code incentives. In short, there is no such thing as "business as usual" for the chemical indlusty Greenhouse Gas Emissions (GHG) Intensit (GHG Emissions per Unit of Production) 140 - _ _ _ _ _ _ _ _ _ 130 - 90 80 ~ 110 ~~ ~ 0~~~~~~~~~~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~< -4-Greenhouse Gas Intensity Index -- Fed. Reserve Industrial Production Index Footnote: To mneasure the intensity of'greenhouse gas emissions in the chemical industry, it is necessaryvto use adenominatorthat measur~e'schangesin production. The ideal denomninator would be pounds of production, however thij data does not exist for our industry because of its diverse product base The Federal Reserve caiculates an "industrialproduction" index for the chemical industry that attempts to measure chianges in production activity. The IP index Measures changes in the physical quantity ojjvroduction and where this data is unavailable, the index is based on changes in electricity constimption and production worker hours. ACC is using
  11. 11. Beginnin~g In 2003,, A CC will be this inidex to illustrate historicalgreenhouse gsintensity. makin~g the measurement using znteruial data
  12. 12. Enabling Other Industries to Improve Energy Efficiency and Decrease Greenhouse Gas Intensity Refrigerators and other appliances are far mpre energy efficient today than a generation ago. That's largely because insulation matenials, made from chemicals derived from oil and gas, have dramatically reduced the amount of electricity used to run a refrigerator. The same is true for automobiles. Body parts and engine equipment -- made from chemicals derived from oil, natural gas and 'natural gas liquids -- make today's cars litiliter, increasing their energy efficiency. These chemicals also make the cars more durable than their predecessors. Even the ways we heat and cool our homes pate more efficient, economical and environmentally friendly thanks to chemical industry products. Common building products such as wood, brick or stucco donjt completely prevent air and water from seeping into a home, making it harder to keep it cool in the summer or warm in the winter. But polyolefin fiber films and linea polyethylene, the insulation material wrapped around houses as they're being bulalong with paints and coatings offer a protective envelope that keeps out water, miture and air, Insulation, double-paned are windows, window glazing, sealants and effcient heating and air conditioning systems all produced through chemistry. These are just some of the many ways that the business of chemistry is developing and commercializing sustainable, climate fr-iendly products and technologies that help it and a other industries reduce greenhouse gas intensity while improving energy efficiency. As matter of fact, just one insulation product by one chemical company is responsible for saving more than five billion gallons of fue~ oil since the beginning of the nation's energy crisis in the 1970s. That insulation *product's use in U.S. housing construction has saved has six million metric tons of carbon dioxide fro being generated. That samne company developed products derived from corn thatjae used in a number of products, including paper and board coatings and pigments, paints, building products, bottles and food service packaging. Because these products! recycle the Earth's carbon, they potentially reduce CO 2 in the atmosphere.I The Department of Energy/Energy Informa tion Administration "Annual Energy Outlook 2002" report projects that the areas in the conormy with the largest increases in 4 associated CO emissions over the period 2000-2020 are the transportation (1.9 percent per year) and buildings (residential - 1.1I percent per year and commercial - 1.8 percent per year) sectors. These two sectors have grown 23 and 33 percent respectfully since 1990. Chemical industry products that im rove the energy efficiency for these sectors contnibute much to the U.S. effort to achieve greater greenhouse gas intensity reductions. I10
  13. 13. 1. Growth in Light Vehicle Sales and Housin g Starts 1,700 I17.0 -- 1. 1,600 0 1,500 1 .1 1400 1 300 ~~~~~~~~~~~~~~~~~~ 1,200 U)1,100 12.0 1,000 900~~~~~~~~~~~~~~~~~~~~~~1. 10.0 900 1994 1995 1996 1997 1998 1999 2000 2001 80 1990 1991 1992 1993 I-lousing Starts (left axis) -Light Vehicle Sales (right axis) seasonally Adjusted Annual Rate Source. cepantment of Com,-erce
  14. 14. Opportunities for Government To Encourage Chemical Industry Greenhouse Gas Intensity Reductions the chemical and other There are a number of opportunities for the government to help These opportunities industries achieve desired greenhouse gas intensity reductions. include removing barrners that impede efficiency upgrades, and providing incentives for companies to implement state-of-the-art technology. Role of Technology in For example, the Business Roundtable's July 1999 report, "The that increased and Responding to Concerns about Global Climqate Change, concluded ' and developing new and widespread deployment of more energy-efficient technologies to concerns about breakthrough technologies constitute the most effective responses global climate change. supplies, as well as Addressing U.S. and global needs for diverse energy and fuel the memnbers of the implementing energy efficiency improvements, are important to for accelerating American Chemistry Council. ACC feels that near-tenn opportunities of advanced technology, the development, commercialization and global dissemination the president's Business especially combined heat and power (CHP},1 should be a padt of barriers to progress and Challenge. Without an aggressive governnynit role in removing business of chemistry providing incentives, it will be difficult, if nlot impossible, for the greenhouse gas intensity to do its share to reach the president's goal of reducing national by 18 percent during the 2002-20 12 timefrdme. National Energy Appendix I to this paper spells out the imprac httepresident's also focuses on potential Policy places on the growth of CHP tecn oy h pendix the National Energy roadblocks to the president's plan for CH rwhadecerpts Policy's support for combined heat andpwr Appendix 1I points out regulatory barir htipd eearch, innovation and investment in new technology that the uieso hmsr needs to meet its energy supply and economic growth. availability and utilization Appendix III focuses on tax barriers that interfere with capital equipment, new in the chemical industry, including investryent in new plants and proposed tax incentives processes and new technology. Improvemet on the president's are presented. are unnecessary Part of the current challenge in establishin. a viable energy policy this, it is important to roadblocks brought about by environmental policy. To correct administrative action, evaluate key federal, state and local agency decisions regarding impact on energy supply, regulatory action, or compliance and enfokcement action for its extensive review for distribution or use. Current agency activity should undergo an the May 2001 Executive energy and fuel supply impact consistent~'ith current law and 12
  15. 15. Affect Energy Supply, Orders 13 211 ("Actions Concerning Regulations that Significantly Energy-Related Projects").- Distribution and Use") and 13212 ("Actions Ito Expedite action be evaluated for possible The federal government should require that every agency or use. This assessment adverse impacts on energy supply, transmission, distribution consumers and increased demand should consider possible shortfalls in supply~. impact on the responsibility to comment for foreign supplies. The secretary of energy! should have or enforcement action on the validity of federal agency assessments before administrative Affected companies of energy. is taken. States should provide direct input tp the secretary should be encouraged to file adverse energy effects statements with the secretary of energy as part of this process. have the potential to be Unfortunately, some taxpayer-funded goverpent initiatives make it difficult for goverinment weighed down by inertia and special interess, which can To operate effectively to make mid-course corrections in researc an development. to continuously re-evaluate the within budget constraints, it is important for government effectiveness of current programs. Input frdm the private sector representing more productive manufacturing and deployent interests is ucia tthsrvesohat use of R&D finding occurs.I and development to justify There should be anannual "audit" of ongoingfederal research funding, asking:I market viability for the • Has the taxpayer finding resulted in improvements in the technology?I participation. including * Has the program attracted a growing base of pnivate manufacturing and deployment inte~rests? • Does the technology meet U.S. deployment needs? Assuming a limited Some tax incentives are designed without regard for effectiveness. Business Challenge, it is budget is available for tax support for the president's Climate the effectiveness of 'various vital that a periodic evaluation be undertaken to assess to determine cost differences incentives, including tax credits for purchalse of equipment, between technologies and exemptions from taxes.
  16. 16. AND Appendix I: PRiESIDENT'S POLICY ENCOURAGES GROWTH REQUIRES COMBINED II~AT AND POWER substantial growth in The National Energy Policy (excerpted belo~w) contemplates megawatts at industrial facilities combied ad poer (CHP): an additional 124,000 hat alone. The Public Utility Regulatory Policie'sAchabenucsflliecorgg CHP capacity growth from 10,000 megawattis in190t5,00mgwtscrely representing nine percent of electricity gene raton. below) contemplates a major role foi CHP The U.S. Climate Change Strategy (excer pted 18-percent reduction in greenhouse gas during the 2002-20 12 timeframe. Achieving an be impossible if CHP were discouraged. emissions intensity in the industrial sector +~ould New technology investments are needed no w. tax credit that will enhance efforts The National Energy Policy calls for a new! CHP 1 to streamline the permitting Process underway by the Environmental ProtectionlAgency at "brownfields" and other for cogeneration Plants and to promote CLI location industrial sites.I THlE PRESIDENT'S CHP INIT IATIVE? WHAT ARE THE POTENTIAL ROADBLOCKSITO achieving the growth of CLIP called for in There are a number of potential roadblocks to the National Energy Policy, including: Utilitie euaoyPlce c * Failure to sustain the Carper-Co Iiflns Public (11R4). amendment in the energy bill legislative conference energy bill does much to continue The Carper Collins amendment to Qhe Senate's utility markets. It must be to preserve the incentives for CEIPin monopoly provisions. Any attempt retained in any final energy bill that contains electricity electricity market must be to repeal PUJRPA without access to' a tnily competitive blocked. requirements to CHP *Application of "Clear Skies" multi-pollutant reductions - in fact, they CLIP plants already have provided; substantial emissions station plants. Since many CLIP produce about one-half the emissions of central option. Many facltires plants are fired by natural gas, there is no fuel-switching to substantial current andftr also are in non-attainment areas al ready subjected regulation on facilities emissions constraints. Imposing the costs of additional environmental performance that may have marginal economics and have supenior U.S. Climate Change Strategy. is contrary to the National Energy!Policy and the COMBINED HEAT AND POWER NATIONAL ENERGY POLICY SUPPORT FOR 14
  17. 17. Ma; 200],oChapter3 National Enrg Poictrop [Excerptedfrom the report of the Sustaling the Nation sHat n Evrnet ProtectingAmerica 's Environmenlt Page 5J Technologies for improved Efficiencies power plant is wasted in the Two-thirds of the energy used in a conventional coal-fired of ks roughcanumbterm production of electricity. These losses can bemnmzdt steam turbines, euigsemlas innoatins, ncldin installing high efficiency New coal-burning power plants ioanduingsoftwaredito opiiecm~to bfficiency. and companies are tof can achieve efficirence ovr40prcnsing existing technology, cnas ercce o s developing even more efficient technologies'. Wasted energy buildings. in industrial processes or for heating achievect as combined heaeadepwei(CP)ca A family of technologies known In addition to environmentalbefisCLPpoct efficiencies of 80 Percent or more. industrial boilers, in a variety' of settings, including offer efficiency and cost savings applications. At industrial facilities alone, energy systemns, and small, building scale megats(M )oefienpwrfomgs spotential for an additional 124,000 thr emssion reductions of 614,000 tons of carbon fiered CiP, whc ol eslnana g hihyeialistributhied elmnergy equivalent. CLIP is also one of a group of clan lost in transiiowhleimntg of electricity tehologies that reduce the amount ag eta oe the need to constnict expensive power lines t rnmtpwrfo plants. 4 - Using [Excrptd rportof he frm te atina Energy Policy Group, Chapter C'onse ktion and EfficinyPae9 Energy wisely: Increasing Energy heat nd electricity, businesses find combined Because of their l arge needs for both heat However, replacing old, inefficient and owe(CIP)sysems particularly attractive. a number of new regulatory add bn oilerswt Chighl effciet CIPs ses may offer the same tax depreciation incentives requirements (such as air permnits), but does not the tax code grants to Power Plants. Rec~ommend~ations:. direct the Secretary of the *The NEPD Group recommends that the President energy on legislation to encourage increased Treasury to work with the Congress power (CLIP) projects by shortening the effcincythoug~h combined heat andproviding an investment tax credit. or deprciation life fo LPpoects of the the President direct the Administrator * TheNEPD roup recommends thlat local and state Tenvrnmenta Prtcio gncly (EPA) to work with clean Power of well-designed CHP and other goveronmentsat promteto theue sinters. with the local 0 011mun ity'5 generation at "brownfield" sites~iconsistent issues if they are raised at a particlrst EPA will also work to clarify liability 15
  18. 18. the EPA Administrator to The NEPD Group recommends that ifhe President direct promote Clip through flexibility in environmental permitting. U.S. Climate Policy Support for Combined Heat and Power National Goal Februariy 14, 2002, fExcerptedfrom U.S. Climate Change Stratey A New Approach, Pag-es 6-7] gas intensity of the U.S. The President set a national goal to reduce thle greenhouse pitting economic growth economy by 18 percent over the next ten yearts. Rather than approach that promises real against the environment, the President has esablished an economic growth. progress on climate change by tapping th oer of sustained to Conserve .The Intensity Based Approach Promtes Near-Term Opportunities Until we develop and Fossil Fuel use, recover Methane, an d Sequester Carbon. safe and reliable energy to fuel our adopt bekhogtehooisthat provide we need to promote more rapid economy without emitting greenhouse gases, resources that adoption of existing, improved ener~gy efficiency and renewable provide cost effective opportunitie~t reduce emissions Cogeneration Incentives and Programs for Renewables and Industrial Approach. February 14, 2002, fExcerp ted from U.S. Climate Change Stractegy, A New Page 1I]1 billion in clean energy tax The President's FY '03 budget proposes prliding $4.6 years) for investments in incentives over the next five years ($7.1 billion over ten fuel cell vehicles, cogeneration, renewable energy (solar, wind, and biomass), hybrid and important to meeting the landfill g-as conversion, and ethanol. These incentives are reducing pollution and nation's long-term energy supply and secuit needs, and tax incentives include: projected greenhouse gas emissions. These clean energy Heat and Power * New 10 Percent Tax Credit forCoGnrtn (Combined e 0 percent tax credit for investments Systems). The President has prope in combined heat and power sytes bewen 002 and 2006. The credit will and spur innovation in encourage investments in highly efficient CHiP projects currently available for improved CHP technologies. No income tax credits are investment in CHiP property. as "cogeneration", is * C~neraion.Combined hetadpower (CHP), also known heat, which is normally a highly efficient form of electric generation that recycles captures the heat left over lost under traditional power combhstioin methods. CHiP industrial h6ating and air from industrial use, providing a so~urce of residential and systems achieve a conditioning in the local area aroudnd the power plant. CHiP 116
  19. 19. Jq reducing energy consumption, greater level of overall energy efficieny thereby costs, and carbon emissions. an Poer artersip.The new tax credit would enhance EPA ombnedHea Agency to streamline the efforts underway by the Evronmenal Protection their location in Br~ownfed pennitting process for cogeneration plants, promote can use cogeneration to stay and other industrial sites, and clarify!jhow companies on October 5, 2001, in in compliance with Clean Air Act pollution standards. and state governmnents and partnership with 17 Fortune 500 companies, city and PowrPrnrhp urn nonprofits, EPA announced the Com~bined Heat more then 5,800 megawatts of CHP projects of the founding partneIrs represent serving almost 6 million power generating capacity, an amouhit capable of dioxide by more than 8 million households. The projects annually red uce carbon barrels ofoil. Asimilar program tons; the annual energy savings equa 19 million and rower industry to double by the Department of Energy challenges the heat 10. usage of cogeneration in the United States by 20 17
  20. 20. Appendix II: REGULATORY BARRIERS in environmental improvements. The council supports reasonable regulations that result research, innovation and However, many current environmental regulations impede energy supply and economic investment in new technology needed to mndet the nation's benefit. growth needs, while producing limited environmental technological innovation is the A leading example of a regulatory barrier tat discourages intended as a pre- .ntl New Source Review program. This proga was originally major stationary sources to intl construction permitting program aimed areuring builds new plants or makes major state-of-the-art air Pollution controls whe hesource in. emissions at existing "non-routine" changes that result in signifid ant increases detrimentally from its original operations. This program has deviated significant and intent. it, EPA it proosereormof ew Source Review June 3, 2002. in EPA nnonce Administrator Christine Todd Whitman correctly recognizedtht"oeapcsfte projects that would increase NSR program have deterred companies fromi implementing recommnaissemtadrs energy efficiency and decrease air pollution.' EPA's many of the concerns that have been raised[about the NSR program. it is important that both final rules and proposed EPA expeditiously implement these proposals through the industry faces in making rules. Any further delay will only exacerbate the challenge expected by the the investments that will help achieve the intensity improvements the Administration and Congress to President. ACC commits to work with and support ability to install and operate implement legislation and regulations that enance industry's efficiency and reduce new technologies and equipment that can inrase energy ability to compete in the global greenhouse gas emissions, thus enhancingth industry's marketplace. disadvantaged 'in the market when Companies that have made substantial investments are late 1990's, EPA reversed 20 years regulatory policies are changed in mid-stream, In the to pressure companies to accept of policy guidance on New Source Review requirements This undermines industry's requirements not contemplated in the authl orizing legislation. technologies that would improve ability to invest in new technologies, including many reducing emissions. Concurrent energy supply, fuel supply and energy effcency while NSR program, it has undertaken an with EPA's changed regulatory interpretaIons on the The threat of future enforcement initiative that relies heavily on their reinterpretations.energy improvement pursuit of enforcement action had created a chilling leffect on the proj ects. Several steps should be taken to throexisting NSR program: e a clear and consistent manner *EPA should implement its existin~g, regulations in for changes necessary to that avoids triggering NSRIPSD permitting requirements
  21. 21. that result in energy efficiency maintain and repair existing units, for changes emissions. improvements, or changes that do not increase activities must be exempt from * All "routine maintenance, repair an4 replacement" changes to theinterpretation of the scope of NSR. EPA should retralct its recent common sense approach this regulatory exemption and retu¶n to the broader, EPA should also provide further followed from 1980 through the miq-l1990s. constitute routine maintenance, clarification, by industry sector, on what activities repair, and replacement.I should be explicitly exempted from • Projects that generate environmental benefits projects that increase the the NSR programn. This exemption i'should include energy efficiency of operations. I and regulatory reforms, EPA hIn addition to the above administrative changes project-by-project reviews to should facilitate permits that move away from flexibility to make changes within the facility-wide emissions, providing complete permitted emissions. innovation include: Other regulatory barriers that discourage technology and other forms of performance- * Technology-based regulations preventing "netting" based regulation. and * Inconsistent enforcement among regulatoyagencies regulations. * Inadequate scientific and economic bssfor or obstacles to adopting more energy- Regulatory barriers often create disincenties These barriers include: efficient technologies that reduce total enissions. new mnulti-pollutant proposals, e.g., Clear *Inclusion of com-bined heat and power in Skies. *Technology-specific air quality standards. *Possible regulation Of CO 2 emission5s 19
  22. 22. Appendix III: jAX BARRIERS capital formation, As currently written, the U.-S. tax code doe htawysuport new process and and including investments in manufacturing pln adeupent tax incentives for product technologies. While the Presidents intaiehsproposed will not he provided. incentives cHP, unless depreciation life is shortened, the necessary i espcialy iffiultforman energy supply and energy-efficiency Theurdn investments that are also constrained by governmnreuaistdelwadlmtd market demnand. should be addressed as part of a There are several issues with the R&D tax credit that national climate and energy policy initiative,icuig Credit 1. On-Again-Off-Agaifl Natueo h R&D Tax and short-term extensions, Because the R&D tax credit hsaitoyof unpredictable companies have not been able tflytae advantage of its benefits.. Currently, the uncertainty created by the credit is scheduled to expire on June 3;2004. The investors in long-term pending expiration is particularly troubeomne for on the credit impedes technological breakthrough technologies. Their inability to rely Make the R&D tax credit progress. The solution to this problem !is straightforward: permnanent. Tax Credit 2. Limitations and Inconsistencies in the R&D of research and development The rules and exceptions that determine the availability tax credits to incremental tax credits are highly complex. Rules that limit such of gross receipts serve to reward expenses over a base period amount adto a percent some R&D activities but not others. outlays in the current year must In order to qualify for the credit, a companty's R&D the company's historical exceed a base period hurdle that takes into account amount is tied to gross receipts, expenditures and gross revenues. Because the base by changes in the level of revenues the amount of the credit can be affecte'd as much R&D credit has the unintended as it is by the level of research perforned. The current development, while effect of encouraging high-cost, manual research and technological, and math-based discouraging its replacement with more efficient, can face ever-declining R&D procedures. In addition, firms iin mature industries sales revenues increase in nominal credits if their R&D outlays level off while their terms due to inflation. Solutions to this R&D tax issue include:. 20
  23. 23. expense incurred for energy and * Alow ta RD crdits for every dollar of research vrsm rirr ntjust for the increment energy efficiency-related base period amount. technologey-n Itatosvru cot o opn opn *Eliminate the disparity between qualfigcssfrcnrcosvru aogtxaes employees. or transfrbeaogtxaes *Make the credit refundable research and development are ncetivs fr eerg eficiency, 3. ax addresstepolm nldn inadequate, but some steps can bi taken to on promoting research and * Provide enhanced tax credits focused specifically technologies for plant and development on breakthrough energy-efficiency lcpiaersac equipment. and suppr for long-term1 Publi~haersac *Provide additional incentives partnerships. lives barriers to address the depreciable Congress should take the following actipns related investments by the as described in a study on energy and epiergy-efficielIcy Formation (ACCF): American Council on Capital wriltedofinvestments inrflc period during whc uiesse * Dramatically shorten the (conbinea heat and Powe)rltdivsmnsorfec energy or energy efficiency e. o the to nvetors and isk the benefits to society. deutosmlrothtiErpancnrefr * Create a U3.S. capital acquisition equipm en eryrlae.nesmns energy-efficient plants and investments. Credi forfenergy-related * Reinstate the Investment Tax feeg~eae netet depreciation and amortization o stop treating accelerated purposes. as preferences for AMT 21

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