Testimony to
The New York State Assembly Standing Committee on Environmental Conservation
RE: Climate Change and Workforce
Presented by
Name: Darren Suarez
Title: Senior Director Of Government Affairs
May 17, 2019
Good afternoon, let me start by thanking the members of this Committee for including the Business Council in this hearing. My name is Darren Suarez. I am an energy and environmental policy analyst for the Business Council of New York State. I am before you today on behalf of the Business Council of New York State, I appreciate the opportunity to explain why the Climate Community Protection Act must be amended to protect communities and workers from its devastating impacts.
It is unequivocally clear that the future risks from climate change will be impacted by decisions made today. The world has neither the luxury of time or resources to get this wrong. We need to accept that climate change occurs on a global scale and that if measures proposed in New York result in increased emissions elsewhere in the world, we have done nothing to solve the problem.
The Business Council is the leading business organization in New York State, representing the interests of more than 2,400 businesses statewide. Our membership is composed primarily of electric power consumers, including more than 1,100 manufacturing firms. The primary function of the Business Council is to serve as an advocate for its members in policy matters affecting economic development, jobs and the general business climate in the state.
We believe New York should adopt legislation to address climate change. Central to the legislation should be the development of a plan that includes input from all stakeholders to ensure the plan is effective, affordable, predictable, inclusive and repeatable.
Regarding workforce the legislation should start with a commitment to prevent the leakage of greenhouse gas emissions and jobs associated with Energy Intensive Trade Exposed (EITE) facilities (including but not limited to glass, steel, cement, auto, metal casting, food, pulp and paper, aluminum, plastics, ceramics and chemicals) to other states and countries. No one can expect to retrain or replace the over 40,000 high paying jobs at New York’s EITE facilities, never mind all the other jobs that support EITE facilities. Loosing these jobs would be devastating. Thousands of families would be subject to unimaginable turmoil. Small communities around the state would be crushed and for what?
The legislation will cause production to leave New York and consumption-based greenhouse gas emissions will substantially increase. If the average Upstate New York manufacturing facility was located in China, its emissions would be six times higher. If New York commits to assisting EITE facilities we can retain good jobs while also reducing emissions.
Background
By all measures New York State is one of the least carbon-intense states in the nation. The carbon intensity can be measured by per capita carbon dioxide emissions (CO2e/population) or by the carbon intensity of the economy (CO2e/dollar of state GDP). The 2015 CO2 emissions in Wyoming were 110 mt per capita, the highest in the United States, while New York’s emissions were fewer than 9 mt per capita. In 2015 Wyoming was also the most intense carbon economy in the United States (1,814 mt CO2/million dollars of GDP), the U.S. average was 320 mt CO2/million dollars of GDP. New York has the lowest carbon intensity (133 mt CO2/million dollars of GDP) or almost one third less than the national average.
The Upstate’s Energy Sector is Very Different from the Downstate Energy Sector. Upstate New York is largely supplied by zero emitting resources (nuclear and hydro power), while downstate New York, which consumes 66% of New York’s power, receives only 30% of its energy from zero emitting resources. Electric transmission constraints on the grid limit the ability to supply more clean energy to downstate.
Who is Producing New York’s Very Few Emission? In 2015 the transportation sector accounted for 35% of CO2e emissions with the residential sector 23% and the commercial sectors generated 19%. Residential and commercial sectors, generated emissions from electricity generation, and on-site fuel combustion (including heating and hot water). The industrial sector contributed only 13% CO2e and only 6% was from process emissions.
In the Past Several Years the New York Power Market has Become More Reliant on Natural Gas Since 2000 New York’s generation capability from natural gas grew from 47% of the fuel mix to 58% in 2018. In New York State wholesale energy prices are heavily impacted by the cost of natural gas because gas-fired generation often establishes the clearing price for electricity in the wholesale energy market. In 2016 New York was the sixth-largest natural gas consumer. Natural gas prices in New York are 72% higher than the national average. The residential sector, the electric power sector, and the commercial sector consume almost all the natural gas used in New York.
The cost of energy in New York is impacted by wholesale prices; transmission and delivery costs and State and local taxes and fees. Approximately half of the electric bill reimburses your Load Serving Entities for purchasing electricity from the wholesale markets and Clean Energy Standard obligations. Approximately thirty percent of the bill is made up of taxes and fees, including property taxes, sales tax, a special tax for utilities and state imposed assessments. The remainder of the bill covers the cost of maintaining and upgrading the wires and substations that deliver the electricity.
Furthermore, the European experience demonstrates that well-intentioned environmental policies result in higher energy and production costs driving carbon leakage and output leakage A 2014 European Commission staff report on the link between energy prices, energy efficiency and industrial competitiveness (as measured by extra-EU exports), confirms this. Specifically the report “shows that the increasing electricity costs had a negative impact on export competitiveness. Moreover, the high heterogeneity within sectors suggests that energy-intensive industries are most heavily affected. The results show that, since energy savings in most cases were not large enough to fully compensate for energy price increases, energy represents a growing share of total production costs. Therefore caution is called for when adopting policies that determine a further increase of energy prices, since this creates a real burden that some European firms cannot fully compensate for.” Furthermore, the New York Times reported: “The expansion in renewables will probably ensure that Europe will meet its target of reducing greenhouse gases 20 percent from their 1990 levels by 2020. But it has been a disappointment on other levels. For one thing, emissions continue to rise globally. In a sense, Europe is likely to have exported its emissions to places like China, where polluting economic activity continues to increase while the European economy stagnates. A striking indicator that the European effort has not achieved all that it intended to is the continued rise in the burning of coal ”.
What are EITE Industries? Energy Intensive Trade Exposed (EITE) industries are (including but not limited to glass, steel, cement, auto, metal casting, food, pulp and paper, aluminum, plastics, ceramics and chemicals) often identified by their four-digit North American Industry Classification System (NAICS) code. Consistent with 2008 H.R. 2454 (“Waxman-Markey”) for this testimony we are defining EITE as (a) Sawmills and Wood Preservation, code 3211 (b) Veneer, Plywood, and Engineered Wood Product Manufacturing, code 3212 (c) Cement and Concrete Product Manufacturing, code 3273 (d) Fruit and Vegetable Preserving and Specialty Food Manufacturing, code 3114 (e) Iron and Steel Mills and Ferroalloy Manufacturing, code 3311, (f) Basic Chemical Manufacturing, code 3251, (g) Plastics Product Manufacturing, code 3261, (h) Other Nonmetallic Mineral Product Manufacturing, code 3279, (i) Glass and Glass Product Manufacturing, code 3272, (j) Lime and Gypsum Product Manufacturing, code 3274. (k) Pulp, Paper, and Paperboard Mills, code 3221, (L) Semiconductor and Other Electronic Component Manufacturing, code 3344, (m) Foundries, code 3315, (n) Nonmetallic Mineral Mining and Quarrying, code 2123
How many EITEs are located in New York? How many people do they employ? Based upon 2018 Data from the Bureau of Labor Statistics, New York has over 1,000 different EITEs that directly employ over 40,000 people, and pay over to $2.6B in wages, on average these workers are making more than $70,000 per year and are often some of the highest paid workers in their county. Attachment A is a chart based upon the data from the Bureau of Labor Statics. The chart details the 2018 employment statistics for New York EITEs. It should be noted that this data helps to inform the discussion but because of idiosyncrasies the data should always be objectively viewed.
EITE Workforce Retention
If New York is interested in retaining the EITE workforce of over 40,000 people, legislation must not increase energy costs, operational costs, and create uncertainty, compromising the global competitiveness of EITE facilities. If rising compliance costs cause or the uncertainty regarding those costs cause New York manufacturers to relocate operations to countries with less stringent standards, or if imports are less expensive because of weaker standards in their country of manufacture, it will impact employment.
Carbon policies that global competitors are not subject to put energy intensive, trade exposed New York State companies at an economic disadvantage. If New York companies are not competitive, we will lose jobs in New York State to other jurisdictions with weaker standards, ultimately resulting in higher global greenhouse gas emissions, and less jobs.
EITEs need a Transition Period to bridge towards a low carbon economy. This transition is meant to support energy intensive trade exposed industries until a global level playing field is established that enables fair competition. In particular, legislation should:
• Ensure Energy-Intensive Trade-Exposed (EITE) industries have a seat at the table. Any Council tasked with the development of a greenhouse gas reduction plan should include a representative of the business community, including representatives of EITE industries (including but not limited to glass, steel, auto, cement, metal casting, food, pulp and paper, aluminum, ceramics, plastics and chemicals) that will assist with the development of a climate roadmap.
• Recognize the need for prevention of the unintended consequences arising from a greenhouse gas reduction framework including the “leakage” of emissions and jobs by providing statutory exemptions from direct carbon reduction requirements; direct carbon emission taxes; and indirect payment of taxes or assessments based on the consumption of fuels and electricity for EITEs specifically identified by their North American Industry Classification System (NAICS) code. Compensating measures (such as free allowances, delayed program entry, program exemption) for EITE industries have been provided or proposed in numerous nations and states including: Washington, Oregon, California, Germany, and Ontario.
• Develop a Marginal Abatement Cost (MAC) Curve which plots out the marginal costs of achieving a cumulative level of emissions abatement in order, from the lowest- to highest-cost technology or measure, for different regions of the State.
Achieving zero greenhouse gas emissions from the manufacturing sector, will not be straightforward to achieve, and there are a number of obstacles blocking the way: firstly, the sector is very heterogeneous with a wide range of processes and products, meaning the number of crosscutting solutions is limited.
Secondly, in addition to emissions from fossil fuel combustion, some industrial processes produce carbon dioxide as a by-product of the chemical reaction; one such example is cement manufacturing. These so-called 'process emissions' cannot be addressed with energy efficiency measures or by switching fuels. In many circumstances there are no process improvements that will allow an industrial facility to reduce process emissions to zero.
Thirdly, manufacturing plants are long-lasting and major retrofits are usually only made according to long refurbishment cycles, offering only a short window of opportunity for upgrades and improvements to the energy efficiency of the core process.
Finally, products need to be competitive on an international market, reducing the scope for businesses to absorb or pass on any additional costs to consumers - making low carbon technologies uneconomical.
Carbon Leakage
To properly calculate the potential carbon leakage from the loss of New York’s EITE would take significant time, because of the very different carbon intensity of individual forms of manufacturing and the size of the facilities. Purely to help illustrate the magnitude of the impact of carbon leakage we have hastily calculated the increase in emissions resulting from the relocation of EITE production.
g/kWh Average Monthly Consumption * g/kWh Yearly GHG Emissions from Electricity MtCO2e
Russia 439 93,125,948 11,175
United States 489 103,732,548 12,448
Germany 486 103,096,152 12,372
China 711 150,825,852 18,099
India 791 167,796,412 20,136
Mexico 506 107,338,792 12,881
South Africa 926 196,434,232 23,572
Upstate New York 134 28,425,688 3,411
Using the current IEA data regarding GHG g per kWh we multiplied that by the EIA New York Monthly Average for an industrial facility 212,132 kWh. Then we determined the metric tons per year of GHG from the average industrial facility. It should be noted that because of the time we are only looking at the emissions associated with electricity associated with an industrial facility. To provide a more accurate comparison would require a review of the emissions associated with the process, heating, transportation, the employees and the associated economic activity.
It is fairly easy to see that emissions just associated with electricity consumption are four times greater than if the facility is located elsewhere in the United States and is almost six times higher if located in China and almost eight times higher if it is located in South Africa.
Conclusion
The decisions we make today are critical in ensuring a safe and sustainable world for everyone, both now and in the future. We need to have a real, honest discussion focused on creating an ecosystem that encourages the deployment of technologies that mitigate greenhouse gases emissions. The Business Council strongly supports the adoption of measure that commit to preventing the leakage of greenhouse gas emissions and jobs associated with EITE facilities.
No one can expect to retrain or replace the over 40,000 high paying jobs at New York’s EITE facilities, never mind all the other jobs that support EITE facilities. No one can expect that the State will easily generate $2.6B in wages, or more than $70,000 per year in average wages, in small communities around the state.
To make matters worse production will leave New York and consumption-based greenhouse gas emissions will substantially increase. If the average Upstate New York manufacturing facility was located in China, its emissions would be six times higher.
In the near term the state should focus the retention of EITE facilities, on specific market failures in areas that can make a significant impact on strategic priorities; catalyze private-sector competition by providing incentives aligned with strategic outcomes; and utilize the most cost-efficient actions to facilitate positive outcomes.
Climate change presents a challenge that will never be ‘solved’ – but, as I have testified today, we can do better or worse in our managing of it. The Business Council in partnership with all New Yorkers aspires to do better.
DS