Interagency report on international competitiveness and climate regulations released

On December 2, a number of collaborators from several federal agencies released a report [PDF] at the request of five Senators from manufacturing states: Evan Bayh (D-IN), Sherrod Brown (D-OH), Arlen Specter (D-PA), Debbie Stabenow (D-MI), and Claire McCaskill (D-MO).

The original letter from the Senators asked that the Administration offer an analysis of four primary points:

1. Determination of which industries will likely be eligible for the energy-intensive, trade-exposed (EITE) industry allocations provided in the American Clean Energy and Security Act of 2009 (HR 2454);
2. Assessment of the potential impacts of this legislation on EITE industries;
3. Identification of additional data that would be useful for determining trade impacts, allocation requirements, and greenhouse gas emission in other countries; and
   
4. The other measures within ACES that could help to mitigate the effects of a cap-and-trade system on EITE industries.

The report is thorough and impressive in its scope and depth. The executive summary states:

The modeling indicates that, even absent the mitigating allocation measures, total annual emission leakage to unregulated countries associated with a cap-and-trade program’s impacts on the international competitiveness of domestic “trade-vulnerable” industries is likely to be only on the order of 10 MMTCO2e. The modeling projects that the vast majority of emission reductions achieved by these industries under a cap-and-trade program will be from reductions in the emission-intensity of their production (e.g., increased energy efficiency, or shifts to lower-emission production methods), rather than from declines in production associated with increased imports from unregulated countries. Importantly, while output-based allocations can essentially eliminate the leakage that is associated with the reduced international competitiveness of domestic industry, if carefully designed, these allocations can do so while preserving incentives for industry to reduce the emission-intensity of its production. With such allocations, leakage associated with impacts on the international competitiveness of domestic industries falls to about one MMTCO2e, or about one percent of the estimated emission reductions from those industries.

There are several caveats outlined in the full report, as well as potential issues with the administrability of the EITE provisions of ACES.

ACEEE commends the report's authors for their hard work, and we hope that this will help to pave the way for Senate legislation that will lead to a more energy-efficient, rejuvenated, competitive, and sustainable manufacturing sector in the United States.