Industry seeks a seat at climate talks

Burning enough coal to power a city of 200,000 people, Alcoa’s Warrick Operations aluminum smelting plant in southwestern Indiana is exactly the kind of energy hog that could face heavy fines under President Barack Obama’s plan for combating global warming.

Yet Alcoa executives and other big users of coal are pushing Congress to pass a version of the plan. The reason? With the right tweaks, they say, Obama’s plan could not only help the environment but also boost their profits.

“If we act wisely and swiftly,” an Alcoa official told a House committee last month, global warming legislation “will assist in restoring growth and provide the means for America to be the global leader in low-carbon technology.”

In getting behind at least the broad outlines of climate legislation, corporations such as Alcoa are mirroring the strategy of their counterparts in the health and pharmaceutical industries that have joined the push for health care reform: Having concluded that some government action is likely whatever they do, corporate strategists have decided they might fare better being at the table when decisions are made.

“Increasingly, industry leaders in both areas have come to the realization that a solution has to be found to both our energy and health problems,” said Rep. Edward Markey of Massachusetts, a top Democrat on the Energy and Commerce Committee who co-authored the House version of Obama’s climate plan. “Many leaders in both areas are willing to break out of what has been conventional wisdom, and as a result, we’ve been able to build coalitions of CEOs.”

Not everyone in the business world is onboard. The U.S. Chamber of Commerce, for example, is playing a lead role in fighting Obama’s climate plan, warning that the fines and fees envisioned will raise the cost of doing business too high and make U.S. companies vulnerable to foreign competition.

But the Democrats have won growing corporate support, in part by giving business interests the kinds of concessions that anger some environmentalists in their own party.

Obama will need that backing to win over swing votes from members of Congress in manufacturing and coal- and oil-producing states. Those states almost certainly would face higher costs under the so-called cap-and-trade system Obama wants to create.

“There are two issues to get the bill passed,” said Sen. Sherrod Brown, D-Ohio. “One is the states that are heavily dependent on coal need some relief if their energy bills spike, which they will.

“The other is, how do you deal with manufacturing?”

Alcoa’s aluminum operations across the United States, for example, generated 23 million metric tons of greenhouse gas emissions in 2007. Obama wants to require emitters to purchase permits to release emissions. The cost-per-ton of emissions permits hasn’t been determined yet, but if it starts around $20 ? a number that falls in the middle of recent EPA projections ? then cap-and-trade might add $460 million a year to Alcoa’s annual operating costs.

Under an approach favored by industry, the government could soften the blow considerably by giving Alcoa nearly enough free permits in the early years of the cap-and-trade-system to cover its current emissions.

The company already has cut emissions by one-third since the 1990s. If it continued to reduce emissions while keeping its full quota of free permits, it would reach a point where it had surplus permits that it could sell to other emitters, raising money to help pay for the improved technology.

In effect, a cap-and-trade system designed that way would stimulate the drive to reduce emissions, advocates say.

And Alcoa officials see another benefit: Government pressure for cleaner air would increase consumer demand for lighter cars and more efficient buildings, boosting the market for aluminum.

Such an approach would require Obama to modify his original proposal, which called for using revenue from permit sales to help finance health-care reform and tax cuts for the middle class. The White House has signaled its willingness to compromise.

So have Democrats on the House Energy and Commerce Committee ? including members from coal and manufacturing states ? who announced agreement on the outlines of such legislation last week.

Given the troubled economy and U.S. companies’ vulnerability to foreign competitors with lower costs, many analysts have been skeptical about the chances of moving ahead on global warming legislation this year.

But companies such as Alcoa and Duke Energy, the nation’s largest producer of electricity generated by burning coal, have been marshaling votes on Capitol Hill, working behind the scenes with committee negotiators and providing what House leaders call a “blueprint” for compromise.

Alcoa is a charter member of the United States Climate Action Partnership, a collection of large environmental groups, utilities, manufacturers and other big businesses.

Two coalition members, the Environmental Defense Fund and Duke Energy, launched a television advertising blitz last week in support of warming legislation.

“Their support is indispensable,” Markey said of the companies.

Beyond political strategy, Alcoa executives say, the scientific evidence has convinced them that carbon dioxide and other greenhouse gas emissions contribute to global warming and could wreak havoc in the future.

Many also have concluded that the greener, more energy-efficient world Obama envisions might raise demand for aluminum, environmentally friendly forms of electric power and other products.

The potential stumbling block is cost.

Any warming legislation that boosts fossil-fuel prices “is going to have some costs,” said Meg McDonald, Alcoa’s director of global issues. How much it costs companies like hers, she added, “is dependent on the fine details.”

The cap-and-trade system would set nationwide limits on greenhouse emissions, with the limits tightening over time. Companies would have to obtain government permits to cover excess emissions.

Obama’s budget calls for selling all the permits, a position backed by many environmentalists. The proceeds would fund research on renewable energy and a $400-per-person middle-class tax cut.

Many large manufacturers worry that the system could drive the production of steel, glass, cement and other energy-intensive goods overseas.

“We’ve lost 5 million manufacturing jobs in this country,” said Alan McCoy, a spokesman for Ohio-based AK Steel, which remains wary of climate legislation. “This kind of legislation, poorly crafted, would eliminate the rest of them.”

Alcoa executives want the plan to include credit for companies, like theirs, that have already cut greenhouse gas emissions in recent years. More important, they and other corporate interests want Obama to give some emissions permits away for free at the start.

Manufacturers say free permits would buy them time to invest in efficiency measures. Utilities say they would help hold down consumer price increases while greening their power generation.

“It’s very important to manage the transition smoothly,” said Peter Darby, chief executive of California-based utility PG&E, “so that there aren’t major dislocations and aren’t significant impacts to the economy.”

The House agreement would initially hand out more than a third of the permits to utilities, another 3 percent to automakers and 15 percent to companies such as Alcoa, which consume vast amounts of energy and are exposed to foreign competition.

The majority of permits and revenues should go to “vulnerable families, communities and businesses,” said Heather Zichal, deputy assistant to the president in the Office of Energy and Climate Change. “How that pie ends up sliced, at the end of the day, I think we’re open to discussions.”

It’s the prospect of such concessions that has companies working for the bill.

(c) 2009, Tribune Co. Source: McClatchy-Tribune Information Services.