Earlier this month, the U.S. Environmental Protection Agency (EPA) announced proposed new standards for greenhouse gas emissions in existing U.S. power plants. Each state must meet the standards, which call for a 30 percent reduction from 2005 levels by 2030.
Meeting this goal will require a continued investment in innovation and sustainability, especially developing cleaner and renewable energy resources—priorities AMP supports. However, the EPA’s proposal has raised legitimate concerns about the higher energy costs likely to result from such an ambitious goal. Even the EPA itself suggests that the cost of electric rates will rise by 6.2 percent by 2020 to pay for the necessary investments.
Interestingly, Business Forward, a consortium of 50 of the world’s largest and most respected companies, commissioned a report analyzing the possible economic impact of following the EPA’s new standards.
For Manufacturing, Weather-Related Costs Could Outweigh Cost Increases from the EPA Proposal
The report specifically examines the possible impact on the auto industry, a sector vital to Michigan’s economy. It may come as a surprise, but extreme weather is very costly because it disrupts supply chains. Consider a plant’s typical operating expenses:
While manufacturing is certainly still considered an “energy-intensive” industry, its other costs are even higher. It’s the impact on these costs that is cause for the greatest concern if climate changes lead to increases in the number and intensity of severe weather events.
Automobile manufacturers ship their parts to arrive continually in order to maximize efficiency; but this also means that when shipping routes are disrupted due to extreme weather, costs rise because:
The bottom line: The EPA’s proposal will raise the costs of production of a $30,000 automobile by just $7, while the cost of severe weather-related shutdowns is much, much greater—costing $1,250,000 for every hour a plant is shut down.
Balanced Approached Needed for Implementation
In spite of these findings, we still need to be mindful of the fact that the economic impact of these new standards will extend far beyond manufacturing. Access, reliability, and fairness should remain central concerns in this discussion, especially in relation to residential consumers. While energy may be a relatively small percentage of operating costs for an auto plant, it is much higher for many household budgets.
We need to be sensible about how we make progress toward meeting the EPA’s ambitious goals. While the need to protect our environment is a high priority, AMP believes we can find solutions that will protect the economy and jobs and ensure consumers are treated fairly, as well as benefit our planet.