Climate-Change Bill Gives China Advantage Over U.S., Putting U.S. Industries and Jobs at Risk, Says Government Report

July 10, 2009 - 5:45 PM
The "cap-and-trade" energy bill would provide China with an advantage in global competitiveness while jeopardizing U.S. manufacturing output, a report from the Government Accountability Office says.  

In this June 12, 2004 photo, a steelworker burns impurities from a tube used to pour molten steel at Nucor Steel in Decatur, Ala. (AP Photo/John Godbey)

(CNSNews.com) - The American Clean Energy and Security Act--the so-called “cap-and-trade” climate-change bill--that passed the U.S. House of Representatives last month would give manufacturers in certain industries in the Communist People's Republic of China an advantage over their U.S. competitors and put U.S. jobs at risk, according to a report from the Government Accountability Office (GAO).

“I think what we’re trying to do is point out to the Congress and others that are interested that there could be some industries where China’s competitive advantage might be affected or could be further enhanced by (climate-change) legislation, if the features of the legislation don’t take that into account,” Loren Yager, GAO director of international affairs, told CNSNews.com.
 
Without an international agreement placing caps on emissions by Chinese factories, China would stand to gain, while the international competitiveness of four U.S. industries that account for nearly one-quarter--or approximately $1.2 trillion--of total U.S. manufacturing output would suffer.
 
“We are trying to make the Congress aware of that kind of a situation, so that they can look at particular features of the legislation," Yager said, and "to try to seek an international agreement in order to prevent these kinds of competitiveness shifts from occurring."
 
Yager authored a July 8 GAO report titled, "Climate Change Measures: Considerations for U.S. Policy Makers." It argues that China, which provides half of the world’s steel, would benefit if the U.S. adopts cap-and-trade energy legislation.
 
“Adverse competitiveness effects from emissions pricing could increase the already growing share of Chinese imports,” the report stated.
 
The U.S. already spends approximately $30.5 billion importing China’s iron and steel,

The four U.S. industries at a disadvantage include chemicals, primary metals, paper, and non-metallic mineral manufacturers. The GAO calls them “trade and energy intensive” industries. They account for 4.5 percent of Gross Domestic Product, according to the report.
 
“Together, these four industries provided 23 percent of total U.S. manufacturing output in 2007 and had trade flows of about $500 billion,” stated the report. 
 
According to the figures provided by the report, the chemical industry is the largest in manufacturing output with $664 billion, followed by primary metals at $241 billion, paper products at $168, and non-metallic minerals at $119 billion.
 
Yager said that the four industries clearly would be at a disadvantage in regards to global competitiveness as a result of climate-change legislation. 
 
“What we point out is that those are the kind of industries that are most likely to have issues related to international competitiveness because ... they are both trade intensive and they are energy intensive industries,” Yager told CNSNews.com. 
 
In addition, the climate-change legislation, which narrowly passed the House of Representatives 219-217 on June 27, could “cause output, profits, or employment to decline” in the manufacturing business, the report said.
 
“Those are the kinds of characteristics that tend to make firms more subject to international competition,” he added. “Particularly, if there is a differential for example in pricing between energy products and the use of energy products in the United States versus foreign competitors.”
 
Sen. Chuck Grassley (R-Mont.), ranking Republican member of the Senate Finance Committee, echoed Yager's sentiment about the effects that climate-change legislation could have.
 
“I’ve said many times that we ought to approach this issue through a worldwide,
international agreement,” Grassley said in a written opening statement at a finance committee hearing last week where Yager, among others, testified about his report. 
 
“That’s the only way to ensure that China and India and other major carbon emitting countries are involved,” added Grassley.
 
“Otherwise, our industry is going to be left very uncompetitive,” he added. “We're going to see more manufacturing move overseas where less efficient plants produce far more pollution than our American industries, and nobody should want to do that.”
 
Sen. Max Baucus (D-Mont.), the chairman of the Senate Finance Committee, did not attend the hearing because he was visiting the White House and President Obama, a spokesman for his office told CNSNews.com.
 
If caps on carbon emissions is not applied to other countries, but is enforced on the U.S., then other countries not under the carbon caps would benefit because their production costs would be lower.
 
As a result, the report noted, “some domestic production could shift abroad, through changes in consumption or investment pattern, to countries where greenhouse emissions are less stringently regulated.”
 
In addition, if a cap-and-trade policy is only enforced in the United States, “carbon leakage” could take place--which means that other countries’ greenhouse emissions would off-set any benefits that might result from U.S. restrictions.
 
The report states that carbon leakage could result from U.S. production shifting to countries without carbon emission restrictions and from “changes in world prices” as a result of “emission pricing.”
 
Yager, the author of the report, pointed out that some provisions of the bill could be used to deal with the problems that will stem from the climate-change legislation.
 
“One of them, the output-based rebates, which don’t just affect imports but also provide U.S. industries the ability to export because the rebates are based off the productions and the trade measures themselves,” Yager said to CNSNews.com.
 
In addition, Yager said “sub-industry” manufacturers face different issues.
 
“It’s not all equal below the level of the sub-industry. So for example if an industry’s primary competitors are in Canada and Canada faces a similar restriction on the emissions of carbon, then there is unlikely to be any differential in cost created by the legislation,” Yager told CNSNews.com.
 
The GAO said industries are “vulnerable” as determined by standards that are based on specifications from the proposed climate legislation, which states: “(1) either an energy intensity or greenhouse gas intensity of 5 percent or greater; and (2) a trade intensity of 15 percent or greater be used as criteria to identify for which trade measures or rebates would apply.”
 
The report, meanwhile, focused on “energy intensity” because, the GAO said, information on greenhouse gas intensity is “less complete.”
 
According to its conclusions, “nonmetallic minerals are the most energy intensive at 6.1 percent in 2006, while chemicals are the most trade intensive at 45 percent in 2007.
 
“While chemicals do not have an energy intensity of 5 percent . . . several sub industries within chemicals meet that vulnerability criterion,” reveals the report.
 
The report states that chemical companies “accounted for the largest share of carbon dioxide emissions from manufacturing, at 22 percent in 2002.”
 
Ironically, DuPont, the largest chemical company in the U.S, told CNSNews.com that it supports the cap-and-trade legislation that came out of the House.
 
DuPont sapokeswoman Lori Captain provided a statement from DuPont Chairman Charles O. Holliday Jr. that echoes support for the House climate bill.
 
“We are pleased to see that the bill reflects many of the recommendations developed by the U.S. Climate Action Partnership (USCAP)--a coalition of companies and non governmental organizations which have come together to forge a consensus view regarding the United States’ actions on the challenging issue of climate change,” Holliday said in the statement.
 
“DuPont is a founding member of USCAP,” he added. “We look forward to working with members of the U.S Congress to continue to improve the bill as it progresses through the legislative process.”
 
On the other hand, Nucor Corporation, one of the largest steel producers in America, is not content with the cap-and-trade approach that will stem from climate legislation.
 
"Nucor Steel Auburn is concerned that this cap and trade bill will result in dramatically higher prices for all types of energy and hamper our global competitiveness," said Mike Keller, General Manager of Nucor Steel Auburn, Inc. "Our competitors in China, Brazil and Russia will not have comparable costs.”
 
In regards to the effects that the cap-and-trade legislation would have on jobs as it relates to the industries in the GAO report, Yager said employees may have to switch of industries.

“Employment may shift to other industries where there is more growth,” he told CNSNews.com.
 
But he added, “When I looked to some of the other sources the EPA and the CBO, I did not find a comprehensive discussion of the employment figure.”
 
Nevertheless, the report reveals there could be a growth in the service sector as a long term outcome of emissions pricing.
 
“This growth would likely be due to changes in consumption patterns in favor of goods and services that are relatively less greenhouse gas-intensive,” states the report.