AISI Comments on EPA Clean Power Plan

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December 1, 2014

Via www.regulations.gov

U.S. Environmental Protection Agency
Attention Docket ID No. EPA–HQ–OAR–2013–0602
EPA Docket Center, U.S. EPA
Mailcode: 28221T
1200 Pennsylvania Avenue, NW
Washington, DC 20460

Re: Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generation Units, Proposed Rule, Docket ID No. EPA–HQ–OAR–2013–0602; FRL–9910-86-OAR, 79 Fed. Reg. 34,830 (June 18, 2014)

On behalf of its U.S. producer members, the American Iron and Steel Institute (AISI) submits to the Environmental Protection Agency (EPA) the following comments on the proposed Carbon Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units, also known as the Clean Power Plan (CPP). While the proposed CPP would impose direct requirements on the electric utility sector, AISI’s principal concern is that the regulations may lead to higher costs of electricity to large industrial customers like steel, while potentially lessening the quality and reliability of the electric supply that is essential for our industry to operate and succeed. The CPP could put steel producers in the U.S. at a disadvantage against competitors in other nations that generally have higher rates of greenhouse gas (GHG) emissions, and some of which benefit from subsidized energy costs. Such a result would not only be detrimental to the domestic steel industry and its employees, but to the larger global environment.

Domestic Steel Industry Background
AISI serves as the voice of the North American steel industry in the public policy arena and advances the case for steel in the marketplace as the preferred material of choice. AISI also plays a lead role in the development and application of new steels and steelmaking technology. AISI is comprised of 20 producer member companies, including integrated and electric furnace steelmakers, and approximately 125 associate members who are suppliers to or customers of the steel industry. AISI’s member companies represent more than three quarters of both U.S. and North American steel capacity.

Steel and other manufacturing industries are the backbone of the U.S. economy. A strong manufacturing sector creates significant benefits for society, including good-paying jobs, investment in research and development, essential materials for our national defense, and high-value exports. Based on 2013 data, the U.S. steel industry operates over 100 facilities employing 149,000 people and producing steel shipments valued at 75 billion dollars. Because of steel’s broad range of applications – including renewable energy infrastructure, machinery and equipment, defense, transportation and infrastructure – the industry is vital to our nation’s economic and national security. A robust American steel industry is critical to leading growth and job creation in the domestic economy.

It is important to note that the steel industry in the United States continues to face a flood of steel imports entering the U.S. market from different regions of the world and in different product lines. So far this year, finished steel import market share is estimated at 27 percent, compared to 23 percent in 2013. Based on September final Census Bureau data (U.S. Department of Commerce), total steel imports for the first nine months of 2014 have increased 36 percent versus the same period in 2013, while finished steel imports have gone up by 30 percent over the same time period.

Steel Production and Energy Consumption
AISI members continue to make efforts to reduce their energy usage, as well as their environmental footprint, and are leading the way by effectively setting the bar for the steel industry worldwide. The U.S. steel industry has voluntarily reduced its energy intensity by 28 percent since 1990, while reducing its greenhouse gas (GHG) emissions by 35 percent over the same time period. In fact, data presented by the U.S. Department of Energy at a meeting of Global Superior Energy Partnership’s Steel Task Group show that the steel industry in the U.S. has the lowest energy intensity and second-lowest CO2 emissions intensity of any major steel producing country.

Nevertheless, the production of steel is inherently energy intensive, and the industry consumes substantial amounts of electricity, natural gas, and coal and coke to make our products. According to AISI member data, in 2013 the domestic steel industry consumed 33.7 billion kilowatt hours (kWh) of electricity, 288.5 billion cubic feet (bcf) of natural gas, and 13.34 million tons of coal. Much of this raw material consumption is for the chemical process involved in steelmaking. Energy-related costs typically comprise 20% or more of the cost of making steel and, as such, maintaining affordable and reliable sources of these energy sources are critical to the international competitiveness of our industry. Regulating the providers of the sources of energy that the industry relies upon to manufacture steel products, such as through the CPP, substantially challenges our success if not written or implemented correctly.

International Competitiveness Challenges for Domestic Steel Production
Steel producers in America are currently under substantial challenges from international competitors. The American steel industry is once again facing a surge in unfairly traded imports from multiple countries. The overall surge in imports has led some steel producers to file trade cases on six different products, and a number of facilities have already been idled and workers have lost their jobs. Countries like China and Turkey continue to disrupt world markets by subsidizing the production and exportation of steel by their producers. In addition, a number of foreign steel producers are receiving below market rates for electricity purchases, and above market rates for excess electricity sales, which constitute a subsidy.

These types of foreign government interventions are creating global overcapacity in steel and a surge of steel imports into the U.S., inhibiting the industry’s ability to recover fully from the recent economic downturn. For the steel industry, which operates in the U.S. under tight margins with substantial subsidized competition from overseas, policies that raise energy costs on domestic companies threaten our competitiveness.

Electricity Supply: Affordability Concerns with the Proposed Clean Power Plan (CPP)
The proposed Clean Power Plan will impose direct requirements on the electric utility sector, as well as its customers through potential energy efficiency requirements, and the customers will bear the costs associated with compliance and reliability risks. Our principal concern is that this will lead to higher costs of electricity to large industrial customers like steel, while potentially lessening the quality and reliability of the electric supply that is essential for our industry to operate and succeed.

In its proposal, EPA indicates that the CPP would cause nationwide electricity prices to increase between 6 and 7 percent.1 This electricity economic impact will be exacerbated for the steel industry due to the regional differences in current fuel mix and the cost to switch to other fuels for the generation of electricity. Certain areas of the country are better suited for renewable production from wind and solar sources, while others have an abundance of coal sources. The CPP will have a disproportionate impact on coal-fired utilities, and there is a high correlation between the service areas of those utilities and the location of steel production facilities. The two leading states in terms of iron and steel production in the U.S. are Indiana and Ohio, while other important states for the industry are Alabama, Pennsylvania, Kentucky, and Michigan. All of these states are heavily dependent on coal for electricity production, and in turn, so is our industry. Industrial customers, especially steel producers, will be charged to offset the cost of replacing coal capacity with other sources, including the cost of new transmission infrastructure. These costs will be additive to the competitiveness challenges already faced by the domestic steel industry in the global market detailed above, and will come at the detriment of valuable American manufacturing jobs.

Additionally, the impact of other proposed or pending EPA regulations of the utility sector should be recognized as well. These regulations, including the Mercury and Air Toxics Standards (MATS), the Cross State Air Pollution Rule (CSAPR), coal combustion residuals, and Clean Water Act section 316(b) cooling water intake structures, will impact our industry directly. However, they will also impact us indirectly because of their effect on coal-fired utilities, which threatens the availability and reliability of electricity to large industrial customers like steel.2 In addition to the economic impacts of these collective regulations on our sector and the electric sector, the CPP will necessitate fundamental changes necessary to the production and distribution infrastructure.

Electricity Supply: Reliability Concerns with the Proposed Clean Power Plan (CPP)
In addition to concerns about the potential impact of the proposed Clean Power Plan on the affordability of essential electricity to the domestic steel industry, AISI members also believe the proposal could negatively impact large industrial customers because we often bear the risks of the reliability of the electric grid. Given the substantial amounts of power that industry facilities purchase, service disruptions are most acutely felt by steelmakers and others in the manufacturing sector. As was the case with the polar vortex in early 2014, external events often influence grid reliability and threaten significant energy supply disruptions.3 This challenging scenario could be further worsened by creating greenhouse gas reduction obligations for existing power plants in addition to the already increasing regulatory burden they current face through the MATS and CSAPR, among others.

In recent weeks, several organizations with the responsibility to oversee electricity markets and ensure grid reliability have issued analyses highlighting concerns with the potential impacts of the CPP. The North American Electric Reliability Corporation (NERC), which is designed to assess and improve the reliability of the North American power system, released and initial review of the proposed CPP on November 5.4 In its report, NERC identifies the CPP’s impacts on the resource components of the national electricity grid, and the potential reliability challenges that would result. The report points out that implementation of the CPP will result in an increased use of natural gas by the utility sector that may overwhelm the current gas production and delivery infrastructure. It also raises concerns that the reliability is inherently inconsistent in both variable resources, such as wind and solar, and distributed resources, such as rooftop photovoltaics.

Additionally, two leading interstate system operators have issued recent reports assessing the potential electricity reliability impacts of the CPP on their respective service territories. In October the Southwest Power Pool (SPP), the Regional Transmission Organizations (RTO) that includes all or parts of eight states: Arkansas, Kansas, Louisiana, Missouri, Nebraska, New Mexico, Oklahoma, and Texas, issued its own evaluation of the CPP on reliability in its region.5 The SPP analysis concluded that potentially problematic results would occur in both the transmission system and reserve margins aspects of its RTO if the CPP is implemented, raising the possibility of significant interruption or loss of load in the grid.

And on November 17, 2014, the Electric Reliability Council of Texas (ERCOT), which is the independent system operator (ISO) for the Texas Interconnection, issued its own analysis of the CPP. ERCOT encompasses approximately 90% of electric load in Texas and was established by the Texas Legislature to be responsible for the reliable planning and operation of the electric grid for the ERCOT interconnection under the NERC reliability construct. The ERCOT report concludes that “the proposed CO2 emissions limitations will result in the retirement of between 3,300 MW and 8,700 MW of coal generation capacity, could result in transmission reliability issues due to the loss of generation resources in and around major urban centers, and will strain ERCOT’s ability to integrate new intermittent renewable generation resources.”6

As discussed above, as a substantial consumer of electricity, the stability and reliability of supply is essential to the success of the domestic steel industry. Independent evaluations of the Clean Power Plan raise significant concerns about the status of electricity supply to industry facilities in the future.

Global Greenhouse Gas Emissions
Another significant concern for AISI and its member companies is that these proposed regulations do not reflect the fact that efforts to address climate change can only be truly effective when undertaken on a global basis. As stated above, the domestic steel industry is also subject to substantial international competition. At the same time, making steel products in the United States is the most energy efficient place to do so and where greenhouse gas intensity is 35% lower than in 1990 from our sector. Limitations on CO2 emissions instituted in the United States must apply at the same level of stringency to other major steel producing nations, such as China.7 Otherwise, the competitiveness of energy-intensive, trade-exposed domestic manufacturers, such as steel, in the global marketplace will be lessened. The end result will be that steel production and manufacturing jobs will shift to other nations with weaker, less costly regulations, and where steel production is less energy efficient and more environmentally harmful.

Conclusion
AISI and its member companies appreciate the ability to provide the perspective of the domestic steel industry on the proposed greenhouse gas reductions mandates for existing power plants, known as the Clean Power Plan. The U.S. steel industry is concerned that these unilateral regulations of GHGs from electric utilities will threaten the affordability and reliability of electricity supplies to the steel industry, and put the industry at a further competitive disadvantage against foreign steel makers, who in many cases receive subsidized electricity costs from their governments and generally have higher rates of GHG emissions. Such a result would not only be detrimental to the domestic steel industry and its employees, but to the larger global environment, as steel production will be forced to relocate overseas to areas with less stringent environmental regulations than in the U.S. and where steel industries operate with less energy efficiency and greater GHG emissions rates.

Instead of moving forward with these unilateral regulations, AISI believes that Congress and the Administration should craft a comprehensive and market-driven energy policy built around promoting greater development of domestic energy sources, incentives for efficiency improvements, and additional support for industry efforts to develop breakthrough technologies. These policy measures will serve to meet shared national clean energy and manufacturing goals, while avoiding the negative impacts the CPP would have on the industrial sector. In particular, such an agenda should create an abundant and affordable energy supply by developing domestic oil, natural gas, nuclear power, and clean coal resources and fully make all these sources of energy part of the nation’s energy and manufacturing strategy moving forward. It should also focus on modernizing the nation’s energy production and distribution infrastructure to ensure that energy supply is consistently reliable for the major industrial consumers who rely upon it.

1 - EPA, Carbon Pollution Emission Guidelines for Existing Sources: Electric Utility Generating Units, 79 Fed. Reg. 34,934 (June 18, 2014).
2 - “I think it's inevitable with these regulations, the price of producing electricity is going up. There's no question this is going to have a cost impact on customers,” Alabama Power spokesman Michael Sznajderman. Martin J. Reed, “Alabama Power expects higher electricity costs amid tighter federal regulations,” http://www.al.com/news/birmingham/index.ssf/2014/11/alabama_power_expects_higher_e.html, November 13, 2014.
3 - North American Electric Reliability Corporation, Polar Vortex Review (Sept. 2014).
4 - NERC, Potential Reliability Impacts of EPA’s Proposed Clean Power Plan: Initial Reliability Review (Nov. 2014).
5 - Southwest Power Pool, Comments on “Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units,” (Oct. 2014).
6 - Electric Reliability Council of Texas (ERCOT), “ERCOT Analysis of the Impacts of the Clean Power
Plan.” (Nov. 2014).
7 - It should be noted that although the leaders of the United States and China recently issued a “joint agreement” regarding greenhouse gas emissions, questions about the timing and verification of that agreement China are not certain. Citing the agreement to justify stronger GHG reductions in the U.S. is premature at this point.

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