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Climate Change and Renewable Energy

Climate Change Impacts on the Competitiveness of Energy-intensive Manufacturing Sectors

Four industries – iron and steel, aluminum, paper and pulp, and chemicals – account for nearly half of the energy consumed by U.S. manufacturing industries and over 10 percent of total U.S. energy consumption, making them highly vulnerable to volatile energy prices.  MI and High Road Strategies collaborated on a study commissioned by the National Commission on Energy Policy to examine how increased energy prices associated with comprehensive and mandatory cap-and-trade climate policy proposals currently being considered by the U.S. Congress would affect the competitiveness of these industries in the long term.  The study also examined the industries’ capabilities and opportunities to mitigate adverse cost impacts and improve their economic performance under different climate policy scenarios.

The preliminary findings of the study show that climate policies that price CO2 could have significant impacts on the competitiveness of U.S. energy-intensive manufacturing sectors over the next two decades if climate regulations are applied only in the United States, and no action is taken to invest in advanced low- and no-carbon technologies or otherwise mitigate the cost impacts on these industries.

Energy efficiency gains required to offset the energy cost impacts from climate policies for energy fuels used for heat an power range from 14 percent to 34 percent, by 2020. The findings also suggest that policy measures that mitigate the short-to-mid term costs impacts of climate policy would buy time for, and, if coupled with other appropriate policies, encourage energy-intensive manufacturers to make the transition to low-carbon production process.

In short, the findings strongly suggest that over the long-run, technologies are available to enable energy-intensive industries to achieve sufficient efficiency gains to offset and manage the additional energy costs arising from a climate policy.  However, we also strongly believe that the industries analyzed will need additional measures that both mitigate these cost impacts in the short-to-medium term, and policies that encourage and facilitate the transition of energy-reliant companies to a low-carbon future, while enhancing their competitiveness in global markets.

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