Steel, Paper, Natural Gas Want Changes For New Clean Air Rule

Could a company be exempted if it is under the 50th or 25th percentile in carbon intensity in its industry?

Steel, Paper, Natural Gas Want Changes For Washington's Clean Air Rule, Take Two
Nucor Steel emphasizes energy efficiency by using recycled steel to make new steel in electric arc furnaces. Photo: Mouser Williams.

The steel, paper and natural gas industries are among those looking for changes in the Washington state Clean Air Rule that’s now under revision after an earlier version was pulled back by the Department of Ecology. Governor Jay Inslee is implementing it via executive order and through Ecology’s rule-making process.

Stakeholders are being heard but where it all ends up remains unclear. Without a lot more compromise toward industry than in the version of the rule scrapped in late February the whole thing may be headed for court. Perhaps right as Democrat Inslee and his Republican opponent Bill Bryant in the 2016 election for Governor begin their home-stretch pitches to Washington voters.

The new draft rule is expected to be issued by mid-May. After public hearings it will be finalized by late summer. It will aim to cap carbon dioxide and equivalent emissions from the heaviest emitters in the state and then others in coming years. On a separate track Washington voters will decide a ballot measure on a proposed carbon tax, Initiative 732.

For the Clean Air Rule energy-intensive trade-exposed industries also known as EITEs want meaty credit provisions in the new version for environmentally friendly manufacturing process changes already made and for enforceable pledges to make more such gains. More credit for helping consumers achieve energy efficiency is key to other stakeholders such as utilities.

EITEs include pulp and paper, concrete, steel, aluminum and others. In recent talks with the state they have continued to warn that forced reduction in output as in the first draft of the rule will lead to plant closures and leakage of carbon and jobs to other states and nations.

Preliminary indications of the administration’s response to the latest discussions could come soon. Expecting a promised written response next week from Ecology on proposed rule changes recently raised in meetings was Chris McCabe, Executive Director of the Northwest Pulp and Paper Association.

Nucor Steel Urges More Credit For Energy Efficiency

Emblematic of the concerns industry has is the Seattle division of Nucor Steel. The company is widely recognized as a leader in green manufacturing processes.

Nucor makes steel from recycled scrap metal in cleaner, more modern electric arc furnaces. It’s a sharp contrast to the blast furnaces used in China and other locales to make steel from coke, iron ore and limestone.

The recycled steel Nucor uses comes from vehicles, food cans, demolished buildings, the rail industry, and metal remnants from machine shops and stamping plants. The company has 24 scrap-based steel mills in the U.S.

Nucor Steel Seattle’s Environmental Manager Patrick Jablonski said the company is “deeply concerned that a state policy will create a competitive disadvantage” for the Seattle plant. He said drivers would be direct costs that penalize production growth and indirect costs of compliance which bump up the tab for energy and transportation.

His advice to the Governor: “Exempt EITEs from compliance obligations” in the new Clean Air Rule “because by definition they are trade exposed” and obligations imposed by added costs will cut their market share as customers shift to cheaper suppliers in less environmentally-regulated locales.

Exempting EITE stakeholders could be based on an industry standard. Jablonski said if a company is under the 50th or perhaps 25th percentile in energy intensity or carbon intensity in its industry it could be exempted.

Jablonski said if the possibility of full exemption for EITEs isn’t included some serious changes will still be needed in the new rule compared to the pulled-back version. That required an ongoing five percent cut in emissions every three years or some combination of fines, off-site compensatory actions or emission permits purchased from carbon markets in California or a consortium of nine northeastern U.S. states.

Jablonski added that compromise could include exclusion from the emissions count of unavoidable “process emissions.” These are chemical reactions that occur during manufacturing such as when melting down scrap steel.

But it’s not all about the big industrial emitters. The impact on consumers of natural gas and transportation fuels could be considerable. Along with oil refineries in Washington state right in the middle is Avista Utilities. It provides energy services, electricity or natural gas to 710,000 customers in eastern Washington, and part of Idaho and Oregon.

Carrot Or Stick For Natural Gas Sellers, Customers?

If Inslee and Ecology keep the core of the rule the same as before then Avista will likely be forced to purchase emissions permits from out-of-state markets and the added costs will be passed on to customers, said Avista’s Director of Environmental Affairs Bruce Howard.

Howard said a far better pathway is rewarding increased energy efficiency. Through rebates to consumers Avista increased almost four-fold from 2014 to 2015 the number of energy-saving conversions from electric to natural gas-powered home heating. They’d like to do more of that and meet the rule’s obligations that way.

“The direct use of natural gas” to heat homes is one of the most crucial things you can do for home energy efficiency, said Howard. Avista can’t sell less gas to its customers but it can continue to incentivize and market home energy efficiency, Howard added.

Ecology ‘Having Some Pretty Intense Conversations’ About Clean Air Rule

The state is taking it all in. “It’s all in play at this point. The stakeholders are not all of one mind. We have to wend our way through it. We’re having some pretty intense conversations,” said Stu Clark, Air Quality Manager for the Department of Ecology.

A “broad suite of emissions” need to be covered under the rule including natural gas and transportation fuels, but a broad set of compliance pathways also needs to included, said Clark. Asked about potential litigation, Clark said there’s “a likelihood” some stakeholders will go to court to challenge all or parts of the rule.

Inslee spokeswoman Jamie Smith defended the Governor’s choice to implement the rule administratively. “The Governor tried to work with bipartisan legislators for three years to make some substantive progress on carbon pollution” but was forced to take another approach “which is well within his authority,” Smith said.

Climate and Clean Energy Program Director for the Washington Environmental Council Sasha Pollack said she hopes to see a rule that “moves us to significant reductions in carbon emissions and along a “quick but smooth pathway” toward a “clean energy economy.”

McCabe, of the Northwest Pulp and Paper Association, said the timeline for implementing the rule is still “way too fast” and he is “adamant” that the baseline emissions level for each affected facility cannot be calculated based on the last few years as in the earlier rule. He said it should be shifted to several years starting no later than 2004 because many Northwest pulp and paper mills instituted major on-site improvements costing tens of millions of dollars in sum around 2008-09 to cut carbon and carbon-equivalent emissions.

An exemption threshold of 70 or 75 percent should be set for the pulp and paper industry for carbon-neutral fuel used in plants’ burners and raised higher over time, said McCabe. Another approach he’s urging Ecology to consider is identifying site-specific energy efficiency improvements and enforcing compliance over time. A compliance credit multiplier could be added for early actions.

McCabe said the pulp and paper industry is highly trade-exposed. The loss to other states or nations of jobs averaging $74,000 a year in salary plus benefits would be a real blow to the Northwest economy. If the rule turns out poorly, “then I don’t know where things will go, but it probably won’t be in a very good direction,” McCabe said.

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