Over the past decade, stepped-up environmental initiatives have led to increased federal regulation of utilities, presenting challenges for metal producers whose core business relies on a steady supply of electricity. In response to these policies, as well as increased pressure from international competition, mills and the associations that represent them have taken a two-pronged approach to securing their access to affordable, uninterrupted electricity: advocating for federal policy reform, and working to develop new technologies designed to reduce reliance on utilities.
Brett Smith, senior director of government relations at the American Iron and Steel Institute, said that the steel industry has increased its efforts to advocate for policies that would ensure a reliable supply of affordable electricity. These efforts, Smith said, have become increasingly difficult to advocate, largely because of new emissions standards set by the Environmental Protection Agency for domestic utility companies. The EPA is in a position now of either proposing or currently regulating the utilities themselves for their emissionsÑwhether those emissions fall under the Utility MACT (maximum achievable control technology) regulation or the Cross State Air Pollution Rule, he said. Those regulations and the cost of those regulations and the risks associated with them are oftentimes, if not always, passed on to the large industrial customers like steel facilities.
Whats more, Smith believes that coal-fired utilities and production facilities reliant on their electricity will begin to face challenges as a result of increased government oversight over the next 12 months. In a report to the House of Representatives, the AISI indicated that these regulations would negatively impact the steel industry either through direct impact on its use of coal or through the consequences on the coal-fired utilities from whom the industry purchases electricity.
Charles Johnson, vice president of environment, health and safety at the Aluminum Association, was not as concerned about the threat of increased energy costs as a result of stricter emissions standards. Our basic platform when it comes to electricity production in the U.S. is that we need reasonably priced and predictably priced electricity in order to continue production and thrive as producers in North America. We are sensitive to the fact that there is a lot of regulation that is ongoing and proposed dealing with coal-powered electricity production. However, the majority of the electricity we utilize is hydroelectric, and so our position on electricity policy is somewhat nuanced.
In an effort to further clarify its nuanced position, the Aluminum Association followed up with an official statement detailing the associations stance regarding electricity policy. Overly simplified regulations that do not account for previous, market-driven energy efficiency will only result in the loss of economic growth and destabilize the economic recovery, increasing unemployment and outsourcing.
In addition to concerns about future access and costs resulting from increased federal regulations, domestic manufacturers are in direct competition with Chinese metal companies, which according to an AISI report have been receiving generous energy subsidies from the Chinese government. The domestic (steel) industry is subject to substantial international competition, often from nations such as China, where industry is largely state-owned, controlled, and subsidized, the report said. The Department of Commerce determined in two recent cases that Chinese steel pipe producers were receiving below-market rates for electricity, which constitutes a subsidy. U.S. policies that raise the cost of coal for domestic companies threaten the industrys ability to remain competitive internationally.
In response to these subsidies, Commerce Department officials are preparing an extensive report, scheduled to be published by the end of the year, which will detail findings on Chinese energy subsidies and their subsequent benefits to affiliated companies in the United States. Moreover, the European Union, in response to its own Chinese subsidy findings, launched an investigation into whether Chinese steel producers had received energy subsidies to undermine international competition.
In an attempt to become more self-reliant--and subsequently less vulnerable to issues related to policy, emissions regulation and international competitionÑmany domestic companies, particularly those using electric-arc furnaces, have been exploring self-generation and heat-recapture options. Short of operating on-site hydroelectric or coal-fired power plants, a number of steel manufacturers are using innovative systems designed to integrate the by-products of steel production.
What a lot of companies do--and this is on both sides of the industry--is integrate process gases, capture them and use them to fuel boilers which then goes to producing electricity, Smith said. In 2010, the steel industry consumed 45.7 billion kilowatt-hours of energy, accounting for nearly 20 percent of manufacturing costs, he said. Reducing energy usage by even a fraction of a percentage would translate into millions of dollars in savings for the steel industry as a whole. Our industry is a third more efficient than it was two decades ago, and a lot of that is due to how we use energy and how we use resources in producing steel, Smith said.
While the steel industry appears enthusiastic about exploring new and innovative options for self-generation, the aluminum industry is somewhat less positive about the possibilities of on-site generation. The aluminum industry, in general, in North America has been down the road of self-generation and is not really exploring that as a viable option in the U.S. at this time, Johnson said. The industry has done a really good job of increasing energy efficiency in the last couple of decades. We have processes and good relations where we produce, so self-generation doesnt seem to be an area we need to focus on at this time.
However, Johnson pointed out that new aluminum production technologies have successfully reduced overall electricity consumption. There is incremental change that is happening all the time in the aluminum industry, he said. For instance, we have been exceedingly successful in reducing our PFC (perfluorocarbon) emissions from primary aluminum, and a lesser-known fact is that greenhouse gas reduction resulted from an efficiency increase in our primary aluminum facilities.
The aluminum industry has reduced primary energy demand by 17 percent since 1991 through new technologies and innovative production processes, according to Johnson, and it continues to make incremental changes to reduce energy consumption.
Even though many international aluminum companies are seeking power strategy consultation from firms such as Fairfield, Conn.-based General Electric Co., Johnson said that the domestic aluminum industry is focusing its attention less on the generation source and more on the legislative initiatives facing the production of electricity. Energy costs are a negotiated cost, he said, and in pure terms of economics, those costs are influenced more by legislation than regulation and by demand.
Advocating for a more-nuanced legislative package that promotes reliable energy production is at the top of the Aluminum Associations list of priorities. For instance, our association is actively promoting our recycling processes as an energy-efficiency initiative that should be recognized in future legislation with energy efficiency or carbon policy, Johnson said. In a future world in which energy efficiency is recognized and promoted through legislation and regulation and in which carbon policy is becoming more important, we believe that the secondary benefits of aluminum useÑspecifically that it takes only 5 percent of the energy to produce it the second timeÑshould be recognized in those regulatory solutions.
It is well understood that the metals industry as a whole will continue to rely heavily on the utility companies that produce electricity. It also seems feasible that other energy options, especially those using large amounts of fossil fuel, may one day be difficult to utilize because of increasingly stringent environmental regulations. Representatives from various metal industries have said repeatedly that the primary issues facing electricity usage in the metals sector are generally not associated with negotiating lower rates with individual utilities, but rather advocating for better legislation that will allow utilities to deliver affordable, reliable electricity for decades to come.