Energy Policy Position
Background
Americans consume aluminum primarily in transportation,
containers and packaging, and building and construction. The advances in
the automotive aluminum market are helping Americans drive
better-performing cars that in turn reduce carbon-dioxide emissions and
fuel consumption. Closed-loop recycling of aluminum beverage
cans—all recycled cans are used in new can sheet—allows
energy conservation and high recycled content. More than two-thirds of
all aluminum ever produced is still in use through continuous aluminum
recycling.
Recycled aluminum—from beverage cans to all other
uses—requires only about 5 percent of the energy as compared to
primary-ore production. Americans’ recycling efforts and the
industry’s aluminum reclamation system reduces the overall energy
consumption in total U.S. aluminum production by 46 percent. Primary
production consumes 507.16 trillion BTUs for 8 billion pounds, and
recycled secondary uses 41.3 trillion BTUs for 8.2 billion pounds,
making the national industry energy consumption for production 548
trillion BTUs.
Energy represents about one-third of the total production cost of
primary aluminum. Electricity is an essential ingredient in primary
aluminum production. These factors together make energy efficiency and
energy management prime objectives for the industry. While the industry
is a large consumer of both natural gas and electricity, the annual
expenditure for electricity by the aluminum industry is more than $2
billion.
Since the 1970s, manufacturing energy consumption has grown at twice
the rate of domestic energy production. This gap between energy use and
production will continue to adversely affect manufacturing if the
country does not resolve national energy policy with a comprehensive
U.S. energy strategy that enhances supply, improves infrastructure, and
increases efficiency, without compromising environmental safeguards or
imposing efficiency mandates.
Many business and labor leaders, economists, and policymakers agree
that America must increase domestic energy supplies in an
environmentally sensitive manner; improve energy efficiency,
conservation and development of new technologies; expand and secure our
energy delivery infrastructure; ensure affordable home energy supplies
for low-income households; and thoughtfully streamline energy
development regulatory processes.
Electricity
The Aluminum Association supports the principles of electricity
consumer choice and open access transmission, applied uniformly in the
U.S. through a national system. However the industry does not support
proposals for total federal pre-emption in all areas related to
deregulation and restructuring. The Aluminum Association supports the
establishment of a system that recognizes some inherent regional
advantages in the cost of electricity. Consumer-choice legislation
should not be tied to excessive taxing of electricity consumers to fund
public benefits or a national mandatory Standard Market Design.
With artificial-market disadvantages, it may be impossible to operate
or restore primary smelting capacity in the Northwest U.S., and other
regional aluminum plants will be subject to similar concerns. The
recommended approach is to provide short-term policies to help the
industry survive the transition to a rational market situation, and
provide long-term policies to restore supply-demand balance in
electricity markets.
Recommended policy
solutions:
- Provide for the creation of incentives that will create sufficient
generating capacity to service peak demand and provide a reserve margin
that will prevent brownouts and seasonal price spikes.
- Create a pricing and/or auction mechanism for the purchase of
long-term, reasonably priced supply, encouraging new generating-plant
construction, especially base load supply.
- Create demand-management pricing (including cost-of-service,
time-of-use, and seasonal pricing) that gives consumers appropriate
price signals allowing for conservation and reducing overbuilt capacity
for peaking loads.
- Encourage low cost-to-serve customers that have significant off-peak
demand, to provide off-peak load for generating plants.
- Create national ratings and standards that assess generation and
transmission reliability.
- Create national standards for grid design and maintenance to assure
supply portability with low-load losses to help balance supply and
demand on both a regional and national basis. Promote system efficiency
and lower cost.
- Ensure economic access to the grid for new and current generation
capacity that meets national standards of quality and reliability.
- Require BPA to control costs to make up financial deficits rather
than enact rate increases that threaten the viability of manufacturing
customers.
- Amend the 1980 Northwest Power Act to exempt the Northwest aluminum
industry and other traditional Direct Service Industrial Customers of
BPA from the New Large Single Load prohibitions of that Act as BPA
discontinues service to those customers, allowing indirect access to
power.
Electricity Notes: In the
Northwest Power Act of 1980, the Congress and BPA sought to keep the
Northwest aluminum industry and several other traditional Direct Service
Industrial Customers (DSIs) of the Bonneville Power Administration as
BPA customers. For that purpose, the Act includes the New Large Single
Load (NLSL) provisions that preclude the DSIs from receiving the
benefits of the Federal hydro system by purchasing such power from any
utility except BPA. Since BPA controls about half of the power marketed
in the region and has announced its intention to discontinue all
electricity service to the DSIs, the effect of the 1980 NLSL prohibition
is to deny the aluminum industry access to half—the lower-priced
half—of the electricity market in the region. This unintended
consequence of the Northwest Power Act threatens the existence of 40
percent of the U.S. primary aluminum industry and 5 percent of world
supply.
Natural Gas
The high cost of natural gas in the U.S. is having a
devastating impact on U.S. manufacturing competitiveness and jobs. U.S.
natural gas production has been stagnant since 1995 even though there is
an abundant resource base, while prices are more than triple their
historical base.
The
manufacturing sector has well over 3 million jobs since 1998, and
energy costs are viewed as a major contributing factor. It is vital that
Congress act quickly to stem the national energy crisis by enacting
legislation that provides a robust, diverse, and affordable supply of
energy. It is particularly critical that Congress and the states act to
increase the supply of natural gas, and address regulations such as New
Source Review to make it easier for power generators to meet air-quality
standards without switching from coal to natural gas. Congress must also
expedite commercialization of clean coal technology, the ultimate
solution for power generation, using coal in an environmentally
acceptable manner.
As of June 2010, the Henry Hub wholesale price of natural gas
was $4.75 per million BTU—well over twice the average price
of $1.97 per million BTU from 1991 to 1998. U.S. natural gas production
has been stagnant at 19 trillion cubic feet per year since 1995, even
though demand has continued to increase and relatively abundant amounts
of natural gas reserves exist. In fact, U.S. production in 1970 was
higher—at 21 trillion cubic feet per year.
Certainty of an affordable energy supply is essential to capital
investment in the manufacturing sectors that provide high-paying jobs.
Putting the U.S. on the path to a reliable and affordable supply of
domestic energy is essential to this country's short-term economic
rebound and future long-term growth prospects. All supply options should
be considered to contribute to a diverse and robust supply of
energy.
Every major energy crisis since 1973 has been followed by an economic
recession. The energy crisis of 2000-2001 was no different. The link
between affordable supplies of energy and our economic well-being is no
coincidence. Industrial energy-consuming companies were devastated by
high-energy costs that resulted in plant closures, plant idling, worker
layoffs, and the transfer of production to offshore facilities. This
same scenario is being repeated again, only from a smaller base of
manufacturing plants. The jobs may never return.
Recommended policy
solutions:
- Reconsider expired Section 29 Tax Credits, which had an important
impact on increasing natural gas production from 1990 to 1999 (January
2002 EIA report). For companies that used section 29 tax credits,
natural gas production increased by 26 percent, but decreased by 14
percent for those who did not.
- More reservoirs should be targeted with relatively fewer wells. The
half-life of natural gas wells in the contiguous 48 U.S. states has
fallen by 49 percent in only nine years and the rate is accelerating.
Even though the 2000-2001 natural gas price spike almost tripled the
number of drilling rigs in operation, the resulting natural gas supply
increase was insignificant. This means a lot of wells are being drilled
into common reservoirs that are getting smaller and are depleting more
quickly.
- Expedite access to federal lands that offer the greatest potential
to find large reserves of natural gas and with minimal environmental
impact.
- Expedite permitting and construction of the Alaska natural gas
pipeline.
- Initiate a Federal Energy Regulatory Commission (FERC) rulemaking
process to establish a “natural gas price index protocol” to
bring accuracy, integrity, and accountability to how natural gas prices
are being reported and communicated to the market.
- Expedite permitting and construction of liquefied natural gas
terminals.
- Address New Source Review regulations in a manner that makes it
easier for power generators to meet air quality standards without fuel
switching from coal to natural gas.
- Expedite commercialization of clean coal technology, the ultimate
solution for power generation, using coal in an environmentally
acceptable manner.
- Avoid any federal or state legislation that will directly or
indirectly force fuel switching to natural gas without commensurate
increases in supply.
- Maintain the ability of end users to connect directly to interstate
natural gas pipelines on a non-discriminatory basis.
- Strengthen firewalls between the regulated and unregulated portion
of companies that trade natural gas to prevent self-dealing.
- Embrace serious bilateral negotiations with the government of Mexico
to allow exploration and production access to their natural gas
reserves.
- Streamline the regulatory process at FERC, the Bureau of Land
Management, the Department of Interior, the Environmental Protection
Agency, and the Department of Commerce to encourage expeditious natural
gas pipeline certification and construction commensurate with health and
environmental protection.