Updated 2:00 PM EST, December 2, 2014
America’s chemical industry is undergoing a historic expansion, made possible by plentiful, affordable supplies of natural gas and NGLs from shale. But EPA’s upcoming ozone regulations could put the brakes on manufacturing growth in many parts of the country.
Bright outlook for chemical industry investment
Due to the U.S. chemical industry’s newfound competitiveness in the cost and availability of energy and feedstock, major investment projects such as new plants, expansions, and factory restarts are being announced each month. More than $125 billion in new U.S. investment is planned or underway, which could create and support 406,000 jobs by 2023.
As the map above shows, chemical and plastics industry projects are slated for a number of states. The vast resources in shale gas basins can spur additional projects in the coming years. The nation will benefit as the new activity generates increased GDP and tax revenue, payroll-induced jobs, and access to innovative new products.
EPA ozone regulations could slow U.S. manufacturing growth
The current National Ambient Air Quality Standard (NAAQS) for ozone – 75 parts per billion (ppb) – is the most stringent ever and has not been fully implemented across the United States. On November 26, EPA proposed a more stringent standard of between 65 and 70 parts ppb. Unfortunately, much of the U.S. will be unable to meet the lower standard.
Manufacturing growth could slow or stop in states that find themselves in non-compliance, since facilities located in ‘nonattainment’ areas face burdensome, extensive regulatory requirements. These rules make investment projects far more costly and complex.
The experience of Houston, Texas is illuminating. Despite billions spent on emission controls and a dramatic reduction in air pollutants, the area is in nonattainment with the current ozone standard of 75 parts per billion. As a result, there are strict regulatory permitting requirements for building or modifying factories and other facilities. Companies wanting to build or expand must pay for emission offsets before they can secure a preconstruction permit. These offsets are scarce, and expensive – over $175,000/ton of VOc/NOx.
Even facilities that are not expanding can feel the pain of operating in a nonattainment area. When a standard is lowered, states often have to implement new regulations or more stringent ones. For example, facilities in the Houston area with combustion units, such as boilers and ethylene crackers, must install burners that emit even lower NOx emissions. The point is that it is not only new investment that is at risk.
Many states will be unable to meet EPA’s proposed lower NAAQS. Most likely, facilities in these locations will expand only if they shut down operations elsewhere or are able to come up with the significant additional investment needed to buy pricey offsets.
ACC’s Mike Walls summed up the problem when he testified at Senator Vitter’s field briefing:
Given our industry’s unprecedented expansion and potential to drive further growth in U.S. manufacturing, we are troubled by what could happen to business investment in the many new nonattainment areas that will emerge if EPA dramatically lowers the standard.
Reforming the regulatory permitting process
Apart from where the ozone standard is set, the regulatory permitting process itself needs a lot of work.
As ACC’s Lorraine Gershman pointed out when she testified before a House Committee this spring, EPA has tightened a number of NAAQS in recent years without fully implementing them. Lacking clear direction from the Agency, state permitting agencies and manufacturing facilities have, at times, been left confused about the requirements to complete the preconstruction permitting process. Improving the regulatory permitting process must be a priority for the Administration.
Administration pledge to support shale-related manufacturing
The Obama Administration has often said it wants to grow American manufacturing and increase exports. Indeed, President Obama highlighted shale gas and the need for prompt approval of manufacturing projects in his State of the Union Address. The President said, “Businesses plan to invest almost $100 billion in new factories that use natural gas. I’ll cut red tape to help states get those factories built.”
But true growth will require a net gain in manufacturing output and jobs, not taking one step forward, one step back. Under EPA’s ozone rules, new investment and curtailed production could be a wash.
A better path forward for EPA
There is a better way for EPA to proceed. Rather than move forward with a lower ozone standard, EPA should:
- Fully implement the current ozone standard of 75 ppb;
- Study the impacts of a lower standard, including the costs to industry and the public; and
- Provide better guidance to state permitting agencies and manufacturing facilities, including clarifying the steps required to obtain a preconstruction air permit in a timely manner
We hope EPA will immediately reconsider its plans for a new standard. The Administration’s path forward will determine whether America stays ‘open for business’ to manufacturing.
We appreciate that in its proposal, EPA recognized there are concerns about the implementation process for revised NAAQS, and that the Agency will accept comment on retaining the current standard.
Several bills would improve standard-setting and the regulatory permitting process:
- The Clean Air, Strong Economies (CASE) Act (S. 2833, H.R. 5505), introduced by Senator John Thune (R-S.D.) and Reps. Pete Olson (R-TX) and Bob Latta (R-OH), would require that 85 percent of non-attainment areas come into compliance with the current standard before EPA further lowers the level, ensure that EPA conducts a feasibility and cost assessment, and require the use of direct air monitoring
- The Promoting New Manufacturing Act (H.R. 4795), introduced by Congressman Steve Scalise (R-La.), will create a dashboard with key permitting data, require EPA to issue guidance concurrent with new rules, and direct EPA to prepare an annual report to Congress
- The Ozone Regulatory Delay and Extension of Assessment Length (ORDEAL) Act (S. 2514), introduced by Senator Jeff Flake (R-AZ), will give EPA more time to review and revise air quality standards, ensuring a more certain regulatory environment for state air-quality agencies and businesses
- The Clear the Air With Congress Act (H.R. 5665), introduced by Congressman Randy Weber (R-Texas), will promote transparent, collaborative and cost-effective NAAQS for ozone under the Clean Air Act
Strategy for the future
America’s air quality continues to improve. Emissions of common air pollutants and their precursors have fallen substantially. Between 1980 and 2012, total emissions of the six principal air pollutants dropped by 67 percent, even as U.S. gross domestic product grew 133 percent. Voluntary and regulatory programs will continue to reduce ozone concentrations through 2030.
With the right policies and regulatory process, we can improve our environment and our economy.
NOTE: On November 26, EPA proposed lowering the ozone NAAQS from the current 75 ppb to 65-70 ppb. This post was updated on December 2 to include new information related to EPA’s proposal.