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Environmental Alert
H.R. 2454, The American Clean Energy and Security Act of 2009
Impact on the Asphalt Pavement Industry
Introduction
On June 26, 2009, the House of Representatives approved the American Clean Energy and Security (ACES) Act by a vote of 219-212. H.R. 2454 is currently pending before the Senate Environment and Public Works Committee.
ACES establishes a cap-and-trade global warming reduction plan designed to reduce greenhouse gas (GHG) emissions 17 percent by 2020, 42 percent by 2030 and 83 percent by 2050. These are substantial goals. Other provisions include new renewable requirements for utilities, studies and incentives regarding new carbon capture and sequestration technologies, energy efficiency incentives for homes and buildings, and grants for green jobs, among other things.
Direct Impact of H.R. 2454 on Asphalt Pavement Industry
ACES establishes a list of GHGs regulated under the legislation and directs EPA to establish a federal GHG registry and comprehensive reporting system for GHG emissions. Starting in 2012, ACES establishes annual tonnage limits on emissions of carbon and other emissions thought to be associated with global warming from large U.S. sources like oil refiners, cement producers, and stationary sources that emit 25,000 or more tons of carbon dioxide equivalent (CO2e) – a standardized measure of greenhouse gases.
The asphalt pavement industry is not listed as a source in the legislation and a typical asphalt plant does not emit 25,000 or more tons of CO2e (approximately equivalent to producing less than 1 million tons of hot mix under current processing parameters). These values are based on an empirical analysis of fuel energy (BTUs) and emissions.
For example, distillate or residual fuel emits about 24 lbs CO2e per gallon combusted. At 2 gallons fuel per ton hot mix produced, this equates to about 50 lbs CO2e per ton mix. And to exceed the 25,000 ton CO2e regulatory trigger, a plant would need to produce about 1 million tons hot mix annually. Other fuels, such as natural gas, have less CO2e emissions associated per BTU – and therefore, running a plant dryer on an alternative fuel, may decrease emissions as well. Similarly, running warm mix will also reduce GHG emissions. NAPA is developing a spreadsheet for calculating the amount of CO2e emissions associated with a variety of plant operations – this will be announced when completed and posted on NAPA’s website at www.hotmix.org.
Because of the limited CO2e emissions, the asphalt pavement industry would not be required to participate in a cap and trade program established under ACES. However, there are a number of state and regional programs which may be more restrictive than the federal program in reducing GHGs. In some instances, these programs may impact a typical HMA plant. There is preliminary indication that some states will require GHG reporting above 5,000 tons CO2e. Whether or not individual states will have their own cap-and-trade programs, remains to be seen.
Indirect Impacts of H.R. 2454 on Asphalt Pavement Industry
While it is difficult to quantify the indirect impacts of ACES on the asphalt pavement industry, it is possible to describe some of these impacts on segments of the industry and on the transportation sector in general. Most experts agree that ACES will increase the cost of energy, and as a result, the cost of producing asphalt pavement. Additionally, encouraged reductions in vehicle miles traveled by shifting transportation planning and funding to public transit, has further potential to impact the asphalt pavement industry.
Refineries
Stationary sources in the petroleum refining sector are required under ACES to participate in a federally regulated cap-and-trade program. A refiner would be required to purchase an allowance for carbon emissions from its refineries. The cost of the allowance would be determined at auction, but would increase over time as the carbon emissions cap decreases over time. These costs presumably would be passed on to the customer.
Highway Construction Market
ACES will likely raise the price of highway fuel through a hidden tax on the carbon present in the fuel. The Congressional Budget Office (CBO) estimates that the ACES will increase the price of gasoline by 77 cents over the next decade. Unlike a traditional fuel tax increase, none of the revenue raised will be spent on highways.
ACES reserves as much as 1% of cap-and-trade taxes to invest in energy-efficiency projects and help pay for transit expansions, new bike trails, or any other similar type of transportation efficiency project. None of this money can be used for highways - even if the highway project would reduce emissions by relieving congestion.
ACES also adds new and onerous "planning" requirements for states and metropolitan regions that will further slow an already comprehensive and arduous federally-mandated transportation planning process. It would give each state three years to submit plans to curb transportation-related GHG emissions, both at the state and city levels. States would work with U.S. EPA to set emissions targets for 10- and 20-year periods and would be encouraged to expand their bus and light rail systems. These new requirements would create disincentives to state and local planners to include new highway and bridge capacity in their transportation plans.
Latest Legislative Status
Currently, ACES is pending before the Senate Environment and Public Works Committee. Chairwoman Barbara Boxer indicated she would like to markup a bill by the end of July. Senator Reid has given all Senate committees a deadline of September 18 to complete work on the bill so it may be considered in the U.S. Senate. Should the Senate approve a version of the bill, a joint House-Senate Conference Committee would have to reconcile the two bills into one and vote on a final package to send to the White House for the President’s approval.
Summary
As currently drafted, it is unlikely that an asphalt pavement company would currently be required to participate in a federal cap-and-trade program due to limited facility emissions. However, as ACES further reduces available carbon credits over time and as EPA may expand the definition of a “covered entity”, a typical asphalt mix pavement plant may indeed find itself required to report and participate in a cap-and-trade program. Although there is no current mechanism for voluntary participation in a federal (or state) cap-and-trade program, each company should review pros and cons regarding potential participation in both cap-and-trade programs and GHG registries.
Getting credit for reducing greenhouse gas emissions in a non-required cap-and-trade environment is equally important from a public relations perspective. Efforts that the asphalt pavement industry have been pursuing: increasing recycle, promoting warm mix, and emphasizing the benefits of porous pavements, thin lifts, and perpetual pavement design – all are consistent with an environmentally sustainable pavement material.
NAPA will continually update the asphalt pavement industry with information regarding climate change legislation and potential impacts to our industry. An update will be provided at NAPA’s Mid-Year Meeting to be held July 27-29, 2009. In the interim, if you require additional assistance, please contact Jay Hansen or Howard Marks.
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