sectoral economic costs and benefits of ghg mitigation - IPCC

Energy Intensive Industries
natural gas, the price of natural gas would be expected to rise, perhaps dramatically. The
chemical industry consumes over 2,400 billion cubic feet of natural gas annually for fuel and
feedstock use, representing 11% of total U.S. consumption. Any increase in the price of natural
gas from massive fuel switching would certainly impact the chemical industry as well as to other
large industrial natural gas consumers.
Because energy costs are a large component of chemical production costs, and because energy
costs will increase for Annex B chemical producers, but not others, it seems obvious that there
will be a shift in the balance of trade. While the chemical industry continues to be a significant
domestic industry employing over a million people, increased competition from abroad has
arisen, especially from developing nations. The U.S. chemical industry welcomes the opportunity
to compete in this global marketplace, however it is very concerned over the competitive
disadvantage that would be imposed upon it if the industry were forced to enact carbon
reductions while other nations were not.
Between 1989 and 1998, chemical production in non-Annex B countries has risen nearly 50%
while production in Annex B countries has grown just over 20%. In 1989, non-Annex B
countries produced 24% of chemical products. In 1998, those countries produced 28%. Since
1989, imports of chemical products into the U.S. from non-Annex B countries have grown by
169% while exports to these countries have grown only 79%. The U.S. trade balance with non-
Annex B countries is still positive and large, however it is clear that developing nations are
investing in chemical manufacturing and such trade balances are already under pressure even
without the shift in competitive advantage from a Kyoto agreement.
The Kyoto Protocol, if put into force, would require reductions only in certain developed (Annex
B) countries. Non-Annex B countries include South Korea, Mexico, China, India and other
nations that are quickly becoming major producers of chemical products, but which would not be
subject to increased factor costs in the form of higher energy prices. The competitive advantages
that would accrue to these nations would likely make them more resistant to voluntary
participation in emissions trading, assuming binding emissions reduction obligations for
countries wishing to participate in emissions trading.
Even within Annex B, the U.S. chemical industry would be disproportionately impacted.
Because of its lower energy intensity and ability to trade within its bubble, the European
chemical industry would face less severe impacts from the Kyoto agreement vis à vis the United
States.
In conclusion, the United States chemical industry offers the following recommendations to
reduce greenhouse gas emissions without being subjected to unfair competitive disadvantages.
• Encouragement and recognition of voluntary actions to improve energy efficiency and
reduce or avoid greenhouse gas emissions
• Research to resolve uncertainties in the science of global climate change
• Removal of barriers to the deployment of energy efficient and greenhouse-friendly
technologies (i.e., combined heat and power) and
• Research and development of breakthrough new technologies to dramatically reduce the
greenhouse impact of energy-related and other anthropogenic emissions.
244