Earlier this week, the EPA proposed new standards that will reduce greenhouse gas emissions at existing power plants by 30 percent by 2030. Critics argue the standards will force manufacturers to shift production overseas. Supporters argue the standards are a necessary response to climate change.
Who's right? The answer depends largely on (1) how much manufacturers actually spend on electricity; (2) how much rates will rise; and, (3) how much manufacturers are already losing because of severe weather.
In answering these questions, Business Forward Foundation focused on America’s biggest, most important manufacturing industry: autos.
The results of the report are striking in two ways.
- First, the potential cost of higher electricity rates (adding $7 to the cost of producing a $30,000 car) is quite small, while the cost of weather-related shutdowns is enormous ($1,250,000 per hour). Like most manufacturers, automakers spend less than 1% of their budgets on electricity, which means that if it costs them $100 to manufacture a part today, the EPA’s standards could eventually add 6 cents.
- Second, American manufacturers rely on supply chains that are increasingly large, specialized, global and fast. The very characteristics that make them efficient also make them interdependent, and this interdependence is what makes them susceptible to severe weather. Climate change is disrupting our ports, highways, bridges, and rails – and, because producers come from all over the world, severe weather in Asia affects us, too.
Automakers and suppliers are already taking steps to reduce this exposure, just as they are making energy efficiency investments across their U.S. plants. Their lesson could be a very useful example of how America can lead on climate change and high value manufacturing