Economic Reconnaissance | What Does the Climate Change Legislation Mean for Manufacturers?

 Christopher Kuehl

Christopher Kuehl

Managing Director • Armada

There are far more questions regarding the new climate change legislation than there are answers. We discuss some of this elswhere in the latest issue of the Flagship but it seems appropriate to get into a bit more detail in this section. As with so much legislation there will be winners and losers. Those that will be hurt will be those that will be forced to spend money to be in compliance with the new rules and regulations as well as those that will see higher prices for the commodities and materials they use. The winners will be those that manufacture the gear that will be required for industry and the consumer to be compliant with the new rules as well as those that will take advantage of the incentives to “go green”.

 

Some specific areas that manufacturers will need to be aware of include both penalties and incentives. There will be a fine of $900 per metric ton of methane emission over federal limits in 2024 and that rises to $1500 a metric ton in 2026. This is a regulation that will affect the agricultural sector more than manufacturing but those in food processing will be affected directly and indirectly. There will be some $30 billion available for industry to deploy solar panels, wind turbines, batteries, geothermal facilities and even zero-emission nuclear power plants. There are also tax credits included in this package. Another $30 billion has been directed at utilities to advance their transition away from oil, gas and coal. There will be tax credits worth $85 a ton for carbon sequestration as well.

The worst polluters in the industrial sector have been identified as in the chemical, steel and cement industries and there is $6 billion in grants and tax credits to encourage reduction of emissions. There are also corresponding penalties that will be assessed to encourage these efforts. There is $10 billion allocated to encourage development of hydrogen fuel, bio-diesel and similar fuel alternatives. As part of this effort to reorient manufacturing there will be $10 billion in tax credits going to companies that are making electric vehicles and developing other technologies that can replace fossil fuel. There will be a $27 billion “green bank” to support investment in alternative technologies such as solar panels on existing buildings and the use of smaller wind turbines and the like.

 

Agriculture will be affected by the investment of $20 billion to reduce methane production from livestock through different feeds and other management options. This will have an immense impact on feedlot operations and large scale operations in poultry and swine. Forestry will be affected through reduction of logging in select areas as well as the large scale planting in areas where deforestation has been taking place.

 

There is a lot in this legislation that is aimed at the consumer as well. Tax credits and direct incentives to buy electric vehicles, fuel efficient appliances, electric equipment to replace gas powered gear and so on. There is money to get people to install solar panels, new heating and a/c gear and so on. This is the kind of investment that encourages manufacturers as it creates a large new market for this equipment. Many of these incentive programs demand that the material and equipment be made in the US. This has created some tension with Canada and Mexico as both of these nations have considerable investment in electric vehicle manufacturing that is aimed at the US consumer.

 

There is a lot here – some bad and some good. The challenge is to determine what elements of this effort last and which parts may be drastically altered in the future if the winds of political change keeping blowing.

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