CLIMATE CHANGE POLICY

RECOMMENDATIONS

1. Develop a National Climate Change Strategy that is Consistent with National

Energy Policy and the Country's Economic Interests
The fuel mix required to power this country will in large measure determine our national
emissions of greenhouse gases. Passage ofpolicies or laws, which are inconsistent with
the country's energy needs will delay investments needed to reduce GHG intensity and
waste valuable resources. A Climate Change Strategy must balance our energy needs,
energy sources, conservation, technology, innovation, environment and national
economic interests.

2. Improve the Science of Climate Change

The science of climate change is very complex. A greater understanding of the science
can have a significant impact on the choice and timing of policy implementation and
reduce costs. We are supportive of efforts to invest in further improving the science of
climate change.

. 3. Increase the Supply of Natural Gas

Natural gas is both an excellent fuel and feedstock for producing modem materials used
to meet society's needs. Unfortunately, forecasted demand exceeds supply. Over-
reliance on natural gas for its environmental attributes and the inability of the natural gas
industry to increase production has exacerbated this situation. We must work together to
open, more promising areas to exploration and production.

4. Encourage Use of Fuels Other Than Natural Gas for Utility Power Generation
IFIEC does not encourage greater use ofnatural gas for use by utilities to produce power.
Natural gas is too valuable to be used as a fuel for utility power generation and its
availability remains in question. The electric power industry has other fuel options while
most other consumers ofthe economy do not. U.S. natural gas supply is no greater. today
than it was 25 years ago. Coal, nuclear and other energy sources need to be included in
the robust fuels base for growth of the utility power industry.

5. Policies that Encourage Fuel Switching to Natural Gas Must be Avoided

Fuel switching from coal to natural gas is usually the first option for companies to
consider in the event of government mandates or "voluntary opt-inn programs that award
emission credits. This also applies to the "Utility Multi-Emission Bill" concept. The
long-tenn availability of natural gas to meet the growing demand is seriously in question.
IFIEC is concerned that any government ORO reduction mandate or opt-in program will
resuit in fuel switching to natural 'gas, drive up demand and the price as we saw last

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 winter. This is not a cost-effective solution to climate change nor a sound energy or
economic policy. U.S. environmental and energy security policy must be fuel neutral.
Today, it is not.

6. Public Policy Should Focus on Reducing GHG Intensity

Reducing GHG intensity provides a ''path-way forward" to simultaneously reduce GHG
. emission and increase economic growth. As new technology becomes commercialized,
GHG intensity is reduced. Reductions in GHG intensity can also be obtained through
product innovations, new methods and materials that allow consumer needs to be met in
different ways. Effective policy should remove barriers inhibiting their introduction. We
encourage maximum use of sequestration alternatives, which may offer opportunities to
reduce absolute quantities of GHGs. Policy should also encourage accelerated capital
investment where it will support these innovations.

For industrial energy consumers, improving energy efficiency and reducing the GHG .
intensity (input) per manufactured product (output) is second nature. Energy is a
relatively high percent of total'cost and must be miniIriized to be globally c.ompetitive.
Industrial energy consumers have an excellent track record ofimprovement and the
lowest GHG emissions growth rate ofany major sector of the economy. This long-term
trend can continue ~d/or be accelerated through government policy.

Most energy intensive industries also produce products that actually reduce GHG
emissions across the life of the end product used by the consumer. Sound climate change
policy takes into consideration the full life cycle of the product.

7. Encourage Voluntary Actions and Programs

IFIEC supports voluntary actions and programs to reduce the GHG intensity of factories, .
electric utilities/energy providers, homes/commercial buildings and transportation
systems. Such programs should not penalize companies for having taken early action to
reduce GHGs.

8. Differentiate Industry in Policy and Program Development ~

There is an inclination for government to look at ~ ofindustry as homogeneous. It is

not. There are important differences and future climate policy and programs must reflect
these differences to avoid negative and disproportionate impacts. Emissions trading (cap
an~ :"-,je) is a good example. It punishes those who have a record of continuously
improving energy efficiency and rewards those who have done little. It would also
reward those who shut down manufacturing plants in the U.S. and build in other
countries.

Each industry has different technology development horizons and capital stock turnover
timetables. Electric utilities that only have domestic competition do not have to worry
about loss ofmarket share from low cost imports and can pass their costs on to captive
customers. This is in contrast to industrial energy consumers who have intense

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international competition. Profit margins differ significantly as well, which affects the
ability of a given industry to compete for emission rights.

9. Encourage Use of Co-generation ...With Anv Fuel

IFlEC supports cogeneration of electricity and steam as the most energy efficient and
reliable source ofpower with overall fewer OHG and air emissions. Industrial
cogeneration ofelectricity is generally twice as energy efficient as conventional fossil
fuel utility produced power. Use ofcogeneration should be expanded using coal,
biomass, nuclear and other alternative energy sources. After 23 years of PURPA, there is
still asignificant opportunity for use of cogeneration in industrial, commercial, university
and hospital settings. Greater effort is also needed to encourage distributive energy .
systems and "CHP Parks" that co-generate power and steam. In most cases, electricity
regulations and utility practices prevent greater use ofcogeneration. Both barriers need
to addressed.

10. Increase the Energy Efficiency of Sectors of our Economy with the Greatest
Potential
Electric Transmission Grid
There are large inefficiencies in the way our electric transmission grid is
managed. Managing this properly'could reduce "energy line loss," increase the
capacity of the grid and avoid unnecessary expansion.

Power Generation
Utility generation of electricity often has fuel efficiencies of only 30-40%.
Teclmologies like cogeneration nearly double this efficiency. Cogeneration and
other iIUlovations should be pUISUed because ofthe significant cost effective gains
and environmental benefits they provide. Barriers to development of"CHP
Parks" should be removed. Our most energy efficient and low cost electricity
generation should be dispatched first!

New technologies such as coal gasification and Circulated Fluidized Bed offer
significant potential for increases in energy efficiency and lower emissions.

Transportation
Growing needs for moving people and goods offer significant potential gains
based on the low overall efficiencies of our current systems. New vehicles, new
modes ofshipment, and other approaches can reduce the growth rate ofGHG
emissions produced while meeting these needs.

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 Homes and Commercial Buildings
Energy demand by this segment has high growth rates and is driving U.S. demand
for electricity. It will be important to increase the energy efficiency of buildings,
appliances and electronic devices. To the extent the fedeml government can
develop fmancial incentives and programs to promote greater efficiency, it should
do so.

11. Emissions Trading and GHG Cap is of Concern

IFIEC is concerned that so-called "cap and trade" emissions trading mechanisms would
have serious economic implications for competitivenesS and economic growth and may
result,in movement of these industries to locations where such cap does not exist.
Industrial energy consumers will continue to reduce the GHG intensity of their
manufacturing processes. However, it is unlikely they will be able to redUce absolute
GHG emissions below a capped level until break-through technologies are developed
with time to incorporate them into capital stock.

We are concerned that emissions trading and a GHG cap will distort energy markets,
ration energy supply, drive demand to natural gas (where adequate supply is
questionable) and significantly raise the cost of energy. Such a system is likely to have
the perverse effect ofrewarding cOlnpanies who are not energy efficient with credits
(from recently reduced eniissions) and require inherently more energy efficient
industrials to purchase carbon permits.

Various scenarios have been reviewed that consider upstream versus downstream
emissions trading schemes. Regardless of where the cap is placed, industrial energy
consumers will pay higher energy costs with serious impact on competitiveness.

12. Focus on GHGs with Highest GWP (global 'Warming potential)

Common sense dictates that our highest priority should be placed on finding cost-
effective solutions to GHGs with a high GWP. Reducing these first saves time and
money.

13. Support Technology Development

IFIEC strongly supports R&D to provide cost effective technology solutions for energy
production (including nuclear and clean coal), energy consumption and sequestration
pro~:;::.:. :~s. We also support government programs that provide matching grants to
leverage use ofprivate sector investment.

14. Encourage Waste to Energy

IFIEC supports the environmentally responsible conversion of waste into useful energy
instead oflandfilling. Europe converts the majority of its waste to a useful source of
energy and power. This is abetter route than landfilling or recovery ofthe methane from
landfill. For existing landfills, IFIEC supports policies that enhance recovery and use of

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the methane. Converting the methane into carbon dioxide reduces the GWP (Global
Warming Potential) of the emissions and provides useful energy that replaces other fossil
fuel power.

CLIMATE CHANGE PRINCIPLES

• Reduce the GHG intensity of all producers and consumers of energy and measure
progress in tenns of GHG intensity per unit. (i.e. GHG/unit of manufactured product;
miles/gallon; BtulkWh; Btu/sq. ft) .

• Advance scientific understanding of potential global climate change in order to

calibrate and adapt future policies accordingly.

• Promote advanced, energy efficient tecb:nologies and sequestration options as part of

a long term, low cost strategy, vl/ithout government selection of ''wirmers and losers."

• Remove regulatory impediments to the rapid adoption ofenergy efficient

. technologies and capital stock turnover.

• Identify and expand cost effective, near tenn voluntary actions to mitigate greenhouse
gas emissions.

• Avoid darn&ge to economic growth posed by mandatory policies involving unrealistic

near term emissions targets and timetables of energy consumption taxes.

• Export advanced energy efficient technologies to the developing world through

financing incentives and reduced export barriers, while protecting property rights.

• Promote global participation to address this challenge most cost effectively.

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