Tuesday, June 02, 2009

Cap-and-Trade and the Chemical Industry

A new report out looks at the estimated costs of a cap-and-trade program for CO2 emissions, and as you would expect, it doesn't look pretty for the chemical industry. Given that they are up against service industry businesses, this is to be expected.

"For over 80% of the companies in the S&P 500, the majority of greenhouse gas emissions are from indirect sources associated with their business activities. Examples include companies such as clothing retailers which predominantly outsource the production of goods and services, and financial institutions. Many of the S&P 500 companies are service-based and the majority of their emissions result from electricity use in buildings, as well as business travel."

Yet at the same time, "More than half of the greenhouse gases emitted by companies in the S&P 500 are direct from operations", meaning that if you're bad, you're really bad. Depending on which chart you look at, the chemical industry is in the top 3 to 5 worst offenders. Air Products in particular is singled out as the worst offender in the chemical industry (CO2/Revenue) because of the high energy associated with air separation.

This is hardly unexpected. Most chemical of interest have some energy stored into them which is then leveraged later during the reaction, and creating those energetic states requires energy input. Additionally, the increase entropy in ALL purification processes also requires energy input. It's all simple thermodynamics, which the service industry is not constrained with.

Without trying to push a particular political viewpoint or agenda, this report makes it really difficult to see that cap-and-trade would do any other than supply additional support for for exportation of manufacturing elsewhere in the world, while the US becomes more and more of a service industry base. It is doubtful that this would result in the desired CO2 reductions on a worldwide scale, and given the global nature of the atmosphere, the emissions would not drop as expect. The US could feel good however, because "we did our part to cut emissions."

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