Bloomberg News

EPA Rule Shows Regulations That Kill Jobs Can Create New Ones

November 30, 2011

Nov. 29 (Bloomberg) -- Lincoln Paper & Tissue LLC is nestled near a pond amid the forested countryside of Maine. It’s a 128-year-old mill where third-generation workers are as deeply rooted as the evergreens.

About 1,100 miles south in Charlotte, North Carolina, sits Babcock & Wilcox Co., a 144-year-old company that is among the largest U.S. makers of boilers. Its machinery powered New York City’s first subway in 1902.

For more than a century, the interests of such companies were aligned. Now, boiler owners typified by Lincoln and boiler makers led by Babcock have diverging financial interests on one matter -- costly federal regulations, which Republicans have called job-killing and Democrats have hailed as life-saving. The split illustrates how the national debate about federal rules is more complicated than the rhetoric, and how changes in standards can create economic winners and losers.

“Any environmental policy is going to have both benefits and costs,” Robert Stavins, director of Harvard University’s environmental economics program in Cambridge, Massachusetts, said in an interview. “The notion of a win-win policy is a fiction of politicians and advocates.”

The Obama administration’s Environmental Protection Agency, at the direction of a federal court, announced on Feb. 21 stricter limits on pollution from industrial boilers, which burn fossil fuels, biomass or other materials to generate electricity at manufacturing plants. The rule sets emissions levels for toxins such as mercury, carbon monoxide and dioxins for about 13,800 of the largest boilers.

Estimated $3 Billion

The administration says the regulation would cost businesses $3 billion as companies upgrade or replace their boilers. The EPA may issue its revisions to the rules by tomorrow. A comment period would follow before the rules could be implemented.

President Barack Obama has acknowledged that the boiler rule is among the three most expensive regulations the administration is considering. Republican leaders have called the administration’s proposed EPA rules examples of “job- killing regulations,” and the House voted Oct. 13 to delay the boiler standards.

For companies that use boilers, the rule may cost $14.3 billion and put 230,000 jobs at risk in 26 different sectors, including construction and chemical manufacturing, according to the Council of Industrial Boiler Owners, based in Warrenton, Virginia.

For boiler makers, the new market to build boilers and supply equipment to meet pending environmental regulations is valued at $12 billion to $24 billion, Babcock & Wilcox Chief Executive Officer Brandon C. Bethards told investors on a May 10 conference call.

‘Powerful Market’

“We expect this to be a powerful market over the next several years,” Bethards said.

Winners also may include companies that provide environmental controls, such as Shaw Group Inc. of Baton Rogue, Louisiana, and Fluor Corp. of Irving, Texas, according to John Rogers, head of institutional equity research at D.A. Davidson & Co. in Lake Oswego, Oregon.

The EPA has said that, in addition to creating jobs, the regulation would improve public health by limiting toxins that people breathe. The rule may prevent as many as 6,500 deaths a year, according to the administration. The boiler standards are meant to help protect Americans from cancer, heart disease and asthma.

The nonpartisan Congressional Research Service says industry cost estimates are exaggerated. Expenses would mostly fall on the 13 percent of large boilers fueled by coal, oil and biomass, CRS said. It said the remaining major boilers, which mainly burn natural gas, would require periodic tune-ups.

“We must regulate sensibly, in a manner that does not create undue burdens and that carefully considers both the benefits and the costs,” EPA Administrator Lisa Jackson told the House Energy and Commerce Committee on Sept. 22.

Lincoln Mill

The costs may be high for Lincoln Paper, which already is facing stiff competition because of the globalization of the paper industry, said Keith Van Scotter, the company’s CEO.

That competition contributed to the Lincoln mill shutting down for about six months in 2004 and declaring bankruptcy under previous ownership.

Van Scotter and other investors reopened the mill with 35 percent fewer workers. Lincoln now employs about 400 people, who produce paper for products such as colored napkins and magazine reply cards.

It may cost Lincoln as much as $5 million to comply with the new EPA industrial-boiler regulation, Van Scotter said.

‘Hog Fuel’

“They’ve come up with rules that are in large part unattainable,” he said in an interview in his office in Lincoln, a town of 5,100 located about 50 miles (80 kilometers) north of Bangor.

The cost to comply is almost double the company’s annual net income and its yearly budget for capital expenditures, Van Scotter said. That would mean reductions in investment and potential layoffs, he said.

Lincoln’s 20-year-old biomass boiler is fed by an average daily diet of 550 tons of “hog fuel,” a mixture of tree limbs, wood chips and residue from wastewater collected in the mill’s paper-making process, Dennis McComb, Lincoln’s environmental and safety manager, said in an interview.

The plant may have to add technology to reduce carbon- monoxide emissions, buy computer monitoring equipment and build a second fuel-storage building, he said. Lincoln is waiting on final rules before determining what actions to take.

Mills at Risk

The EPA’s proposed regulation sets high standards for the acceptable release of each individual toxin, rather than taking into consideration a plant’s overall ability to comply, he said.

“You don’t have an operating boiler in the country that’s consistently meeting all of those limits,” McComb said.

The EPA’s boiler rules may cause 36 U.S. paper mills to close and risk 20,500 direct jobs in the paper industry, according to a September study commissioned by the American Forest & Paper Association. Groups including the American Chemistry Council also oppose the regulation.

Senators Susan Collins, a Maine Republican, and Ron Wyden, an Oregon Democrat, are sponsoring legislation that would give the EPA an additional 15 months to write new rules for industrial boilers. The bill then would give boiler owners as long as five years to comply.

“I’m hoping EPA will produce regulations that are realistic and achievable by real-world standards,” Collins, who has voted against Republican efforts to curtail the agency’s authority, said in an interview. “I also recognize when EPA has gone overboard, which regrettably under Lisa Jackson it has had a tendency to do.”

‘Delaying the Inevitable’

In May, the EPA postponed implementation of the boiler rule to give the public more time to comment.

“Delaying the inevitable is only going to increase the cost of compliance,” W. Randall Rawson, president of the American Boiler Manufacturers Association, an industry group based in Vienna, Virginia, said in an interview.

Legislation to delay or kill the boiler rule is adding uncertainty for investors, Paul Welch Goggins, director of marketing communications and development for Cleaver-Brooks Inc., a closely held boiler manufacturer based in Thomasville, Georgia, said in an interview.

The debate over the EPA’s boiler standards has become more of a political than a regulatory issue, said Rawson of the boiler manufacturers’ group.

Sierra Club Suit

Opponents of the rule may want to delay it until after the 2012 election, in hopes that Republicans win both chambers of Congress and the White House, he said.

Environmental groups have a “common purpose” with boiler manufacturers in advocating for the EPA’s rules, John Coequyt, director of international climate policy for the Sierra Club, said in an interview.

The San Francisco-based Sierra Club sued the EPA in July in U.S. District Court in Washington to prevent the agency from postponing rules that a federal judge had ordered it to implement.

Bills to delay the rules are a “grotesque weakening of the Clean Air Act that are disguised as temporary time-outs,” John Walke, director of the New York City-based Natural Resources Defense Council’s clean-air program, said in an interview.

Boiler owners have been on notice for years that these rules were coming, Conrad Schneider, advocacy director for the Clean Air Task Force, said in an interview at his Brunswick, Maine, office.

‘Mill’s an Anchor’

That’s not the point, said Jarrod Kimball, 33, a third- generation worker at Lincoln Paper.

“They want this mill to spend millions of dollars on things they’re not going to get any return on,” he said in an interview.

On the roads outside the red-brick paper mill, tractor- trailers haul flatbeds stacked with tree trunks through Lincoln’s streets dozens of times a day. Around the mill, a bitter odor, the by-product of the pulping process, hangs in the air.

The process of making paper has changed little since the mill was constructed in 1883. The industry has been reshaped more by less expensive products from outside the U.S.

“This mill’s been an anchor in the community,” said Kimball, whose father and grandfather worked at the Lincoln plant. “Having two young kids and a wife, I would hate the thought of having to start from scratch and start looking for work all over again.”

--Editors: Timothy Franklin, Larry Liebert

-0- Nov/30/2011 14:27 GMT

To contact the reporter on this story: Brian Wingfield in Washington at bwingfield3@bloomberg.net

To contact the editor responsible for this story: Timothy Franklin at tfranklin14@bloomberg.net


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