Hodges Says Cap-and-Trade Plan Threatens Trucking’s Viability

This story appears in the June 15 print edition of Transport Topics.

A House cap-and-trade energy bill would “add another layer of volatility” to the already erratic price of diesel fuel that could jeopardize the economic viability of trucking companies, Tommy Hodges, first vice chairman of American Trucking Associations, said last week.

Hodges testified on behalf of ATA before a House energy subcommittee on June 9. He said the trucking industry has concerns that “emissions allowances” provisions for oil refiners contained in the House energy bill are inadequate and could result in significant fuel price increases.

“If diesel fuel prices are not kept in check, the movement of the nation’s freight will be impeded and the very core of the nation’s economy impaired,” said Hodges, chairman of Titan Transfer, Shelbyville, Tenn.

If approved by Congress, the energy legislation would cap carbon emissions mainly from large sources such as electric utility generators and oil refiners. Then, beginning in 2012, large emitters would be allowed to emit only a percentage of their total emissions for free and would be required to pay for the remainder of their carbon emissions.

The bill uses 2005 as a base year for determining the target level of emissions by an industry sector.

Oil refiners would be permitted to emit only 2% of their greenhouse gases for free, which means they would have to pay for 98% of their emissions — a cost that ATA believes would be passed on to gas and diesel consumers.

“This amount is inadequate and will result in significant price increases for refined products,” Hodges said. “The 2% allotment to refineries over a two-year period covers the refineries’ facility emissions but totally ignores carbon emissions from the combustion of petroleum products, leaving downstream users, such as trucking companies, exposed to dramatic and sudden fuel price spikes.”

“This allocation shortfall will have a dramatic impact on the price of petroleum-derived fuel and will negatively impact the trucking industry and the U.S. economy,” Hodges said. Asked what would happen if the price of diesel increased by 88 cents a gallon, Hodges said, “It would begin to drive trucking companies out of business.”

The Environmental Protection Agency has estimated the cost of the allowances would range from $13 to $17 per metric ton equivalent of carbon dioxide in 2015 and from $17 to $22 in 2020.

In his testimony, Hodges noted that by comparison, other energy producers would be given much higher “free allowances,” despite the fact that oil refiners currently make up about 45% of total U.S. energy emissions.

Committee Chairman Edward Markey (D-Mass.) said the bill would encourage “clean” energy sources, create jobs and increase U.S. energy independence.

But House Republicans said the cap-and-trade program would trigger massive job losses in the United States and significantly increase the costs consumers pay for heating and cooling their homes.

“I doubt very highly that anyone fully understands exactly how this system will work or what the true costs will be,” said Rep. Fred Upton (R-Mich.), ranking member on the House Energy and Commerce committee. “This is a very dangerous combination for such a sweeping piece of legislation that reaches every aspect of our economy — a game of Russian roulette for our economy.”

Testimony at the energy subcommittee hearing offered divergent viewpoints on the bill’s consequences.

Steven Cousins, a vice president of Lion Oil Co., El Dorado, Ark., said the cost of complying with the cap-and-trade program could put his refining company out of business.

“The current allocation of al-lowances under this bill is at best unfair and at worst punitive,” Cousins told the committee. “This bill should be defeated in its current form to protect the domestic refining industry and the quality jobs we provide to tens of thousands of individuals across the country, and to protect consumers, farmers and truckers from higher gasoline and diesel fuel prices.”

Thomas Farrell II, chairman of Dominion Resources, Richmond, Va., said the Edison Electric Institute, the trade association of U.S. shareholder-owned electric companies, supported the bill and said the emissions allowances must be used exclusively for the “benefit of retail ratepayers.”

However, Farrell said he personally had concerns that ratepayers would suffer with higher utility bills.

David Sokol, chairman of Mid-American Energy Holdings Co., Des Moines, Iowa, said the electricity sector could meet the caps of reducing greenhouse gas emissions, but the bill’s trading mechanism would impose a “huge and unacceptable double cost on customers,” first to pay for emission allowances and then for the construction of new power plants with lower carbon emissions.

“We have no issue with the cap on CO2,” Sokol said. “If that’s government policy, put it in place as we did the 1970 Clean Air Act and 1990 amendments and allow us to go meet it.”

However, Sokol added, “We don’t want anybody else’s allocation; we don’t want to go plant trees in Honduras. We will make technological changes to our system to meet them.”