June 19, 2009

Rep. Short's letter to the WCI on competitiveness issues

June 18, 2009

Western Climate Initiative
www.westernclimateinitiative.org

Re: Questions About Competitiveness Issues for Stakeholders

Dear Western Climate Initiative Partners:

Please consider my responses to the questions posted about partner competitiveness under a cap and trade program.

1. What principles should govern how the WCI Partner jurisdictions evaluate and address potential competitiveness impacts of the WCI regional cap-and-trade program?

* Partners should establish policies that encourage growth and new businesses within the WCI jurisdictions. If there is not a clear and easy path, we will see businesses going elsewhere or have local jurisdictions manipulating the market place in other ways to retain necessary businesses.

* To maintain a stable economy, partner jurisdictions must have policies that do not impede businesses from producing the goods that our citizens consume. When considering cap and trade legislation at the state level, a solar panel manufacturer testified that his business would have to move out of state if the legislation passed because he would no longer be able to afford to do business. WCI policies should not impede production of goods or we jeopardize the backbone of our economy. WCI policies should enable companies to build solar panels, wind turbines, and any product necessary for the desired society based on innovation and new technologies.

* Policies that are adopted in implementing the cap and trade and any complimentary policies should incorporate incentives for businesses that have made reductions and continue to operate in a manner to reduce emissions based on their circumstances. There needs to be a realization that some industries may have many technology options that allow for reductions in emissions while others may have no technological solutions and stopping work is the only option. Incentives rather than just increased costs and regulation may increase actual emissions reductions, even from non-reporting entities.

* Partners should consider how a business that has multiple locations may shift business outside of the WCI partner regions to the locations that are not within WCI.
Western Climate Initiative

* Partners should identify what industries our regions or countries cannot afford to lose to foreign countries for national security or other reasons. Do partners want to rely on foreign providers of food, concrete, steel, or other products currently manufactured within the WCI jurisdiction? Are there companies in these regions that are the sole providers of key components for our countries' infrastructure or expected way of life?

     o For example, Washington State has Boeing which is one of two large commercial airplane manufacturers in the world. Boeing has suppliers throughout the partner jurisdictions. If Boeing chose to relocate outside of the WCI region because of the millions of dollars of additional costs, how long would it take the region to recover from the economic loss?

* Competitiveness should also take into account the ability for consumers to receive a descent caliber of product. Are we driving away manufacturers of products that are used by people every day to be manufactured in countries that have fewer safety regulations? For example, we have seen toxic pet food, toxic toys, and even toxic wallboard from foreign countries that have harmed our citizens. Will these regulations make it so our safer products are priced too high to be competitive with products produced in non-WCI states and countries with much more lax safety regulations?

* Climate change theory suggests the need to reduce global emissions in order to reduce the severity of the weather patterns that will impact our communities. The goal of a cap and trade program is to reduce emissions. If the policies of WCI just force a shift of where businesses make products, transferring the emissions to foreign countries with fewer environmental protections while requiring longer transportation distances for those products, the system will result in no actual reduction of emissions and no benefit will be achieved. WCI needs to be realistic that people are not going to stop using concrete and steel in buildings, so any analysis of competitiveness should take into account the emissions being created by shifts in emissions, not just reductions that appear on paper. This is similar to the unintended consequence discovered from using food crops for biodiesel which lead to starvation in poor countries.

     o For example, if the pulp and paper mills are driven out of the WCI jurisdiction into Asia, is there any true emissions savings or are we driving an industry out of the country, losing jobs, revenue, and reducing safety of consumer products while increasing global emissions? If the answer is yes to the last question, then the cap and trade model fails to be a reasonable or responsible solution.

* Partners might also consider the tipping point or cumulative impact of these regulations combined with other safety, environmental, and governmental regulations already impacting businesses. The cost of purchasing allowances under a cap and trade program along with the administrative and reporting costs on companies cannot be considered without factoring in all of the other government fees and regulations as well. Will the amount of money necessary for a business to survive in a cap and trade program be more than its annual profit? Every dollar siphoned away from the company for compliance with cap and trade is a reduction in services and capital investment into the company or an increased cost on the consumer without a perceivable benefit. What are the profit margins of the industries being regulated and the job losses they are currently suffering in the recession?

* Small businesses are an important component of the economy and many do not have the personnel resources or financial capacity to absorb new costs for government regulation on emissions reductions. When looking at competitiveness issues, the partners should consider how reporting and compliance obligations will impact small businesses and identify barriers that small businesses may not be able to overcome which would not be factors for larger companies. The tipping point between success and failure for small businesses is much different than larger companies. While many say most small businesses will not reach reporting status, it would be interesting to have an understanding of how many small businesses will be regulated under or indirectly affected by the WCI proposals.

* Lastly, each partner jurisdiction has unique economic circumstances. I believe it is necessary to complete an analysis that will address those differences. For example, there is more risk to the economies of those states and provinces that rely heavily on trade when there are other ports of entries not subject to cap and trade regulation. How is WCI going to address the unique nature of each state's economic circumstances?

2. To what extent should the WCI Partner jurisdictions strive to harmonize with current federal proposals to address competitiveness impacts?

* If the WCI Partner jurisdictions fail to harmonize regulations with federal reporting requirements there will be legal violations that will be successfully challenged in court. The states in the United States cannot have requirements that conflict with the federal government and legally survive. Such policies will be non-starters when offered in state legislatures.

* The fewer burdens we put on companies within the partner states that are different from federal regulations, the more successful the partners' overall program will be.

I appreciate the partners offering this subject for stakeholder input and discussion. Maintaining our businesses' competitiveness and ability to create the goods that our people need to survive is paramount. This process provided an opportunity to identify potential areas of concern so that the partners can avoid policies that put in jeopardy our citizens' quality of life. Improved air quality through emissions reductions is of no benefit if families cannot afford food or housing because they have no jobs.

Sincerely,


Shelly Short
Representative, 7th District

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