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  • Jun 9th 2014 at 6:01PM
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When it comes to climate change, the auto industry will be better served by working with the energy industry on cleaner energy plants than dealing with more and more severe weather incidents in the future. That's the finding of a new study by Business Forward, which says that supporting the EPA's new rules – which is supposed to make energy plants 30 percent cleaner – is the right move. The reason lies in just-in-time production methods, which can be tremendously impacted by severe weather incidents.

The numbers look something like this. The EPA predicts electricity prices will rise 6.2 percent by 2020 with the EPA's clean power plan. Since the average car has $105 worth of electricity in it, that 6.2 percent rise will mean an extra $7 per car. Business Forward Foundation president Jim Doyle told reporters on a conference call last week that that means an hour of downtime is more expensive to these plants than a year of increased costs due to lowering carbon emissions. Business Forward's numbers show that an hour of downtime can cost over $1.25 million. It's tough to compare that to $7 more per car, but there you have it.

It's not just changes in America that can affect the auto industry. Business Forward says that:

American manufacturers rely on supply chains that are increasingly large, specialized, global and fast. The very characteristics that make them efficient also make them interdependent, and this interdependence is what makes them susceptible to severe weather. Climate change is disrupting our ports, highways, bridges, and rails – and, because producers come from all over the world, severe weather in Asia affects us, too.

You can download a copy of the report, called "Severe Weather and Manufacturing in American: Comparing the Cost of Droughts, Storms and Extreme Temperatures with the Cost of New EPA Standards," here. If you don't want to read it all, we've got a press release and an infographic breakdown of the numbers below.

Show full PR text
Study Finds New EPA Standards Will Cost Auto Plants less in a Year than One Hour of Production Lost to Severe Weather

Expected higher electricity prices will cost auto industry $7 per car, while unexpected shutdowns cost plants $1.25 million per hour

WASHINGTON, DC - A report released today by the Business Forward Foundation compares the cost auto manufacturers already face from severe weather with the increases in electricity prices they could realize from new power plant standards released this week by the Environmental Protection Agency. The study finds that the new carbon limits will cost only $7 per car, while a plant loses over $1,250,000 for every hour of unplanned downtime. This past winter, some auto plants lost days of production to severe weather.

Click here to read "Severe Weather and Manufacturing in American: Comparing the Cost of Droughts, Storms and Extreme Temperatures with the Cost of New EPA Standards." The study is co-authored by Business Forward Foundation President Jim Doyle and noted auto industry economists Kim Hill, Debra Menk, and Richard Wallace.

"Severe weather is already disrupting supply chains, reducing crop yields, damaging infrastructure, and hurting consumer demand," Doyle said. "Factories may use a lot of power, but they use a lot of everything. Since electricity makes up less than 1 percent of their costs, an increase in electricity rates pales in comparison to the costs they face from extreme weather."

This week, the EPA published draft greenhouse gas standards that will require states to reduce the amount of carbon their power plants emit. Critics of the standards argue that manufacturers will respond by moving jobs overseas. Proponents of the standards call them a necessary response to the rising threat of severe weather. This study considers each point, using America's largest manufacturing industry – automotive manufacturing – as a case study.

Because of their size, factories use a great deal power, but electricity represents less than 1 percent of the average manufacturer's cost. If electricity rates increase by 6.2 percent as EPA projects, a product that costs a manufacturer $100 to produce today will cost an additional six cents in 2020, the expected peak of electricity prices. Most auto manufacturers are already investing heavily in energy efficiency (with goals of double digit reductions in their energy intensity). These investments could offset the costs further.

Assembly plants spend only about $105 on electricity per car. If that assembly plant produces 300,000 vehicles each year, and rates rise as EPA predicts, a year's worth of electricity rate increases in 2020 will cost less than losing a single hour of production today. This increase breaks down to about $7 per car, or an additional 6.2 percent above the $105 spent on electricity to produce each car.

"The data is clear – downtime caused by severe weather has an exponentially greater impact on an auto plant's bottom line than this relatively small increase in electricity costs," Menk said. "The projected electricity rates will increase the cost of a car by only $7, and the average vehicle costs $30,000."

An auto assembly plant employs between 2,000 and 3,000 workers, purchases as much as $3 billion in parts each year, and produces about 300,000 vehicles. Supply trucks arrive at the plant every three to five minutes, nearly 24 hours a day. Today's highly efficient, "just-in-time" assembly plants carry only two to four hours' worth of parts inventory, which means they can shut down in as little as two hours if supply trucks are delayed. Because these plants are so big, disruptions to the line cost $1.25 million or more each hour.

"American assembly plants rely on hundreds of suppliers, spread across the globe, which means extreme heat in Texas, storms near Gulf Coast ports, floods in Asia, tornadoes in Kentucky, and falling water levels in the Great Lakes can each slow or stop production at a plant here," said Hill. "Severe weather at any link in the chain can halt production at the main plant."

Noting that American manufacturing plants (across industries) have historically experienced about 20 hours of unexpected downtime per year, the study cites examples of recent severe weather disruption to ports, rail, shipping and bridges and highways that cost auto plants days or weeks of production.

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    • 1 Second Ago
      CelloMom On Cars
      • 1 Year Ago
      This is a little disingenious. It's not just about the electricity, right? Mike Berners-Lee ("How bad are bananas? - the carbon footprint of everything") estimates the embodied carbon in a car bought in the UK to be around 0.75 tonnes CO2 per GBP1000 of the price of the car. Taking into account that taxes on cars are much higher in the UK, that translates to about 0.75 tonnes CO2 per $1000 of the price of the car in the US (cars are CHEAP here, guys). Average price of a car: $30k. Avg embodied carbon: 22.5 tonnes, or about $450 if you price carbon at $20 per tonne. Which is still way lower than vehicle taxes in most European countries.
      • 1 Year Ago
      Deny this! The scientific consensus you tell children to "believe" is "could be" and science has never said; "will be" or "inevitable" but they are 100% sure the planet is not flat and you are 100% certain CO2 will flatten the planet? Science never lied, you "believers" knowingly exaggerated a scientific consensus of "maybe" and if science can't SAY they are 100% certain for the worst crisis imaginable, neither can you. Who's the neocon again here? Stop fear mongering our kids please.
        • 1 Year Ago
        Conservative used to be the ones for conserving nature the way it is— because it's congruent with conservatism and hypocritical to do otherwise. Then capitalism discovered that if they don't conserve nature, there's a little more money available this quarter. And capitalism wanted to play with the conservatives. Too bad for nature.
        • 1 Year Ago
        David What's the scientific consensus on fear mongering our kids?
        • 1 Year Ago
        Indeed, lets deny climate change and continue polluting our planet, for the children. Paying $7 per vehicle is too high a price to pay.
        • 1 Year Ago
        97% of climate scientists are convinced that man-made pollution is causing climate change. Dick Cheney said that if there was even a 1% chance of a threat against us, we should act against it. So even by Dick Cheney's logic, shouldn't we act against climate change?
      • 1 Year Ago
      I posted this in another blog, edited slightly here for syntax, etc. Before I go on here, let me make it clear that I'm not going to get into "climate" issues. I just want to address the cost of electricity number. I’m not sure the $105 total electricity cost is valid, nor is the EPA's 6.2% number which underpins the modest $7 increase. For energy content, the study only cited “US BEA” (DoC’s Bureau of Economic Analysis) without further detail, and it’s not clear how they got to this number for any activity besides assembly. The “Gold Standard” for modeling energy in the Automotive life cycle is arguably Argonne’s Greenhouse gases, Regulated Emissions and Energy use in Transportation (GREET) toolset. Their database shows that the typical ICE automobile requires about 20 kWh/kg for end-to-end manufacture (more for PHEV/EV, but please let's not go down that path -- I drive a Leaf so I'm not here for that fight). For a more or less average car assembled and delivered in the US, we could say 1500 kg or about 30,000 kWh. Now if only $105 of the cost is electric energy, that means at average industrial rates of about $0.1 per kWh in the states in which cars are assembled and parts are manufactured, the electrical content of energy to build a car is about 3% of total. I don’t buy it. Electronic fabrication sites and machining centers alone consume enormous quantities of electricity, and are dwarfed by tempered glass and the significant use of electric blast furnaces for advanced automotive steels. I think if the authors want to claim that 97% of the energy used to build a car is non-electric they really have the burden of proof to show their work. Furthermore the “6.2%” number is doubtful. I would look to today’s mix of energy in California to be representative of where the EPA wants to go. The current price of industrial electricity in CA is about $0.16 per kWh, or 60% higher than the states that presently do most automotive manufacture. The implication of the 6.2% number is that everybody is going to be WAY smarter than California in implementing this new standard. Another perspective might be Germany's Energiewende history. There are many complexities in pricing electricity, and advocates of either side can alternatively hide or exaggerate costs, so caveat emptor. But if we just choose data from Renewablesinternational.net, a VERY strong supporter of Energiewende, the inflation-corrected rise since 2003 was over 20%, with some of the "corrections" being ways to hide Carbon penalties. So the EPA really has no basis for their number. Even assuming a content of imported parts that will not be affected by the cost of new emissions standards, the “$7” number is off by a factor of several fold, perhaps by two orders of magnitude. At this point you might argue that even $700 isn't so much, with the cost balanced by other effects. That's an argument worth hearing -- just don't make up stuff to make your point in the first place.
        • 1 Year Ago
        A couple of points: Large industrial customers pay hugely subsidized rates for electricity. Look under 'Manufacturing' on the TVA rate schedule here: http://pbadupws.nrc.gov/docs/ML1014/ML101400201.pdf They have energy charges as low as $0.018/kWh. (I don't know if TVA serves them, but there is lots of auto manufacturing in Tennessee). Also, on California and Germany, both regions put a great deal of emphasis on being early adopters, and both have paid for it. The price of solar has fallen by 75% in the last 5 years or so, and in Germany's case I can't figure out why it was solar they went for because their resource is terrible (and therefore costly). California took the bullet for the rest of us and became the breeding ground for a wind industry, which is now capable of signing PPAs for less than $0.03/kWh (http://emp.lbl.gov/sites/all/files/lbnl-6356e-ppt.pdf page 46) ... though you need to add the $0.021/kWh PTC back in to make a fair comparison. In short, historical observations are only a poor indicator of future effects of going renewable.
          • 1 Year Ago
          Thanks, useful data. Indeed industrial rates are frequently subsidized. As for the future cost of renewables... a key aspect of actual price includes feed-in tariffs and back-up power pricing, which on occasion is purchased at spot pricing. This is why wind is frequently advertised at incredibly low rates, and yet in the regions where wind dominates power is more expensive almost without exception. "Historical observations a poor indicator of future..." Well, that obviously remains to be seen, so we will meet again in five years if the EPA prescriptions hold up to court and legislative battles. In any case the cost of power in the UK, Germany, and Spain certainly don't bode well despite Billions of Euro/Pound expenditure, technological leadership, and exceptionally dedicated political support. Even Germany is adding a significant collection of lignite-burning generation facilities, with currently the greatest percentage of power produced from coal since 2007. History needn't repeat itself -- it need only rhyme to make this a difficult transition.