Taking into account the $80 billion budget estimate that the federal government plans to secure through the allowance auction, the cost of carbon will be between $12.50 and $15 per metric ton if the revenue target is spread across all carbon emissions.
To put that in perspective, the table (Energy Source, next page) shows the cost expressed in dollars per gallon for gasoline, dollar per kWh for electricity and dollar per MMBtu for natural gas.
It is not likely that all energy users will be required to directly pay for carbon allowances. Instead, carbon allowances will be required by refiners/importers for oil; gas distribution companies for natural gas; and generators for electricity. Large energy users that emit more than 25,000 tons of carbon dioxide will be a “covered” entity and will be required to hold allowances for any direct emissions.
Depending on the size and production level of a food manufacturing facility, it is likely that larger-than-average food processors—those that emit more than 25,000 tons of carbon dioxide—will be directly subject to the cap-and-trade market.
Food processors consume a considerable amount of energy; second only the auto industry within the manufacturing sector. In particular, the process steam typically consumes large amounts of natural gas. Also, if a food processor has a wastewater treatment facility onsite, the facility will reach the carbon cap much more quickly, as wastewater facilities are sources of methane emissions, and un-combusted methane generates a significantly larger amount of carbon dioxide equivalent emissions than the combusted methane (or natural gas). These two factors can quickly add up to an annual emission of 25,000 tons of carbon dioxide, and result in mandatory EPA emissions reporting.
HOW MUCH WILL MY ENERGY COSTS INCREASE?
While not every food processor will be directly impacted by the potential carbon cap-and-trade legislation, it is important to note that there are both direct and indirect costs for all energy end users regardless of their size of operation. Although a smaller operation might not emit 25,000 tons of carbon dioxide, it still uses a significant amount of energy to run its facility.
While the smaller food processing facility will not be held directly accountable for carbon allowances, the power supplier where it purchases its energy from will be. As a result, the smaller food processors can expect to have the cost of the allowances imposed on the power supplier passed on to its customers.
Larger food manufacturers consume 1,500 MMBtu of natural gas per day and 3 megawatts of electricity. The cost will be more than $600,000 per year (based on the estimated $14.00/ton).
This annual cost would be expected to increase over time as the federal government reduces the carbon emissions cap further each year and the cost of carbon allowances continues to increase. The annual cost will be approximately $1.8 million per year if the carbon cost is $40.00 per ton. In this case, the end user will have both a direct cost (natural gas emissions) and an indirect cost (electricity).
HOW CAN I AVOID OR MITIGATE THE COST?
Energy users can reduce carbon emission levels through improvements in energy efficiency, an investment in updated technology or through the use of renewable energy sources. Many facilities have spent considerable time, effort and resources improving energy efficiency. As such, the “low hanging fruit” projects should be the first action item for food processors looking to reduce costs.
These include, for example, high efficiency lighting, boiler retrofits and compressed air upgrades. In order to reduce usage even further, more capital, labor and technology intensive projects may have to be undertaken. Getting to the next level of efficiency will be more challenging in the future due to higher capital costs, longer paybacks and less proven technology.
Renewable sources also may be a feasible option to reduce carbon emissions. Unfortunately, renewable energy alternatives will only work in a few limited situations in which a facility is either located near a renewable energy source or has a renewable energy feedstock. The first step is to assess whether or not there are any sources of renewable energy already available in the region.