Industries Collide As Energy Prices Rise

Lynne Kiesling

An article by Jeffrey Ball in today’s Wall Street Journal (subs. required) does the best job I’ve seen to date of capturing the nuances and tensions in the economic and policy dynamics of rising energy costs and concerns about the environmental effects of energy consumption. The article focuses on Dow Chemical and its various policy positions with respect to energy efficiency and environmental policy.

So it goes in the sector-by-sector jousting over what to do about America’s voracious energy appetite, which shows little sign of abating despite oil’s lofty price. Yesterday, crude-oil futures on the New York Mercantile Exchange reached a new intraday high of $98.62 a barrel before falling back to finish at $96.37. Amid mounting pressure to curb fossil-fuel use — both to ease the price run-up and to address climate concerns — fights are erupting over who will bear the burden and who might win the spoils.

The auto and oil industries are at each other’s throats, with Detroit saying the oil industry should install more ethanol pumps and the oil industry saying Detroit should make cars that are more efficient. Renewable-energy producers are arguing over who qualifies for federal tax breaks. In one spat, producers of U.S. biodiesel, traditionally made from soybeans, are fighting a joint bid by oil giant ConocoPhillips and meat processor Tyson Foods Inc. for access to a credit for “renewable diesel” fuel they would make from animal fat.

Meanwhile, members of the U.S. Climate Action Partnership — 27 big companies that are trying to shape a federal greenhouse-gas curb they see as inevitable — disagree over the details of what that constraint should look like. The problem: Each company uses hydrocarbons differently, and thus each wants to tweak any emissions rule to its own particular advantage.

Microcosm of Tensions

Dow Chemical is a microcosm of these tensions. It calls itself the world’s biggest industrial consumer of energy, because of the vast quantities of natural gas and oil it uses, some for fuel but most as a raw material. For years, Dow has worked to trim its costs by making its plants more efficient. Despite that effort, soaring energy prices have nearly tripled Dow’s annual fossil-fuel bill over four years. It comes to $22 billion a year — nearly half the company’s production and operating costs.

Now Dow is pushing for national policies that would prod other industries to curb their consumption as well. It sees two potential benefits: less upward price pressure on hydrocarbons and greater sales of various efficiency-related products Dow makes, from insulation to solar panels.

The article does a great job of highlighting both the energy and environmental policy aspects of rising energy costs and the corporate strategy issues that arise from being a diversified firm that both uses lots of energy and sells to customers that either do or don’t use a lot of energy. So there are many dimensions on which cost savings will or won’t happen, customer alienation will or won’t happen, etc.

Layer on that the fact that Dow also has products that would fare well in the market with more stringent energy and environmental policies, and you have a policy position and corporate strategy rife with tension and contradictions. A fascinating case study.

The article also points out the importance of building efficiency and building automation, an area of particular interest to me. If you don’t subscribe online, I strongly recommend heading to the newsstand and getting a copy.