(This information was published in Corporate Correspondent Memorandum No. 09-021 and Corporate Correspondent Memorandum No. 09-023.)

Note: Based on feedback from members, NCASI made several changes to the Excel workbook in August 2009, including adding several new features. See the list of revisions below.

On June 26, 2009, the US House of Representatives passed the American Clean Energy and Security (ACES) Act, HR 2454 (also known as the Waxman-Markey bill). Among many provisions of potential importance to the forest products industry, the bill sets out a program for reducing greenhouse gas emissions and establishes several allowance programs intended to provide partial, temporary relief for trade-exposed, energy-intensive industries and consumers of electricity and natural gas. The bill identifies the pulp and paper industry as a sector that is covered by the reduction requirements, and NCASI and AF&PA have determined that the pulp and paper sector would be eligible for at least some of the allowances. The significance of the bill to wood products facilities is not as clear, but is being examined by NCASI and AF&PA.

To assist pulp and paper companies in understanding the potential implications of the bill, NCASI has prepared an Excel workbook containing a number of worksheets that attempt to mimic the bill’s reduction requirements and allowance programs. To use the worksheets, companies will need to enter a large amount of mill-specific information and make a number of judgments in areas where the bill is unclear. Examples of such uncertainties include (a) whether sector benchmarks are based on all fuels used by the sector or only those fuels that must be covered by allowances, and (b) whether natural gas distributors are required to pass along their allowances (or the value thereof) to industrial customers. Companies should read the bill carefully to arrive at their own conclusions about how the bill is intended to work.

The Excel workbook is available here for download, along with other related resources:

• Excel workbook (revised August 14, 2009)
• Memo containing instructions on how to use the workbook
• Copy of the bill as passed by the House

In using the workbook, companies must understand that the bill is complex and open to interpretation in a number of areas. NCASI, with significant assistance from AF&PA and a number of member companies, has attempted to make the workbook as true to the text as possible, but uncertainties about what the House intended remain. In addition, it remains unclear how the bill will change as it works its way through Congress. The Senate is currently debating climate change legislation but the eventual form and fate of this legislation is uncertain.


For more information:

Questions about the Excel workbook and its use can be directed to Dr. Barry Malmberg at the NCASI West Coast Regional Center (541-752-8801, bmalmberg@wcrc-ncasi.org). General questions about this activity can be directed to Reid Miner in the NCASI headquarters office (919-941-6407, rminer@ncasi.org).


The revised version released August 2009 includes the following changes:

1. Addition of pro-rata scaling to handle periods where requests for free allowances will most likely outstrip available free allowances within the trade vulnerable industry category.
2. Addition of a user option to examine the cost implications of the “collar.”
3. Addition of a user option to limit free allowances from purchased electricity to sector averages.
4. Correction to formulas that calculate increases or decreases with time to correctly handle the jump from 2006 to 2012.
5. Addition of an “Update Log” tab to track spreadsheet development changes.

Comments on pro-rata scaling feature:

It would seem likely that due to competition for allowances under the “trade vulnerable industry” category, at some point companies will be unable to obtain as many allowances as they might have in the absence of such competition. The spreadsheet has been modified as follows to account for such competition.

The Bill’s provisions on the Trade vulnerable industry category indicate the following:

(c) TOTAL MAXIMUM DISTRIBUTION—Notwithstanding subsections (a) and (b), the Administrator shall not distribute more allowances for any vintage year pursuant to this section than are allocated for use under this subpart pursuant to section 782(e) for that vintage year. For any vintage year for which the total emission allowance rebates calculated pursuant to this section exceed the number of allowances allocated pursuant to section 782(e), the Administrator shall reduce each entity’s distribution on a pro rata basis so that the total distribution under this section equals the number of allowances allocated under section 782(e). pgs 1111-1112 of the House Bill 2454.

To model this, NCASI made the following assumptions:

1. Assume 2006 MECS industry average direct emission factor and electricity efficiency factor as starting points for US pulp and paper industry average.
2. Assume that reduction in US pulp and paper industry averages decrease or increase at the same rates as sector average changes (user input F:22 and F:24).
3. Assume that the population within the trade vulnerable industry remains constant (i.e., new requests for trade vulnerable industry free allowances is negligible and that the number of entities that make up the trade vulnerable industry category in 2005 does not substantially shrink due to bankruptcy).
4. US Pulp and paper production is input in cell F:18 with a production adjustment factor for time in cell F:19.