Issue Date: July 21, 2008
Industry Money Flows To McCain
HISTORY HAS ALREADY left its mark on this presidential campaign. Sen. Barack Obama (D-Ill.), the first African American major-party candidate in the nation's history, will square off this fall against Sen. John McCain (R-Ariz.), a self-described political maverick who has shown a willingness to break ranks with his party's leadership and activist base on a number of high-profile issues ranging from climate-change policy to campaign finance reform.
The 2008 election also marks the first time in U.S. history that two senators currently in office are running against each other for president. Because Obama and McCain are sitting senators with legislative records, their positions on key issues have given voters a good idea of what policies they will support if elected. This information, coupled with details released from each camp, is being closely scrutinized by everyone, including leaders in the chemical industry, and has translated to mixed support for the candidates from the industry.
"I think this is a new day in American politics," says Jack N. Gerard, president and chief executive officer of the American Chemistry Council, the Arlington, Va.-based trade association that lobbies on behalf of 134 major U.S. chemical manufacturers. "If you look at the primary elections, they were fascinating and totally unpredictable. Who would have thought a year ago or even six months ago that these would be the nominees of the two political parties?" he remarks. The U.S. public, he adds, "is probably going to surprise us this fall."
In terms of dollars, the chemical industry has put the majority of its financial support during the 2007–08 election cycle behind the various Republican presidential candidates. Data from the Center for Responsive Politics, a nonpartisan research group that tracks money in politics, indicate the Republican field has so far collected more than $650,000 from political action committees and individuals in the chemical and related manufacturing industries. This is more than double the amount donated to Obama and his three major competitors for the Democratic nomination.
Although the Republican Party has been known since the late-19th century as the party of big business, McCain has often had a chilly relationship with corporate America. He has worked to reduce the amount of influence corporations and other large moneyed interests have in political campaigns. And he has a long history of battling with powerful industries and even individual companies when he thinks they're getting special treatment in Washington, D.C., or harming U.S. consumers.
Partly because of McCain's track record, the chemical industry initially poured more donations into the presidential campaign of Mitt Romney, the former Massachusetts governor who spent 25 years in the private sector as a venture capitalist. In fact, Romney led the pack in donations received from the industry early on. His backers in the chemical industry included Andrew N. Liveris, chairman, president, and CEO of Dow Chemical; Robert L. Wood, chairman, president, and CEO of Chemtura; and David N. Weidman, chairman and CEO of Celanese. Gerard both contributed to and raised funds for the campaign.
After Romney dropped out of the race in early February, many industry leaders shifted their financial support to McCain. Data released by the Federal Election Commission on June 30, the latest records available, indicate that the chemical industry has contributed more than $250,000 to McCain, which is more than twice the approximately $97,000 it has directed to Obama's campaign.
To understand the distribution of chemical industry campaign donations, it's necessary to understand the presumptive candidates' positions on issues that are key to the industry. With the major-party candidates in place, the industry is looking closely at how each one would address key issues such as energy, climate change, international trade policy, and chemical plant security.
But regardless of the candidates' rhetoric on any one issue, Gerard insists it's still too early to predict which one would be best for the industry. "When you look at the long list of issues that are important to us, we might find that one candidate better serves our interest on one issue, but not on another," he says. "So I think we keep our powder dry. We've got a long way to go until November."
Gerard and other industry leaders are encouraged, though, that McCain has reversed course and now says he wants to increase the domestic energy supply by lifting the long-standing federal ban on most offshore drilling for oil and natural gas. Until recently, McCain opposed any expansion in coastal drilling, which is currently limited to a portion of the Gulf of Mexico and areas off Alaska. Gerard says the industry welcomes him as a "convert to the need for additional offshore energy supply."
Gerard also says McCain and his advisers "recognize that this is bigger than just partisan politics and see the necessity for expanded supply coupled with energy efficiency and conservation to address a fundamental void we have in a comprehensive energy policy."
AS SURGING fuel prices have hit record highs and become a major issue in the campaign, the four-term Arizona senator says he wants to give individual states the option to decide whether to pursue exploration and production off their coasts and share in the royalty revenue from oil companies.
"As for offshore drilling, it's safe enough these days that not even Hurricanes Katrina and Rita could cause significant spillage from the battered rigs off the coasts of New Orleans," McCain remarked in a speech in Houston on June 17. "Yet, for reasons that become less convincing with every rise in the price of foreign oil, the federal government discourages offshore production."
The chemical industry is the largest industrial consumer of natural gas in the U.S., using 2.5 trillion cu ft each year to heat and power their facilities but also as an essential raw material. This level of consumption makes energy one of the biggest areas of concern for the chemical industry.
"The 500% jump in U.S. natural gas prices since 2000 has hit energy-intensive manufacturers hard," says Gerard, who will leave ACC in September to become president of the American Petroleum Institute, the oil and natural gas industry's trade association. "Our energy costs have tripled from $25 billion in 1999 to $72 billion in 2007, and we've lost nearly 120,000 well-paying jobs, many of them to other nations where natural gas costs far less," he notes.
The Department of the Interior estimates there could be 18 billion barrels of oil and 77 trillion cu ft of natural gas beneath the 574 million acres of federal coastal waters that are now off-limits.
"Now more than ever, Americans are bearing the burden of a domestic energy policy that has increased our reliance on foreign sources of energy by locking away the resources we have right here at home," says Charles T. Drevna, president of the National Petrochemical & Refiners Association.
Allowing more development of domestic energy resources "will help ease volatile global supply conditions, lessen our dependence on foreign sources of energy, and increase supply and stability for American consumers," Drevna adds.
Although Obama has criticized McCain for his "flip-flop" on offshore drilling, Gerard says the junior senator from Illinois "will soon find that there's a tidal wave that's about to wash over everybody. And commonsense people in this country, Democrats and Republicans alike, are saying enough is enough. The energy politics of 30 years ago—drill or no drill—is no longer relevant to the current crisis. I think McCain realizes that, and I'm still optimistic that Obama will, as well."
The congressional ban on offshore drilling, which has been in effect since 1981, stems from environmental concerns over possible oil spills and preservation of coastal beaches and scenery. Obama has repeatedly sided with environmental activists in Senate votes to oppose more domestic drilling. He argues that ending the moratorium will not even give consumers short-term relief from gasoline prices or solve the nation's addiction to oil. Nearly 70% of the 21 million bbl of oil the U.S. consumes every day goes for transportation, according to the National Commission on Energy Policy, a research group that advises Congress.
Instead of increasing supply, Obama emphasizes reducing demand for oil through higher vehicle fuel-efficiency standards. He also wants to roll back billions of dollars in tax breaks for oil companies and to use the money to vastly increase investment in wind, solar, and other forms of renewable energy.
"Germany, a country as cloudy as the Pacific Northwest, is now a world leader in the solar-power industry and the quarter-million new jobs it has created," Obama stated on June 24 during a campaign stop in Las Vegas. To truly harness the potential of solar energy, he said, "we urgently need real leadership from Washington—leadership that has been missing for decades."
McCain and Obama do agree that the U.S. must combat global warming by putting mandatory caps on emissions of carbon dioxide and other greenhouse gases from power plants, oil refineries, and other industrial facilities. Such a policy would raise the price of fossil fuels, making renewable energy more economically competitive. McCain is calling for a 60% reduction in carbon emissions by 2050, compared with 1990 levels. Obama is even more ambitious and has set an 80% reduction target, from the same baseline, by 2050.
Although the two candidates differ on how they would move the U.S. toward a low-carbon economy, industry officials say they are concerned that the climate-policy debate has focused almost solely on environmental protection while ignoring the economic consequences. The complex "cap and trade" emissions reduction programs that have been proposed to combat greenhouse gas emissions would "ultimately cost the economy trillions of dollars," Drevna says.
Drevna also emphasizes that climate change is a global issue that requires a global approach. "The simple truth when it comes to greenhouse gas emissions is that a ton of CO2 emitted in Dayton, Ohio, has the same effect as a ton of CO2 emitted in Shanghai or Mumbai or Moscow. Until there is some sort of global participation in reducing emissions, what we do here in the U.S. is not going to matter on an environmental scale and will certainly be a significant detriment on an economic scale," he asserts.
Gerard notes that any restriction on carbon emissions will likely lead to an increased demand for natural gas as utilities, refiners, and manufacturers are forced to switch to cleaner burning sources of energy. "It's very important that we have an adequate energy supply to allow us to address the climate-change issues in a positive way. You cannot do climate legislation in a vacuum," he says.
The chemical industry "uses energy to save energy, and that's part of the climate solution," Gerard observes. "We create energy-efficient products that allow Americans to conserve energy. Insulation is a primary example. For every Btu of energy that we use to create insulation, 40 Btu of energy will be saved. So we create the materials that help the U.S. be more energy efficient."
Gerard warns that a further tightening of the natural gas supply will force the chemical industry to shift more production overseas. But on the other hand, Gerard says, if the U.S. has an adequate supply of energy, "then we are going to be able to deal with the climate challenge in a more positive way. There will be far less volatility and far less disruption if we couple climate policy and an effective energy policy."
ON ANOTHER key industry issue, international trade policy, the two presidential candidates offer sharply divergent views. Gaining access to new markets is critically important to the chemical industry, which ships 20% of its products abroad and annually ranks as the nation's leading export sector.
During the primary campaign, Obama's rhetoric was sharply populist, denouncing big business and blaming stagnant wages and the shift of U.S. jobs overseas on free-trade agreements. He threatened to pull out of the North American Free Trade Agreement (NAFTA), which links the U.S., Canada, and Mexico, if it is not renegotiated to strengthen labor rights and environmental standards.
During a debate before the Texas and Ohio primaries on March 4, Obama derided NAFTA as "a big mistake" that has cost a million U.S. jobs and pledged to stand firm against "similar agreements that undermine our economic security." The freshman senator also opposes the free-trade agreements that the Bush Administration has negotiated with Colombia and South Korea; both are currently stalled in Congress.
Conversely, McCain voted in favor of NAFTA and is a strong proponent of free-trade policies. During a speech in Ottawa, Ontario, on June 20, he said his administration would "honor America's international obligations" and find ways to "strengthen and extend the open and rules-based international trading system." In a reference to his opponent, McCain declared: "Demanding unilateral changes and threatening to abrogate an agreement that has increased trade and prosperity is nothing more than retreating behind protectionist walls."
Since NAFTA took effect in 1994, U.S. chemical exports to Canada and Mexico have tripled from $13.8 billion to $40.1 billion. "From the perspective of the business of chemistry, NAFTA has been a resounding success," Gerard says. "So it is not in our best interests to go back and renegotiate NAFTA or impose additional requirements on our trading partners."
Gerard notes that Obama has softened his anti-NAFTA stance somewhat since the primaries have ended and that Obama now plans to seek change through dialogue if elected president. "My sense is that there is a lot of rhetoric surrounding these issues to try to appease certain constituencies," he says. "But at some point the rhetoric has to cease, the reality has to set in, and we have to look at what's going on in our economic infrastructure and how it impacts Americans." Gerard believes that Obama "will temper some of his thinking," but says the Illinois senator is unlikely to reverse course because organized labor and the environmental movement are key constituencies in Democratic Party politics.
Another major concern for chemical companies is the regulation of security at their plant sites. The Department of Homeland Security (DHS) has begun to implement the nation's first federal program to safeguard more than 7,000 high-risk chemical facilities against terrorist attacks (C&EN, July 7, page 7). But the regulations expire on Sept. 30, 2009, and Congress has been holding hearings on legislation that would revise and make permanent the security program enacted two years ago. The next president could have a big impact on how that legislation takes shape.
Obama advocates the use of inherently safer technology (IST) as an antiterrorism tool at chemical plants. Facilities would be required, wherever possible, to switch to less hazardous chemicals and take various engineering steps to minimize the consequences of an attack or accident. In 2006, he cosponsored the Chemical Security & Safety Act (S. 2486), which included an IST mandate.
"A successful strike on a chemical plant would require much less sophistication and fewer participants than the 9/11 terrorist plot and could cause a thousand times more devastation," Obama said in a statement announcing the bill. "Basically, these plants are stationary weapons of mass destruction spread all across the country."
Joseph G. Acker, president and CEO of the Synthetic Organic Chemical Manufacturers Association (SOCMA), a trade association representing nearly 300 specialty batch and custom chemical makers, says the industry supports making the current chemical security program a permanent law under the jurisdiction of DHS. "We are, however, stridently opposed to the merits of mandating IST under the guise of site security and as a panacea for fighting terrorism," he declares.
HAVING SPENT more than 25 years managing chemical facilities, Acker says a great deal of time, energy, and money is spent in making chemical processes safer. "The chemical industry practices this concept [of IST] as a normal part of its manufacturing process and invests substantial assets into determining a product's impact on health, safety, and the environment. But these steps were never designed to ward off terrorists," he remarks.
"It is inappropriate to pretend that mandating 'security' IST would provide a security blanket with negligible consequences to one of the largest U.S. manufacturing sectors," Acker adds.
McCain's record on plant security is scant at best. He has stressed his national security credentials throughout the campaign and states in a policy paper that as president, he would ensure that the U.S. has "the quality intelligence necessary to uncover plots before they take root, the resources to protect critical infrastructure and our borders against attack, and the capability to respond and recover from a terrorist incident swiftly."
"We are more confident that Sen. McCain would take a more practical approach to site security than would Sen. Obama," says William E. Allmond IV, SOCMA's director of government relations. "Sen. Obama is on record as a supporter of IST as a meaningful chemical security measure, despite arguments to the contrary by federal security officials, academia, and industry experts alike. His position, and the position of those in Congress who agree with it, appears to be more political than practical."
Gerard says it's difficult to predict where the mind-set of the U.S. voter will be on election day. Each candidate, however, has supporters within the chemical industry, he notes. "I think Sen. Obama's leadership is inspiring, and he would settle into the job quite well. He would bring fresh thinking and new ideas to help us grapple with the global economy in which we operate. Others believe he's very liberal, and it's unlikely he'll stray from those tenets very much."
On the other hand, Gerard continues, "most people would describe Sen. McCain as a moderate. Yet you look at some of his changed positions, particularly on offshore drilling, and it's clear that he's willing to move where he feels it's necessary and in the best interests of the country. He's also very strong in the national security area."
As the race for the White House enters the final stretch after Labor Day, Gerard says the country should have a better understanding of the candidates' thought processes and "how they view the world and how they view the U.S.'s role in the world."
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