THE POTENTIAL IMPACTS ON THE U.S. PAPER AND ALLIED PRODUCTS INDUSTRY (SIC26) Prepared by Ronald J. Slinn Principal, Slinn and Associates Inc. For Argonne National Laboratory July 11, 1996 STUDY OBJECTIVES: The primary objectives of this study are to estimate and define the nature and magnitude of the impacts on the US paper and allied products industry (SIC26) of higher global and domestic fuel prices resulting from phased-in public policy commitments by the 24 OECD countries and I Eastern and Central European countries (*) to mitigate green house gas (GHG) emissions over the next 20 years. It will focus on direct effects on the industry, including production costs, market share, relocation, regional demand, and gains and losses between firms within the industry, effects on employment, and effects on international competitiveness. The results will be expressed quantitatively where feasible but qualitatively when necessary. (*) The OECD countries include Australia. Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The Eastern and Central European countries include Belarus, Bulgaria, Czechoslovakia, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Russia and the Ukraine. ASSUMPTIONS: Fuel Prices: The effects of GHG mitigation commitments on global industrial fuel prices are assumed to be phased in beginning in the year 2000, with half of the effects realized in the year 2005 and the full effects by the year 2015. Two scenarios are proposed by the study sponsor #1. #2. The increase in effective industrial fuel prices in the US falls between that of The increase in effective industrial fuel prices in the US and OECD Europe is comparable. The study sponsor has provided baseline 1994 industrial fuel prices as well as projected "shadow" prices in the US, OECD Europe and Japan through the year 2015; (see Appendix.) Other Economic Effects: While it is acknowledged that higher global fuel prices would inevitably have broad economic effects, the sponsor has stipulated that no attempt should be made in this and parallel studies to estimate such impacts on Gross domestic product (GDP) growth rates in affected countries; The demand for the industry's products as a result of altered GDP growth rates; International currency exchange rates; Between-industry relationships affecting the paper industry's costs of chemicals, wood, steel and other manufacturing and building materials. It is assumed that no changes will be made to existing provisions of US legislation and regulations which apply to industrial cogeneration and to the wheeling of electricity. Conversion Factors: To facilitate appropriate and consistent comparisons, the study sponsor has expressed many of the given baseline and projected industrial fuel prices in terms of metric tonnes of oil equivalent (mtoe's). Since much of the available data on the US pulp and paper industry's energy consumption patterns are expressed in British thermal units (Btu's), conversions - when necessary - will be based on 1 mtoe = 39.6 million Btu's. RELEVANT INDUSTRY FACTOIDS: With 534 paper and paperboard mills in virtually every state, the US paper and allied products industry is clearly the world's largest, accounting for 29.0% of 1994 global paper and paperboard capacity and 34.5% of global papergrade wood pulp capacity. In both of these sectors, the US industry's capacity is almost larger than the sum of. the capacities in the next four countries. The value of its 1994 shipments totalled $137.4 billion, representing 4.1% of the value of all US manufacturing shipments and 0.7% of US real GDP. Exports that year were valued at $11.3 billion. US per capita consumption of paper and paperboard in 1994 was the world's highest, averaging 332.6 kilograms, (approximately 732 pounds) - 25% higher than the next ranked country, Finland, and 44% higher than Japan. The industry is the nation's most capital intensive manufacturing industry, with 1994 capital invested per employee at $125,800 and capital expenditures representing 10.4% of the industry's sales over the 1983-1993 period. Approximately 57% of the industry's current capacity is in mills which are less than 10 years old. Employment in 1994 totalled 691,300 with gross wages of $31.1 billion. The industry is energy intensive, ranked #3 in purchased energy consumption among US manufacturing industries (after Chemicals and Primary Metals). While its 1994 energy consumption totalled 2.7 quadrillion Btu's (3.1% of all US energy consumption) - almost 56% of its total was derived from self-generated and residue fuels such as spent pulping liquors, bark, wood residues and self-generated hydropower. The industry is among the nation's leading cogenerators of electricity, producing 48.8 trillion KWH of power in 1991 - only recently slipping to rank second nationally after the chemicals industry. More than 40% of 1994 US consumption of paper and board was recovered for recycling at home and abroad. The industry has voluntarily set a recovery goal of 50% by the year 2000, approaching the practical maximum recovery rate for developed countries. HISTORICAL ENERGY USE PATTERNS: There may be fruitful empirical evidence in the industry's earlier patterns of absolute and relative energy use - especially after the Arab Oil Embargo of 1973 and the subsequent Iranian Crisis to indicate the effect of past substantial increases in energy prices and from which some valid conclusions might be drawn on the potential impact of price increases projected to follow a globally co-ordinated GHG mitigation initiative. Data on the US pulp and paper industry's fuel use have been gathered annually by the industry's national trade association - the American Forest & Paper Association (AF&PA). Its Energy Monitoring System (EMS) was initiated in 1972 and therefore provides data for a base year prior to the disruption of global oil markets beginning in the following year. The most recent data available are for the year 1994. Mills reporting to the EMS are instructed to report their energy consumption associated only with production of primary pulp, paper and paperboard, avoiding the inclusion of converting operations which, incidently, are likely to be more labor intensive but less energy intensive than primary production facilities, despite their heavier reliance on purchased sources of energy. Consequently, the following analysis of energy use patterns will refer to "the pulp and paper industry" rather than imply that the data cover completely the SIC 26 category "Paper and Allied Products Industry". It is also relevant that many pulp and paper mills are site-integrated with lumber, plywood and particle board plants and therefore site-specific energy use data are inevitably commingled with segments of the solid wood products industry, (SIC 24). Perhaps the most unique energy feature of the overall pulp and paper industry is its characteristic dependence on self-generated sources in the form of spent pulping liquors principally from the dominant kraft pulping technology's recovery process but also from the bark removed from pulpwood prior to chipping, from the use of residue wood as fuel chips and self-generated hydro power. Emphasis is directed here to this feature being characteristic of the overall industry since it is only that segment of the industry's wide and diverse range of companies and facilities which manufacture wood pulp and which employ the kraft pulping process that may avail themselves of most of these alternative self-generated fuel options. While the bulk of the US industry's pulp capacity is integrated in relatively few companies and facilities, there are actually almost twice as many companies which do not produce pulp at all and therefore must buy all of the papermaking fiber they need as either virgin pulp or recovered fiber. In 1994, there were 190 US companies producing paper and board, of which 65 produced wood pulp, indicating that 125 purchased all of their fiber needs. Returning to the pattern of the industry's aggregate mix of energy sources over the 22 years between 1972 and 1994, it is immediately noteworthy - from Table 1 - that the industry's overall dependence on self-generated fuels has increased from an initial 40.3% of total energy consumed to an historic high of 55.9%, with the contribution of spent pulping liquors rising from 33.3% to 40.8%, bark from 4.5% to 6.6% and wood residues from 2.0% to 7.3%. Perhaps the next most noteworthy aspect of the industry's changing mix of energy sources is its significantly reduced dependence on purchased fuel oils - from 22.2% of total energy consumed in 1972 to 6.3% in 1994. While the contribution from natural gas purchases also declined during this period - from 21.1% of total energy consumed in 1972 to 16.9% in 1994 - the industry's relative reliance on coal increased from 10.7% to 12.5%. The nature of the industry's voluntary and mandated responses to environmental issues during the 22 year period were largely responsible for the increased use of purchased electricity - from 4.4% of total energy consumed in 1972 to 6.4% in 1994. 46-495-35 |