Severe Weather and Manufacturing in America: Comparing the cost of drought, storms, and extreme temperatures with the cost of new EPA standards
This analysis compares the cost of the new EPA mandated reforms on energy standards intended to reduce greenhouse gas emissions from power plants 30% by 2030, with the costs manufacturers ultimately face from the impacts of severe weather. The Business Forward Foundation puts these numbers into perspective by examining automotive manufacturing - the largest industrial sector in the U.S.
The study is based on the understanding that critics of the EPA standards argue that increasing manufacturers’ electricity costs will encourage them to move production overseas. Meanwhile proponents of the EPA standards argue that they are a necessary response to the immediate and long-term costs of severe weather caused by climate change.
To compare the financial implications, the study analyzed (1) how much manufacturers actually spend on electricity; (2) how much rates will rise; and, (3) how much manufacturers are already losing because of severe weather.
The findings in the automotive industry demonstrate that electricity represents 0.9 percent of an automaker’s costs and 0.75 percent of a parts supplier’s total costs, on average. By comparison, their supply chains represent approximately 75 percent of their respective total costs.
The report describes that shutting down an auto assembly line costs the plant $1,250,000 or more per hour. For this reason, automakers penalize suppliers as much as $10,000 for every minute their shipments are late. When compared to the hours of production auto assembly plants and parts suppliers lose each time severe weather disrupts their supply chains, the cost of the new EPA standards (from steel and glass through final assembly, less than $7 per car) are minute.
The report explains why the industry’s massive, global supply chains are at risk, largely because the improvements that have made them so efficient have also made them highly interdependent and vulnerable to even small disruptions.
Publication Date: June 2014
- Business Forward Foundation