An interesting tidbit from yesterday’s Bellingham, WA newspaper:
The 450 jobs at Alcoa Intalco Works are safe for now, thanks to a new power supply contract that is expected to keep the aluminum smelter west of Ferndale operating at its current reduced capacity for the next five years.
Apparently, the Bonneville Power Administration, which manages most of the hydroelectric dams in the northwest US, has agreed to subsidize Alcoa’s power so that the Intalco smelter can stay up and running. What doesn’t appear in the Bellingham paper, though, is the total value of the BPA subsidy. For that, we have to look to the newspaper in Pittsburgh:
The Bonneville Power Administration, the Portland, Ore.-based federal agency that markets electricity from hydroelectric dams, is subsidizing Alcoa’s purchase at $12 per megawatt hour up to $38.4 million annually. [emphasis added].
So, 450 jobs saved for $38.4 million a year. By my calculations, that’s over $85,000 in power subsidies per job saved. Oof.
I never know quite what to think about the Northwest’s aluminum smelters. They consume huge amounts of power—to the point that aluminum is sometimes called “congealed electricity.” And electricity is the nation’s number one source of greenhouse gas emissions. Even if smelters purchase their electricity from hydropower dams, smelting ultimately increases climate-warming pollution, since the hydropower consumed for aluminum would otherwise have offset coal- and natural gas-fired power generation elsewhere in the northwest.
Still, it’s not like shuttering the Northwest’s smelters—as happened to most of them after the 2001 west-coast power crunch—reduced overall global emissions from the aluminum industry. Production just shifted somewhere else, where power, land, or labor was cheaper. (Obviously, shifting the location of production could, in theory, change the climate impacts of the industry. It all depends on the marginal sources of electricity that are added and displaced, and on how modern the plants themselves are. Still, closing a Northwest smelter doesn’t necessarily reduce the global climate impacts of aluminum.)
So for the most part, the news about the Intalco smelter makes me feel relieved for the smelter employees and their families; smelter jobs are among the few high-wage manufacturing jobs available in many areas.
Still, it’s worth remembering that smelter jobs are almost entirely made possible by a BPA subsidy, paid to Alcoa, without which the company couldn’t make a profit by operating the smelter. And that subsidy ultimately is borne by other electricity ratepayers—that is, you and me.
eldan
Do those people actually earn an average of $85,000 each, or would it have been cheaper for the BPA to just pay these peoples’ wages directly? This sounds like enormously expensive corporate welfare to me.
Jay
It’s also interesting to note that when the Regional Power Act was passed in 1980, the smelters only had the right to BPA power through 2000! They’ve known for over 20 years that they needed to secure other power sources, but did nothing, then lobby in D.C. for continued access to BPA power. You say they couldn’t make a profit without the subsidy? Only a few months back Alcoa declared record profits! Why are NW ratepayers (of public utilities only, about 25% of the NW) being forced by BPA to provide this subsidy when the smelters no longer have a legal right to service from BPA?
Clark Williams-Derry
Great questions. I’m not sure I have any good answers, but I’ll try.First, eldan: I doubt that the workers earn $85K each, though it could be reasonably close (when you add in medical benefits, retirement, social security tax paid by the employer, etc.). Also, there are 450 jobs at the smelter itself, but the smelter also supports some additional employment.Still, that’s a mighty big subsidy per job, by my reckoning.Second, Jay: I don’t doubt that Alcoa made big profits as a whole; and the subsidies will just add to their profits. Still, I think that the Intalco smelter might well close without the subsidy.Now, as an electricity ratepayer—someone who’s doing the subsidizing—I’m inclined to be peeved about this. As a community-minded do-gooder who cares about the 450 people who work at the smelter, I’m inclined not to complain about the subsidy too much. As an economic rationalist, I’m inclined to believe that, on net, the subsidy doesn’t *actually* save jobs; the money saved on the subsidy would stimulate some other sector of the economy, with (potentially) identical results for overall employment. And finally, as an environmentalist I’m not sure that it matters much whether this particular smelter remains open, as long as overall demand for aluminum doesn’t fall.As I say, I’m conflicted. As a general matter, I’m inclined to believe that subsidies for resource consumption are just plain dumb. But since I’m a wimp, I’m not sure that I would want to say that in front of an audience of Intalco employees.
Jay
What about the other industries in the PNW that have lost jobs? BPA didn’t offer a power rate discount to Boeing when it was laying off employees. What about problems for the timber industry several years ago? If you live in the Intalco community, it may seem a good trade off, but what about communities whose major employer has cut jobs and isn’t getting a subsidy? Why should they be paying another community’s subsidy? Why are these jobs more important than any others? Especially when they (Alcoa et al) knew 26 years ago this was going to happen. As the saying goes “Lack of planning on your part does not constitute an emergency on my part”. Except that in dealing with the aluminum industry it apparently does…
Clark Williams-Derry
Excellent points all, Jay—and please don’t take my comments as *defending* subsidies for aluminum. (When I say I’d be unwilling to stand before Intalco employees saying that their jobs should be eliminated—well, that’s a confession of a personal failing, not an argument for maintaining the subsidies.)There’s absolutely no rational reason to single out aluminum for special treatment. And resource subsidies are, as a general matter, dumb, and frequently unfair. And the subsidy per job here is *huge*. Which makes the whole thing pretty darn hard to justify.
Woody
Just a few clarifications.One, Alcoa has been buying Bonneville’s cost-based power since 1940 and the 1980 contract was an “intial” contract under the then-new law. One would think the use of the word “initial” meant something might follow.Two, Alcoa is no more subsidized by BPA than Boeing or Weyerhaeuser, since both of those companies buy BPA cost-based energy through their local PUD. BPA didn’t have to offer these companies a subsidy, they already get it (if you want to call BPA cost-based rates a subsidy). The question is, why doesn’t Alcoa get that power anymore.Three, as for the value per employee, you can’t just count the direct employees at Alcoa. Aluminum smelting, like pulp and paper or aerospace, adds between 2 and 3 more indirect jobs (the local burger stand, etc.) for every direct job.The question you need to ask is why, after 66 years of service, is Bonneville refusing to sell cost-based power to Alcoa? Simply because the aluminum smelters are termed “direct service” customers in the law. Had Alcoa been a customer of the local PUD when it first started in 1940 (which, by the way, it could NOT be because the local PUD was not up and running yet) it would simply be a customer of Whatcom County PUD and you wouldn’t be giving it a second thought.Finally, aluminum IS being singled out for “special treatment”—it’s being pushed off the federal hydrosystem on which is has depended for 66 years. That’s really “special” (as the church lady might say).Oh, and, by the way, Alcoa is one of the most environmentally conscious companies in the world and has won numerous awards for it. You could do worse. Plus, aluminum is one of the most recycled materials around and it only takes 5% of the power to recyle as it took to manufacture. Spread that over multiple recyclings of the same case of Bud and you have a pretty environmentally friendly material. Cheers.