Trend of the Week: Sustainability Under Scrutiny
Manufacturers have long prioritized sustainability in their operations, but 2024 will bring new attention to the industry’s efforts. As we continue to explore the major manufacturing trends that will shape the industry this year, here’s what you need to know about this key development.
What manufacturers should do: Manufacturers looking to create strong sustainability plans to meet the expectations of regulators, boards and consumers should start by taking these steps, according to the NAM’s experts.
- Craft an overall organizational sustainability plan with metrics and reporting.
- Make changes and upgrades to support energy and resource efficiency, as well as reduce waste and emissions.
- Focus on sustainable products and packaging in addition to sustainable processes.
- Improve product reclamation or recycling in the circular economy.
Expert opinion: According to UL Solutions, company boards have a particularly key role to play in developing sustainability plans.
- “Boards of directors are bound by their fiduciary responsibilities to shareholders, but savvy directors also recognize that environmental and other ESG-linked risks and opportunities are vital to the long-term health of their organizations,” UL notes.
Resources for you: Check out these NAM resources to learn more about sustainability and compliance:
- NAM Energy will connect you with an adviser to create an energy management strategy that will help you cut costs and reduce your environmental impact.
- This podcast from Milliken & Company’s director of research, compliance and sustainability is an excellent case study for manufacturers seeking to remove or remediate PFAS chemicals.
- Dig into the NAM’s extensive collection of policy explainers, on everything from the Environmental Protection Agency’s regulation of particulates to the Securities and Exchange Commission’s regulation of climate disclosures.
Read the full 2024 trends report here.
Timmons Talks Trade, Tariffs, Democracy in Washington, D.C.
U.S. competitiveness on the world stage, trade agreements, intellectual property, democracy and regulatory certainty—these were just some of the topics NAM President and CEO Jay Timmons covered in a Tuesday interview with POLITICO’s Doug Palmer during the 2024 Washington International Trade Conference.
- The meeting was attended by senior U.S. trade officials and foreign ambassadors and hosted by the Washington International Trade Association in Washington, D.C.
Safeguarding IP: With the World Trade Organization’s 13th Ministerial Conference coming up later this month, Timmons discussed the damage that would result from one of the meeting’s expected agenda items: an expansion of a 2022 TRIPS waiver on IP rights to include COVID-19 therapeutics and diagnostics.
- “Intellectual property is truly the lifeblood of manufacturing,” said Timmons, who met with WTO Director-General Dr. Ngozi Okonjo-Iweala and WTO Deputy Director General Angela Ellard in Geneva last March to discuss the waiver.
- Manufacturers “work hard, and it’s always been kind of a given from the U.S. perspective that intellectual property protections would be front and center. … Obviously, we want to facilitate the growth of manufacturing in other areas of the world, too. But … [it] is a giant leap too far if therapeutics and diagnostics are included in the waiver.”
- American agreement to the expanded waiver, Timmons said, would be tantamount to the federal government telling manufacturers in the U.S., “By the way, we want you to invest in developing more innovations here in this country if we’re just going to turn around and give them away.”
Trade and tariffs: If the U.S. wants to remain competitive, we must negotiate a trade agreement now—and pass the Miscellaneous Tariff Bill, Timmons told Palmer.
- “Trade is really the recipe for peace and the recipe for working together harmoniously,” he said. “We’d like to see more trade agreements. We haven’t seen one negotiated here in the United States for over 10 years—and the rest of the world, quite frankly, is eating our lunch when it comes to negotiating these agreements.”
- The U.S., which has been operating without an MTB for more than three years, “need[s] MTB to not just meet our economic goals and not just feed the supply chains of manufacturers, but also to meet our national security objectives.”
Democracy vs. autocracy: Timmons—who last July led the American business community delegation to Cancun, Mexico, for meetings ahead of the third U.S.–Mexico–Canada Agreement “Free Trade Commission”—stressed the importance of the USMCA to underpinning democratic values worldwide.
- “This agreement is incredibly important to our national security, and it is important to our place in the world,” Timmons continued. “We need to expand the relationship, whether it’s trade or other relationships here in North America, and we need to embrace the relationships and our allies around the world—in Europe and Australia and New Zealand and Japan and other areas—because we are facing a choice … between free market economies and democracies and command economies and autocracies, and I want to strengthen the former, not allow the latter to bloom.”
Other needs: Timmons talked about other manufacturing priorities for the current administration and the next.
- “We need regulatory certainty that gives business leaders the ability to plan for the future,” he said. “We [also] need to invest in workforce incentives. All of those and infrastructure, which we have done, and we continue to do. You can’t just open up the trading system and not expect capital to flow outside of our borders if you don’t have the right policies internally.”
NAM in the news: Read POLITICO Pro’s coverage of the conference and Timmons’ interview here and here.
Rinnai Fights for Efficient Water Heaters
For nearly 50 years, Rinnai America Corporation has been selling innovative products in the United States. But as the Department of Energy prepares to unveil new rules in April, the water heater manufacturer is bracing for a big—and unnecessary—setback to its operations.
The background: There are a lot of water heater options on the market, and consumers must make a few key choices.
- First, they can choose between electric and gas heaters.
- Second, if they choose a gas heater, they can select one with a tank or one without.
- Finally, even tankless gas heaters come in two forms: condensing or noncondensing. Condensing heaters are used generally in colder environments, while noncondensing units are better for warmer climates.
The rule: The Department of Energy has proposed regulations on gas water heaters that would go into effect in 2029.
- However, the proposed efficiency requirements for tankless gas water heaters are so strict that noncondensing tankless units would not qualify—removing a cost-effective option from the market, and one that is in fact comparatively efficient.
- “The DOE is not taking into consideration what is best for the consumer, best for the industry and best for the environment overall,” said Frank Windsor, president of Rinnai America Corporation. “This is a shortsighted decision that doesn’t take into account the ramifications.”
The consumer impact: The DOE’s rule would restrict consumer choice severely by creating a de facto ban on noncondensing tankless heaters.
- “Consumers are getting hurt,” said Windsor. “Around 20% of consumers want tankless options”—including noncondensing tankless heaters.
The industry effect: Rinnai invested $70 million in 2022 in a new Georgia facility that makes noncondensing tankless gas heaters.
- “We built this new facility to make tankless water heaters that give consumers significant energy efficiency at a low price—and now the DOE is saying that, by 2029, you can’t make noncondensing units anymore,” said Windsor.
- “We’ve got close to 200 people working for us in Griffin, Georgia, so it impacts a lot of people.”
The innovation loss: According to Windsor, the rule is also counterproductive because it forces companies like Rinnai to reallocate funds that otherwise could go toward product innovation.
- “We’re going to have to spend money to retool that plant, and then we’ll get taxed on the capital for the plant that we can’t use anymore—and that’s all money that we would’ve spent on product innovation,” said Windsor.
The last word: “Why would you eliminate the availability of a cost-effective, efficient product and force the consumer to buy a more expensive option?” asked Windsor.
Learn more about the high costs of regulations, and the extreme burden on small manufacturers, in this recent NAM study. And check out Manufacturers for Sensible Regulations, a coalition created by the NAM and members of the NAM’s Council of Manufacturing Associations and Conference of State Manufacturers Associations, which is intended to address the regulatory onslaught coming from federal agencies in recent years.
NAM to Senate: LNG Pause Harms Allies, Security
A senior Department of Energy official told the Senate at a Thursday hearing that the Biden administration’s recent decision to pause liquefied natural gas export permits will neither affect supplies to U.S. allies nor jeopardize international energy security, Reuters reports.
- Yet, data supplied by the NAM to the Senate Committee on Energy and Natural Resources ahead of the hearing shows otherwise.
What’s going on: “‘It will not affect our ability to supply our allies,’ [U.S. Deputy Energy Secretary David] Turk said, adding that it does not affect already approved exports.”
- “A U.S. official earlier on Thursday told Reuters ‘I don’t think we’re concerned at all about our ability to meet (European) demand.’”
- The Senate hearing on the LNG permit export pause follows a House hearing on the same topic earlier in the week.
However … Since the 2022 start of Russia’s war against Ukraine, Europe has come to rely increasingly on the U.S.—the world’s top LNG exporter—for natural gas, the NAM told lawmakers.
- “Europe is currently the primary destination for U.S. LNG, accounting for 67% of total exports in the first six months of 2023,” NAM Managing Vice President of Policy Chris Netram said. “For comparison, 64% of the United States’ global LNG exports in 2022, and 23% of American exports in 2021, went to the European Union. … [T]he war in Europe [even] forced diversions of LNG cargo that was bound for Asia.”
“Wrong direction”: Sen. Joe Manchin (D-WV), who called the hearing, said freezing liquefied natural gas export permits is “the wrong direction for our country,” whose LNG exports are helping allies in need.
- “Shockingly, in the White House statements [regarding the permit freeze], there is no reference at all to the crisis created by Putin’s invasion of Ukraine, to the growing instability in the oil-and-gas-producing regions in the Middle East following Hamas’ attack on Israel or to any other crisis that U.S. LNG exports can help address.”
Environmental concerns: Though “Turk said the review will also consider pollution impacts on people living near LNG facilities … [and] ‘take into account all of the health environmental impacts,’” CNBC reports, the permit freeze could “benefit producers of energy sources with significantly higher emissions than [U.S.] LNG,” Netram continued.
- “According to the DOE, Russian exports to Europe had 40% more global warming potential than U.S. LNG across 20 years. Russian gas also had 20% more global warming potential than European coal. Clearly, U.S. LNG exports are better for the environment and help the U.S. and our allies achieve our climate goals.”
What’s next: The moratorium “could face court challenges,” according to CNBC. “A group of 23 Republican state attorneys general in a letter sent to the administration on Tuesday [said] that the Biden administration’s pause is illegal, arguing that the natural gas law requires the DOE to approve LNG exports unless it shows that doing so would not be in the public interest.”
EPA Releases Punishing New Air Standard
In a move that could have a significant negative impact on manufacturing in the U.S., the Environmental Protection Agency on Wednesday finalized an update to the federal air quality particulate matter standard.
What’s going on: The EPA announced a significantly stricter National Ambient Air Quality Standard for fine particulate matter (PM2.5), lowering the level from 12 micrograms per cubic meter of air to 9 micrograms.
The background: America’s air is actually cleaner than ever, due in large part to manufacturers’ commitment to innovation.
- In fact, the EPA recently reported that PM2.5 concentrations have declined by 42% since 2000.
- Yet, last year, the agency signaled that it was considering lowering the standards even further, to as low as 8 micrograms per cubic meter—and while the NAM and manufacturers spoke out against the move, the EPA moved ahead.
The problem: If enacted, such an aggressive standard would make it far more difficult and costly for manufacturers to operate in the United States.
- It would put huge swaths of the country in “nonattainment,” meaning that they would not meet ambient air quality standards. Factories in nonattainment areas would be unable to operate. Permitting would become almost impossible, and economic development would grind to a halt.
- A recent NAM-commissioned analysis by Oxford Economics found that a standard at this level could reduce GDP by nearly $200 billion and cost as many as 1 million jobs through 2031.
Our take: “The Biden administration’s new PM2.5 standard takes direct aim at manufacturing investment and job creation in direct contradiction to the president’s stated goal of strengthening manufacturing in communities all across America,” said NAM President and CEO Jay Timmons.
- And it will “mak[e] an already gridlocked permitting system further gridlocked” and discourage long-term investments by manufacturers.
Unfair disadvantage, tough choices: It would put the U.S. at a disadvantage with global competitors, too, Timmons added.
- “Manufacturers in America will also be hard pressed to make long-term investment plans domestically as our global competitors have set more reasonable goals. The EU standard is currently 25, and a proposal there would be to reach 10 by 2030. The UK has a target of 10 by 2040.”
- And it would require state and local officials to make difficult decisions about which critical infrastructure projects in their areas move forward, Timmons continued.
High cost, little impact: What’s more, the tightened rule won’t address the greatest sources of particulate matter, according to NAM partners the American Forest & Paper Association and American Wood Council.
- The “EPA’s rule delivers a devastating blow to U.S. manufacturing and the economy while doing nothing to address the largest sources of particulate matter, including wildfire smoke,” they said in a joint statement. “This unworkable air rule undermines President Biden’s promise to grow and reshore manufacturing jobs.”
- “This administration has set the PM2.5 NAAQS at near background levels, ensuring permit gridlock for most manufacturing sectors around the country, while failing to address 84% of overall PM2.5 emissions.”
Next steps: The NAM has spoken out repeatedly against this stricter regulation and will continue to call on Congress to reverse it.
NAM in the news: AFP, Associated Press, Fox News, Daily Caller and Newsweek all covered the NAM’s response to the finalized rule.
The last word: “The U.S. already has some of the strictest air standards in the world, and thanks to manufacturers’ innovation and leadership, some of the cleanest air and best environmental records,” Timmons concluded. “Manufacturers will consider all options to reverse this harmful and unnecessary standard, because it is our duty to stand against policies that hold our country back.”
EPA Releases Punishing New Air Standard
In a move that could have a significant negative impact on manufacturing in the U.S., the Environmental Protection Agency on Wednesday finalized an update to the federal air quality particulate matter standard.
What’s going on: The EPA announced a significantly stricter standard for fine soot, lowering the National Ambient Air Quality Standards for fine particulate matter (PM2.5) from 12 micrograms per cubic meter of air to 9 micrograms.
The background: America’s air is actually cleaner than ever, due in large part to manufacturers’ commitment to innovation.
- In fact, the EPA recently reported that PM2.5 concentrations have declined by 42% since 2000.
- Yet, last year, the agency signaled that it was considering lowering the standards even further anyway—and while the NAM and manufacturers spoke out against the move, the EPA moved ahead.
The problem: If enacted, such an aggressive standard would make it far more difficult and costly for manufacturers to operate in the United States.
- It would put huge swaths of the country in “nonattainment,” meaning that they would not meet ambient air quality standards. Factories in nonattainment areas would be unable to operate. Permitting would become almost impossible, and economic development would grind to a halt.
- A recent NAM-commissioned analysis by Oxford Economics found that a standard at this level could reduce GDP by nearly $200 billion and cost as many as 1 million jobs through 2031.
Our take: “The Biden administration’s new PM2.5 standard takes direct aim at manufacturing investment and job creation in direct contradiction to the president’s stated goal of strengthening manufacturing in communities all across America,” said NAM President and CEO Jay Timmons.
- And it will “mak[e] an already gridlocked permitting system further gridlocked” and discourage long-term investments by manufacturers.
Unfair disadvantage, tough choices: It would put the U.S. at a disadvantage with global competitors, too, Timmons added.
- “Manufacturers in America will also be hard pressed to make long-term investment plans domestically as our global competitors have set more reasonable goals. The EU standard is currently 25, and a proposal there would be to reach 10 by 2030. The UK has a target of 10 by 2040.”
- And it would require state and local officials to make difficult decisions about which critical infrastructure projects in their areas move forward, Timmons continued.
High cost, little impact: What’s more, the tightened rule won’t address the greatest sources of particulate matter, according to NAM partners the American Forest & Paper Association and American Wood Council.
- The “EPA’s rule delivers a devastating blow to U.S. manufacturing and the economy while doing nothing to address the largest sources of particulate matter, including wildfire smoke,” they said in a joint statement. “This unworkable air rule undermines President Biden’s promise to grow and reshore manufacturing jobs.”
- “This administration has set the PM2.5 NAAQS at near background levels, ensuring permit gridlock for most manufacturing sectors around the country, while failing to address 84% of overall PM2.5 emissions.”
Next steps: The NAM has spoken out repeatedly against this stricter regulation and will continue to call on Congress to reverse it.
NAM in the news: AFP, Associated Press, Daily Caller, Fox News and Newsweek all covered the NAM’s response to the finalized rule.
The last word: “The U.S. already has some of the strictest air standards in the world, and thanks to manufacturers’ innovation and leadership, some of the cleanest air and best environmental records,” Timmons concluded. “Manufacturers will consider all options to reverse this harmful and unnecessary standard, because it is our duty to stand against policies that hold our country back.”
What’s Ahead for Manufacturing in 2024?
Getting a solid forecast of the year’s key issues in manufacturing can help your business prepare for anything. A panel of experts recently shared their 2024 outlook in the webinar “What’s Ahead for Manufacturing in 2024?” hosted by the Manufacturing Leadership Council, the NAM’s digital transformation arm.
They offered insights on the 2024 manufacturing economy, legislative climate, digital trends, resilience strategies and more.
Economic outlook: NAM Chief Economist Chad Moutray provided a manufacturing economic update.
Key takeaways:
- The NAM Q4 2023 Manufacturers’ Outlook Survey revealed that more than 66% of member companies have a positive economic outlook for 2024, yet opinions are mixed on whether there will be a recession.
- The top economic challenge this year will be the workforce, with the labor market cooling substantially but remaining tight, Moutray said.
- Private manufacturing construction spending is at an all-time high of $210 billion thanks to the production of semiconductors, electric vehicles and batteries, and general reshoring.
- Risks this year include geopolitical turmoil, slow global economic growth, cost pressures, talk of a recession and labor issues, among others.
Policy perspective: NAM Vice President of Domestic Policy Charles Crain gave an overview of the current climate in Washington, D.C., and the NAM’s legislative priorities.
Key takeaways:
- The NAM will continue its focus on tax policy following House passage of an NAM-supported bipartisan tax package that would reinstate three manufacturing-critical tax provisions.
- Manufacturing is facing a regulatory onslaught, with the average manufacturer paying $29,000 per employee per year due to unbalanced, burdensome regulations, according to a recent NAM-commissioned study.
- Artificial intelligence is a hot topic on Capitol Hill, with 60 AI-related bills introduced in Congress last year. The NAM is working to help policymakers understand the benefits of AI, including safety, worker training, product design and development, and efficiency.
Manufacturing 4.0 Trends: MLC Senior Content Director Penelope Brown offered a look at digital manufacturing trends on the horizon.
Key takeaways:
- Manufacturers can expect to see a broader adoption of existing AI applications, including predictive/preventative maintenance, improved processes and enhanced productivity.
- According to the MLC’s recent Smart Factories and Digital Production survey, 65% of manufacturers anticipate their level of M4.0 investment this year will stay the same as last year.
- Other trends to watch include the rise of global partnerships such as Catena-X and CESMII, digitized supply chains and reshoring.
Resilience perspective: Cooley Group President and CEO (and MLC Board of Governors Chair) Dan Dwight shared his approach to resilience in 2024 and the years to come.
Key takeaways:
- Business leaders should prioritize agility and adaptability, even if it means admitting to suboptimal results that require redirection.
- Resilience doesn’t mean perfection; it means learning from failures.
- AI and machine learning contribute to resilience by building out end-to-end visibility across an organization—from vendors to manufacturing operations to customers.
For additional details from these experts, watch “What’s Ahead for Manufacturing in 2024?”
March-In Proposal Undermines IP Rights, Hurts Manufacturers
The Biden administration’s proposal to invoke so-called “march-in” authority to seize the rights to patents developed in any part with federal funding would undermine the American innovation economy, the NAM told the federal government Tuesday.
What’s going on: A proposal put forth in December by the Biden administration would allow the government to seize private-sector patents for products it considers too costly.
Why it’s important: “Undermining manufacturers’ [intellectual property] rights would have sweeping ramifications for innovation in the United States and America’s world-leading innovation economy,” the NAM told the Biden administration.
- “In particular, start-ups and small businesses would bear the brunt of the drastic changes proposed by the administration, as … government march-in would disincentivize early-stage entrepreneurship and dissuade much-needed capital formation from outside investors.”
The background: The Bayh-Dole Act, passed in 1980, allows recipients of federal research dollars to license groundbreaking technologies to private-sector companies to commercialize them.
- “Prior to the act’s passage, the government held approximately 28,000 patents—yet fewer than 4% of those patents were licensed to the private sector. This is because private-sector participants viewed these patents as ‘contaminated by government funding,’” according to the NAM.
- Bayh-Dole includes a narrow “march-in” provision that allows the government to step in to ensure consumer access to certain products during times of crisis—but march-in “has never previously been used during the 44 years since the law’s enactment,” the NAM said.
- Allowing march-in based on the price of a product or technology “would hinder industry collaborations with research universities and laboratories across the country, stymieing manufacturers’ efforts to develop the products and technologies of the future and bring them to the public.”
What we’re doing: Last month, the NAM launched a seven-figure ad campaign opposing the proposal.
- The administration should “provide certainty to manufacturers and other stakeholders in the innovation economy by affirmatively and unequivocally withdrawing the proposal—and making clear that the administration will not implement any of its recommendations,” the NAM said.
The last word: “Undermining America’s world-leading patent system is a recipe for reduced innovation and significant economic damage, with a disproportionate impact on small manufacturers,” said NAM Vice President of Domestic Policy Charles Crain.
- “The administration’s march-in proposal would raise the spectre of government price controls on a wide range of technologies—fundamentally reshaping how life-changing innovation is developed, financed and commercialized in the United States. The administration must affirmatively and unequivocally withdraw this radical and flawed proposal.”
NAM-Supported PBM Bill Clears House Oversight Committee
Pharmacy benefit managers are contributing to the skyrocketing cost of health care for manufacturers and must be reined in—and that’s why the NAM supports the bipartisan Delinking Revenue from Unfair Gouging (DRUG) Act, passed yesterday by the House Oversight and Accountability Committee.
What’s going on: PBMs, created in the 1960s with the intention of keeping prescription drugs affordable, are now doing the very opposite, the NAM informed the committee ahead of Tuesday’s markup.
- PBMs “increas[e] the price that health plan participants pay for medicines,” NAM Vice President of Domestic Policy Charles Crain said. “By applying upward pressure to list prices that dictate what patients pay at the pharmacy counter, pocketing manufacturer rebates and failing to provide an appropriate level of transparency about their business models, PBMs increase health care costs at the expense of manufacturers and manufacturing workers.”
- In addition to other reforms, the DRUG Act would require “delinking”—ensuring that PBMs charge a flat rate for their services rather than charging a percentage of a medication’s list price. This critical reform would “remov[e] PBMs’ incentive to put upward pressure on list prices in order to maximize their own profits,” Crain said.
Why it’s important: The NAM—whose advocacy, including a six-figure ad campaign, helped lead the DRUG Act to passage by the House Oversight Committee—“has long favored delinking PBM compensation from the list price of medications, including in the commercial market,” Crain continued.
- The NAM will continue to advocate for PBM reforms that “will benefit employers by making PBM contracts more straightforward, transparent and predictable—and will benefit workers by reducing the prices they pay out of pocket for their prescriptions.”
Can a Factory Offer Flexible Work Schedules?
Manufacturing operations are meticulously scheduled and dependent on consistent in-person labor—so how can employers in the sector give workers the flexibility that many want?
With competition for workers remaining fierce, it’s a question that the Manufacturing Institute (the NAM’s workforce development and education affiliate) has started to tackle. Now, manufacturers looking into providing flexible options can consult a new MI whitepaper that draws on real companies’ experiences and decision-making processes.
The new reality: Flexibility is a high priority for workers nowadays, as the MI’s own research shows.
- “Nearly 50% of manufacturing employees cite flexibility as a reason they stay with their employer, with 63.5% reporting that they would look for more flexibility in their next role if they were to leave their current company.”
Figuring it out: So how are manufacturers adjusting? According to a working group of 17 companies convened by the MI, many manufacturers have started by surveying their workers and talking through options with them.
- While feedback from current employees is often a prime motivator for companies considering flexible work arrangements, some manufacturers also pursue them to attract a wider pool of prospective workers—including parents of young children, who may put a premium on flexibility.
What’s on offer: As feedback from the working group showed, manufacturers are considering a wide range of creative options. The whitepaper cites several intriguing examples, which should give other manufacturers ideas for their own operations.
- One manufacturer in the group was trying out different shift options, remarking that they’re “exploring 4–9s and 4–10s primarily as well as adding a Sunday second shift and having folks on rotating shifts.”
- Other companies organized teams of “floaters.” At one firm, these employees work limited hours on different shifts and acquire a large variety of skills. While not full-time, such positions offer a viable option for workers in search of considerable flexibility.
- Shift swapping was another option under discussion, with one company allowing workers to swap up to a week at a time, so long as a supervisor approved.
How to get started: Check out the full whitepaper for more useful tips, including a toolkit to help companies start making these complex decisions on their own.
- Here is the recommended first step: “Identify the objectives that your company hopes to achieve in providing workplace flexibility by focusing on the challenges that you would like to solve, whether it’s increasing the number of applicants or reducing turnover and absenteeism. Establish your baseline by evaluating your company’s status on these metrics.”
- Manufacturing employers can learn more about effective approaches to flexibility for production employees at the MI’s upcoming workshop March 19–20 in Washington, D.C. Check out more details from the MI here.
The last word: As one working group participant said, “At our company, we’ve seen what workplace flexibility means for our production workers. The change in company culture is so valuable.”