To avoid system errors, if Chrome is your preferred browser, please update to the latest version of Chrome (81 or higher) or use an alternative browser.
Click here to login if you're an NAE Member
Recover Your Account Information
Author: Marilyn A. Brown, Matt Cox, and Rodrigo Cortes
Energy-efficient industry will contribute to a cleaner environment, U.S. competitiveness and security, business profitability, and the quality of the workforce.
Meeting the energy needs of future generations without overheating the planet is one of the most vexing challenges of our time. In an increasingly resource-constrained world, improving the energy efficiency of industry must be part of the climate solution. In addition to environmental, security, and competitiveness benefits, improving industrial energy efficiency will deliver a return on investment that contributes to the profitability of enterprises and strengthens the nation’s employment base.
Industrial energy efficiency has improved over the past several decades in response to volatile fossil-fuel prices, global and domestic competition, and technological advances. U.S. manufacturing has undergone significant changes to improve market competitiveness and increase profits, including reductions in the energy intensity of manufacturing following the oil crises in the 1970s. Over the past several decades, however, the pace of investment in industrial efficiency has slowed, even though technological opportunities for clean energy transformations of industrial systems have increased. After a decade of stagnation, federal policy makers are finally considering options for accelerating clean-energy industrial transformation.
Industry, the largest energy-consuming sector in most countries of the world, accounts for 37 percent of primary energy use worldwide (IPCC, 2007) and approximately one-third of total U.S. energy consumption, mostly by four energy-intensive industries: chemicals, petroleum refining, pulp and paper, and iron and steel (Figure 1). Less energy-intensive industries include the manufacture and assembly of automobiles, appliances, electronics, textiles, food, beverages, and other products. Since energy is a smaller portion of their overall costs, these industries have tended to pay less attention to finding ways to cut energy use. However, current evidence shows that this may be changing as the result of an increased focus on reducing carbon footprints (Prindle, 2010).
As populations grow and standards of living rise, the production of energy-intensive goods is likely to continue to increase worldwide. An increasing proportion of this production is moving to China, Korea, India, and other rapidly industrializing countries. For example, although the United States remains the world’s largest producer of bulk chemicals and refined petroleum products, China has become the world’s largest producer of steel, aluminum, and cement (IPCC, 2007). Global competition for export markets, foreign investments, and raw materials is intensifying, which will reward industries that can cut costs by reducing their resource requirements.
As the era of cheap energy comes to an end, successful manufacturers will increasingly focus on technological innovations that enable order-of-magnitude reductions in energy consumption and on substituting renewables for fossil fuels and using other low-carbon energy resources. Advances in engineering, materials, thermodynamics, sensors and controls, and information technologies (among others) have the potential to transform industrial processes.
The America’s Energy Future (AEF) Committee of the National Academies concluded that investments in available efficiency technologies could reduce U.S. energy consumption in the industrial sector by 14 to 22 percent over the next decade (National Academies, 2009). At the current average rate of industry carbon dioxide (CO2) emissions per Btu of consumption, this would reduce emissions by 434 million metric tons of CO2 annually by 2020.1
There are numerous examples of technological innovations with the potential for industry-wide energy savings:
A recent study by the McKinsey Group (Granade et al., 2009) and numerous other studies have documented the great potential for energy savings in energy-intensive U.S. industries. The National Academies (2009) reviewed the literature on five energy-intensive industries to evaluate their potential for cost-effective improvements by 2020 (Figure 2). In the chemicals industry, potential cost-effective energy savings are estimated to reduce energy consumption from 6.08 to 5.89 or even 4.98 quads (savings of 3 to 18 percent) by 2020. Larger potential savings could be made in the petroleum refining industry, ranging from 5 to 23 percent of energy consumption by 2020. Estimates for the pulp and paper industry range from 6 to 37 percent reductions by 2020. The broad range of these estimates highlights the lack of consensus about the magnitude of the opportunity. Nevertheless, all of the studies show that sizeable energy savings can be made while providing positive cash flows for investors.
Reasons for the Efficiency Gap
Some of the barriers that have impeded the transformation of industrial energy systems are described below:
Existing regulations can also impede efforts to improve energy efficiency. For example, the Environmental Protection Administration (EPA) New Source Review (NSR) Program can discourage improvements in energy efficiency at industrial facilities (EPA, 2002). As part of the 1977 Clean Air Act Amendments, Congress established the NSR Program and modified it in the 1990 Amendments, but old coal plants and industrial facilities were exempted from the New Source Performance Standards (NSPS). NSPS standards are intended to promote the adoption of the best available air pollution control technologies, taking into account technology costs and other non-air quality, health, and environmental impacts and energy requirements.
However, investing in an upgrade could trigger an NSR, and the threat of such a review has discouraged companies from investing in upgrades. NSR thus imposes pollution controls where they are least needed and artificially inflates the value of the dirtiest plants. Overall, these effects have led some critics to question whether the NSR Program and NSPS have resulted in higher levels of pollution than there might have been without the regulation (Brown and Chandler, 2008; List et al., 2004).
The barriers described above have caused many firms to defer decisions on investing in energy efficiency. Unfortunately, once an asset is installed, it becomes difficult to change, thus locking in a level of energy efficiency that will last for years or even decades (IEA, 2008). This is another reason to aggressively pursue “windows of opportunity” for putting energy-efficient technologies and systems in place.
Combined Heat and Power: A Case Study
Combined heat and power (CHP) is a suite of technologies that couples thermal systems with electricity production that can boost overall efficiencies from the 35 to 50 percent range to the 70 to 80 percent range and sometimes higher (Shipley et al., 2008). Numerous barriers to deploying CHP technologies include the way states implement the Clean Air Act. Most of them use an input-based emissions standard, thereby ignoring the efficiency of the industrial system. Switching to an output-based emissions standard measured in emissions per unit of useful energy output would reflect the efficiency of the industrial system and enable the installation of more efficient technologies, without threatening the legality of the current environmental permits for the facility. Although EPA supports the adoption of output-based emissions standards, only 17 states have done so.
A recent analysis by the Georgia Tech version of the National Energy Modeling System (GT-NEMS) assessed the potential impact of a nationwide output-based emissions standard on CHP installations. GT-NEMS modeled a fast scenario (5 years) and a slow scenario (10 years) for the entire nation to adopt the new standards. The results suggest that if all states adopted output-based standards over the next five years, CHP electricity generation would increase twice as fast as the official “reference” forecast by the Energy Information Administration. Overall, the installed capacity of CHP systems could increase by 450 percent—from 26 GW in 2010 to almost 120 GW in 2035 (Figure 3).
Because CHP systems are ultra-efficient, industrial energy consumption would shrink relative to the forecasted growth, as would CO2 emissions and criteria pollutants. If the change were evaluated based strictly on energy savings, the policy would have a benefit:cost ratio of approximately 8:1; this includes a 10-year/$100 million R&D effort to increase the efficiency of CHP systems (see Brown et al., 2010, for a thorough discussion). Table 1 summarizes the energy savings and costs.
A recent report by the National Research Council (NRC) examined the damage caused by pollution from energy production and consumption in the United States (NRC, 2010). The study committee concluded that these damages totaled $120 billion in 2005, excluding any costs of climate change, the effects of mercury, the impacts on ecosystems, and other damage that is difficult to monetize. The total costs were dominated by damage to human health from air pollution associated with electricity generation and vehicle transportation.
We used the NRC damage estimates to evaluate the benefits of expanding CHP systems over the next two decades; in addition, we included an estimate of the value of reductions in CO2 emissions. After examining the allowance price projections estimated by the Energy Information Administration (EIA, 2009), Congressional Budget Office, EPA, and the Natural Resources Defense Council, we estimated a carbon price starting at $17 per ton of CO2 (2008 dollars) in 2011, increasing at a rate of 7 percent annually, and reaching $78 per ton in 2030. When these estimates of avoided damages from criteria pollutants and CO2 emissions are included in the analysis of an output-based emissions standard, the benefit/cost ratio more than doubles (Table 2).
Industrial Energy Policies in the United States and Around the World
Much can be learned by looking into approaches to improving industrial energy efficiency used around the world. Since 1992, when the Netherlands entered into “Long-Term Agreements” with industry, the country has maintained a proactive stance on industrial energy efficiency. These agreements are based on industry’s understanding that the government closely observes energy consumption but will not initiate strong regulations or energy price penalties as long as industry meets its targets (Nuijen and Booij, 2002). A second phase of Long-Term Agreements was initiated after the phase-one target goal of a 20-percent saving by 2000 was exceeded.
India has recently adopted an innovative approach to the problem. The country introduced an energy-efficiency trading program designed to reduce energy intensity by 5 percent a year through certificate trading. This energy-trading market is expected to grow to $15 billion and cover nine sectors by 2015 (Lamont, 2009).
The goal of Japan’s Energy Conservation Plan is to improve energy efficiency by 30 percent by 2030. To achieve this ambitious goal, the Ministry of Economy, Trade and Industry mandates energy-management plans for industry, the appointment of a certified energy manager for each business, and the introduction of benchmarking for industrial sectors (Energy Conservation Center, Japan, 2009).
Just before the December 2009 Copenhagen Summit began, China announced a commitment to reducing the carbon intensity of its economy to 40 to 45 percent below its 2005 level by 2020. This will require a 4-percent reduction in projected increases in GHG emissions every year. At the same time, China’s economy could grow at an annual rate of 8 percent or more. Achieving this goal is likely to require expanding the scope of major efficiency improvements to China’s smaller industrial facilities, as well as imposing new regulations and continuing to close inefficient plants (Friedman, 2009). China has taken steps toward meeting its carbon-intensity goal through tax credits, the adoption of building and appliance standards, programs focused on high energy-consuming firms, modifications of the Energy Conservation Law of 1997, and other actions.
In the United States, the implementation of federal efforts is distributed among federal agencies, with more than a dozen currently administering 72 deployment programs working on energy efficiency in industry (CCCSTI, 2009). Compared with many other nations, U.S. programs and policies have focused less on regulation and more on the promotion of voluntary action. Reflecting the importance of informed decision making in industry, about half of these federal policies and programs involve the dissemination of information about energy-efficient technologies currently available to industry.
For example, EPA’s VendInfo database helps industrial clients find providers of industrial energy-efficiency services. Other policies involve public-private partnerships with industry to encourage efficiency improvements. For example, Save Energy Now, administered by the U.S. Department of Energy Industrial Technologies Program (ITP), works with large industry partners in energy-intensive industries to identify opportunities for significant improvements in efficiency. ITP also works with small and medium-sized firms through audits performed by Industrial Assessment Centers located at universities throughout the country.
Based on international policy benchmarking, today’s U.S. policies are lagging. Scaling up energy efficiency will require more stringent voluntary and mandated standards supported by stronger and sustained government support.
Spawning Green Industries
The role of industry in the development of emerging technologies will lead to even greater energy savings than might be apparent from industry’s energy-use patterns. For example, developing a new generation of fuel cells may lead to greater savings in motor vehicles. Other possibilities include using ink-jet printing systems to manufacture complex three-dimensional devices with minimal thermal losses and fabricating new plastics that double as integrated photovoltaic systems (Laitner and Brown, 2005). As corporate sustainability has become better understood, industry has taken a much broader view of its energy and environmental responsibilities, extending its concerns to the sustainability of the products and services it offers, as well as the sustainability of its chain of suppliers. Walmart, for example, has included indicators of energy sustainability in its metrics for selecting products and service providers.3
Imagine a future in which the concepts of industrial ecology are taken to an extreme, manufacturers rely principally on renewable resources, and production systems clean up our ecosystems. Today industries are often seen as necessary evils that must be exiled to remote locations to avoid contamination. Yet the public imagination is captivated by buildings that might generate more energy than they use and cars that operate like pollution vacuum cleaners. Now we need a similar vision for industries-of-the-future.
This paper draws on Chapter 4 of Real Prospects for Energy Efficiency in the United States, a 2009 report by the National Research Council. Marilyn Brown was the lead author of that chapter, which included significant contributions from Steve Berry (University of Chicago), Linda Cohen (University of California, Irvine), Alexander MacLaughlan (retired from E.I. du Pont de Nemours & Company), Maxine Savitz (retired from Honeywell Inc.), and Madeline Woodruff (National Academies). We also wish to acknowledge the valuable review comments by Roderick Jackson (Oak Ridge National Laboratory). Finally, we benefited from our ongoing dialogue with the U.S. Department of Energy Climate Change Technology Program and the Industrial Technologies Program. Any remaining errors are entirely the responsibility of the authors.
Brown, M.A., and S. Chandler. 2008. Governing Confusion: How Statutes, Fiscal Policy, and Regulations Impede Clean Energy Technologies. Stanford Law and Policy Review 19(3): 472–509.
Brown, M., R. Jackson, M. Cox, B. Deitchman, R. Cortes, and M. Lapsa. 2010. Making Industry Part of the Climate Solution. Oak Ridge, Tenn.: Oak Ridge National Laboratory. Forthcoming.
CCCSTI (Committee on Climate Change Science and Technology Integration). 2009. Strategies for the Commercialization and Deployment of Greenhouse Gas Intensity-Reducing Technologies and Practices. DOE/PI-0007. Washington, D.C.: U.S. Department of Energy. Available online at http://www.climatetechnology.gov/Strategy-Intensity- Reducing -Technologies.pdf.
DOE (U.S. Department of Energy). 2006. Energy Bandwidth for Petroleum Refining Processes. Prepared by Energetics Incorporated. October. Washington, D.C.: DOE. Available online at http://www1.eere.energy.gov/industry/petroleum_refining/ bandwidth.html.
Energy Conservation Center, Japan. 2009. National Strategies and Plans. Ed. Available online at http://www.asiaeec-col.
Energy Information Administration. 2009. Energy Market and Economic Impacts of H.R. 2454, the American Clean Energy and Security Act of 2009. Available online at http://www.eia.doe.gov/oiaf/servicerpt/hr2454/index.html.
EPA (Environmental Protection Agency). 2002. New Source Review: Report to the President. Washington, D.C.: EPA. Available online at http://www.epa.gov/NSR/documents/nsr_report_to_president. pdf.
Friedman, L. 2009. China, U.S. Give Copenhagen Negotiators Some Targets. The New York Times, November 30. Available online at http://nyti.ms/bRJ7qD.
Granade, H.C., J. Creyts, A. Derkach, P. Farese, S. Nyquist, and K. Ostrowski. 2009. Unlocking Energy Efficiency in the U.S. Economy. McKinsey & Company. Available online at http://bit.ly/93ctQS.
IEA (International Energy Agency). 2008. World Energy Outlook, 2008. Paris: IEA.
IPCC (Intergovernmental Panel on Climate Change). 2007. Climate Change 2007: Mitigation of Climate Change. New York: Cambridge University Press.
Laitner, J.A., and M.A. Brown. 2005. Emerging Industrial Innovations to Create New Energy Efficient Technologies. In Proceedings of the Summer Study on Energy Efficiency in Industry. Washington, D.C.: American Council for an Energy-Efficient Economy.
Lamont, J. 2009. India to Launch Energy-Efficiency Trading. Financial Times, September 27.
LBNL (Lawrence Berkeley National Laboratory). 2005. Energy Efficiency Improvement and Cost Saving Opportunities for Petroleum Refineries, An ENERGY STAR Guide for Energy and Plant Managers. LBNL-57260-Revision. Prepared by C. Galitsky, S. Chang, E. Worrell, and E. Masanet. Berkeley, Calif.: LBNL.
List, J., D. Millimet, and W. McHone. 2004. The unintended disincentive in the Clean Air Act. Advances in Economic Analysis and Policy 4(2): Article 2.
National Academies. 2009. America’s Energy Future: Technology and Transformation. Washington, D.C.: The National Academies Press. Available online at http://www.nap.edu/catalog.php?record_id=12091.
National Academies. 2009. Real Prospects for Energy Efficiency in the United States. Washington, D.C.: The National Academies Press.
NRC (National Research Council). 2010. Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use. Washington, D.C.: The National Academies Press. Available online at http://www.nap.edu/catalog.php?record_id=12794.
Nuijen, W., and M. Booij. 2002. Experiences with Long Term Agreements on Energy Efficiency and an Outlook to Policy for the Next 10 Years. Ed. Re Utrecht, Netherlands: Netherlands Agency for Energy and the Environment. Available online at http://bit.ly/d8463s.
Prindle, B. 2010. From Shop Floor to Top Floor: Best Business Practices in Energy Efficiency. Washington, D.C.: Pew Center.
Shipley, A., A. Hampson, B. Hedman, P. Garland, and P. Bautista. 2008. Combined Heat and Power: Effective Energy Solutions for a Sustainable Future. ORNL/TM-2008/224. Oak Ridge, Tenn.: Oak Ridge National Laboratory.
Worrell, E., and C. Galitsky. 2004. Energy Efficiency Improvement and Cost Saving Opportunities for Cement Making¾An ENERGY STAR® Guide for Energy and Plant Managers. LBNL-54036. Berkeley, Calif.: LBNL.
1 Author’s calculation.
2 See http://www.physorg.com/news4221.html.
3 Walmart Sustainability Fact Sheet, 2010. Available online at http://walmartstores.com/download/2392.pdf.