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22
Industrial Energy Management

The industrial sector is made up of a wide variety of manufacturing and other industries that use energy to extract, refine, and process raw materials to produce a variety of goods. The nomenclature used to define industrial categories varies from country to country. In the United States, the Standard Industrial Classification (SIC) system is used to designate industry groups at different levels of aggregation. Table 22.1 shows the major elements of the U.S. industrial sector. The heterogeneity of this sector makes an analysis of energy use and potential savings substantially more difficult than for other sectors of the economy contributing to greenhouse gas emissions.

Table 22.1 also shows the direct consumption of energy by the U.S. industrial sector (classified by SIC code) for 1986 which amounts to 21.7 quads.1 Adding the 6.4 quads lost in the generation and distribution of electricity brings the total sector share to 28.1 quads of total primary energy use. This total consumption amounts to 36 percent of all primary energy used in the United States (Oak Ridge National Laboratory, 1989). Six industry groups account for more than 70 percent of total primary industrial energy use. These major groups, and their corresponding percentage of total industrial energy consumption, are chemicals (21 percent); petroleum refining (19 percent); primary metals (14 percent); pulp and paper (8 percent); stone, clay, and glass (4 percent); and food and kindred products (4 percent). Purchased fuel oil and natural gas each account for roughly one-third of the total direct energy used by industry. Electricity, coal, and other energy sources (primarily wood) account for the remainder.

International studies show that the industrial sector accounts for the largest component of most nations' energy use, averaging nearly 43 percent of total primary energy consumed in the Organization for Economic Cooperation



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Page 248 22 Industrial Energy Management The industrial sector is made up of a wide variety of manufacturing and other industries that use energy to extract, refine, and process raw materials to produce a variety of goods. The nomenclature used to define industrial categories varies from country to country. In the United States, the Standard Industrial Classification (SIC) system is used to designate industry groups at different levels of aggregation. Table 22.1 shows the major elements of the U.S. industrial sector. The heterogeneity of this sector makes an analysis of energy use and potential savings substantially more difficult than for other sectors of the economy contributing to greenhouse gas emissions. Table 22.1 also shows the direct consumption of energy by the U.S. industrial sector (classified by SIC code) for 1986 which amounts to 21.7 quads.1 Adding the 6.4 quads lost in the generation and distribution of electricity brings the total sector share to 28.1 quads of total primary energy use. This total consumption amounts to 36 percent of all primary energy used in the United States (Oak Ridge National Laboratory, 1989). Six industry groups account for more than 70 percent of total primary industrial energy use. These major groups, and their corresponding percentage of total industrial energy consumption, are chemicals (21 percent); petroleum refining (19 percent); primary metals (14 percent); pulp and paper (8 percent); stone, clay, and glass (4 percent); and food and kindred products (4 percent). Purchased fuel oil and natural gas each account for roughly one-third of the total direct energy used by industry. Electricity, coal, and other energy sources (primarily wood) account for the remainder. International studies show that the industrial sector accounts for the largest component of most nations' energy use, averaging nearly 43 percent of total primary energy consumed in the Organization for Economic Cooperation

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Page 249 TABLE 22.1 End-Use Industrial Energy Consumption in 1986 (quads) Industry Group SIC Codea Electricityb Natural Gas Fuel Oil Coal Other Sources Totalc Chemicals 28 0.52 1.86 1.74 0.33 0.21 4.67 Petroleum refining 29 0.12 2.28 2.59 0.00 0.10 5.18 Primary metals 33 0.50 0.66 0.15 1.41 0.14 2.85 Pulp and paper 26 0.28 0.36 0.28 0.23 0.47 1.62 Stone, glass, clay 32 0.10 0.40 0.04 0.30 0.17 1.03 Food 20 0.15 0.40 0.08 0.11 0.14 0.89 Textile mills 22 0.08 0.07 0.03 0.03 0.06 0.27 Fabricated metals 34 0.08 0.14 0.02 0.00 0.09 0.33 Machinery 35 0.12 0.12 0.02 0.02 0.08 0.36 Transportation equipment 37 0.11 0.11 0.03 0.05 0.05 0.35 Other manufacturing industriesd   0.34 0.23 0.09 0.07 0.13 0.86 Nonmanufacturing industriese   0.39 0.05 2.82 0.06 0.05 3.41   TOTAL   2.79 6.69 7.90 2.63 1.70 21.71 aSIC Code = Standard Industrial Classification. bDirect electricity consumption represents 30 percent of the total primary energy associated with electric energy use. Losses in the generation and transmission of electricity are approximately 2.3 times the direct use. Total losses for the industrial sector are 6.41 quads. cTo obtain primary energy consumption, add electrical losses (see footnote b). dIncludes all remaining SICs between 20 and 39. eIncludes agriculture, construction, and mining. SOURCE: Oak Ridge National Laboratory (1989).

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Page 250 and Development (OECD) countries in 1985. The percentage is even higher in developing countries, where industrial energy use accounts for nearly 60 percent of all energy consumption. Reported values for the former Soviet Union are slightly under 50 percent (Lashof and Tirpak, 1991). Recent Trends Several recent studies have documented dramatic decreases in the energy intensity of the U.S. manufacturing sector (Ross, 1989a; U.S. Department of Energy, 1989a; Schipper et al., 1990). Figure 22.1 shows the long-term (27-year) trend in the aggregate energy intensity of U.S. manufacturing (i.e., the ratio of energy used per unit of production as defined by the Bureau of Labor Statistics). In the last 20 years, the average energy intensity of U.S. manufacturing (which does not including the mining, agriculture, and construction industries) has decreased by nearly 40 percent. Most of this decline was due to decreased direct use of fossil fuels, whose intensity fell by 50 percent between 1971 and 1985 (Figure 22.2). Electricity intensity, on the other hand, declined only slightly during that same period. The total levels of manufacturing energy use from 1958 to 1985 are shown in Figure 22.3. 2 image FIGURE 22.1 The aggregate energy intensity of U.S. manufacturing (relative to 1970). SOURCE: Ross (1989a).

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Page 251 image FIGURE 22.2 The aggregate electricity and fossil fuel intensities of U.S. manufacturing (relative to 1972). SOURCE: Ross (1989a). image FIGURE 22.3 Manufacturing energy use by fuel type. SOURCE: Schipper et al. (1990).

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Page 252 Two major factors contributed to the trends shown in Figures 22.1 through 22.3. One was a structural shift in the economy, resulting in lower demands for energy-intensive products such as steel, aluminum, and paper. The other factor was improvements in the efficiency of manufacturing processes, resulting in less energy needed per unit of production (Boyd et al., 1987). The relative importance of structural changes and energy efficiency improvements has been analyzed by the U.S. Department of Energy (1989a), which attributes two-thirds of the overall change since 1970 to energy efficiency improvements. A more recent study by Schipper et al. (1990) draws similar conclusions using other measures of industrial production to examine the effects of structural and efficiency changes. Effects of Structural Changes Figure 22.4 shows the impact of structural changes alone on manufacturing energy use (i.e., the energy use that would have occurred if the products and energy intensities of each industry group had remained constant at their 1973 levels while the proportion of manufacturing sector output produced image FIGURE 22.4 Impacts of structural changes on manufacturing energy use (activity and intensity fixed at 1973 levels). SOURCE: Schipper et al. (1990).

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Page 253 by each industry group followed its actual historical pattern). By this measure, energy use between 1973 and 1985 would have declined by 18 percent due to structural changes alone. This analysis found that the largest contributor to the structural change was a decline in output from coal-intensive industries, particularly iron and steel (Schipper et al., 1990). The longevity of structural changes in industrial output remains somewhat more speculative. Several studies suggest a decline in the per capita consumption of energy-intensive products as industrial countries attain higher levels of affluence (e.g., Williams et al., 1987; Lashof and Tirpak, 1991). This ''saturation" phenomenon implies a long-term reduction in the demand for energy-intensive materials, which could (if sustained) have important implications for future industrial energy demand. Other factors believed to have contributed to the changing structure of U.S. manufacturing include higher oil prices and economic policies that affect the competitiveness of U.S. goods. The extent to which structural changes will continue to affect the total demand for energy in the industrial sector depends also on the absolute growth rate of manufactured products. There is some controversy over whether manufacturing represents a constant or declining share of real U.S. gross national product (GNP). To the extent that manufacturing output is coupled to GNP, decreases in energy intensity due to structural shifts may be offset at least partially by a higher total demand for manufactured goods as GNP continues to rise. Recent studies performed for DOE, however, assume a decline in the future manufacturing share of GNP (Ross, 1989b). Effects of Efficiency Improvements Recent improvements in energy efficiency for the U.S. manufacturing sector have been analyzed by DOE for the period from 1980 to 1985 (U.S. Department of Energy, 1990) and by Schipper et al. (1990) for the 29-year period from 1958 to 1987. The latter study attempted to develop an indicator of aggregate energy efficiency improvements independent of the structural changes noted earlier. The output of each industry group was assumed to remain constant at its 1973 value, whereas its energy intensity followed the actual historical path. By this measure, the structure-adjusted energy intensity of the manufacturing sector as a whole declined by 2.5 percent per year from 1958 to 1973 and by 2.7 percent per year from 1973 to 1985. The aggregate changes for 1958 to 1985 (Figure 22.5) were 15, 37, and 44 percent for coal, gas, and oil, respectively, and 6 percent each for wood and electricity intensity. For the period from 1985 to 1987, aggregate energy intensity continued to fall by roughly 2 percent per year. Overall, the structure-adjusted reduction in energy intensity between 1973 and 1987 was estimated at approximately 33 percent, due primarily to a reduction in direct fossil fuel use (Schipper et al., 1990).

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Page 254 image FIGURE 22.5 Impacts of intensity changes on manufacturing energy use (activity and structure fixed at 1973 levels). SOURCE: Schipper et al. (1990). A DOE industry-by-industry analysis for 1980 through 1985 supports the conclusion of a continuing trend toward greater energy efficiency in the industrial sector (Table 22.2). Although the energy price shocks of the 1970s undoubtedly contributed to improvements in energy efficiency, the more significant driving force for energy improvements in the industrial sector appears to have been the long-term changes in basic process technology, which reduce overall production costs as well as energy costs. Thus, even at the relatively low energy prices prior to 1973 and since 1980, manufacturing processes have become increasingly energy efficient. Although energy prices certainly have affected the fuel mix in the industrial sector (e.g., oil and gas use fell significantly in response to price increases of the 1970s), the sustained improvements in energy efficiency indicate that the industrial sector is not merely substituting one fuel for another (e.g., electricity for oil and gas). Rather, real reductions in energy intensity are being achieved through conservation measures and process technology innovations. The outlook is that this trend will be sustained through the turn of the century.

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Page 255 TABLE 22.2 Energy Efficiency Changes in Manufacturing Industry Groups, 1980 through 1985     Energy Efficiency Ratiosa Energy Efficiency SIC Industry Group 1980 1985 Changeb,c(%) 20 Food and kindred products 3.5 2.7 22.9 21 Tobacco manufactures Q Q Q 22 Textile mill products 5.7 4.8 16.3 23 Apparel and other textile products NA NA NA 24 Lumber and wood products Q Q Q 25 Furniture and fixtures 1.9 1.6 17.4 26 Paper and allied products 16.0 13.9 13.0 27 Printing and publishing 1.1 0.9 15.2 28 Chemicals and allied products 15.1 12.4 17.6 29 Petroleum and coal products 5.4 4.4 19.8 30 Rubber and miscellaneous plastic products 4.3 3.1 27.8 31 Leather and leather products Q Q Q 32 Stone, clay, and glass products 21.6 16.6 23.0 33 Primary metal industries 16.4 14.6 11.0 34 Fabricated metal products 2.8 2.3 16.4 35 Machinery, except electrical 1.7 0.9 43.6 36 Electrical and electronic equipment 1.7 1.2 26.4 37 Transportation equipment 1.5 1.1 25.0 38 Instruments and related products 1.7 1.2 29.3 39 Miscellaneous manufacturing industries 1.8 1.4 23.9 — All manufacturing 5.8 4.4 25.1 NOTE: Q = Withheld because relative standard error is greater than or equal to 50 percent; NA = not available. aThousand British thermal units per constant (1980) dollar of value of shipments. bA decrease in energy efficiency ratios from 1980 to 1985 indicates an improvement in energy efficiency and thus a positive value for "energy efficiency change." cEstimates of energy efficiency change are calculated from unrounded energy efficiency ratios and may differ from changes calculated from the rounded ratios in columns 1 and 2. SOURCE: U.S. Department of Energy (1990).

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Page 256 Emission Control Methods Carbon dioxide emissions from the industrial sector are due primarily to the combustion of fossil fuels for heat and power: CO2 is formed from the primary fuels used in boilers and process heaters and from the use of fuel by-products such as coke, petroleum plant gas, and coke oven gas. Additional emissions occur from industrial processes such as calcining and cement manufacture, which give off CO2 when raw minerals (e.g., limestone) are heated. The use of purchased electricity contributes to CO2 emissions indirectly from the combustion of fossil fuels at power plants. Thus the magnitude of electricity-related CO2 emissions depends on the utility fuel mix in a particular region. Because many energy-intensive industries tend to be located in regions of (historically) cheap electricity (e.g., hydroelectric power), the national average fuel mix may not necessarily be a good indicator of potential CO2 emission reductions from reduced electricity demand. Because of the extraordinary heterogeneity of the industrial sector, this chapter makes no attempt to discuss specific technological measures for reducing energy use in each of the major industries. Excellent summaries of energy use technologies on an industry-by-industry basis are available elsewhere (e.g., Decision Analysis Corporation, 1990). The intent here is to outline more generally the categories of methods available to industry and to estimate—insofar as possible—the magnitude of CO2 emission reductions achievable using current technology. Toward this end, 11 general mechanisms for reducing CO2 emissions in the manufacturing sector have been identified by Ross (1990a), who estimated qualitatively their overall potential and limitations (Table 22.3). These measures can be aggregated into four general categories: (1) fuel and energy switching, (2) energy conservation measures, (3) process design changes (including recycling), and (4) macroeconomic structural changes. Fuel and Energy Switching Fuel and energy switching measures reduce CO2 emissions by substituting fuels with less carbon per unit of energy for those fuel and energy forms currently in use. For example, switching from coal to natural gas reduces CO2 emissions by approximately 40 percent (for the same energy use), and substituting oil for coal lowers CO2 by roughly 20 percent. The potential for fuel substitution is limited by the technical and economic circumstances of different industries. For example, the largest use of coal occurs in the iron and steel industry for the production of coke, which is used in blast furnaces to produce iron. This use of coal cannot be eliminated by simple fuel substitution. Similarly, when fuel such as coal and oil are used in

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Page 257 TABLE 22.3 The CO2 Reduction Mechanisms in Manufacturing—Technological Opportunities and Constraints CO2 Reduction Mechanisms Overall Reduction Potentiala Physical Limitations Capital Limitations Need for New Technology Conservation High Mod Mod Mod Housekeeping Low Imp — — Process change High? Mod Imp Imp Energy switching           Other fuels to natural gas High Imp — —   Fuels to electricity High Imp Imp Imp   Co-generation High? Imp Mod Mod   Fossil to biomass Low Imp Mod Mod Recycle High Mod Mod Imp Materials substitution Low? Imp Mod Mod Sectoral shift Low Imp Mod Mod Manufacturing share Low Imp Imp Mod NOTE: Imp = important, Mod = moderately important, and — = relatively little importance. aJudged by size of opportunity and potential degree of public policy impact. SOURCE: Ross (1990a). remote locations, such as in the forest products industry, substitution of natural gas (requiring a pipeline) is unlikely to be feasible. The principal opportunities for fuel substitution lie in industrial boiler applications, particularly in industries that switched more heavily to coal during the 1970s in response to fuel price and regulatory pressures. The price, availability, and reliability of alternate fuel supplies are the key issues in all circumstances. The technical potential for short-term fuel substitution at existing facilities has been estimated by DOE on the basis of a recent survey of manufacturers (U.S. Department of Energy, 1988). Results are shown in Figure 22.6, which displays the maximum, minimum, and actual 1985 fuel usage for the manufacturing sector. Actual 1985 coal use is seen to be near its maximum technical potential, whereas distillate and residual oil use were near their technical minima. A rough estimate of the potential reduction in CO2 emissions from fuel switching at existing facilities can be obtained by assuming that 0.6 quad of current coal use (the difference between actual and minimum use) is displaced by either oil or natural gas. Based on the average carbon content of fossil fuels, this would yield a CO2 reduction of

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Page 258 image FIGURE 22.6 Minimum, actual, and maximum energy consumption by manufacturers for 1985. SOURCE: U.S. Department of Energy (1988). 24 Mt using gas or 13 Mt using oil.3 The cost-effectiveness of this reduction would depend on oil and gas prices relative to coal prices. Figure 22.7 shows that for recent price premiums of about $1.5 to $2/MBtu for oil and about $1.5/MBtu for gas, the reduction in CO2 would cost about $40 to $80/t CO2. The longer-term technical potential for fuel switching is, of course, much greater than the short-term estimates based on facilities currently in place. The magnitude of such changes, however, is dependent on future changes in fuel prices, process technology, and the turnover of capital stock. Uncertainty over the long-term availability and price of gas and oil can be expected to inhibit fuel conversions, even where technologically feasible. Emission reduction measures can also include switching from fossil fuels to electricity, which already is occurring to some degree. This may or may not reduce CO2 emissions, depending on (1) the fuels used for power generation, (2) the fuel for which electricity is being substituted, and (3) the relative efficiencies of the current and substitute processes. Because substituting electricity for fossil fuels entails new capital costs, the much higher price of electricity relative to fossil fuels requires that the electricity-based process be roughly 3 times more efficient than the fossil fuel system to be competitive. Such opportunities, however, do exist (Ross, 1989b).

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Page 275 (Table 22.9 continued from page 274) FISCAL INCENTIVES           Prices Fossil fuel use fee, tradeable fossil fuel use rights, or a carbon deposit-refund scheme to encourage energy conservation through process redesign, improved energy management, and combustion efficiency Promote electricity conservation in process heat applications Promote more efficient use of electricity by motors Encourage process changes in industries that release CO2, provide financial incentives for industrial investments that limit CO2 release through emission fees, tax credits, or subsidies       Consider fossil fuel use fee, tradable fossil fuel use rights or deposit-refund to promote switch from fossil-fuel-based electricity         Impose a fossil fuel use fee or tradeable co-use permits on all industry to promote switching away from coal to fuels with lower emissions           Encourage recovery and recycling of fossil-fuel-intensive manufactured materials to reduce energy use, consider deposit-refund systems on all glass and aluminum beverage containers, automobiles, and major appliances           Provide fiscal incentives to induce substitution from some fossil-fuel-intensive manufactured goods       (continued on page 276)

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Page 276 (Table 22.9 continued from  page 275) Policy/Activity Fossil Fuel Combustion for Process Heat Electricity Use for Process Heat or Electrolysis Electricity Use for Motors and Motive Force Disposing of Greenhouse Gas By-products   Taxation Alter the corporate tax code to provide incentives for investment in fossil-fuel-efficient production processes and to speed capital turnover in heavy industry   Encourage self and co-generation by manufacturers, provide corporate income tax credits to encourage the necessary capital investment for co-generation Offer tax credits to firms investing in technology to control noncombustion (by-product) CO2   Subsidies Support investment in scrap processing equipment         Direct Expenditures         INFORMATION ADVERTISING           Advertising     Engage in marketing-oriented advertising programs to help commercialize new electric drive technology and substitute processes, add necessary positive financial inducements   (continued on page 277)

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Page 277 (Table 22.9 continued from page 276)   Education Conduct or support informational workshops or energy audits to describe practical waste heat recovery methods and improved energy management, specific to individual industries         Moral Suasion       Explore foreign trade initiatives that minimize competitive disadvantage to U.S. industries from greenhouse gas prevention regulations, fees, and restrictions RESEARCH, DEVELOPMENT, AND DEMONSTRATION           Public invention support programs Promote industrial research and development on basic manufacturing processes that conserve energy     Encourage research and development on CO2 capture from noncombustion processes in the cement and aluminum industries (continued on page 278)

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Page 278 (Table 22.9 continued from page 277) Policy/Activity Fossil Fuel Combustion for Process Heat Electricity Use for Process Heat or Electrolysis Electricity Use for Motors and Motive Force Disposing of Greenhouse Gas By-products   Commercialization Education       Encourage research and development to develop biotechnology for calcium carbonate production   Provision of specialized information           Demonstrations         aThis option was added by the current study and did not appear in the original source. SOURCE: Department of Energy (1989b).

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Page 279 steel and paper) to invest in more efficient processes. Past experience shows that encouraging investment through the tax code can have a large and rapid effect on industry investment, although there is some disagreement over the benefits of the 1981 corporate tax revisions (Hall and Jorgenson, 1967; Bosworth, 1985; Summers, 1985). While it appears that some past efforts to encourage energy conservation through federal tax credits for specific qualifying equipment did not succeed in significantly influencing investment behavior (Alliance to Save Energy, 1983), larger tax credits and more broadly defined qualifying criteria likely would get a strong response. An investment tax credit also provides certainty of a payback when firms are risk averse due to uncertainty about future energy prices, as well as a justification for investment when financial market imperfections restrict the availability of funds (U.S. Department of Energy, 1989b). The windfall implications of investment tax credits, however, also must be considered in evaluating this option. Research and Development Needs Increased research and development holds the potential to accelerate the application of new process technologies that reduce industrial energy requirements, with a corresponding reduction in CO2 emissions. A number of recent studies (e.g., Oak Ridge National Laboratory, 1989; Decision Analysis Corporation, 1990) have identified research and development opportunities for specific industries (e.g., chemicals, petroleum refining, steelmaking, cement, and paper), as well as general technological developments that would provide benefits across the industrial sector (e.g., improved waste heat recovery. Table 22.10 summarizes the results of one comprehensive study that evaluated some promising research and development options for reducing energy consumption (Oak Ridge National Laboratory, 1989) and also attempted to estimate some of the ancillary benefits of research and development in addition to energy-saving potential (e.g., economic competitiveness, secondary environmental impacts, energy security, social feasibility, and technology transfer to developing countries). In general, these ancillary benefits are positive. Conclusions The major conclusions that emerge with regard to CO2 mitigation measures for the industrial sector are the following: • The industrial sector typically imposes the greatest demand for primary energy, making it (in most cases) the largest contributor to greenhouse gas emissions associated with the use of energy. For developing countries, the industrial sector accounts for up to 60 percent of the primary energy demand, compared to about 40 percent for developed countries.

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Page 280 TABLE 22.10 Evaluation of Promising Research and Development Options for Energy End Use       Energy Significance Technological Opportunities Near Terma Long Termb INDUSTRIAL GROUPS     Chemicals H H   Catalyst M M   Electroprocessing L L   Separations         Membrane M M     Supercritical fluid extraction L L   Continuous freeze concentration M M   Heat flow optimization M M   Combustion heater optimization M M   Sensors and computer control M M           Refining L L   New hydrocarbon conversion L L   Waste heat recovery L L   Separations L L   Improved catalysts L L   Sensors L L   Energy management systems L L           Aluminum L L   Carbothermic reduction of ore L L   Carbothermic reduction of alumina L L   Aluminum sulfide electrolysis L L   Alcoa process L L   Permanent anode L L   Wetted cathode L L           Steel M L   Scrap benefication L L   Advanced ironmaking processes M L   Advanced ore to steel processes L L   Advanced scrap to steel processes M L   Advanced casting M L   Sensors and controls L L   Advanced refractories M L

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Page 281         Energy Significance Technological Opportunities Near Terma Long Termb Paper M M   Chemical pulping M L   Paper/fiber recycle L L   Mechanical pulping L L   Papermaking M L   Advanced pulping technologies M L Agriculture M M   Increased fertilizer productivity L L   Improved tillage L L   Improved irrigation L L   Animal biotechnology L L   Plant biotechnology L L TECHNOLOGICAL AREAS     Reject Heat Recovery H M Industrial Combustion H H   Fuel flexible furnaces H L   Atmospheric fluidized-bed combustion H H   Pressurized fluidized-bed combustion L H   Circulating fluidized-bed combustion M M   Hot gas cleanup L H   Flue gas desulfurization H H Recycle of wastes M M aDoes this technology have the potential for making a major near-term (by the year 2000) contribution to our energy system (if the economics prove reasonable)? H = 1 quad/yr equivalent M = at least 0.2 quad/yr L = less than 0.2 quad/yr bDoes this technology have the potential for making a major longer-term (by 2040) contribution? H = 4 quads/yr equivalent M = 1 quad/yr L = less than 1 quad/yr SOURCE: Oak Ridge National Laboratory (1989).

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Page 282 • In the United States the energy intensity of the industrial sector (i.e., the amount of energy per unit of production) has been declining steadily over the past three decades. Analyses of the manufacturing sector suggest that improvements in energy efficiency account for most (on the order of two-thirds) of the changes observed to date. The remainder are due to structural shifts that have resulted in less demand for energy-intensive products such as steel, aluminum, and paper. This trend in energy intensity reduction is expected to continue, exerting downward pressure on CO2 emission growth. • A major factor in the long-term improvement in energy efficiency has been innovations in process technology that appear to be independent of changes in energy prices. Although the cost of energy is certainly a factor in decisions regarding fuel choice and energy consumption levels, other factors related to industrial productivity generally dominate energy considerations. • While the potential for further energy savings in the industrial sector has been widely studied, there is relatively little information on the costs of energy reduction measures. Further study of costs is needed to analyze more rigorously the relationships between industrial energy use and greenhouse gas mitigation measures. • Estimates of the energy savings from energy conservation investments that reduce the use of electricity for manufacturing (via more efficient motors, drives, process technology, and so on) indicate that savings up to about 25 to 30 percent are achievable with current technology. The reduction in CO2 emissions for these savings would be roughly 140 Mt/yr. However, electricity prices would have to increase by a factor of 2 to 3 at the implicit rates of return now prevalent in the industrial sector (i.e., payback periods of 3 years or less). On the other hand, for lower rates of return, typical of public sector and utility investments, significant energy savings appear achievable at a net negative cost based on current electricity prices. • Expanded use of co-generation and other existing measures to improve fuel use efficiency at industrial plants was estimated to achieve an overall energy savings of roughly 30 to 35 percent, producing a reduction in CO2 emissions of nearly 400 Mt/yr. As with the estimated electricity savings, the implicit rates of return required to achieve these savings would have to be substantially lower than those now prevalent in the industrial sector. However, for a social discount rate of 6 percent, substantial CO2 reductions appear achievable at a net negative cost. • Given the long-term trend in energy efficiency improvements through process technology innovation, policies that stimulate research and development, and encourage more rapid capital turnover, may offer some of the best long-term strategies for mitigating CO2 emissions from the industrial sector.

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Page 283 • Government policy measures or incentives that effectively lower the rate of return (increase the project payback period) could accelerate investments in energy conservation. State-level incentives by public utility commissions to encourage utilities to invest in cost-effective measures at industrial facilities, similar to programs now emerging for the residential and commercial customers, may constitute one of the most promising means of addressing the industrial sector. Notes 1. 1 quad = 1 quadrillion (1015) British thermal units (Btu). 2. Values are in exajoules (EJ); 1 EJ = 1018 J = 1/1.054 quad = 85 bkWh of electricity. 3. Throughout this report, tons (t) are metric; 1 Mt = 1 megaton = 1 million tons; and 1 Gt = 1 gigaton = 1 billion tons. References AES Corporation. 1990. An Overview of the Fossil2 Model. Prepared for the U.S. Department of Energy. Arlington, Va.: AES Corporation, July 1990. Alliance to Save Energy. 1983. Industrial Investment in Energy Efficiency: Opportunities, Management Practices, and Tax Incentives. Washington, D.C.: Alliance to Save Energy. Ayres, R. U. 1990. Energy conservation in the industrial sector. In Energy and the Environment in the 21st Century. Cambridge, Mass.: MIT Press. Barakat and Chamberlin, Inc. 1990. Efficient Electricity Use: Estimates of Maximum Energy Savings. Report No. EPRI CU-6746. Palo Alto, Calif.: Electric Power Research Institute. Bonneville Power Administration. 1989. Assessment of Commercial and Industrial Cogeneration Potential in the Pacific Northwest, prepared by Tech Plan Associates, Inc., for Bonneville Power Administration, Portland, Oreg., March 1989. Bosworth, B. 1985. Taxes and the investment recovery. Pp. 1–45 in Brookings Papers in Economic Activity. Washington, D.C.: The Brookings Institution. Boyd, G., J. F. McDonald, M. Ross, and D. A. Hanson. 1987. Separating the changing composition of U.S. manufacturing production from energy efficiency improvements: A divisia index approach. The Energy Journal 8(2):77–96. California Energy Commission. 1990. Staff Testimony on qualifying Facilities/Self-Generation Forecast. Docket No. 88-ER-8. Sacramento, Calif.: California Energy Commission. Decision Analysis Corporation. 1990. Energy Consumption Patterns in the Manufacturing Sector. Report on Subtask 7B prepared for U.S. Department of Energy, Washington, D.C. Vienna, Va.: Decision Analysis Corporation. Edmonds, J., and W. Ashton. 1989. A Preliminary Analysis of U.S. CO2 Emissions Reduction Potential from Energy Conservation and the Substitution of Natural

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