Industry Energy Futures: Challenges and Opportunities for the U.S. Industrial Sector in a Carbon-Constrained Future

The U.S. Department of Energy (DOE) is assessing strategies to reduce dependence on fossil fuels and to reduce anthropogenic CO2 emissions. Analysis reveals that it will be necessary for industry to address more than energy intensity alone; for example, reductions in the carbon intensity of materials, use of low/no carbon feedstocks, the efficient use of materials, and the development of new materials and processes will be required. Since the U.S. industrial base is diverse, from extractive operations like mining to energy intensive subsectors including chemicals, refining, pulp & paper, iron & steel, glass and cement, substantive reductions in the industrial sector will be particularly difficult. This paper will outline the changes necessary to achieve future CO2 emissions reduction targets, and will present a strategy and vision for industry to achieve those targets within the context of a revitalized manufacturing sector. Context Instability in the US and world energy markets have a profound effect on U.S. industries. Within the past 36 months oil costs reached all-time highs of $147/bbl, in a matter of months collapsed to nearly $30/bbl, and climbed back above $100/bbl at the beginning of 2011. Spurred on by a global financial crisis, decreased demand for goods and services has compounded the effect on US manufacturing. The effects are broad reaching, from increased unemployment rates to fluctuations in the markets for commodities and even recyclables. This economic vulnerability has arisen as the world faces an extraordinary global environmental problem. There is an overwhelming consensus amongst scientists that anthropogenic contributions of green house gases (GHGs) are adversely affecting climate, and countries are faced with the need to control GHG emissions. The Leaders of the Major Economies Forum on Energy and Climate (MEF) consider climate change to be one of the greatest challenges of our time and have recognized “the scientific view that the increase in global average temperature above pre-industrial levels ought not to exceed 2 degrees C.” In the US, projections of GHG emissions by the DOE’s Annual Energy Outlook (AEO) of 2011, total annual CO2 emissions are projected to increase from 6.2 gigatons in 2008 to 6.8 gigatons in 2030, a 9.7% increase; approaches are needed that will reverse that trend. The stabilization of atmospheric greenhouse gases (GHG) concentrations will require approaches that address both energy and non-energy related emissions from all corners of the economy – the electric generation, transportation, buildings, and industrial sectors. This paper uses a simple scenario analysis to address the scope of the challenge within the industrial subsector. 1 http://www.majoreconomiesforum.org/ 2 “The Annual Energy Outlook 2011 (AEO2011) Reference Case,” Energy Information Administration: Washington, DC. http://www.eia.doe.gov/forecasts/aeo/ 1-24 ©2011 ACEEE Summer Study on Energy Efficiency in Industry US Industry in 2010 The U.S. industrial base is comprised of many operations that convert raw materials into finished products, and accounts for one-third of the US energy consumption and associated carbon emissions. In addition, industry has a structure and characteristics that pose unique challenges. For example, the industrial base is diverse, with about two-thirds of the end-use energy consumed by the energy intensive subsectors including chemicals, refining, pulp & paper, iron & steel, glass, aluminum, metal-casting and cement.2 It also includes a wide array of manufacturing operations that convert raw materials into finished products from the foods we eat to the infrastructure that surrounds us. The implications are significant: Manufacturing contributes more to the US economy than any other sector; in 2009 it accounted for 11% of GDP and directly employed 12 million people, supplied 57% of US exports, and produced nearly 20% of the world’s output. The energy requirements that drive this economic engine are significant: about 30 quads/year or primary energy, accounting for about 34% of natural gas use, 26% of electricity use, and 23% of oil use in 2010. Industrial energy use results in significant emissions: approximately 28 percent of all the U.S. energy-related CO2 emissions. Direct emissions from industry are considerable (about approximately 0.9 Gt), resulting from about 20 quads of nonelectric energy use. In addition to the energy-related emissions, there are process-related industrial emissions of a range of GHGs (tracked in CO2 equivalents). About five quads of the total industry energy consumption is non-fuel use of coal, oil and natural gas (e.g. petroleum coke for steelmaking and natural gas for petrochemical feedstocks). While efficiency improvements have reduced energy intensity, over time energy use and emissions tend to trend upwards due to growth of the US economy. The stable and steady deployment of energy-efficient industrial technologies is necessary to reduce the rate of energy consumption, but is insufficient to achieve required emissions reductions. Decarbonizing US industry will require aggressive gains in efficiency, switching to low-carbon/ no-carbon fuels and feedstocks, as well as a decarbonized source of electricity. In order to meet national aspirations of energy and emissions reductions, US industry must attain and improve state-of-the-art process efficiencies, and develop transformational industrial and manufacturing operations for next generation materials and infrastructure. Levers Affecting Industry Energy Use and GHG Emissions Energy and commodities have a strong impact on the industrial sector, and affects the ability of U.S. industry to compete in a world market. An approach to industry and manufacturing is required that rethinks the valuations of materials and processing, and their resultant impact on the environment. Traditionally, industry has sought efficiency improvements through advances in energy efficiency. While reductions in energy intensity are an important driver, improvements in carbon intensity and use intensity can drive innovation, such as new business opportunities in climate-friendly technologies and products. Sustainable manufacturing methods that address a cradle-to-cradle approach to products more accurately reflect the true 3 Gross-Domestic-Product-(GDP)-by-Industry Data. http://www.bea.gov/industry/gdpbyind_data.htm 4 “The Facts About Modern Manufacturing 2009,” The Manufacturing Institute: Washington, DC. http://www.nist.gov/mep/upload/FINAL_NAM_REPORT_PAGES.pdf 5 GDP and its breakdown at current prices in US Dollars. cited 2010. http://unstats.un.org/unsd/snaama/dnlList.asp 4-25 ©2011 ACEEE Summer Study on Energy Efficiency in Industry lifecycle energy and GHG emissions; and, substituting or developing new materials that provide the same or greater service with reduced energy and emissions are more cost effective. Error! Reference source not found. Table 1 categorizes example opportunities by principal driver. Table 1 Improvement Levers in the Industrial Sector Use Intensity Energy Intensity Carbon Intensity Primary and non-destructive recycling Process efficiency Feedstock substitution Reuse and remanufacturing Electrotechnologies Green electrification Materials substitution Combined heat & power Green chemistry By-products Process integration Renewable distributed generation Behavioral change Waste heat recovery Carbon capture & sequestration Product-service systems Supply chain integration Biomass based fuels There have been a number of studies of U.S. industry, but most have focused on only a fractional intensity aspect of industry, such as energy intensity (see Figure 1 for some example studies). Several studies have evaluated the potential for both cost-effective energy efficiency improvements; as well as opportunities to advance current state-of-the-art technology towards practical energy minimums. For example, McKinsey estimates that the industrial sector can reduce energy use by 18% by 2020 with existing technologies and NPV-positive investments (i.e., energy cost savings resulting from technologies financed with loans would yield positive cash flow). On a primary energy basis, this study estimated 2.1 Quads in cost-effective available savings in 2020 from energy support systems including steam, motors, and buildings and an additional 0.9 Quads available through increased industrial combined heat and power (CHP) adoption; available savings from specific industrial processes were estimated to be additional 2.9 Quads. The National Academies has also surveyed a range of studies, which estimated the savings potential from deployment of existing and emerging technologies to be around 4.9 to 7.7 quads by 2020, inclusive of the potential for CHP. Because industry is so large and so diverse, scenario analyses can help to map the opportunity space analysis, and highlight how key drivers including carbon and use intensity can provide a roadmap to the transform industry. Improvements cross-cutting energy systems (e.g. compressed air, process heat, steam systems, motor drives) and industry specific process improvements – especially in the energy intensive industries – have the potential to significantly reduce CO2 emissions from U.S. industry. Below we review these systems, and assess the scale of energy-related GHG reduction potential in the U.S. by considering a range of scenarios in which strong efficiency and fuel switching is applied against a “business as usual” baseline. 6 “Unlocking Energy Efficiency in the U.S. Economy,” McKinsey & Company, July 2009 http://www.mckinsey.com/clientservice/electricpowernaturalgas/downloads/us_energy_efficiency_full_report.pdf 7 “Real Prospects for Energy Efficiency in the United States,” The National Academies, 2009. 1-26 ©2011 ACEEE Summer Study on Energy Efficiency in Industry Improv In the conve feed the particular products W produced purposes used for pumps, f heating a such as m energy de Im process e cogenera manufact efficienc industrie beverage of existin recovery F