Policies and Measures to Realise Industrial Energy Efficiency and Mitigate Climate Change

Capturing the full extent of these potential end-use energy efficiency improvements rapidly is essential if the world is to be on a path to stabilise greenhouse gas (GHG) concentrations to a level that would prevent dangerous anthropogenic interference with the climate system. Over a quarter of all energy efficiency gains need to come from the industrial sector, largely by changing the pattern of industrial energy use. The reduction potential estimated for five energy-intensive industrial subsectors ranges from about 10 to 40 per cent.

The Bali Action Plan provides the principal framework for a post-2012 climate agreement. It focuses on a shared vision for long-term cooperative action and for enhanced national and international action to mitigate climate change, on adaptation, on supporting technology development and transfer, and on the
provision of financial resources and investment. The Copenhagen agreement could help provide the foundation for scaling up industrial energy efficiency to levels that reflect its share of the global mitigation potential. To that end, the following recommendations are made:

  • Energy sector policy reform - including the removal of broad-based subsidies - is needed to ensure that market signals fully reflect the true cost of  producing and consuming energy and stimulate investment in energy efficiency markets.
  • National Energy Efficiency Action Plans should be developed that set ambitious, achievable national energy efficiency goals or targets for the industrial sector based on studies which document the full costs and benefits of adopting energy-efficient technologies, practices, and measures.
  • Better public datasets and indicators should be developed on industrial energy efficiency and cost of improvement options. A database of existing successful and potential industrial energy efficiency policies and measures should be compiled and documented. These should be assessed for their scalability, transferability (from one country/region to another, from one industry to another, or from one plant to another) and full costs (including local variations in fuel, technology and implementation costs). 
  • The use of technology cost-curves to assess industrial energy efficiency potentials should be extended to include the costs incurred to build the institutions needed to implement industrial energy efficiency policies and measures as well as the cost of the policies and measures themselves. Including
    these programme, institutional, and other transaction costs is particularly important for developing countries where markets and institutions may not be as mature as in their developed country counterparts.
  • Proprietary energy efficiency technologies and processes that have significant energy-savings potential should be identified systematically and options to facilitate the wider deployment of these technologies in developing countries and transition economies should be explored. More attention should be focused on systems approaches, especially in industries that require a range of energy services (wherein potential synergies can be taken advantage of to reduce costs.)
    Capacity needs to be built in the skills and knowledge needed to tackle industrial energy efficiency. This capacity building should be a strong focus of post-2012 climate change agreements. It should aim to identify and transfer lessons learned from successful industrial energy efficiency policies and programmes, along with information on best practice technologies and measures that can be applied in the industrial sector.
  • Countries should be required to provide an assessment of potential (in terms of GHGs mitigated) and a description of their existing industrial energy efficiency policies within their formal National Communications reporting to the UNFCCC. This will help promote the development of nationalenergy efficiency plans, where they do not already exist.

The industrial sector is responsible for one third of global primary energy use and two fifths of global energy-related carbon dioxide (CO2) emissions. There is significant potential to reduce the amount of energy used to manufacture most commodities.The technical reduction potential ranges from about 10% to 40% for five energy-intensive industrial sub-sectors. The economic potential is smaller, but also significant.

Historically, energy efficiency has improved, and emission intensities have reduced, as countries have become more economically developed. End-use energy efficiency has the capability to reduce GHG emissions very significantly, and at low cost. Many industrial energy efficiency options reduce costs and allow for
higher levels of production for the same amounts of energy use. They can therefore indirectly help to combat poverty.

Since 1973, energy efficiency and structural change have met about 58% of the new demand for energy services in industrialised countries. Without those energy efficiency improvements, energy demand would have been considerably higher (IEA, 2008a). More conventional fuel would have had to have been supplied and used, thereby increasing GHG emissions.

Industrial Energy Efficiency Potential

In terms of the CO2 savings that might be achievable, IPCC analysis suggests that industry might be expected to make savings of 2.5 to 5.5 GtCO2 equivalent in 2030 compared to a baseline scenario. This would represent a saving of 15 to 30% of the total projected baseline emissions in 2030.This picture is reinforced by IEA analysis that suggests that energy efficiency would constitute more than half of all industry’s contribution to a scenario which envisages global CO2 emissions halving by 2050. 90% of this potential, most of which would come from energy efficiency improvements, could be achieved at less than USD 50/tCO2 In the household sector, improved energy efficiency can directly reduce household expenditures on energy services, and therefore directly help to reduce poverty. The impact of industrial energy efficiency on poverty is less direct, but nonetheless potentially substantial. saved. The remaining 10% could be achieved at between USD 50 and USD 100/tCO2 saved (IPCC, 2007). 80% of the potential is in developing countries and transition economies.

While important, cost generalisations can be difficult. Considering only one industry type, costs can vary from an old to a new plant. Retrofitting existing facilities is usually more expensive than introducing efficient technologies in a greenfield plant. The same energy efficiency measure may have a different cost in industrial facilities that differ only in size. Per unit costs tend to be lower for larger plants, due to economies of scale. Further, due to differing:
commodity prices, fuel prices, GHG penalties; labour conditions; and – amongst others - market peculiarities, implementation costs can vary by a factor of two or more due to local conditions. Together with differing institutional capacities, these aspects make cost generalisations difficult – and the need for careful documenting when compiling comparative databases important.

Countries differ in terms of their level of industrial energy efficiency. In part this is due to structural reasons: older plants tend to be less efficient than newer ones, so countries that have developed later tend to be more efficient. For example, the most efficient aluminium smelters are in Africa. India has a very energy efficient cement sector. And China has very ambitious efficiency targets for the coming years – a task helped by its growing and modernising economy. In spite of structural differences, policies demonstrably make a difference, as shown by reduced energy use per unit of output by industries in countries such as Japan and the Netherlands, for example.

Action to help spread and apply the most effective approaches, policies and measures has the potential to rapidly help raise the efficiency of all industrial plant nearer to that of the best. It is on this that this study particularly focuses.

Industrial Energy Efficiency Policies and Programmes

Since the 1970s, numerous energy efficiency policies and programmes have been implemented in many countries around the world with demonstrable success. Lessons learned from these programmes can be used to identify successful elements that can be more widely disseminated. In general these policies deal directly with the informational, institutional, policy, regulatory, and market-related barriers to improving energy efficiency in industry. They also provide policy and fiscal environments which enable industrial enterprises more easily to implement energy efficient technologies, practices, and measures.

Below is a summary of key lessons:

  • Distorting subsidies are removed and, as far as possible, mechanisms are put in place fully to carry the cost of environmental impacts into the market. Industrial subsidies can be provided in other forms that do not discourage the uptake of energy efficiency measures, but rather accelerate them and are more economically efficient than subsidising the energy price.
  • Industrial corporate culture is changed to include high level management commitment to assign and realise the potential of energy efficiency in terms of improving competitiveness and furthering corporate social responsibilities.
  • Ambitious energy efficiency or GHG emissions reduction targets are set. Such targets can be established in legal mandates or voluntarily at national or sectoral levels or even at facility level.
  • Within industries, measurable energy management systems are established. (Energy management standards can provide an organising framework for industrial facilities. ISO 50001, the international energy management standard, is expected to have far-reaching effects on the energy efficiency of industry when it is published early in 2011 )
  • Building human capacity, skills and training programs must be developed at various levels. These include within industrial facilities, external experts and service providers as well as within key institutions expected to take part in the implementation of PAMs.
  • Information dissemination and sharing, as well as the promotion or provision of energy assessments and related services provide a useful enabling environment for promoting industrial energy efficiency.
  • Benchmarking exercises are needed to calibrate industrial performance to national or international best practice energy use levels (these may need to be carefully adjusted to allow for differing local conditions).
  • Mandatory industrial equipment and system performance and assessment standards are an effective way of increasing the market penetration of more efficient equipment.
  • Energy efficiency investment funds and carbon trading initiatives can assist the deployment of energy efficiency practice. In this context, financial instruments such as taxes, subsidies, and programmes that improve access to capital are often employed.
  • The implementation of energy efficiency PAMs needs to be monitored and evaluated (at both facility and national level) in terms of their key attributes, such as cost, GHG mitigated, intensity reductions etc.