Co-Benefits of Industrial Energy Efficiency: Insights and Lessons

1
Co-Benefits of Industrial Energy Efficiency
Insights and Lessons
IEA Roundtable on Industrial Productivity and
Competitiveness Impacts Paris, France January 27,
2014 Robert Bruce Lung Industrial Energy
Efficiency Advisor
2

• Poppa got a job with the TVA,
• He bought a washing machine,
• And then a Chevrolet

Alabama Song of the South
3
Introduction

• Conventional approaches to quantifying energy
  savings of energy efficiency
• Co-benefits of energy efficiency in manufacturing
• Impacts of quantifying co-benefits of industrial
  energy efficiency
• Lessons for programs/policies

4
Conventional Approaches

• Energy savings potential of energy efficiency
  evaluation methods
• Simple payback
• Discounted payback
• Internal rate of return
• Net present value
• Return on investment
• Lifecycle cost analysis
• All of these methods treat only quantified energy
  savings
• Based on energy baselines and estimated savings
  generated during energy assessments

5
Co-benefits

• Energy efficiency in manufacturing results in
  quantifiable co-benefits
• Production increases (higher absolute and/or per
  unit increases)
• Improved product quality (fewer passes, fewer
  warranty claims)
• Lower maintenance costs (especially repairs)
• Reduced emissions (especially for thermal energy
  sources)
• Lower use of other resources (water, treatment
  chemicals, raw materials)
• Safer work environments (fewer sick days taken)
• Fiscal rebates and/or incentive payments
• Co-benefits are not systematically quantified
  because they are greatly underappreciated and
  rarely estimated during energy assessments
• Omitting co-benefits understates full impact of
  energy efficiency

6
Quantified Impacts of Co-benefits

• When co-benefits are quantified, ROI metrics
  always improve
• Worrel et al. (2003)
• Simple payback of energy savings only 4.2 years
• Simple payback of energy savings and co-benefits
  1.9 years
• Lung et al. (2005)
• Total energy savings 47.7 million
• Total co-benefits 21 million
• Simple payback of energy savings only 1.43
  years
• Simple payback of energy savings and co-benefits
  .99 years
• Co-benefits were quantified during
  post-implementation interviews
• Quantifying productivity benefits enhances
  business case for energy efficiency
• Also, important implications for economic analysis

7
Productivity Changes and Economic Impact

• Just a 0.3 decline in productivity of the U.S.
  economy could cause GDP (in 2005 dollars) to be
  2.7 trillion smaller by 2040
• If U.S. economy is 2.7 trillion smaller in
  2040, this implies
• 800 billion fewer in 2040 than might otherwise
  be available for investment and/or government
  revenues
• Between 2012 and 2040 6 trillion fewer
  available for investment and government revenues
• Approximately 15-18 million fewer total jobs
  between 2012 and 2040

Courtesy of John Skip Laitner
8
How to Quantify Macro-Economic Impacts of Energy
Efficiency?

• Integrate energy efficiency into economic
  production models
• 3-factor Cobb-Douglas example
• Output ALa Kb Ec
• GDP ALa Kb Ec (E production E imports)
• A is a productivity parameter, L is labor, K is
  physical capital, E is energy used
• a, b, c represent output elasticities of labor,
  capital and energy
• Output elasticities measure sensitivity of output
  to changes in inputs (A, L, K and E)
• Different values of Energy (E) affect GDP growth
• Energy efficiency reduces E, freeing up capital
  and labor for other uses and increases the
  productivity parameter A
• Hence, energy efficiency can lead to higher GDP
  growth

9
Cobb-Douglas Model Example in U.S.

• Assumptions
• Energy intensity reduction 30 between 1990 and
  2030
• Energy cost of 12.95/MMBtu (2009 data from AEO)
• Energy use of 113.6 Exajoules (2009 data from
  AEO)
• Median wages of 65,000/year (2009)
• Labor force of 164.4 million workers
• 10 return on rented physical capital
• Physical capital stock valued at 60 trillion
  (2000 dollars)
• Results
• Business as usual scenario Value of used energy
  1,030 billion, GDP 20.1 billion, energy
  intensity 5.65
• 30 reduction in energy intensity scenario Value
  of used energy 721 billion, GDP 21.9
  billion, energy intensity 3.63

10
Conclusion/Lessons for Programs and Policies

• Conventional approaches to analyzing energy
  efficiency understate its impact
• Quantifying co-benefits of energy efficiency has
  two important implications
• Truer understanding of impact on output/GDP
• More compelling business case
• A greater emphasis on energy-efficiency led
  productivity could yield more robust economic
  growth
• Energy assessments need to be integrated with
  quality/competitiveness assessments to
• Properly estimate co-benefits
• Account for energy savings from measures intended
  to improve productivity

11
Contact Information

• Robert Bruce Lung
• industrialeeadvisor_at_gmail.com
• 202-262-7897