|September 17, 2007|
The Potential For Energy Efficiency Among Industrial Giants
This essay is an exclusive excerpt adapted from Kevin Klustner's upcoming book, "Energy Efficiency -- The Future is Now," which will be released in October.
In the face of an increasingly industrialized world -- and a world facing unknown threats from climate change -- the importance of driving up energy efficiency across sectors becomes crystal clear. Fortunately, industries have already begun to tap into new ideas for drawing down their energy demands and emissions.
The pulp and paper industry may ultimately prove to be the poster child of industrial energy efficiency.
Pulp and paper manufacturers use energy differently - they don't require energy as a feedstock and don't need very high temperature levels in the transformation process. In part because it's cheaper, they benefit from a good amount of self-generated energy extracted on-site from biomass, such as bark, sludge and rejected wood.
Energy efficiency retrofits here are not excessively expensive and yield internal rates of return closer to 10 percent. These manufacturers also are willing to innovate when it comes to boosting energy efficiency. Cogeneration systems, which produce electrical and thermal energy at the same time, are now replacing conventional boilers in many plants. Advanced biomass-based cogeneration technology is next.
Pulp and paper manufacturers are taking advantage of the energy efficiency opportunities being presented to the overall industrial sector, which accounts for nearly half of the world's energy demand. There is huge untapped potential here. The McKinsey Global Institute, for example, estimates that improving energy efficiency in the industrial sector could slash demand by between 16 percent and 22 percent by 2020.
There are, however, many hurdles, barriers and obstacles that stand in the way of this goal. If we don't resolve these issues, industrial-related carbon dioxide (CO2) emissions is estimated to reach 16.2 gigatons in 2020, compared to 11.5 gigatons in 2003, according to McKinsey.
Developing countries -- which generate one-third of global industrial energy demand -- remain a challenge. In 2020, coal will be used to satisfy more than half of China's industrial energy needs and 32 percent of India's. By 2020 China's industrial sector will emit 4.7 gigatons of CO2, or more than 13 percent of worldwide energy-related emissions.
Industrial companies are not making energy efficiency efforts any easier because they typically raise the bar by demanding a 20 percent internal rate of return on capital investment projects, including ones that would generate energy savings. This rate of return sets the bar too high and makes it nearly impossible make energy efficiency improvements.
Policy makers are at a disadvantage because the industrial sector is truly global. Energy-saving incentives, such as taxes and subsidies, could trigger industry relocation to the other side of the world unless they are coordinated among a slew of diverse nations.
Industries at a Glance
Large energy-consuming basic materials industries, such as chemicals and steel, will see higher-than-average energy demand growth over the next decade. In fact, these two industries alone will account for nearly one-third of all industrial energy demand by 2020.
China is a key driver behind this forecast. Its chemical-related energy demand will expand nearly 6 percent annually between now and 2020. More dramatically, its steel-related energy demand will grow 7.2 percent each year during this period; by 2020, it will produce more than 40 percent of the world's steel.
The petrochemical industry is by far the most energy-intensive industry in the world, and one of the least promising when it comes to energy efficiency. This is because of the direct and precise relationships between feedstock inputs and outputs produced. The ratios cannot technically change, for example, when a ton of ammonia is being produced. Indeed, .41 ton of natural gas is always required in the chemical reactions needed to make one ton of ammonia, so energy efficiency measures are capped from the start.
Energy efficiency efforts are more likely to be rewarded in the steel industry, however, because of process optimization, which can reduce energy losses. Developing nations can also build mills as energy efficient as those in the developed world. The China Iron and Steel Association, for example, says that all new steel mills now under construction in China will meet global energy efficiency standards.
I feel optimism about the refining industry, too. An energy audit performed by the U.S. Department of Energy on one key refinery showed room for a 12 percent energy-intensity improvement with a payback time of two years or less. If we could recover flare gas, which could be used for energy but is generally burned and lost, the refining sector could achieve a global average of 30 percent to 40 percent in energy productivity improvement.
New Energy Efficiency Technologies on the Horizon
In addition to biomass-based cogeneration, new energy efficiency technologies for the industrial sector await.
Ironically, the chemical industry, which is a bit hamstrung when it comes to its own energy efficiency efforts, is exploring ways to offer lower emissions to its customers. For example, new after-cleaning products for the textile industry can reduce energy consumption by 60 percent and water usage by 40 percent. And suppliers of auto coatings have developed new products that eliminate a round of primer application. The result: reductions in energy, solvents and emissions for each car coated. The chemical industry is also researching nanoporous foam materials for better heat insulation and nanocubes that store hydrogen for new and cleaner auto engines.
In another emerging energy-efficiency development, energy companies and industrial gas companies are working together on gas-to-liquid technology (GTL). This process turns gas, coal or biomass at the source into liquid fuel by blending it with pure oxygen under heat and pressure to produce synthesis gas, which, in turn, gets transformed into diesel-like fuel molecules.
Industrial gas companies are also working to perfect carbon capture and storage technology (CCS). Carbon capture is the process of removing carbon emissions from the exhaust gases of power stations and other large-scale emitters. The current research focuses on a pure oxygen combustion process that helps recover CO2 emitted from boilers fired by coal and by heavy petroleum residues; chemical companies are investigating solvent recovery of CO2. Once recovered, carbon dioxide can either be recycled into industrial processes or stored. If proved effective -- and this is a big "if" because CCS is problematic and may present environmental and legal concerns -- carbon capture and storage could help reduce emissions from the slew of new coal-fired power stations planned over the next decades, especially in China and India.
Finally, the role of biotechnology in helping the industrial sector become more energy efficient must not be discounted. Biotech companies are presently researching how enzymes -- rather than metal catalysts -- can help produce industrial products.
For now, though, we must look to sprawling industrial conglomerates like General Electric for green hope. One of the biggest recent corporate converts to eco-responsibility, GE is committed to doubling the level of its clean tech research and development budget to $1.5 billion a year and doubling the sales of these technologies to $20 billion, both by 2010. The automaker also wants to cut the absolute greenhouse gas emissions from its own manufacturing operations by 1 percent by 2012 and reduce the relative intensity of its own greenhouse gas emissions by 30 percent by 2008.
If the industrial sector were to gain inspiration and insight from GE's forward-looking example, the energy efficiency movement would gain much-needed momentum in factories and plants around the world.
Kevin Klustner is CEO of Seattle-based Verdiem, which distributes energy-efficiency software to public- and private-sector entities.