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IEA Roundtable on Industrial Productivity and Competitiveness Impacts
Paris, France
January 27, 2014
Robert Bruce Lung – Industrial Energy Efficiency Advisor
“…Poppa got a job with the TVA,
He bought a washing machine,
And then a Chevrolet…”
2
Alabama “Song of the South”
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
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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
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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
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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 analysis6
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
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Courtesy of John “Skip” Laitner
How to Quantify Macro-Economic Impacts of Energy Efficiency?
Integrate energy efficiency into economic production models3-factor Cobb-Douglas example:
Output = A*La *Kb *Ec GDP = A*La *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
energyOutput elasticities measure sensitivity of output to changes
in inputs (A, L, K and E)Different values of Energy (E) affect GDP growthEnergy efficiency reduces E, freeing up capital and labor for
other uses and increases the productivity parameter AHence, energy efficiency can lead to higher GDP growth
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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
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Conclusion/Lessons for Programs and PoliciesConventional 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
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Contact Information
Robert Bruce Lungindustrialeeadvisor@gmail.com202-262-7897
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