By Claude Mandil, Executive Director of the International Energy Agency (IEA)
Have you noticed odd changes in the behaviour of your friends and family, such as shunning car purchases in lieu of public transportation and taking action to move to a smaller residence? Probably not. Generally rising incomes translate into demand for bigger homes and more powerful and larger cars. This poses a problem, since it produces direct emissions from consumer use as well as indirect CO2 emissions.
Indirect CO2 emissions stem from making the products that you buy since the materials incorporated in the products require energy which generates CO2 emissions. These emissions are very significant. Globally about 36% of all CO2 emissions are from the manufacturing industry, 40% from buildings and appliances and 24% from transport. About half of the transport sector emissions are from freight haulage.
Economic growth worldwide is still very dependent on manufacturing. The acceleration of global demand for materials is reflected in today’s record prices for commodities such as copper, nickel, steel, aluminium and plastics.
On a global scale, manufacturing is further buoyed by the GDP growth that is concentrated in emerging economies, notably China, where the rising middle classes are just starting to buy cars, condominiums and other niceties. Last year China’s car production overtook Germany. China accounted for four-fifths of the growth in industrial energy use and CO2 emissions during the past twenty-five years. Today China accounts for more than half of world cement production, and is the largest producer of key energy intensive commodities such as aluminium, ammonia and steel. The rapid growth of production in less efficient developing countries has been an important contributor to poverty alleviation , but it has also limited the average efficiency gains worldwide.
Demand for goods such as buildings and packaging requires substantial materials. More demand for these products with rising GDP has debunked the prospects of reduction in the quantity of materials required and the notion that “we have only one earth and no room for further demand growth” that were popular in the 1980s and 1990s. But it has resulted in a heavier reliance on low quality resources, which increases the energy intensity of production. The flow of materials and their storage in the economy is not well understood and as a consequence important efficiency improvement options may be overlooked as attention is focused on the supply side.
CO2 emissions from industrial energy use have been rising as a consequence of increasing product demand and look to be on a growing pathway. However, this trend can be mitigated through energy efficiency measures. Contrary to common belief, industry is not always efficient in its energy use. A new study of the International Energy Agency (IEA) Tracking Industrial Energy Efficiency and CO2 Emissions suggests a technical efficiency improvement potential of 18 to 26% for the manufacturing industry worldwide if best available technology were applied. These savings would equal 5 to 7% of total energy use and reduce CO2 emissions by 8 to 12% worldwide. These are conservative estimates based on proven technology.
The realisation of these technical improvement potentials immediately would entail significant costs, but over the longer term the prospects are affordable. A key factor is the age of the capital stock. New plants tend to be more efficient than old ones, as more efficient technologies are developed and adopted. As a consequence, the most efficient industries can in some cases be found in emerging economies where production is expanding. For example, the most efficient aluminium smelters are in Africa, and Brazil is among the most efficient cement producers. Aging capital stock also explains why the least efficient cement kilns are in the United States and why Canada has low efficiency in the pulp and paper sector. The general notion of efficient manufacturing in industrialised countries and inefficient production in developing countries with the main obstacle being technology transfer is a myth, reality is far more complex.
Japan stands out as a country that is efficient despite its aging capital equipment stock. One reason is an early emphasis by industry and government on energy efficiency. Much of this efficiency premium can be explained by the extensive use of waste heat recovery technologies for power generation, which is helped by comparatively high electricity prices.
Yet rapid growth in countries such as China and India has supported continuation of “mom and pop” type heavy industry in some sectors that does not exist in OECD countries. Small-scale manufacturing plants using outdated processes, low quality fuel and feedstock, and weaknesses in transport infrastructure contribute to industrial inefficiency in some emerging economies. Polices for ameliorating these problems should be strongly supported by domestic measures, international financial institutions, development assistance programmes and international CO2 incentives.
The IEA analysis suggests that more than half of the estimated energy and CO2 savings potential is in systems approaches that often extend beyond the process level: combined heat and power generation, efficient motor systems, optimisation of the life cycle of materials. Understanding these options requires a broad scope and complex co-operation schemes. Yet their sheer magnitude suggests that more attention is warranted.
New investments in manufacturing industry in all countries need to be based on best available technologies and existing plants need to be retrofitted with energy recovery equipment. Also better and continuous monitoring are needed, based on efficiency indicators, which are powerful statistical tools that measure energy use based on physical production such as the amount of energy to produce a tonne of steel. Indicators are measures for efficiency on an aggregate level that can guide decision-making. Industry and government should co-operate in the development and use of indicators to make sure that the information is accurate and a reliable basis for decision-making.
Energy efficiency is only part of the solution to achieve meaningful emission cuts. It is a good starting point, especially for developing countries, as it can also reduce cost. Companies that take the CO2 challenge seriously at an early stage will reap the benefits in the coming decades. Governments can help through a credible outlook for long-term CO2 values. But the evidence suggests that not all industrial decision making is cost optimal. Especially the systems options may need new regulations and standards, and better education of the engineers and managers in energy matters in order to provide a sound basis for long-term policy that allows further growth of consumption while reducing CO2 emissions.