More than 40% of global energy consumption involves industry, and in countries whose economies are heavily based on manufacturing—China’s industrial sector, for example, consumed 69% of its energy in 2014—the percentage can be much higher. But for unclear reasons, industrial energy and the policies affecting it aren’t discussed as often as transportation or electricity generation.
Lack of familiarity with available opportunities and technologies, or assumptions about how forward-thinking industrial facility owners are, mean industry is not already using available and cost-effective means to reduce energy use. But technologies do exist that can lower energy use in industrial applications while saving money in the long run, often at lower costs than improvements in other sectors of the economy. Together, industrial energy efficiency measures can achieve at least 16% of the global emission reductions necessary to hit the two-degree Celsius target.
Industry drives energy use and pollutant emissions in every country where it is a part of the economy, so curbing greenhouse gas emissions, requires careful consideration of industrial-sector policies. As with other economic sectors, no single policy by itself can contribute the necessary emissions reductions, but five key types of policies used in combination help industry invest in higher-quality equipment that will save energy and quickly pay for itself, increasing the long-term competitiveness of affected businesses. These policies include education and technical assistance, financing, financial incentives, mandatory targets, and equipment standards.
As policies that both strengthen the economy and lower emissions, industrial efficiency policies are well suited to nearly all countries, especially those in need of ways to cut emissions while promoting long-term economic development.
Policy Description and Goal
Eight key types of policies, used in combination, can efficiently reduce industrial energy use and accelerate the transition to a clean energy economy: education and technical assistance, financing, financial incentives, mandatory targets, equipment standards, energy management system promotion, energy audit and energy manager requirements, and policies to support research and development (R&D).
These policies help industry invest in higher-quality equipment that will save energy and quickly pay for itself, increasing the long-term competitiveness of affected businesses
Industrial Energy Efficiency Technologies and Measures
Although this section discusses primarily policies and programs to promote industrial energy efficiency, it is worthwhile to review some of the major mechanisms by which energy savings in industry can be achieved. Without this knowledge, it can be unclear what steps the policies are designed to encourage, hampering efforts to understand good policy design.
Industries vary in the products they create, but similar equipment and processes are used in multiple industries. For example, every industry has electric motors, most have pumps, and all have heating or cooling demands. Measures may need to be adapted to fit the specific conditions or requirements at a given facility, but some measures that can be effective for a variety of industrial facilities include those discussed in this section.
Waste Heat Recovery
In the United States, between 20% and 50% of the energy used by industry “is lost as waste heat in the form of hot exhaust gases, cooling water, and heat lost from hot equipment surfaces and heated products.” Heat from high-temperature exhaust and water can be recovered and used in a variety of ways. It may be used to preheat loads (materials entering the system, such as combustion air or feed-water going into boilers), so that less fuel is needed to raise the temperature of these inputs once inside the system.
Another common application is to use the heat to drive an electric generator, producing electricity for use by the facility. A facility that uses waste heat to generate electricity is sometimes called a combined heat and power or cogeneration facility. It is even possible to use waste heat for cooling purposes by adding an absorption chiller, a device that uses heat to drive a refrigeration cycle.
Properly-Sized and Variable Speed Motors
Motors are used for a variety of purposes in industrial facilities, such as moving materials, running assembly lines, and controlling equipment. The International Energy Agency reports that a full 40% of all electricity use is in motors and that a quarter of this at least can be saved, reducing global electricity demand by 10%.
Several techniques can be used to reduce motor energy use. A motor, fan, or pump that is larger and more powerful than necessary wastes energy. Ensuring that overly large equipment is not purchased can reduce the purchase price of the motors while saving energy. Motors must be able to accommodate their peak loads, so designing the industrial process to lower the peak load on a single motor (e.g., by evening out material flows between components or across time) may enable motors to be replaced with smaller, more efficient models.
A motor may be equipped with a variable-speed drive, control equipment that regulates the amount of electricity fed to the motor to adjust the motor’s speed and torque output. Variable-speed drives save energy in fan, pump, and certain other applications by ensuring the motor consumes only as much power as is necessary to accomplish its task. Fewer than 10% of motors globally are controlled by variable-speed drives, so there remain large opportunities for energy savings. (The alternative—controlling motor output with a valve, for example—is analogous to driving a car with a foot all the way down on the gas while regulating speed with the brakes.)
High Efficiency Compressed Air Systems and Alternatives
Compressed air is used in industrial facilities for tasks such as cooling, agitating, or mixing substances; operating pneumatic cylinders; inflating packages; cleaning parts; and removing debris. Compressed air systems inherently have low efficiency, and the best option is sometimes to replace the compressed air system with another mechanism to accomplish the same task.
For instance, fans or blowers, motors, vacuum pumps, and brushes may be substituted for compressed air in some cases. When compressed air must be used, efficiency can be improved by frequently checking filters and clearing blockages; minimizing air leaks; using multiple, small compressors with sequencing controls rather than a larger compressor that always runs; and keeping the system at the lowest possible air pressure (using devices such as a booster or cylinder bore to increase air pressure locally for specific applications that require higher pressures).
High Efficiency, Properly-Sized, and Condensing Boilers
Boilers are used in industrial facilities to generate steam, which is used for a variety of purposes, such as to turn turbines or to heat kilns in cement plants. Apart from waste heat recovery (discussed earlier), a variety of steps may be taken to improve boiler efficiency.
Process control technologies can monitor the exhaust stream and optimize the air/fuel mixture entering the boiler. Reduction of air leaks and excess air saves energy, as more of the energy goes into generating steam than heating the air. Ensuring boilers are not larger than needed, improving boiler insulation with modern materials, and regularly removing fouling or scaling on part surfaces all improve energy efficiency. Condensing boilers extract energy from the steam produced in combustion, thereby improving the efficiency of the system as a whole. Also, multiple boilers can be used in series, with low loads handled by one boiler and additional boilers only fired up when loads are higher.
Building Upgrades (Lighting and HVAC systems)
Industrial firms can achieve energy savings by upgrading the lighting and heating, ventilation, and air conditioning (HVAC) systems of their buildings. Lighting efficiency can be improved by switching to more efficient types of bulbs (such as LEDs), using lighting control systems that illuminate areas only where light is needed, and using more natural light. HVAC efficiency can be improved via building or duct insulation and air sealing, upgrading to more efficient HVAC equipment, and using temperature setbacks during nonworking hours.
Industrial automation provides a unique opportunity to reduce lighting and HVAC energy use because building services are needed only when human workers are present. Japanese robot manufacturer FANUC, a pioneer in factory automation, has a factory that can run for up to 30 days at a time with no human intervention. “‘Not only is it lights-out,’ says FANUC vice president Gary Zywiol, ‘we turn off the air conditioning and heat too.’”
Belts are used in industrial processes to transfer rotational motion between components. “Cog belts” (those with teeth molded into their inner diameters) are more efficient, run cooler, and last longer than traditional belts with a smooth lower surface.
Smart Monitoring and Controls
Industrial facilities may use computer hardware, software, and sensors that monitor and optimize the energy use of building systems and industrial equipment. These systems can help plant operators quickly detect energy waste, such as when devices are consuming more energy than expected, consuming energy while in standby mode, or in need of maintenance. Newer “smart” controls may use sophisticated learning algorithms, achieving even greater energy savings.
Energy Management Systems
In addition to smart monitoring and controls, industries may use energy management systems. An energy management system is not a particular technology but rather an internal governance system or processes that companies follow in order to “systematically track, analyze, and reduce energy demand.”
The most widely known guideline for energy management systems is ISO 50001, a set of requirements established by the International Organization for Standardization that include an energy planning process establishing baseline energy use, identifying energy performance indicators, setting objectives or targets, forming action plans, and conducting periodic measurement and internal audits. Adopting an energy management system helps ensure that energy savings are not overlooked amid the variety of other goals that companies seek to achieve through their operations and investment.
Design for a Circular Economy
The term circular economy refers to the idea of reusing products and materials for the highest or best use for which they are suitable once the first user is done with the product. Industry can help with each stage in this process. For example:
- A product that is still in good working order could be passed on to another user. Industry can help make this possible by designing products for durability and longevity.
- A product that is broken may be repaired rather than replaced. Industry can assist by ensuring the product can be opened and its workings accessed, by making parts removable, and by using standard-compliant parts or making interchangeable parts available.
- A product that is too worn or damaged to be repaired could be sent back to the producer for remanufacturing or refurbishment. Industry can establish takeback or buyback programs for older devices.
- A product that is too damaged or too outdated to be refurbished can be recycled. Industry can help by designing products for recyclability and by making new products out of recycled materials.
Policies to Promote Industrial Energy Efficiency
Policymakers can take a variety of steps to encourage or require industry to adopt stronger energy efficiency measures.
Many types of equipment are common to industries and can be governed by efficiency standards in a way similar to building component or appliance standards. Standards specify a maximum allowable energy use or minimum efficiency that equipment must achieve.
For example, the U.S. Department of Energy has specified mandatory energy efficiency standards for electric motors, pumps, commercial boilers, and various other types of equipment used in industrial facilities. Appropriate standards may be complex because of the various types of equipment available. For example, the U.S. has set standards at different levels for three types of electric motors, divided into up to 25 horsepower categories, further divided by pole configuration and whether the motor is open or enclosed. Equipment standards should be applied to both domestically produced and imported equipment.
Education and Technical Assistance
Government may provide education about energy efficiency options and technical assistance in their implementation. This role is best suited for a regulatory agency that possesses deep expertise on energy efficiency measures. An agency may target outreach to industries or companies that would particularly benefit, such as those that have large energy savings potential or those that are in need of education and assistance.
Voluntary programs must emphasize cost-effective energy savings–those with reasonable payback periods–and should allow upgrades to be made in accordance with industrial facilities’ operational schedules and capital investment cycles. Energy savings should be measured and verified, to assure the industries that participation in the program delivered the expected savings and to assure the public that the government program is reducing energy consumption and emissions.
Education and technical assistance may be particularly important in developing countries where technical expertise is in short supply. For example, the Institute for Industrial Productivity determined that foundries in India suffer “from technological obsolescence, poor management practices and paucity of funds.” Training local people in how to conduct energy audits and meeting with foundry owners were key parts of the institute’s strategy to help the foundry industry improve its methods.
Many industrial energy efficiency measures require upfront expenditures to purchase or upgrade capital equipment. Even if the payback period on this investment is reasonable, it can be difficult for some companies to set aside the money for upgrades. Government can make this easier by offering access to low-cost financing. For example, a government can establish a fund that is used to make low-interest loans to industries for energy efficiency retrofits and upgrades. As companies pay back their loans, this replenishes the fund, which can then be used to make loans to new companies. A government may offer these loans directly or might provide money to commercial banks and allow them to administer the loans.
A similar approach is to establish a green bank, a publicly funded organization that attempts to use public money to leverage private investment. For example, a green bank might partner with a commercial lender to supply money for an efficiency project or might offer better interest rates and access to more credit for a borrower who otherwise would not qualify for a commercial loan.
A government might consider getting initial capital to fund industrial energy efficiency programs, such as a fund or green bank, by issuing green bonds for the purpose. Green bonds are similar to other bonds, but their use is earmarked for specific, environmentally beneficial projects.
Many companies may lack expertise in how to select, install, and monitor efficiency upgrades. To help them, government can direct companies that receive financing to work with energy service companies (ESCOs), businesses that design and implement energy-saving projects for clients. ESCOs can handle many of the technical aspects of the upgrade projects for financing recipients. This may simplify the upgrade process for participating companies.
Often it can be difficult for industry to secure the upfront capital needed to make energy efficiency upgrades, even if those upgrades would pay for themselves through energy savings. For example, in many cases companies separate capital budgets from operating budgets, and because energy savings accrue in operating budgets but efficiency upgrades are paid for through capital budgets, industry often finds it hard to make a good accounting case for investing in efficiency upgrades.
Financial incentives can help overcome this and other barriers, such as choosing between two equally attractive investment options. Governments may use financial rewards or penalties to encourage adoption of energy efficiency measures.
For example, in China electric utilities (which are government owned) charge higher electricity rates to companies with higher electricity use per unit of product produced, improving the cost-effectiveness of reducing electricity consumption per unit of industrial output. Similarly, financial institutions are directed to consider energy efficiency when extending credit and loans to industry, making it less expensive for more efficient companies to get financing. (This measure should be limited to financing for projects other than energy efficiency upgrades, lest it hamper the efficiency it is designed to reward.)
A government that prefers a more direct approach may reimburse companies for a share of the cost of energy efficiency upgrades, such as new boilers or waste heat recovery systems. For example, during the twelfth Five-Year Plan period, China offered RMB 200–300 (roughly $30–$43) in rebates for equipment per ton of coal equivalent saved by that equipment.
One method of structuring financial incentives is to use a “cascade” approach, which relies on public money only to the extent necessary given market and project conditions:
- For projects where commercial financing is available at reasonable rates and with reasonable oversight by lenders, government financing may be unnecessary.
- When commercial financing is not cost-effective, government may try to reform conditions in the financial system to remove structural barriers to financing and enable commercial lenders to take on these projects cost-effectively.
- For projects that are still too risky to be financed commercially at rates that are affordable for industry, government may partner with private lenders using a risk-sharing instrument, which leverages government dollars to obtain some private sector funding.
- For projects of public value where it is impossible to interest commercial lenders even in a risk-sharing arrangement, government may consider being the sole provider of financial incentives.
Financial incentive programs should be coupled with robust monitoring and reporting of energy use data, to ensure that incentives are provided only when energy savings are realized.
Governments may impose specific energy or carbon intensity targets for specific industries or for the economy as a whole. For example, in China’s twelfth Five-Year Plan, the government required national energy intensity (energy per unit GDP) to decline 16% from 2010 to 2015 and industrial energy use per unit of value-added output to decline 21% over that period. The central government identified more than 50 specific measures to be undertaken to accomplish these goals, many of which are implemented by provincial governments.
Targets should be ambitious but technically achievable. One approach is to set targets by benchmarking against the most efficient facilities in the country or globally, ensuring that the technology to meet the targets exists in the commercial market.
For example, in 2010 Japan introduced a program requiring industries to achieve a 1% annual energy efficiency improvement. Industries in major subsectors (e.g., steel, cement) were required to achieve the efficiency level of the top 10% or 20% of best-performing companies. Similarly, the Netherlands set mandatory energy efficiency targets through negotiation with industry in its Energy Efficiency Benchmarking Covenant, aiming to fall within the top 10% of industries globally. Unfortunately, the Dutch program did not reach its goal, as industrial energy efficiency improved at 0.5% per year, not enough to put Dutch industry into the top 10%.
Targets should be technology neutral, allowing companies to determine the lowest-cost ways to reduce their energy intensities. Targets that reflect whole-facility performance may be particularly useful for rewarding companies that use integrative design, a set of principles that focus on achieving efficiencies through better linking of different components (e.g., via ductwork or piping). Opportunities for energy savings may be missed if policies consider only the efficiencies of the underlying components themselves (such as boilers) and not the energy losses as materials are moved between components.
Many governments have opted for voluntary rather than mandatory targets. These policies have similarities to mandatory targets, but they rely on providing participating companies with good publicity or other rewards to encourage compliance, such as eligibility for special tax breaks (an approach used in Denmark and the Netherlands). Voluntary targets are politically easier to enact but tend to be less effective than mandatory targets. An example of a voluntary program covering industrial efficiency (and methane leakage) is the U.S. Natural Gas Star program.
Encouraging the Adoption of Energy Management Systems
Governments may integrate energy management system requirements into national or subnational programs or codes. The existence of an international standard (ISO 50001) may simplify this process for many governments by reducing the need to devise and write specific energy management procedures or practices into law and by harmonizing requirements across jurisdictions (making it easier for multinational companies to comply). For example, Japan’s energy conservation law makes specific reference to ISO 50001 as a compliance mechanism, and Canada offers a variety of incentives for ISO 50001–compliant businesses, such as cost-sharing assistance and training opportunities.
Energy Audit and Energy Manager Requirements
Governments may require companies to undertake an energy audit, a process in which an energy management professional reviews current energy use and identifies opportunities for improvement. These requirements may be particularly useful for companies that want to participate in a government program that provides financing for upgrades, first to establish baseline energy use and improvement opportunities and later to verify that targets were met. Government may also establish requirements for energy managers or auditors. Several certification programs exist for energy management professionals, run by organizations such as the Association of Energy Engineers.
When to Apply This Policy
Most countries, states, and provinces possess industrial facilities, some of which could probably benefit from industrial efficiency policies. However, the appropriate policies to encourage industrial energy efficiency depend on the level of industrialization and development of the region.
Countries that have experienced little development may possess industries that rely significantly on human labor, such as natural resource extraction, cement and other construction materials, textiles and garments, and pulp and paper. Facilities are likely to have older and cheaper equipment, making them inefficient. This gives industries a large incentive to upgrade.
However, capital and financing may be scarce, and more efficient equipment may have to be imported at high cost, making it difficult to afford upgrades. Government capacity to require accurate energy usage reporting or to enforce standards may be low.
In these regions, a combination of education or technical assistance and financing policies may be the best fit. Education about proper equipment maintenance and improved operations may deliver some energy savings even without capital investment. Many industries cannot afford to purchase upgraded equipment without aid and may have difficulty securing credit, so a government program to provide financing for efficiency upgrades may be necessary.
A financing program should be coupled with technical assistance, provided by either the government or carefully vetted ESCOs, to ensure money is spent appropriately and the efficiency upgrades make sense. Some countries may be able to obtain international aid or development money to fund industrial energy efficiency programs.
Equipment standards may be considered for specific components, such as electric motors, which can be enforced at the point where the components are imported or manufactured. It may be advantageous to adopt a set of standards established by a more developed country with an expert regulatory agency rather than attempting to create voluminous technical standards from scratch.
Fiscal incentives and mandatory facility-wide or industry-wide targets may be poor choices. Fiscal incentives may be difficult to fund, and it may be challenging to ensure incentives are awarded only in proper circumstances. Facility- wide or industry-wide targets require monitoring capabilities that may be infeasible, and business owners might find that the necessary upgrades to meet the mandatory targets are financially out of reach without financing support.
This category includes developing countries that have made significant progress in diversifying their economies away from agriculture and natural resource extraction, with manufacturing and heavy industry often playing a large role. These countries are more urban and have higher energy consumption per capita than less-developed countries.
It is particularly important that middle-income countries adopt strong industrial energy efficiency policies, because they are likely to have extensive industrial capital, much of it still inefficient.
Financial support and technical assistance remain useful in middle-income countries, although they are not as crucial as in less-developed countries. This is because more capital may be available through nongovernment channels, and more expertise may be available in the private sector. The inefficiency of much existing equipment already provides a significant financial incentive to upgrade.
Middle-income countries are at a stage where it is important to establish good practices in industry. Incentives or requirements for energy management systems, such as ISO 50001, may be introduced into national or sub-national targets or policies. Similarly, requirements for energy audits and energy manager certification may ensure that energy savings are identified and realized efficiently.
Governments at this stage should be able to build functional energy reporting and monitoring programs, at least for larger industrial facilities. This opens up the possibility of using mandatory targets. Mandatory targets may be a good fit for a middle-income country, because their clarity and avoidance of technology prescription make them easier to comply with and to enforce.
Financial incentives such as higher electricity prices for less efficient facilities may also be an option, as long as the energy monitoring system is resistant to cheating. Financial rewards for efficient equipment (such as high-efficiency boilers or air compressors) may also be a good fit if funding is available.
As a country develops, its economy may begin to transition from manufacturing to services. However, significant manufacturing is likely to remain, particularly for high-value goods and those that benefit from capital-intensive highly refined production processes (e.g., those that involve robots and factory automation). The manufacturing of cars is a good example.
Financing and technical assistance programs are comparatively less important in advanced countries, because these countries have strong banking and financial systems that can provide credit to businesses seeking to upgrade their facilities. Similarly, they often possess high-quality training programs and the ability to attract skilled talent from other countries, reducing (but not eliminating) the need for education and technical assistance to industry.
Equipment standards are highly effective in developed countries. These countries have the capability to develop robust, ambitious, and achievable standards and to gradually tighten those standards as technology develops. Mandatory targets at the facility level may also be helpful to encourage efficiency opportunities not captured by standards specific to individual pieces of equipment, such as those available through integrative design.
Finally, developed countries are often in the best position to fund financial incentives, such as rebates for highly efficient equipment. Rebates and standards complement each other: Rebates provide an incentive to buy the most efficient models on the market, whereas efficiency standards tend to improve the efficiency of the bottom of the market by eliminating the worst performers.
Highly developed countries often import many of their manufactured goods. Because greenhouse gas emissions have global impact, an importer may be offshoring some of the emissions that are attributable to its consumption. Providing financial and technical assistance to developing countries that manufacture goods or facilitating their implementation of industrial energy efficiency programs may in some cases allow emission reductions at lower cost than policies to improve the efficiency of domestic industry.
Detailed Policy Recommendations
Policy Design Principles
Create a long-term goal and provide business certainty
It may take years for manufacturers of industrial equipment to research design improvements that reduce electricity or fuel consumption without adding too greatly to the equipment’s cost and without compromising other performance characteristics.
Businesses need sufficient time to make the necessary research and development investments and changes in their manufacturing lines. If standards are set just a few years at a time, businesses may be unsure whether standards will continue to become more stringent in future years. This means they will not know whether modest investment in near-term improvements is sufficient or if a larger investment in a new technology or major design change might be worthwhile.
Companies must often invest large amounts to build and equip facilities, which they then recoup by producing and selling products over many years. Long-term knowledge of the standards can help businesses sync their capital upgrade cycles to changes in the standards.
Financial incentives and especially financing programs also need to have a long time horizon so that industries can take advantage of these programs when making capital equipment budgeting plans (which may extend years into the future). Certainty of the availability of financing lowers risk, aiding business owners’ calculations about what upgrades make sense and potentially saving money or improving shareholder confidence.
Build in continuous improvement
Continuous improvement is especially important for efficiency standards. The purpose of efficiency standards is to eliminate the worst-performing products from the market, gradually improving the efficiency of industry as a whole. If standards are not updated to become more stringent over time, they become ineffective at driving improvements and fail to achieve their purpose. Standards may be reviewed at known intervals, or improvements may be based on the top-performing industrial equipment already commercially available.
Focus standards on outcomes, not technologies
To the extent feasible, given the diversity of types of industrial equipment, standards should be written to be technology neutral. For example, standards should be based on performance characteristics of the type of equipment being regulated rather than design characteristics of the equipment. This policy design principle also applies to mandatory targets, which should set overall energy use requirements for facilities or per unit output, to give businesses flexibility in identifying technologies and processes to be used to achieve the target.
Ensure economic incentives are liquid
Businesses sometimes fail to achieve profits. This may be due to a period of low sales, a decision by management to reinvest revenues in expanding manufacturing capacity, or other factors. If financial incentives for efficiency upgrades are provided in the form of nonrefundable tax credits, businesses may be unable to take advantage of the incentives if they do not have enough taxable income after deductions. Incentives provided as a rebate, cash grant, or low-interest loan are accessible to a broader range of manufacturers.
Avoid Inducing Leakage and Offshoring
The industry sector is more able than other sectors (transportation, building, electricity generation, or land use) to respond to tougher regulations by moving operations to a different jurisdiction to escape the reach of the policy. This is commonly called leakage or offshoring.
Policymakers designing policies to encourage industrial energy efficiency must therefore be mindful about imposing financial burdens. For policies that provide “carrots” such as low-cost financing, technical assistance, rebates on efficient equipment, and the like, inducing leakage is not a concern. Well-designed equipment standards will mandate the purchase of equipment with reasonable payback periods, a beneficial investment that generally will not encourage offshoring. Financial penalties for industries that use a lot of energy are the type of policy most likely to cause leakage.
The decision to relocate production is a major one, and many factors play into a company’s decision (e.g., the availability of skilled labor, inputs, and shipping costs). Policies to encourage industrial efficiency, even those that impose modest penalties on inefficient industry, are unlikely to be a primary cause of relocation. Engaging with industry stakeholders while designing policy and introducing “carrots” and “sticks” as a single package may help to gain industry buy-in and reduce leakage risk.
Over the long term, the best method to reduce offshoring is to develop a local environment that is favorable to industry. For example, robust investment in infrastructure and training programs to ensure a ready supply of skilled workers (such as Germany’s Dual Vocational Training Program) can help ensure that industries are better off if they stay and invest in efficiency than if they move to other regions where they need not invest in efficiency.
China’s Top 10,000 Industries Project
The largest energy-saving policy program in the world is the “Top-10,000 Program,” an effort launched by China as part of its twelfth Five-Year Plan to reduce industrial energy consumption. The program targets “16,078 enterprises with annual energy consumption of approximately two billion tons of coal equivalent, accounting for roughly 87% of China’s total industrial energy consumption and 60% of the total national energy consumption.”
The program incorporates many specific policies. Examples include training programs for energy managers, energy audits and an energy use reporting system, specific energy use reduction targets by province, both financial incentives and financing support for energy efficiency retrofits, and promoting work with ESCOs. Some enterprises also have energy-saving targets and are subject to sanctions if the targets are missed.
The program’s goal was to save at least 255 million tons of coal equivalent during the twelfth Five-Year Plan period of 2011–2015.43 From 2010 to 2014, China’s industrial energy use rose by 28%, but this was slower than the rate of economic growth. China’s energy use per unit GDP dropped by 14% over the same period. As a result, China’s National Development and Reform Commission announced that the Top-10,000 Program saved 309 million tons of coal equivalent during this period, or 121% of the program’s target.
A program that can achieve reductions in total industrial energy use, not just energy intensity of the economy, will be important for China in the years to come.
United States’ Superior Energy Performance Program
The Superior Energy Performance program is a voluntary program in the U.S. to provide assistance and give recognition to industries that improve their fuel efficiency. The program began in a pilot phase in 2010 and was launched nationally in 2012.
To participate, a company must implement an energy management system and comply with a standard set by the International Organization for Standardization. The company must demonstrate at least 5% energy savings (for companies new to energy management) or 15% over 10 years (for companies with a longer track record of energy management). The level of achieved improvement in energy efficiency determines whether a company is certified at the “Silver,” “Gold,” or “Platinum” tier.
The program includes a strong education and training element. In-person training and web-based tools and resources are available through the program.
Facilities have achieved 5.6% to 30.6% improvement in energy efficiency over three years. The payback period is typically under 1.5 years for facilities with energy costs of at least $2 million per year.
The Superior Energy Performance program is now being complemented by a new “50001 Ready” Program. This program has lower requirements and aims to entice more participants than the original program.
The main weakness of the Superior Energy Performance program is its voluntary nature. In fact, except for equipment efficiency standards, all U.S. programs for industrial energy efficiency are voluntary. (Only new source performance standards, under the Clean Air Act, require compliance. However, for industrial facilities, these standards pertain to emissions of non-CO2 pollutants, and there are many means by which these emissions can be reduced other than by improving energy efficiency.)
Bulgarian Energy Efficiency and Renewable Sources Fund
In 2004, Bulgaria established a revolving fund for financing energy efficiency projects. Originally called the Bulgarian Energy Efficiency Fund, it was renamed the Bulgarian Energy Efficiency and Renewable Sources Fund (EERSF) in 2011, when distributed renewable energy projects became eligible for funding. Initial capital for the fund came from the World Bank’s International Bank for Reconstruction and Development, the governments of Austria and Bulgaria, and private companies in Bulgaria. The fund assists industry via three mechanisms:
- The fund acts as a lender, directly providing financing to industries. Typical interest rates are 4.5% to 9%, and financed projects must use well-proven technologies with payback periods of 5 years or less.
- The fund can provide credit guarantees, reducing the risk to private lenders and thereby helping companies get financing from private banks. Credit guarantees cover either or 80% of the total value.
- The fund may act as a consulting company, directly providing technical assistance to Bulgarian firms on energy efficiency projects. EERSF may do this through collaboration agreements with ESCOs. It has signed such agreements with 17 ESCOs.
Through December 2014, the fund “funded or provided guarantees to 170 energy efficiency projects for a total amount of 45.8 BGN (23.4 M €).” A total of 160 of those projects, which were funded by December 2013, achieved 95.4 gigawatt-hours per year of energy savings.
The industrial sector is responsible for the plurality of the world’s energy consumption and greenhouse gas emissions. Reducing energy use in industry is a crucial part of the transition to a clean energy economy, and policymakers can take steps to accelerate this process.
Five key types of policies, used in combination, deliver the best results: education and technical assistance, financing, financial incentives, mandatory targets, and equipment standards. Fundamentally, these policies help industry invest in higher-quality equipment that will save energy and quickly pay for itself, increasing the long-term competitiveness of affected businesses.
As policies that both strengthen the economy and lower emissions, industrial efficiency policies are well suited to nearly all countries, especially those in need of ways to cut emissions while promoting long-term economic development.