Industrial Energy Use
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Industrial Energy Use June 1983 NTIS order #PB83-240606 Recommended Citation: Industria l Energy Use (Washington, D. C.: U.S. Congress, Office of Technology Assessment, OTA-E-198, June 1983). Library of Congress Catalog Card Number 83-600547 For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, D.C. 20402 Foreword This report responds to a request by the Senate Committee on Finance and the House Committee on Energy and Commerce for an analysis of the prospects for energy efficiency in the U.S. industrial sector, the technologies available to improve industrial energy efficiency, and the effect of various legislative policies on stimulating increased efficiency. This report complements several recent OTA reports on energy efficiency: Residential Energy Conservation, Energy Efficiency of Buildings in Cities, and Industrial and Commercial Cogeneration. OTA examined energy use in the industrial sector in general and in the largest energy-using industries—pulp and paper, petroleum refining, chemicals, and steel—in detail. The report identifies the major technical opportunities available to each industry to improve energy efficiency, the barriers to implementation of such technologies, and the factors that guide corporate decisions about energy efficiency-improving investments. The policy options chosen for assessment were the effects of: 1 ) the accelerated cost recovery system of the 1981 Economic Recovery Tax Act, 2) investment tax credits for energy-conserving capital expenditures, 3) a tax on petroleum and natural gas, and 4) increased capital availability through lower interest rates. In the course of this assessment, OTA drew on the experience of many organiza- tions and individuals. In particular, we appreciate the generous assistance of our distinguished advisory panel and workshop participants, as well as the efforts of the project’s consultants and contractors. We would also like to acknowledge the help of the numerous reviewers who gave their time to ensure the accuracy and comprehen- siveness of this report. To all of the above goes the gratitude of OTA, and the personal thanks of the project staff. JOHN H. GIBBONS Director . ill Industrial Energy Use Advisory Panel Herbert Fusfeld, Chairman New York University E. Milton Bevington Gordon Geiger* Rudolph Penner Servidyne, Inc. Inland Steel Co. American Enterprise Institute Harold Bogart J. M. Leathers R. B. Pool Independent Consultant Dow Chemical Co. Kaiser Aluminum & Chemicals Corp. Carleton Burtt Harvey Morris Rosalie Wolf Equitable Life Assurance of the U.S. Harvey Morris Associates International Paper Co. William Chandler John Myers Environmental Policy Institute Southern Illinois University William Cunningham Henry Page, Jr. AFL-CIO Sun Refining & Marketing Co. ● Now at North Star Steel Workshop on the Pulp and Paper Industry William Adams George Hatsopoulos Alfred Nissan Edmond Perreault Accuray Corp. Thermo Electron Corp. Westvaco (retired) Champion International Co. Howard Harding Richard Ludwig George Boyd Ill Ronald Slinn Thermo Electron Corp. Hammermill Paper Co. Kidder Peabody & Co. American Paper Institute Workshop on the Petroleum Refining Industry Van Boyette R. L. Jones A. L. Modiano National Petroleum Refining American Petroleum Institute American Petroleum Institute Association David Michael David Story Sherwood Breaux Mobil Oil Corp. Gulf Research & Development Co. Cities Service Co. Workshop on the Chemicals Industry A. C. Benjamin Byron Brown, Jr. Daniel Steinmeyer E. 1. du Pent de Nemours & Co., Inc. E. 1. du Pent de Nemours & Co., Inc. Monsanto Co. James Borden L. M. Magner Robert Yates E. I. du Pent de Nemours & Co., Inc. E. 1. du Pent de Nemours & Co., Inc. Uniroyal Chemical Workshop on the Steel Industry Donald Barnett* James Hamilton Gary Myers American Iron and Steel Institute U.S. Steel Corp. Armco Steel Frederick Corban Gerald Houck Louis Schorsch* * Inland Steel Co. American Iron and Steel Institute American Iron and Steel Institute Robert Crandall Jack Kiefer Joseph Wyman Brookings Institution Cameron Iron Works, Inc. Shearson/American Express George Ferris Joseph Kotelchuck Independent Consultant United Steelworkers of America James Gay Roy Leidner North Star Steel Bethlehem Steel *Now at World Bank. * *Now at Congressional Budget Office. iv OTA Industrial Energy Use Project Staff Lionel S. Johns, Assistant Director, OTA Energy, Materials, and International Security Division Richard E. Rowberg, Energy and Materials Program Manager James F. Ryan, Project Director Eric Bazques Alan Crane AlIan Hoffman* Joanne Seder Thomas Sheahen** Richard Thoreson Administrative Staff Virginia Chick Lillian Quigg Edna Saunders Other Contributors Bernard Gelb, Congressional Research Service: general industrial sector analysis Robert Howell, Independent consultant: petroleum refining industry Harvey Morris, Harvey Morris & Associates: generic technologies and pulp and paper industry George St. Pierre, Ohio State University: steel industry Kathryn White, Independent consultant: editor Contractors and Consultants Roy F. Weston, Inc., Philadelphia, Pa. The Pace Co. Consultants & Engineers, Inc., Houston, Tex. Energy and Environmental Analysis, Arlington, Va. Technology & Economics, Cambridge, Mass. Steven Carhart Associates, Washington, D.C. Barry Richmond, Dartmouth College, Hanover, N. H. Christian Kampmann, Dartmouth College, Hanover, N. H. Marc Ross, University of Michigan, Ann Arbor, Mich. Energy Productivity Center, Mellon Institute, Arlington, Va. OTA Publishing Staff John C. Holmes, Publishing Officer John Bergling Kathie S. Boss Debra M. Datcher Joe Henson Linda Leahy Donna Young * Now at the National Academy of Sciences, Washington, D.C * * Now at Stanford Research Institute, Washington, D.C. Contents Chapter Page Overview . ix 1, Summary and Findings. 3 2.The Industrial Sector: Growth, Trends, and Investment Behavior . 21 3. Industrial Energy: Uses, Technologies, and Policies . 37 4.The Pulp and Paper Industry . 65 5.The Petroleum Refining Industry. 85 6.The Chemicals Industry . 115 7.The Steel Industry. 139 Appendix A: The Industrial Sector Technology Use Model . 165 vii Overview For many years to come, energy need not be a constraint to economic growth in the United States. OTA projects that in the next two decades investments in new processes, changes in product mix, and technological innovation can lead to improved industrial productivity and energy efficiency. As a result, the rate of industrial produc- tion can grow three times faster than the rate of energy use needed for that production. Because the investments needed to improve energy efficiency are long term, a reduction in energy use growth rates resulting from investments begun now will con- tinue through the 1980’s and 1990’s. Furthermore, this improvement will continue beyond 2000 as the proportion of new, energy-efficient capital stock increases. lm- provements in energy efficiency for the next several years will be largely a result of housekeeping measures and investments that began during the 1970’s. In 1981, the industrial sector used 23 Quads* of direct fuel, electricity,** and fossil fuel feedstock, of which petroleum and natural gas constituted 73 percent. Four in- dustries–paper, petroleum refining, chemicals, and steel–accounted for almost half of all industrial energy used. Over the past decade, soaring energy prices have led to significant changes in the absolute amount and mix of energy used in industry. Energy used per unit of product in the industrial sector decreased by almost 20 percent. This improvement was accomplished by housekeeping measures, equipment retrofits, and new process technologies that produce existing products and new product lines. In addition to reducing the energy use growth rate, industry will continue its shift away from premium fuel use. For the next two decades, industrial coal use—par- ticularly in boilers and in some large, direct heat units—will increase substantially because coal is cheaper than oil and natural gas. Moreover, the demand for purchased elec- tricity will probably grow faster than the total industrial energy demand if the price difference between natural gas and electricity continues to decrease. While industry has made significant strides in reducing energy use, opportunities for further gains in energy efficiency from technical innovation are substantial. Because capital stock has not turned over as quickly in recent years as it did in the 1960’s, there is a large backlog of retrofit improvements to be made. Furthermore, high capital costs and the limited capital pool have kept many new process technologies from penetrating product markets. OTA projects that new processes or process technologies would save more energy than would retrofits and housekeeping measures, and would reduce overall costs by improving productivity and product quality. However, such process shifts will entail large capital outlays, which in turn, will require general economic growth over many years. Without economic growth, there will not be enough prod- uct demand or capital to support these productivity improvements. A product mix shift away from energy-intensive products will also continue to contribute to the decline in energy use growth rates. Product mix shift will occur within specific industries (e.g., a shift from basic chemical production to agricultural/special- ty chemical manufacture) as well as from one industry to another (e.g., a shift away from steel to aluminum and plastics in auto manufacture).