Policies for Promoting Industrial Energy Efficiency in Developing Countries and Transition Economies

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Industrial energy efficiency is frequently overlooked by policy makers concerned about energy supply and use. Although designing an industrial energy efficiency program takes time and must be undertaken with some care, the opportunities for improving the efficiency of industrial facilities are substantial, even in markets with mature industries that are relatively open to competition. Developing countries with an emerging and expanding industrial infrastructure have a particular opportunity to mitigate GHG emsissions while increasing their competitiveness by applying energy efficient best practices from the outset in new industrial facilities.

Evaluations of experience with target-setting agreements show that while results have been varied, with some programs appearing to just achieve business-as-usual savings (Chidiak, 2002; OECD, 2002) or to have weak targets (Butterman and Hillebrand, 2000), the more successful programs have seen significant energy savings (Bjørner and Jensen, 2002), even resulting in a 50% increase over historical autonomous energy efficiency improvement rates (Reitbergen et al., 2002) and they can be cost-effective (Phylipsen and Blok, 2002). These agreements have important longer-term impacts including changes of attitudes and awareness of managerial and technical staff regarding energy efficiency, addressing barriers to technology adoption and innovation, establishing greater potential for sustainable energy-efficiency investments, promoting positive interactions between different actors involved in technology research and development, deployment, and market development, and facilitating cooperative arrangements that provide learning mechanisms within an industry (Delmas and Terlaak, 2000; Dowd et al., 2001).

The most effective agreements are those that are legally binding, set realistic targets, include sufficient government support — often as part of a larger environmental policy package, and include a real threat of increased government regulation or energy/GHG taxes if targets are not achieved (Bjørner and Jensen, 2002; Krarup and Ramesohl, 2002). Overall, international experience shows that target-setting agreements are an innovative and effective means to motivate industry to improve energy efficiency and reduce related emissions, if implemented within a comprehensive and transparent framework (IEA, 1997a; IEA, 1997b).

International experience with energy management standards in industry has been very positive. With the exception of companies participating in the Netherlands' benchmarking covenants, compliance with an energy management standard or specification has been an essential requirement of target-setting agreements worldwide. For the covenants, the energy reduction targets are so stringent that it can be reasonably assumed that the participating companies have energy management plans for continuous improvement, a key element of any energy management standard.

Because energy management standards have been in force since 2000 or later, most programs have not yet been subject to an independent evaluation. Their effectiveness can be inferred by the number of companies that seek affiliation with the programs, even when there is no penalty assessed for non-participation. Once a company meets the requirements of an energy management standard — establishing a cross-divisional management team led by an energy coordinator who reports directly to management; establishing a strategic plan that requires measurement, management, and documentation for continuous improvement for energy efficiency; developing policies and procedures to address energy purchase, use and disposal; initiating projects to reduce energy use on an ongoing basis; establishing key performance indicators to measure progress, and regularly documenting and reporting this progress — energy efficiency becomes part of organizational culture. This is the goal of the Industrial Standards Framework.

Companies that have made this shift in organizational culture report many benefits in cost savings, productivity, and operational efficiency. Results reported and documented by multi-national companies with company-level target-setting programs and energy management programs are impressive. Dow Chemical set a target to reduce energy intensity (btu/lb product) from 1994-2005 by 20% and actually achieved 22% ($4B in savings); their energy intensity reduction goal for 2005 to 2015 is 25%. 3M Corporation has reduced its corporate energy consumption by 30% since 2000 through its global energy management program. DuPont has achieved $2B in energy savings since 1990 as part of a corporate goal to achieve a 65% reduction in GHG emissions below 1990 levels by 2020.

System optimization offers a way for companies to quickly realize cost, productivity, and operational benefits that can provide the reinforcement needed for management to proceed with the organizational changes required to fully integrate energy efficiency into daily operational practices. Capacity-building training creates a cadre of highly skilled system optimization experts that can provide the necessary technical assistance for industrial facilities to identify and develop energy efficiency improvement projects. A"train the trainer" approach can quickly create greater awareness of the opportunities for energy efficiency, thus addressing a principal barrier. This capacity can continue to provide benefits to industry for many years. After more than a decade of capacity-building, experts trained by the US DOE continue to identify millions of dollars in system optimisation improvement opportunities year after year. In 2005 alone, the SaveEnergy Now initiative documented 55 PJ in energy savings in the first 200 plant assessments, or $475 million in cost savings. Many of the recommended improvements had paybacks of less than 2 years.

Finally, due to the operational dependence of industrial energy efficiency, developing an effective system of ongoing documentation is extremely important. With the renewed interest in energy efficiency worldwide and the emergence of carbon trading and new financial instruments such as white certificates, there is a need to introduce greater transparency into the way that industrial facilities identify, develop, and document energy efficiency projects. The System Optimization Library will standardize and streamline the process of developing and documenting energy efficiency improvement projects. By providing work instructions to support the new, more energy efficient operation, the Library will also increase the likelihood that the resulting energy savings would be sustained. Providing evidence that sufficient documentation exists to support the persistence of energy savings is a critical pre-requisite to consider industrial energy efficiency projects for white certificates or carbon credits. Without such evidence, the value of these projects may be subject to deep discounts, since there would be no assurance that energy savings would persist over the life of the project (often ten years or more) without significant degradation in efficiency.

Taken together, these elements comprise an effective industrial policy package that combines energy reduction targets, energy efficiency standards, system optimization training, and documenting for sustainability. The industrial sector represents more than one-third of global primary energy use (Price, et al 2006) and 36% of carbon dioxide emissions (IEA 2007). As described in this paper, there are well-documented opportunities for cost-effective energy reduction on the order of 18-20% or more (Martinet al., 1999, 2000a; Worrell, et al., 2001, DOE 2004a, IEA 2007), while reducing industry's CO2 emissions by 20-33% (IEA, 2007). The time to take action so that industrial energy efficiency becomes "business as usual" is now.

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Background Paper for the UNIDO Side Event on Sustainable Industrial Development on 8 May 2007 at the Commission for Sustainable Development (CSD-15)


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