Environmental Law

Economic Forces Combining to Encourage Energy Efficient Industrial Remodels

By Dennis Pfaff and Kevin Livingston, Editors

A combination of factors, including high energy prices that are making shipping more expensive and slower, are also creating an extremely rare chance to  improve energy efficiency in the industrial sector, a new report suggests.

Issued by a nonprofit group, the American Council for an Energy Efficient Economy, the document noted that some economic conditions that have generally been seen as a negative -- such as high fuel prices -- could actually produce major incentives for energy efficiency and for the broader economy:

"One important trend is the dramatic increases in marine freight costs that are offsetting much if not all of any benefit in manufacturing overseas. Combined with a relative decrease in the price difference between U.S. and global energy markets and a weak dollar, we see some manufacturing beginning to return to the U.S."
 

Already, the report said, some industries, such as steel, are making major investments in industrial capacity not seen in years. In a statement, the organization noted that opportunities to retrofit industrial plants are more limited than those for commercial buildings or residences. But, if industrial remodeling is done as part of a normal capital investment cycle, it can produce big savings. Said the report's lead author, Neal Elliott:

"This period of capacity investment represents a once-in-a-generation opportunity to lock in energy efficiency in our domestic manufacturing base. Industrial energy efficiency programs are positioned to exploit a rare opportunity to change energy use patterns for years to come, but they must begin engaging with their industrial customers now." 
  

Just moving goods from place to place has become a much more significant expense, according to the report, implying that companies might be better off keeping their production close by. For instance, it related findings that the cost of shipping a standard 40-foot container has gone from $3,000 in the early part of the decade to $8,000 now, as a result of a shortage of ships and rising fuel costs. Those energy prices have also had another impact: slower transits, as container vessels have throttled back their top speed by 20 percent in order to save fuel.

On the other hand, other forces appear to be discouraging new investment, including global uncertainty and tight capital markets.

The report recommended that managers of energy efficiency programs should use their time now to establish a close relationship with industrial facilities. It suggested that in the short term, smaller investments that can increase the production capacity of an existing facility makes sense.

For the longer term, it said many companies "may be poised to enter a period of major new capacity investments." That could include major re-engineering of existing plants, or even constructing entirely new facilities. It suggested that some new approaches also might be in the offing:

"There is an upcoming opportunity to merge energy efficiency into facilities and their processes in a way that has not been feasible or cost-effective in existing production processes. Many of the efficiency opportunities will be found in the optimization of systems, rather than in equipment that is more efficient. Therefore, the incremental costs of efficiency will be modest, compared to the large savings."

However, it noted that it's not clear when that might happen, suggesting the beginning of any boom still could be three to five years in the future.

--Dennis Pfaff of Thelen

Full post as published by Climate Law Update on September 10, 2008 (boomark / email).