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Beating the Competition through Energy Efficiency

Manufacturers can benefit from research that establishes benchmarks for energy performance in industrial sectors.

Reducing the cost of energy is a critical management issue for many companies. The most recent data show a nearly 5% decline in energy intensity (energy use per real dollar of GDP) by U.S. manufacturers over a four-year period. This positive trend reflects improvements in energy efficiency and shifts in economic activity from more energy-intensive sectors to less energy-intensive sectors.

Significant benefits accrue to a manufacturer that improves its energy performance relative to its competitors. But how can a manufacturer know if it is ahead of the competition or falling behind? The government collects information on energy use at the facility level, but is prohibited to reveal it in ways that disclose confidential information.   

Two new academic papers show how this government information, with approval from the statistical agencies, is being used to evaluate established energy efficiency programs and develop benchmarks of energy performance within an industry. Manufacturers can and do benefit from this information.

In the first paper, accepted for publication in the journal Energy Policy, Nicole Dalzell of Wake Forest University and Gale Boyd and Jerome Reiter of Duke University studied the effectiveness of the DOE Industrial Assessment Center (IAC) program. Under this program, small- and medium-sized manufacturing facilities may request a no-cost assessment from a DOE IAC located at any one of two dozen universities around the country. A team then conducts an energy audit at the facility and identifies opportunities to improve productivity, eliminate waste, and save energy.

The researchers found that participating facilities improved their energy efficiency performance over time relative to their peers that did not participate. More specifically, participating plants were initially less efficient than their peers at the time of the audit, but this difference disappeared five years later. Additional study is needed to determine the cause of the apparent improved performance. 

In the second paper, published in the journal Energy Efficiency, Boyd described the data and approach used by EPA to develop benchmarks of plant-level energy performance, known as Energy Performance Indicators (EPIs), by industry sector. The EPIs are part of the ENERGY STAR Industrial program, which is run by EPA. Manufacturing plants that achieve a score of at least 75 (out of 100) using the EPI tool receive an ENERGY STAR certification, are listed in a public registry, and receive other forms of public recognition.

Looking across the two dozen EPI tools that were under development or completed (12 are publicly available thus far), Boyd made an observation: the greater the energy-intensity of the production process, the smaller the variation in energy intensity across companies, suggesting that even incremental improvements in energy use can provide a facility with a competitive edge. He also found that improvements in energy efficiency vary by industry sector; in some cases (e.g., corn refining), improvement was driven through innovation by high-performing facilities while in other cases (cement manufacturing), improvement was driven through adoption of known technologies or best practices by low-performing facilities. By knowing how energy efficiency varies over time within a narrow industry subsector, policy makers can better determine which incentives (R&D spending, investment tax credits) are most likely to succeed.

These two government programs (IACs and EPIs), which reduce greenhouse gases (GHGs) while saving companies money, have been operating for a long time--since 1976 for IACs and since 2000 for EPIs. And manufacturers continue to benefit from them. For example, in the first quarter of 2016, IACs conducted 107 assessments at facilities in more than a dozen subsectors across 29 states. And in 2016, 87 manufacturing plants achieved ENERGY STAR certification. The fact that facilities continue to participate voluntarily suggest the bottom-line results are no illusion.         

Keith B. Belton is director of the Manufacturing Policy Initiative in the School of Public and Environmental Affairs (SPEA) at Indiana University in Bloomington, Ind.

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