Industrial Competitiveness and Energy Efficiency
Published On: March 11, 2020
Energy Efficiency has been part of the set of business and policy options since the 1970s. Perspectives have changed over time, yet the underlying principles are the same. Energy efficiency options can be cost-effective from the private business or individual’s view if the cost of the option over time is less than the amount of money, they can save on their energy bill.
Cost-effectiveness is only concerned with the direct costs to a consumer of energy and is the focus of analysis in this study. Throughout the report, the reader will see cost-effectiveness used to demonstrate the possibilities of energy efficiency investments without the need for utility or government intervention. This study does not consider the role of governments and utilities in fostering energy efficiency investments. The focus of this study is on industry alone, making those decisions in consideration of their own financial costs and benefits. The reason for this focus in this study, to the exclusion of other influences, is to reinforce the business aspects of energy efficiency investments.
Utility or government intervention varies across the country and changes based on the conditions of the provincial and territorial energy systems and the makeup of their economies. For companies and industry associations to understand the value of energy efficiency investments, those interventions are not considered in this analysis. What that means is that in some cases, additional options could be cost-effective if incentives are provided to increase energy efficiency investments.
In this study, the focus on cost-effectiveness is further reinforced because of the consideration of energy-intensive trade-exposed industries. It is in these highly competitive industries that investment is carefully weighed to ensure added expenses can improve the competitiveness of Canadian companies with their international rivals. Without that benefit, energy efficiency investments are unlikely to be supported.
The energy-intensive sectors in Canada have decreased their total share of industrial energy use since 2004. Five industries were chosen that are energy-intensive and trade-exposed. They are listed below, along with the key observations for each sector. For each of the energy efficiency improvement options, we estimate the energy intensity reduction potential (measured in GJ of energy saved per unit of product) and the cost of conserved energy (CCE) that measures the average cost of reducing a unit of energy. The calculation of CCE considers investment costs and changes to operating and maintenance costs. The initial investment cost of energy efficiency improvement measures is amortized over the economic life of the investment. Capital cost amortization considers a discount rate that is linked with the private sector cost of capital. In this analysis, unless explicitly stated, the cost of capital is assumed to be 30%. The higher discount rate is used for the analysis because industrial investors have capital constraints and expect shorter payback times (Ernst Worrell, Price, and Martin 2001). When calculating the CCE with carbon pricing, we assume a carbon price of $30/tCO2e.
1) Pulp and paper production
- The pulp and paper manufacturing sector’s contribution to Canada’s GDP is CAD$7-9 billion annually
- The industry consumes about 24% of the energy consumed in Canada’s manufacturing sector, and there are cost-effective options to improve the energy efficiency of pulp and paper manufacturing by up to 20%
- The sector’s chemical pulp production subsector has the highest potential to improve energy efficiency using cost-effective measures compared to the other industries in this analysis
2) Primary iron and steel production
- Iron and steel manufacturing sector contributes about CAD$4.2 billion to the country’s GDP annually
- At current energy prices, there are cost-effective options to improve integrated steel making energy efficiency by up to 36% and secondary steelmaking energy efficiency by up to 63%
3) Primary aluminum production
- Canada’s aluminum production industry contributes about CAD$4 billion to the country’s economy and is the largest primary aluminum exporter in the world
- The aluminum industry has consistently improved production processes and Canadian aluminum production facilities are more energy-efficient than those of producers in most other countries
- Cost-effective energy efficiency improvement can increase aluminum production energy efficiency by up to 5%
4) Chemical manufacturing (focus on ammonia and ethylene production)
- Ammonia production represents more than 90% of fertilizer production in Canada
- Commercially available cost-effective options can reduce energy consumption by up to 9.1 GJ/t that would yield up to an 8% production cost reduction
- Ethylene production accounts for about 90% of petrochemical processes in Canada
- Deploying the various options may lead to a decrease of 0.9% to 1.1% in ethylene production costs in Canada
5) Unconventional Oil Production Sector (Focus on in-situ bitumen extraction from existing fields)
- The in-situ method of bitumen production accounts for 53% of the current production and will dominate future production growth
- One key area of energy efficiency improvement is in reducing steam requirements either through partial or complete substitution of solvents
- Cogeneration is an option with high potential to increase the overall energy efficiency of insitu bitumen extraction
- A market price electricity of about CAD$55/MWh is required for making cogeneration cost-effective
Worrell, Ernst, Lynn Price, and Nathan Martin. 2001. “Energy Efficiency and Carbon Dioxide Emissions Reduction Opportunities in the US Iron and Steel Sector.” Energy 26 (5): 513–36. https://doi.org/10.1016/S0360-5442(01)00017-2.
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