Energy Efficiency Works in an Economy Where Jobs Are Scarce

Christopher Russell

August 1, 2004

A sluggish "recovery" from the 2000-02 recession spurred the development of a strategic outlook document for American industry. Manufacturing in America, released in January 2004, is the U.S. Department of Commerce’s first significant response to a persistent drum-beat of U.S. job losses, plant closures and lackluster capital investment. The report does an excellent job of identifying the challenges to American manufacturing competitiveness. It also provides a thoughtful analysis of the economic trends that characterize industrial performance. However, the report offers little in the way of solutions. Manufacturing in America was developed from the body of recommendations offered at a series of 20 industry roundtables conducted during the summer of 2003. U.S. manufacturers spoke in unison. They describe a wide variety of forces that make it difficult for them to compete in the modern global marketplace. The Department of Commerce’s most significant response to date was the promise to appoint an assistant secretary for manufacturing and services, whose role would be to render policy and program assistance that boosts manufacturers’ competitiveness, but that position remains unfilled.

The Manufacturing in America report reveals some encouraging statistics that demonstrate U.S. manufacturers’ capacity for innovating, adapting and achieving astonishing rates of productivity. This is further evidenced by the buzz generated over manufacturing strategies like Six Sigma, total quality management and lean manufacturing. However, energy efficiency remains widely untapped as a competitive stimulus. Manufacturers’ lack of awareness-or perhaps misunderstanding-may explain why this is so.

Efficiency should not be confused with conservation. That semantic distinction may be the key to unlocking the value of energy efficiency. Fuel and power are merely packages that carry the real resources that manufacturers need. Fuel becomes heat, which modifies and refines raw materials into finished products. Electricity is the carrier for data and communications that enhance accuracy and flexibility, and conservation involves forfeit, whereas efficiency extracts greater value from existing resources. We need to recognize heat utilization as the real value proposition behind energy efficiency. For manufacturers, energy efficiency is realized through operational decisions that also provide control over thermal resources. With control comes reliability of operations. With reliability comes the ability to fill orders faster and at less expense. Faster order turn-around means more orders can be filled, bringing in more revenue. As opposed to the concept of sacrifice, energy efficiency is an indispensable component of any effort to improve productivity.

The link between productivity and competitiveness is irrefutable. Energy use is an ideal opportunity for productivity improvement. Plants of all types, sizes and locations use energy; so the potential for energy-driven productivity gains is everywhere. Unchecked energy expenditures are like a tax that imposes a cumulative cost burden as manufacturing progresses from raw material to finished product. Many hard-pressed manufacturers seek value through job cutbacks or plant relocations, sometimes before realizing the savings and productivity opportunities afforded by energy efficiency. The benefits only begin with reduced energy bills. Other impacts include greater capacity utilization, reduced scrap rates, more effective emissions and safety compliance, and enhanced risk management.


Manufacturing in America

1. Lack of government focus on manufacturing and its competitiveness.

  • Many government assistance resources related to industrial energy issues are already in place, but are underpromoted.
  • The energy assistance network begins with the U.S. Department of Energy’s Industrial Technologies Program (DOE-ITP;
  • Outreach to industry is achieved concurrently through DOE’s six regional offices. Local outreach is further expanded by state energy agencies, non-profits, universities, the Manufacturing Extension Partnership ( and utility companies. Since 2000, DOE-ITP has increasingly collaborated with regional entities to pool resources for industry outreach. Industrial plant managers may access non-biased energy guidance, like resources from DOE-ITP, through a variety of channels, including the Internet, workshops and vendors that achieve "Allied Partner" status with DOE-ITP. A catalog of local manufacturing assistance programs can be found online (

2. Manufacturers want the government to focus on encouraging stronger economic growth.

  • Benefits of energy efficiency accruing directly to industry include cost savings and productivity enhancement.
  • Industrial energy efficiency reduces stress on natural gas and other energy markets. Overall economic growth is supported when consumer goods prices and investment are free from the impact of energy inflation.
  • Economic recovery and growth depend in part on business investment. While approximately half of energy savings opportunities are associated with behavioral changes, the other half is generated from assets that incorporate advanced technologies. Economic growth can be driven in part by the promotion of industrial energy efficiency-which necessarily stimulates capital investment in equipment upgrades and modifications.

3. Manufacturers wish to see government match industry’s efforts to control costs.

  • Energy efficiency can reduce a variety of expenses, beginning with fuel bills. See the next section of this response, "Reducing Costs …"
  • DOE-ITP programs, and the larger energy efficiency assistance network, need to become more visible to industry.
  • Energy solutions relevant to today’s manufacturers are developed through the BestPractices program ( More than half of industrial energy purchases are consumed in steam, combustion, motors and compressed air applications that are common to the majority of manufacturing facilities. These few but widely used applications are ideal subjects for "best practices," not only for the volume of energy they use, but for their non-proprietary, non-competitive nature. Because these applications are common throughout industry, government assistance will not accrue to "winners" over "losers." All industries will benefit.
  • Many in industry misunderstand "energy efficiency" as well as the organizations that promulgate and promote it. Energy efficiency is often perceived as a distraction from true manufacturing purposes. Some observers mistakenly expect all energy policies and programs to impose costs and regulations. Accordingly, DOE-ITP and local energy agencies are sometimes at a disadvantage in being the "wrong messengers" for their own assistance programs.
  • The Manufacturing in America initiative is gathering industry attention. This is the Department of Commerce’s opportunity for promoting government assistance like DOE-ITP’s energy efficiency programs.

4. Manufacturers believe that technological leadership is critical to their future.

DOE-ITP promotes energy research and development that will become standard manufacturing applications 15 to 20 years in the future. For almost 10 years, DOE-ITP’s Industries of the Future program has stimulated government-industry collaboration in energy-intensive industries such as chemicals, pulp and paper, and aluminum ( These collaboratives chart the vision, challenges and research priorities that will sustain long-term competitiveness.

5. Manufacturers regarded education as crucial.

Two forms of education are critical to the manufacturing sector: university-based sciences and engineering, and vocational training. Both are successfully supported by DOE-ITP program initiatives.

1. University-based curricula: DOE-ITP supports 26 Industrial Assessment Centers (IACs) as operated by university mechanical engineering departments ( IACs provide no-cost, one-day energy assessments to eligible small- and medium-sized manufacturing establishments. IAC activities impact industry in two ways. One, they give students a valuable hands-on component to their education, which greatly augments their employability upon graduation. Second, assessment recipients are given a prioritized checklist of energy-saving opportunities. Historically, the average assessment identified approximately $55,000 worth of annual cost-saving opportunities.

2. Vocational training designed by DOE-ITP is offered in several forms, all of which are based on BestPractices diagnostic software. First is end-user training, which is offered to small groups made up of company staff or industry association members. Second is qualified specialist training, which certifies eligible vendors and trade association personnel in the use of BestPractices software on behalf of their clients. Third is the development of an experimental community college curriculum for an Energy Efficiency Specialist Associate’s degree. DOE-ITP’s education and training initiatives ( are an effective response to industry’s ongoing need for employee skills and technical leadership. These initiatives are fully or near-fully developed. Funding limitations restrict the availability of these resources. Note, however, that they are easy to expand and replicate.


Energy-related decisions impact a wide range of expenditures, including those related to environmental and safety compliance, risk management, scrap rates and idle resource costs. Naturally, energy efficiency also helps to keep fuel and power bills in check.

  • Environmental compliance: Emissions output is related to fuel usage. Any reduction of fuel consumption per unit of output will reduce emissions in direct proportion. Fuel efficiency thus provides manufacturers a wider margin of emissions compliance-exposure to penalties is reduced as is the diversion of investment capital into non-productive emissions abatement equipment.
  • Safety compliance (risk management): Industrial energy efficiency is predicated in part on management procedures and energy flow tracking. A spin-off benefit of this effort is the identification and correction of operational anomalies that may threaten life or property. The safety "dividend" of energy efficiency is in two parts: the avoidance of settlement costs and OSHA penalties, and the earned reduction in hazard insurance premiums as supported by the plant manager’s clean log book.
  • Scrap rates and raw material costs: Another energy efficiency "dividend" relates to disciplined energy flow management. Closer monitoring of energy flows within a plant assures that thermal energy is applied at the correct temperature, for proper duration, and in needed proportion to raw materials. Efficiency measures provide the control that reduces scrap rates and raw material expenses.
  • Idle resource costs: Energy flow management contributes to plant integrity, as evidenced in reduced down-time. As down-time is avoided, so are the costs of idle resources, which include non-productive labor, interest costs on stockpiled raw materials and finance costs accruing on amortized assets.
  • Energy costs: Savings potential is in several dimensions. The first is classic energy efficiency, which describes the reduction of fuel consumed per unit of production. Second is the detection of errors in fuel billing, which is achieved by plant managers who maintain energy flow data. Third is the negotiating power that accrues to energy-smart plant managers when seeking fuel purchase contracts. Finally, product fabricators may mistakenly claim that energy is a "small percent" of their production costs. This ignores the significant energy cost embedded in chemicals, fibers, metals and packaging that drive their spiraling cost of input materials. Energy efficiency contributes to industrial competitiveness when waste is reduced in all stages of value-added production.


The Potential for Combined Heat and Power

One energy-based solution immediately engages several of the challenges cited in the DOC report. Combined heat and power (CHP) plants-facilities that localize the generation of electricity and thermal energy while supplanting traditional centralized utility plants-have positive implications for energy security, reliability, energy market stability, emissions containment and community development. For CHP development to expand beyond its current limited capacity, policy initiatives must address investment barriers posed by tax and regulatory structures.

  • CHP technology gives certain large industrial energy consumers the opportunity to generate both thermal and electric power in one, on-site power plant.
  • Traditional utility plants are only about 30 percent efficient in converting fossil fuels into electricity. The balance of fuel input to steam turbine generators is actually lost up smokestacks as heat, which is the thermal by-product of generators. Additional energy is lost as the utility’s electricity is dispatched to customers through transmission and distribution lines. This traditional system is also overburdened by demand for power that outpaces the system’s ability to provide reliable service.
  • CHP offsets the cost inefficiencies and waste inherent in traditional central utility power generation. The large energy demand posed by certain manufacturing facilities makes it feasible to generate both electrical and thermal supplies on-site in one power plant. The thermal by-product of power generation in on-site power plants can be applied to steam and process heat activities that are prevalent in manufacturing. CHP technology raises the overall efficiency of electricity generation from 30 percent to 80 percent or better.
  • Manufacturers and the overall economy would benefit from the widespread development of CHP in several ways:
    • Electricity price and supply difficulties are offset.
    • CHP development would generate capital investment and jobs in construction and plant operations.
    • CHP can boost community development as envisioned on page 52 of the DOC report. Localized manufacturing clusters can be served by core CHP infrastructures. Costs shared this way release investment capital for market and product innovation.
    • Reduced stress in energy markets (attributable to CHP’s inherently more efficient use of fuel) offsets the product price inflation that is driven by escalating energy costs.
    • CHP’s contribution to fuel efficiency has a proportional impact on the combustion emissions that are subject to regulation. The huge offset of traditional, mostly coal-fired power plant emissions reduces the regulatory pressures that increasingly burden manufacturers.

    Development of CHP can directly contribute to overcoming several challenges to U.S. manufacturing, including energy costs, capital investment and regulatory compliance. Barriers to CHP development are legal, regulatory and tax-based in nature. The U.S. Combined Heat and Power Association ( champions the CHP cause through its work with the U.S. Environmental Protection Agency, Department of Energy, state governments and utilities.


    1. Short-term benefits (within two years):

    Accelerate economic recovery by reducing manufacturers’ current operating expenses. Plant energy audits for small- and medium-sized manufacturers, provided by the Department of Energy’s Industrial Assessment Centers, find an average of $55,000 cost savings per facility. DOE-ITP also sponsors a limited number of multiple-day plant-wide assessments for large manufacturers. Annual savings projections from these showcase efforts are typically counted in millions of dollars. Many energy solutions require no capital investment and pay for themselves in a matter of weeks. No-cost BestPractices software and reference materials assist the pursuit of energy improvement initiatives.

    2. Medium-term benefits (two to five years; applies to existing facilities and assets):

    Vocational training generates the skills needed to design and implement energy-saving operating procedures. This discipline provides the substance for durable energy management initiatives that return savings year in and year out. DOE-ITP’s existing, specialized training curricula can be easily replicated regionally and through industry associations for this purpose.

    Long-term benefits (five years out and beyond):

    DOE-ITP’s energy research and development supports the development of strategic technologies that will sustain U.S. manufacturing competitiveness. The existing protocol for government-industry research collaboration serves a number of energy-intensive industries, but can be replicated to serve more. University-based Industrial Assessment Centers provide current assistance to industry while simultaneously developing the skills and leadership of tomorrow’s engineers.

    How can the Department of Commerce facilitate manufacturing competitiveness through energy efficiency?

    The U.S. Department of Commerce currently assumes a leadership role while industry’s attention is captured by the Manufacturing in America report. Increased funding certainly assists in replicating and expanding proven programs and materials like those described in this response. Equally important is having the appropriate messenger carry forth the energy efficiency message to corporate leaders. Now is the time for Department of Commerce to encourage corporate leaders to adopt energy management principles that cut costs, save jobs and boost manufacturing competitiveness.