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White House’s Industrial Energy Efficiency Plan Will Boost Manufacturing, Curb Emissions

Yesterday, President Obama signed an Executive Order establishing a national goal of deploying 40 gigawatts (GW) of new combined heat and power (CHP) and waste heat recovery (WHR) by the end of 2020, a 50 percent increase from 2010 capacity levels. The actions outlined by the order will help spur investment in U.S. industrial energy efficiency, which will reduce greenhouse gas emissions, create jobs, and strengthen manufacturing competitiveness by decreasing energy bills.

A Substantial Target

This executive order reinforces domestic energy market and regulatory developments that are converging to make conditions for CHP investments more favorable than they have been for decades. Key contributing factors include federal environmental regulations and rapidly changing energy economics, particularly regarding U.S. shale gas development. As a result of converging resource, economic, and regulatory circumstances, U.S. base-load power generation capacity is projected to drop just as manufacturing facilities with older boilers are considering compliance options for reducing toxic air emissions. Under the right policy conditions, this confluence of factors can facilitate deployment of natural gas-fired industrial CHP/WHR.

The Oak Ridge National Laboratory estimated in 2008 that CHP amounted to 8.6 percent of U.S. electricity generation capacity and 12.6 percent of electricity generation, compared to Denmark’s CHP utilization of more than 50 percent of electricity generation. Reports estimate that the U.S. has approximately 64 GW of remaining industrial CHP technical potential. Within the U.S., the Midwest has particularly large opportunities for increased CHP utilization.

While there is large potential, the ambition of President Obama’s 40 GW goal is illustrated by its juxtaposition with historical annual installations of CHP capacity in the United States. As illustrated below, achievement of the new CHP goal by 2020 requires more average annual capacity additions than in any previously recorded year. Achievement of the 2020 CHP goal would result in a 50 percent increase total U.S. CHP capacity compared to 2010 levels.

How Will the Executive Order Help Move Industrial Energy Efficiency Forward?

Today’s Executive Order aims to help address persistent regulatory, policy, and institutional barriers that have long-prevented proven efficiency technologies from being more fully utilized in the United States. While recent conditions have become more favorable, key barriers to investment have included unfavorable market prices for energy, electricity sector rate structures that discourage utilities from supporting end-use efficiency and self-generation, and high up-front costs that may be viewed as risky to manufacturers concerned about future economic conditions.

The Executive Order facilitates increased industrial energy efficiency investment through interagency coordination and convening of national and regional stakeholders. Industrial companies, policy makers, and regulators are encouraged to identify, develop, and implement state best practice policies, as well as technical assistance programs and public education programs. For example, the U.S. Department of Energy has established eight regional Clean Energy Application Centers that provide information, education, and technical assistance in the application of CHP. This Executive Order also builds on a recently established pilot program initiated by the Department of Energy in Ohio. The Ohio program helps assess the economic feasibility of using CHP technology investments to cost-effectively comply with pending regulations that would limit toxic air emissions from industrial sources. (For more discussion of the Ohio pilot program, see our related blog post).

To effectively address the persistent barriers listed above, successful convening efforts with local and regional stakeholders will be critical. For example, states have primary jurisdiction over utility market regulatory structures. Meanwhile, electric utilities have significant influence with state public service commissions, who are primarily charged with balancing customer interests with the interests of utility company shareholders.

A More Sustainable Path Ahead?

Industry is the largest energy-using and greenhouse-gas-emitting sector in the U.S. in end-use terms. By facilitating industry energy efficiency improvements, the White House is helping to move the U.S. economy toward a lower-carbon emissions growth path while reviving manufacturing competitiveness. Sustained policies are needed to achieve the full energy, economic, and environmental benefits of industrial energy efficiency in the U.S. This White House Executive Order is a great first step in the direction of more comprehensive policy on U.S. industry energy use and emissions.

Editor's Note, 9/10/12: After publishing this post, we noticed an error in our reporting of the White House Executive Order's CHP goal. The chart and accompanying text have been updated to more accurately describe the CHP goal in historical context.

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