Tuesday, April 03, 2007

How the Pittsburgh Region Can Help Increase the World’s Energy Productivity and Boost Its Own Economy In the Process

The McKinsey Quarterly has an article in its first issue of 2007 entitled “Making the Most of the World’s Energy Resources.” In it, the authors estimate that global demand for energy will increase by 2.2% annually over the next 15 years, nearly 40% faster than the 1.6% growth experienced over the past decade. They suggest that the solution isn’t just trying to find new energy sources to meet this demand, nor is it trying to curtail the demand, but rather looking for ways to increase energy productivity.

What is “energy productivity” and how do you increase it? The McKinsey authors define energy productivity as the ratio of value added to energy inputs, and they describe two paths to improving productivity:

(1) by generating a given level of energy-related benefits with fewer inputs. For example, this can be done by using less energy to achieve the same end result (e.g., by using more energy-efficient appliances, cars, etc.), or by generating more usable energy from fuel sources (e.g., by improving the efficiency of electric power plants).

(2) by shifting economic activity from more-energy intensive sectors to less-energy intensive sectors (e.g., from steel to services).

The advantage of focusing on energy productivity as opposed to energy conservation is that the former does not require that consumers sacrifice the benefits (both economic and quality of life) that they achieve by using energy.

What are the best strategies for improving energy productivity? The authors estimate that there are already existing technologies which, if they were implemented broadly, would reduce growth in global energy demand to below 1% annually, and reduce total energy demand in 2020 by between 19% and 28% over what it would be otherwise.

What are these technologies? The authors cite what they feel are the three most promising:

(1) Improvements in Residential Heating and Lighting. Residential property represents 25% of world energy demand– the largest single source of demand. Opportunities for improving energy productivity include better home design, insulation, windows, etc. to reduce heat loss in the winter and cooling requirements in the summer, and higher efficiency standards for appliances, lighting, etc. The authors estimate that existing technologies, if they were used widely, could cut the growth in residential energy demand by nearly 2/3.

(2) Improvements in Electricity Generation and Distribution. Currently, electric power plants are only able to convert about 40% of the energy in their fuels (coal, gas, oil, etc.) into electricity, with the rest lost primarily to heat. Newer technologies, such as integrated gasification combined-cycle (IGCC) plants, can convert a much higher percentage of the energy in fuels such as coal into electricity.

(3) Improvements in Energy Efficiency in Steel, Refining, and Other Industrial Sectors. The authors suggest that there are enormous opportunities for improving energy efficiency in these high energy-use sectors. For example, they indicate that expanding cogeneration and improving recuperative burners would allow steel mills to cut their demand for energy by 30%. Other examples exist with petroleum refineries, paper manufacturers, cement makers, etc.

What does all this mean for the Pittsburgh Region?

(1) We should continue to increase and leverage our strengths in green building products, particularly those products that improve energy productivity and have the potential to reach global markets. The Green Building Alliance is pursuing a strategy to develop this industry here (see Green Building Products: Verifying and Defining the Opportunity for Western Pennsylvania).

(2) We should aggressively pursue the development and construction of new, efficient, and environmentally friendly coal-fired power plants, and also new electricity transmission capacity. This will enable the Pittsburgh Region to (a) supply power to its own businesses and residents more cost-effectively; (b) sell some of that power to the East Coast, thereby helping to create more jobs here; and (c) develop the technical expertise and supplier companies that can help to develop similar power plants across the U.S. and in other countries, such as China. (See "The Pittsburgh Region has the Energy for the Future.")

(3) We should assist our existing high energy-use industries, such as steel, chemistry, etc., to become as energy-efficient as possible, not only so our region can retain the jobs we have in those industries, but also to create and expand businesses that supply the necessary expertise and products related to energy efficiency, which can then market their services and products to similar businesses in other countries.

We don’t want to follow the second path that McKinsey cites for improving energy productivity, i.e., shifting from energy-intensive sectors such as steel and chemicals to non-energy intensive service industries. While that might be OK at a national or global scale, it would have devastating effects on our region’s economy.

Just as Pittsburgh became famous in the 1950s and 1960s for transforming itself into a “clean” industrial city, we should now work to become famous for transforming ourselves into an energy-efficient, and energy self-sufficient, industrial region.

For more information on opportunities for the Pittsburgh region from clean energy, visit www.3RiversCleanEnergy.com.


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