Industrial Energy Intensiveness and Energy Costs in the Context of Climate Change Policy

Industrial Energy Intensiveness and Energy Costs in the Context of Climate Change Policy

97-1017 E
November 21, 1997
CRS Report for Congress
Received through the CRS Web
Industrial Energy Intensiveness and Energy Costs
in the Context of Climate Change Policy
Bernard A. Gelb
Specialist in Industry Economics
Economics Division
Summary
International negotiations are under way regarding measures to stabilize
concentrations of atmospheric “greenhouse gas” in order to forestall feared changes in
the global climate. In late October, President Clinton announced the U.S. negotiating
position. Inasmuch as the burning of fossil fuels produces greenhouse gases, the issue
of how stabilization measures would affect major energy-using industries is raised. As
shown in this report, the amount, cost, and mix of energy sources used vary widely even
among U.S. energy-intensive industries, suggesting a wide range of potential effects.
The Policy Context1
There is concern that human activities affect the energy-exchange balance between
Earth, the atmosphere, and space, inducing changes in the global climate. Possible results
could be seen as both positive and negative. The burning of fossil fuels in particular has
increased the amount of carbon dioxide (CO ) and other gases in the atmosphere. If these
2
gases continue to accumulate at current rates, global warming could occur through
intensification of the natural “greenhouse effect” that makes the Earth’s climate habitable.
Such warming could affect agriculture, forestry, and water resources, and, under certain
scenarios, lead to rising or falling sea levels depending upon climate system responses.
Policy options to curb emissions stress energy efficiency and conservation, tree
planting to offset atmospheric CO , market-oriented strategies such as carbon taxes, and
2
substituting nuclear and renewable energy and less CO -intensive fossil fuels. But there
2
are scientific uncertainties regarding the magnitude, timing, rate, and regional effects of
the potential climatic change. Given the uncertainties and the potential unevenness of
impacts, there is disagreement about what are the appropriate policy responses.
1 A substantial portion of this section is taken from CRS Issue Brief 89005, Global Climate
Change, which should be consulted for more extensive coverage of global climate change issues.
Congressional Research Service ˜ The Library of Congress

CRS-2
President Clinton announced on October 22, 1997, the U.S. negotiating position for
the December 1997 meeting of the Framework Convention on Climate Change in Kyoto,
Japan. The U.S. would commit to reducing its greenhouse gas emissions to 1990 levels
by the year 2012, and cut them further in the next 5 years. Decreases would be effected
through (1) $5 billion in tax cuts and spending on research and development in new
technologies over five years, (2) consulting with and rewards to industries for near-term
actions, (3) restructuring the electric utility industry (raising energy efficiency in
electricity generation), and (4) joint implementation projects in which emission reduction
credits would be shared between countries with “emission budgets” and those without,
and (5) domestic and international emissions trading, to begin after 10 years. Only with
developing nation participation (in the future) would the commitment become effective.
Many in U.S. business and some in labor contend that the proposal will raise energy
prices, slow economic growth, and cost jobs. Some environmental groups say the
proposal is insufficient, putting the world at risk of serious environmental dislocations.
Other countries have proposed greater and faster emission reductions. Congress would
have to ratify any treaty and fund any federal spending, but there is concern about
economic effects and possible U.S. action in the absence of action by developing nations.
The possibility of reducing greenhouse gas emissions by taxation or other measures
raises the issue of how energy-using industries would be affected. Removing greenhouse
gases after combustion imposes severe technical difficulties and cost penalties. Industry
and commercial transportation account for about half of U.S. CO emissions from fossil
2
energy consumption. Such emissions by U.S. industry rose 19% between 1986 and 1996.
The Data and Comparisons
This report presents and briefly analyzes data on the amount, cost, and distribution
by source of energy used by a number of U.S. energy-intensive sectors and “industries.”
While the report does not analyze how measures to reduce greenhouse gas emissions
would affect particular industries, it indirectly provides guidance. The levels of detail for
the sectors or industries included differs, with some industries constituting components
of industry groups or sectors. Because energy materials used as raw materials do not
undergo combustion, they are excluded from the energy measures shown. However,
energy from “fuel” produced and consumed in the same establishment, such as byproducts
and waste, is included inasmuch as its combustion produces greenhouse gas emissions.
Energy-intensiveness varies widely even among sectors and industries selected for
energy-intensiveness. For example, energy use for heat and power ranged from 6,900
Btu2 per dollar of value added for food and kindred product manufacturing in 1994 to
46,300 Btu for commercial air transportation (Table 1). For ease of comparison, the
industry groups and sectors presented in this report are ranked by ratio of energy outlays
to value of shipments or revenues in Table 2. The data also show that energy producing
industries also use energy intensively; coal mining and oil and natural gas extraction are
more energy intensive than the average manufacturing industry.
2 A British thermal unit (Btu) is the heat needed to raise the temperature of a pound of water
one degree Fahrenheit.

TABLE 1. Energy Intensiveness and Relative Energy Costs
of Selected Major Energy-Using Sectors and Industries, 1994
Energy Use
Energy
Energy for Heat
Thousand BTU
Purchases as a
and Power
per $ of value
% of Value of
Sector, Industry Group, and Industry a
(trillion BTU) b
added
Shipments c
ALL FARMING d e
945
11.5
4.4
ALL MINING f
1,843
19.1
3.9
Metal mining f
157
30.5
11.1
Coal mining f
167
10.9
3.9
Oil & natural gas extraction f
1,231
18.2
2.6
Nonfuel nonmetal mining f
288
33.9
9.9
ALL MANUFACTURING
16,515
10.3
1.8
Food & kindred products
1,183
6.9
1.3
Lumber & wood products
435
10.7
1.7
Paper & allied products
2,634
41.6
4.3
Paper mills
1,292
86.1
8.9
Paperboard mills
930
104.6
8.6
Chemicals & allied products
3,273
18.1
3.1
Industrial inorganic chemicals, n.e.c.
344
35.2
8.1
Plastics materials & resins
319
21.1
3.5
Industrial organic chemicals, n.e.c.
1,370
56.3
5.0
Nitrogenous fertilizers
286
145.5
11.7
Petroleum & coal products
3,263
114.1
2.8
Petroleum refining
3,153
135.1
2.8
Stone, clay, & glass products
945
23.9
5.1
Hydraulic cement
329
117.5
17.3
Primary metals
2,568
39.8
5.1
Blast furnaces & steel mills
1,824
88.1
7.1
Aluminum smelters & refineries
201
112.0
22.5
TRANSPORTATION
11, 500
n.e.
n.e.
Air transportation e h
2,218
46.3
10.5
Trucking j
n.e.
n.e.
8.9 j
ELECTRIC UTILITIES
30,881
n.e.
22.5 k
See next page for sources and notes.

CRS-4
Sources: Air Transport Association, faxed data; U.S. Department of Agriculture, Economic Research
Service. Agricultural Resources and Environmental Indicators, 1996-97; U.S. Department of Commerce
(DoC), Bureau of Economic Analysis. Survey of Current Business, August 1996; DoC, Bureau of the
Census. 1994 Annual Survey of Manufactures; (DoC), Bureau of the Census. 1992 Census of Mineral
Industries, Fuels and Electric Energy Consumed; U.S. Department of Energy (DOE), Energy Information
Administration (EIA). Annual Energy Outlook 1996; DOE, EIA. Household Vehicles Energy Consumption
1994; DOE, EIA, Manufacturing Consumption of Energy 1994; DOE, EIA, Monthly Energy Review,
October 1997; DOE, Oak Ridge National Laboratory. Transportation Energy Data Book: Edition 15; U.S.
Department of Transportation (DOT), Federal Aviation Administration. FAA Aviation Forecasts, Fiscal
Years 1997-2008; DOT, Office of Airline Information. Air Carrier Financial Statistics Quarterly;
Executive Office of the President. Economic Report of the President, Transmitted to the Congress
February 1997; author’s estimates.
Note: 1994 is the latest year for which detailed energy use data are available for most industries.
n.e. Not estimated, due to data shortcomings. n.e.c. Not elsewhere classified.
a Not all components are shown for broader categories.
b British thermal unit (Btu): Heat needed to raise temperature of a pound of water one degree Fahrenheit.
c Expenditures for fuel and electricity for heat and power as a percent of value of shipments.
d Excludes forestry, fisheries, and agricultural services. Energy purchases are related to cash receipts from
farm marketings.
Energy intensity figures are per dollar of gross product, a concept similar to value added.
e
f Data for these industry groups are for 1992.
g Transportation sector as defined by the Energy Information Administration, excludes household vehicles.
h Excludes general aviation; energy use data are for aircraft fuel only. Energy purchases are related to
transportation operating revenues.
i Includes non-air courier services; excludes auxiliaries to nontransportation companies and independent
owner-operators with no paid employees.
j Energy use data are for vehicle use only. Energy purchases are related to operating revenues.
k Based on “price component” figures derived by the EIA rather than calculated from aggregate data.
The effect on an industry’s costs relative to its prices is a major criterion for judging
the effect of emission reduction measures. An indication of the importance of energy in
an industry’s cost structure, and in the prices it charges for its products, is the ratio of
energy outlays to value of shipments or revenues (Table 1).3 Affected by the relative cost
of the energy source(s) it uses most and the value of its products, an industry’s energy cost
ratio relative to those of other industries may well differ markedly from its relative energy
intensiveness in Btu per dollar of value added. Cement manufacturers are 12% more
energy intensive than paperboard mills, but their energy cost ratio is about 100% greater.
The latter is one of the industries that obtains large amounts of energy from materials
produced on site, such as byproducts and waste materials, which they do not buy per se.
Because different energy sources yield different levels of CO and other greenhouse
2
gas emissions per unit of energy, differences in energy source mix also are relevant.
Thus, although energy-intensiveness is nearly the same for paper and for steel mills, the
latter
3 An industry’s value of shipments or revenues is the aggregate price of its products, which
includes any profit. These measures are appropriate as proxies for total costs because that
portion of price accounted for by profit can be considered an opportunity cost, more or less what
the capital invested would yield in another endeavor or in a financial instrument.

TABLE 2: Selected Major Energy-Using Industry Groups
and Industries Ranked by Energy Intensiveness, 1994
Thousand Btu of Energy for Heat & Power
Industry Group
Per Dollar of Value Added
Air transportation
46.3
Paper & allied products manufacturing
41.6
Primary metal manufacturing
39.8
Nonfuel nonmetal mining
33.9
Metal mining
30.5
Stone, clay, & glass products manufacturing
23.9
Oil & gas extraction
18.2
Chemicals & allied products manufacturing
18.1
All farming
11.5
Coal mining
10.9
Lumber & wood products manufacturing
10.7
Individual Manufacturing Industry
Nitrogenous fertilizers
145.5
Petroleum refining
135.1
Hydraulic cement
117.5
Aluminum smelters & refineries
112.0
Paperboard mills
104.6
Blast furnaces & steel mills
88.1
Paper mills
86.1
Industrial organic chemicals, n.e.c.
56.3
Source: Table 1. Descriptions of industries and of energy use coverage apply as in Table 1.
are apt to be affected more by CO emission reduction measures inasmuch as 38% of
2
steel mills’ energy is obtained from coal compared with 15% for paper. The Energy
Information Administration (EIA), U.S. Department of Energy, estimates that full
combustion of coal yields about 26 metric tons of carbon per billion Btu; most petroleum
products yield 19 to 21½ tons; and natural gas yields about 14 metric tons. The EIA does
not include biofuel emissions in its estimates of CO emissions. Because the carbon in
2
biofuels such as wood waste was absorbed from the atmosphere during their formation,
carbon emitted during their combustion does not constitute a change in the overall carbon
budget in the long run. This report has included the heat content of these materials
inasmuch as it is not determined how an international treaty will treat their emissions.4
4 See EIA. Emissions of Greenhouse Gases in the United States 1996. Washington, DC,
October 1997.

CRS-6
TABLE 3. Distribution of Energy for Heat and Power by Energy Type,
Selected Major Energy-Using Industry Groups and Industries, 1994
(percent of total)
Natural
All
Sector, Industry Group, & Industry
Coal a
Gas
Petroleum Electricity Otherb TOTAL
ALL FARMING
*
5.8
78.3
15.9
*
100
ALL MINING c
3.4
56.4
11.3
14.3
14.6
100
Metal mining c
9.5
21.7
22.3
40.1
6.4
100
Coal mining c
5.4
0.6
40.7
25.7
27.5
100
Oil & gas extraction c
*
73.7
5.4
9.2
11.8
100
Nonfuel nonmetal mining c
13.5
33.3
14.6
40.2
23.3
100
ALL MANUFACTURING
11.5
37.2
4.8
16.1
31.0
100
Food & kindred products
14.1
53.3
4.6
16.7
11.3
100
Lumber & wood products
1.5E
11.0
5.0
15.6
66.7
100
Paper & allied products
11.7
21.8
7.1
8.5
51.0
100
Paper mills
15.1
21.0
7.7
9.1
47.1
100
Paperboard mills
10.9
21.4
5.7
4.9
57.1
100
Chemicals & allied products
7.8
57.9
2.5
15.9
15.9
100
Industrial inorganic chemicals
10.0E
40.0E
3.0
41.9
5.2
100
Plastics materials & resins
10.0E
45.0E
1.6
17.6
15.7
100
Industrial organic chemicals
6.7
61.1
0.6
4.7
26.9
100
Nitrogenous fertilizers
*
93.4
*
4.5
1.7
100
Petroleum & coal products
0.2E
25.0
4.3
3.7
66.8
100
Petroleum refining
0.2E
24.0
3.7
3.6
68.5
100
Stone, clay, & glass products
29.8
45.6
3.6
13.0
7.9
100
Hydraulic cement
62.6
7.6
1.8
11.2
16.7
100
Primary metals
28.8
31.2
2.3
19.2
18.5
100
Blast furnaces & steel mills
37.8
26.1
2.6
8.1
25.4
100
Aluminum smelters & refineries
*
8.5
1.8
91.0
0.1
100
COMMERCIAL TRANSPORTATION
*
0.1
99.8
0.1
*
100
Air transportation
*
*
100.0
*
*
100
Trucking
*
*
100.0
*
*
100
ELECTRIC UTILITIES d
55.1
8.6
2.2
33.6 e
0.4 f
100
Sources: Same as in table 1. Descriptions of industries and of energy use apply as in Table 1.
E - Estimated by author.
* Less than 0.05 percent, or zero.
a Includes coke and breeze.
b In mining, includes fuels not specified by kind. In manufacturing, includes fuel produced and
consumed in the same establishment, including waste, and byproducts.
Data are for 1992.
c
d Data are for 1996.
e Nuclear and hydropower.
e Geothermal, wood, waste, wind, photovoltaic, and solar thermal energy.