OECD countries
OECD countries have been transitioning in recent decades from manufacturing to more service-oriented economies. As a result, in theIEO2010Reference case, industrial energy use in OECD countries grows at an average annual rate of only 0.2 percent from 2007 to 2035, as compared with a rate of 0.9 percent per year for energy use in the commercial sector. In addition to the shift away from industry, slow growth in OECD indus-trial energy consumption can be attributed to relatively slow growth in overall economic output. OECD econo-mies grow by 2.0 percent per year on average from 2007 to 2035 in theIEO2010Reference case, compared with 2.1 percent per year in the IEO2009 Reference case.
Whereas OECD economies accounted for 58 percent of global economic output in 2007 (as measured in pur-chasing power parity terms), their share falls to about 41 percent in 2035.
Rising oil prices in the Reference case lead to changes in the industrial fuel mix of OECD nations (Figure 88).
OECD liquids use in the industrial sector contracts by 0.3 percent per year, reducing the share of liquids in industrial energy use from 40 percent in 2007 to 34 per-cent in 2035. Coal use in the industrial sector also declines, and coal’s share of OECD delivered industrial energy use falls from 12 percent to 9 percent, as indus-trial uses of natural gas, electricity, and renewables expand. Industrial consumption of renewables in OECD countries grows faster than the use of any other fuel, from 4.7 quadrillion Btu in 2007 to 7.6 quadrillion Btu in 2035. In the coming decades, patterns of industrial fuel use and trends in energy intensity in OECD countries are expected to be determined as much by policies regu-lating energy use as by economic and technological developments.
North America
Currently, the U.S. industrial sector consumes more energy than the industrial sector of any other OECD country, and that continues to be true in the IEO2010 Reference case through 2035. The overall increases in U.S. industrial energy use is minimal, however, from 25 quadrillion Btu in 2007 to 27 quadrillion Btu in 2035, or an average of 0.2 percent per year. The industrial share of total U.S. delivered energy consumption remains at approximately one-third through 2035. (In contrast, U.S.
commercial energy use increases at more than four times that rate, reflecting the continued U.S. transition to a ser-vice economy.) With oil prices rising steadily in the Ref-erence case, liquids consumption in the U.S. industrial sector contracts on average by 0.4 percent per year, for the steepest decline among OECD nations.
The use of renewable fuels, such as waste and biomass, in the U.S. industrial sector grows faster than the use of
any other energy source in the Reference case, and its share of the industrial fuel mix rises from 8 percent in 2007 to 16 percent in 2035. Growth in U.S. industrial energy use will also be moderated by legislation aimed at reducing the energy intensity of industrial processes.
For example, the U.S. Department of Energy supports reductions in energy use through its Industrial Technol-ogies Program, guided by the Energy Policy Act of 2005, which is working toward a 25-percent reduction in the energy intensity of U.S. industrial production by 2017 [22]. The Energy Independence and Security Act of 2007 (EISA2007) also addresses energy-intensive industries, providing incentive programs for industries to recover additional waste heat and supporting research, develop-ment, and demonstration for efficiency-increasing tech-nologies [23].
Industrial energy use in Canada grows by an average of 0.6 percent per year in the Reference case, continuing to constitute just under one-half of Canada’s total deliv-ered energy use. With world oil prices returning to sus-tained high levels, liquids use in Canada’s industrial sector does not increase from current levels, while natu-ral gas use increases by 1.5 percent per year. As a result, the share of liquids in the industrial fuel mix falls from 36 percent in 2007 to 27 percent in 2035, and the natural gas share increases from 35 percent to 44 percent.
Increased production of unconventional liquids (oil sands) in western Canada, which requires large amounts of natural gas, contributes to the projected increase in industrial natural gas use.
Industrial energy efficiency in Canada has been increas-ing at an average rate of about 1.5 percent per year in recent decades, largely reflecting provisions in Canada’s Energy Efficiency Act of 1992 [24]. The government increased those efforts in 2007, releasing its Regulatory Framework for Industrial Greenhouse Gas Emissions, which calls for a 20-percent reduction in greenhouse gas emissions by 2020. The plan stipulates that industrial enterprises must reduce their emissions intensity of pro-duction by 18 percent between 2006 and 2010 and by 2 percent per year thereafter. The proposal exempts “fixed process emissions” from industrial processes in which carbon dioxide is a basic chemical byproduct of produc-tion. Therefore, most of the abatement will have to come from increased energy efficiency and fuel switching [25].
Mexico’s GDP grows by 3.5 percent per year from 2007 to 2035 in the Reference case, which is the highest eco-nomic growth rate among all OECD nations. Mexico also has the highest average annual rate of growth in industrial energy use, at 1.9 percent per year, to 5 quadrillion Btu in 2035 from 3 quadrillion Btu in 2007.
The country’s industrial sector continues to use oil and natural gas for most of its energy needs, and the com-bined share of liquids and natural gas in the industrial
102 U.S. Energy Information Administration / International Energy Outlook 2010 29
Figure 88. OECD industrial sector energy consumption by fuel, 2007 and 2035 (quadrillion Btu)
fuel mix remains close to 80 percent throughout the pro-jection. In December 2009, the Mexican government introduced its “Special Climate Change Program 2009-2012.” The plan entails many industrial sector ini-tiatives, such as increasing the use of cogeneration and improving the operational efficiency of PEMEX (the state-owned oil company) and other Mexican industrial enterprises [26].
OECD Europe
In theIEO2010Reference case, OECD Europe continues its transition to a service economy, as its commercial sector energy use grows by 0.8 percent per year while industrial energy use contracts by 0.3 percent per year.
Climate change policy is expected to affect the mix of fuels consumed in OECD Europe’s industrial sector, with coal use contracting at an average rate of 1.6 per-cent per year, while the use of renewables increases. The use of electric power in OECD Europe’s industrial sec-tor, increasingly generated from low-carbon sources, also rises.
Energy and environmental policies are significant fac-tors behind the trends in industrial energy use in OECD Europe. In December 2008, the European Parliament passed the “20-20-20” plan, which stipulated a 20-percent reduction in greenhouse gas emissions, a 20-percent improvement in energy efficiency, and a 20-percent share for renewables in the fuel mix of Euro-pean Union member countries by 2020 [27]. In debates on the plan, representatives of energy-intensive indus-tries voiced concern about the price of carbon alloca-tions. They argued that fully auctioning carbon dioxide permits to heavy industrial enterprises exposed to global competition would simply drive industrial pro-duction from Europe and slow carbon abatement efforts at the global level [28]. The resulting compromise was an agreement that 100 percent of carbon allowances would be given free of charge to industries that are exposed to such “carbon leakage,” provided that they adhere to effi-ciency benchmarks [29].
OECD Asia/Pacific
Japan has the slowest GDP growth among OECD regions in the Reference case, at 0.5 percent per year.
Consequently, its industrial consumption of delivered energy falls by 0.7 percent per year. Along with slow economic growth, a major factor behind Japan’s slowing industrial energy use is increasing efficiency. Already, the energy intensity of Japan’s industrial production is among the lowest in the world. Since 1970, Japan has reduced the energy intensity of its manufacturing sector by 50 percent, mostly through efficiency improvements, along with a structural shift toward lighter manufactur-ing [30]. An amended version of Japan’s Energy Conser-vation Law went into effect in April 2009, introducing
sectoral efficiency benchmarks for energy-intensive sec-tors, including cement and steel [31].
South Korea, which experienced rapid industrial devel-opment during the later decades of the 20th century, is also beginning to make a transition to a service-oriented economy. In theIEO2010Reference case, South Korea’s GDP grows at an average annual rate of 2.9 percent. Its industrial energy use grows by 1.3 percent per year, while its commercial energy use grows by nearly 2 per-cent per year. South Korea is currently the sixth-largest steel producer in the world. A large portion of its steel is already produced by electric arc furnaces [32], and that portion is projected to grow as inventories of discarded steel build up. As a result, coal consumption in South Korea’s industrial sector increases slowly in the Refer-ence case, and electricity is the fastest-growing source of energy for industrial uses. The largest consumer of industrial energy in South Korea is the chemical sector, and it is expected to remain in that position through 2035. Liquid fuel consumption, primarily for feedstock use, maintains a majority share of South Korea’s fuel mix through 2035.
In Australia and New Zealand, industrial delivered energy consumption grows by 0.9 percent per year in the Reference case, from 2.3 quadrillion Btu in 2007 to 3.0 quadrillion Btu in 2035. Industry’s share of delivered energy consumption in the region remains steady at about 50 percent. With liquids consumption in the industrial sector falling from 0.6 quadrillion Btu in 2007 to 0.5 quadrillion Btu in 2035, natural gas fuels much of the growth in industrial sector energy use, and its share of the industrial fuel mix expands from 36 percent in 2007 to 43 percent in 2035.
Non-OECD countries
Non-OECD industrial energy consumption grows at an average annual rate of 1.8 percent in theIEO2010 Refer-ence case—almost 10 times the average for OECD coun-tries (Figure 89). The industrial sector accounted for about 62 percent of total non-OECD delivered energy use in 2007, and it continues to consume close to that share through 2035. With non-OECD economies expanding at an average annual rate of 4.4 percent in the Reference case, their share of global output increases from 42 percent in 2007 to 59 percent in 2035.
The key engines of non-OECD growth are the “BRIC”
countries (Brazil, Russia, India, and China). The four nations have accounted for 45 percent of global eco-nomic growth since 2007, doubling their share in the period from 2000 to 2006 [33]. Given the predominant role that heavy industry and manufacturing play in their dynamic economies, the BRIC countries account for more than two-thirds of the growth in non-OECD indus-trial energy use from 2007 to 2035.
Non-OECD Asia
Non-OECD Asia is expected to be a major center of global economic growth in the coming decades. In the Reference case, the economies of non-OECD Asia, led by China, expand by an average of 5.2 percent per year, and industrial energy consumption increases across the region. China’s industrial energy use nearly doubles from 2007 to 2035, averaging 2.4-percent annual growth over the period, and its growth rate is higher than the rate for any other major economy.
The industrial sector accounted for 75 percent of China’s total delivered energy consumption in 2007, and its share remains above two-thirds through 2035. Since the beginning of economic reform in 1979, China’s GDP growth has averaged 9.8 percent per year through 2007 [34]. The IEO2010 Reference case projects slower but substantial growth, averaging 5.8 percent per year through 2035. Although 2006-2010 growth in China in IEO2010 is somewhat lower than was projected in IEO2009 because of the global economic slowdown, a return to strong growth is anticipated from 2011 to 2015, and China still is expected to account for more than one-fourth of total global GDP growth from 2007 to 2035.
In addition to the impact of strong economic growth on industrial energy demand in China, continued rapid increases in industrial demand can be explained in part by the structure of the Chinese economy. Although the energy intensity of production in individual industries has improved over time, heavy industry still constitutes a major portion of China’s total output. Patterns of energy use in China reflect its economy: iron and steel, nonmetallic minerals, and chemicals together account for about 60 percent of the country’s industrial energy consumption. These sectors provide inputs to China’s massive export and construction sectors, which
continue to flourish in theIEO2010projection. China is expected to construct an additional 65 billion square feet of building space by 2020—an amount equal to Europe’s current total building stock [35].
Government policy contributes as much to the energy-intensive structure of the Chinese economy as does demand growth. A considerable share of heavy industrial production in China is carried out by large state-owned enterprises (SOEs), which are favored by Chinese economic policy. SOEs enjoy relatively easy access to capital through state-owned banks and other forms of government support, such as subsidized energy supplies [36]. The Chinese government’s strat-egy in response to the recent global economic slowdown involved expansion of credit, and SOEs benefited greatly from the policy [37]. The government also intro-duced support plans for 10 key industries. Steel, petro-chemicals, and nonferrous metals are among the industries identified in the plan, which includes mea-sures to stimulate domestic demand and exports, along with 210 billion yuan ($31 billion) in research and devel-opment funding [38].
China’s industrial fuel mix changes somewhat over the projection period. Despite its abundant coal reserves, direct use of coal in China’s industrial sector grows by an average of only 1.6 percent per year in the Reference case, while industrial use of electricity (most of which is coal-fired) grows by 4.2 percent per year. As a result, coal’s share in the industrial fuel mix falls from 60 per-cent in 2007 to 47 perper-cent in 2035, while electricity’s share increases from 19 percent to 32 percent. At 4.5 per-cent per year, natural gas use is projected to grow faster than the use of any other fuel; however, it represents only 6 percent of China’s industrial fuel mix in 2035.
In addition to its primary focus on economic develop-ment, the Chinese government also has introduced pol-icy initiatives aimed at improving industrial energy efficiency. Its 11th Five Year Economic Plan, released in 2005, included a goal of reducing energy intensity by 20 percent between 2005 and 2010 [39]. In theIEO2010 Ref-erence case, China surpasses its goal, achieving a 23-percent reduction in energy intensity of GDP between 2005 and 2010. In the coming years, China is expected to focus more attention on industrial energy intensity. In December 2009, the Chinese Ministry of Industry and Information Technology announced that it will soon release plans to restructure traditional industries, including the implementation of energy efficiency standards [40]. In the Reference case, the energy inten-sity of GDP in China declines by an average of 2.5 per-cent per year from 2007 to 2035.
India has the world’s second highest rate of GDP growth in theIEO2010Reference case, averaging 5.0 percent per year from 2007 to 2035, with a 1.9-percent average 104 U.S. Energy Information Administration / International Energy Outlook 2010
28
Figure 89. Non-OECD industrial sector energy consumption by fuel, 2007 and 2035
(quadrillion Btu)
annual increase in delivered energy to the industrial sec-tor. Although India’s 2007-2035 economic growth rate is only slightly slower than China’s, its levels of GDP and energy consumption continue to be dwarfed by those in China throughout the projection. India’s economic growth over the next 27 years is expected to derive more from light manufacturing and services than from heavy industry. As a result, the industrial share of total energy consumption in India falls from 72 percent in 2007 to 64 percent in 2035, and its commercial energy use grows more than twice as fast as its industrial energy use. The changes are accompanied by shifts in India’s industrial fuel mix: electricity use grows more rapidly than coal use, and natural gas use triples.
India has been successful in reducing the energy inten-sity of its industrial production over the past 20 years. A majority of its steel production is from electric arc fur-naces, and most of its cement production uses dry kiln technology [41]. A major reason for the intensity reduc-tions is Indian public policy, which provides subsidized fuel to citizens and farmers but requires industry to pay higher prices for fuel. In part because the market inter-ventions have spurred industry to reduce energy costs, India is now one of the world’s lowest cost producers of both aluminum and steel [42]. India is also the world’s largest producer of pig iron, which can be used in place of scrap metal in the electric arc process [43].
The quality of India’s indigenous coal supplies also has contributed to the steel industry’s efforts to reduce its energy use. India’s metallurgical coal (which is needed for steel production in blast furnaces) is low in quality, forcing steel producers to import metallurgical coal [44].
As a result, producers have invested heavily in improv-ing the efficiency of their capital stock to lower the amount of relatively expensive imported coal used in the production process.
The Indian government has facilitated further reduc-tions in industrial energy use over the past decade by mandating industrial energy audits in the Energy Con-servation Act of 2001 and by mandating specific con-sumption decreases for heavy industry as part of the 2008 National Action Plan on Climate Change. The new plan also calls for fiscal and tax incentives to promote efficiency, an energy-efficiency financing platform, and a trading market for energy savings certificates, wherein firms that have exceeded their required savings levels will be able to sell the certificates to firms that have not [45]. Those measures contribute to a reduction in the energy intensity of India’s GDP, which declines by an average of 2.6 percent per year from 2007 to 2035 in the Reference case.
GDP growth in the other nations of non-OECD Asia is slightly less rapid than in China and India, averaging 4.3 percent per year, and their industrial energy demand as
a group grows from 12 quadrillion Btu in 2007 to 22 qua-drillion Btu in 2035. The largest single energy-consuming industry in the rest of non-OECD Asia is the chemical sector, which accounts for more than 20 per-cent of industrial delivered energy use for the group.
Malaysia, Taiwan, Singapore, and Indonesia account for the vast majority of the countries’ chemical sector out-put. The most significant steel producer in the group is Taiwan, which produced about 20 million metric tons in 2008 [46].
Patterns of industrial energy use in the individual coun-tries of the other non-OECD Asia grouping follow diverse trajectories in the Reference case projection.
Mature economies, such as Taiwan, Hong Kong, and Singapore, will follow patterns similar to those in OECD countries—transitioning away from energy-intensive industries to activities with higher added value. Much of the growth in commercial energy use occurs in those countries. Other regional economies, notably Vietnam, can be expected to expand manufacturing and increase industrial sector energy use.
Non-OECD Europe and Eurasia
In Russia, industrial energy consumption patterns are
In Russia, industrial energy consumption patterns are