The Impacts of Energy Consumption of Changes in the Structure of US Manufacturing. Part 1: Overall Survey

Working Paper

THE M'm

^ON

^ENERGY

CONsuHPrION OF

CHANGES

IN

THE

S I X I J m OF US MANUFACTURING

PARrt

UVERALLSURVEP

C l a i r e P. Doblin

February 1987 WP-07-04

International Institute for Applied Systems Analysis

A-2361 Laxenburg, Austria

NOT FOR QUOTATION WITHOUT THE PERMISSION OF

THE

AUTHOR

THE WACI'

ON

ENERGY CONSUMPTION OF

CHANGES IN THE

S l X U w

OF US

MANUFACTURING

PART I: OVERALL SURVEY

Claire

P.

Doblin

F e b r u a r y 1987 WP-87-04

R e p o r t p r e p a r e d for t h e E l e c t r i c Power R e s e a r c h Institute (EPRI) under c o n t r a c t agreement TPS 84-606 and with a financial contribution from Kernforschungsmlage Jiilich (KFA).

Working Papers are interim r e p o r t s on work of t h e International Institute for Applied Systems Analysis and have r e c e i v e d only limited review. Views or opinions e x p r e s s e d h e r e i n d o not necessarily r e p r e s e n t those of t h e Institute o r of i t s National Member Organizations.

INTERNATIONAL INSTITUTE FOR APPLIED SYSTEMS ANALYSIS A - 2 3 6 1 Laxenburg. Austria

Foreword

S i n c e t h e f i r s t o i l p r i c e e s c a l a t i o n of 1974, t h e r e h a s b e e n c o n s i d e r a b l e r e d u c t i o n in t o t a l e n e r g y use p e r u n i t of total output. This development h a s many names: in- c r e a s i n g e n e r g y c o n s e r v a t i o n , i n c r e a s i n g e n e r g y p r o d u c t i v i t y , o r , c o n v e r s e l y , de- c r e a s i n g e n e r g y intensity.

Claire Doblin's study i s c o n c e r n e d with t h e e m p i r i c a l analysis of f a c t o r s d i r e c t l y r e s p o n s i b l e f o r t h i s t r e n d in t h e US manufacturing s e c t o r d u r i n g t h e 1974-1980 period. E s c a l a t i n g o i l p r i c e s are commonly believed to h a v e prompted e n e r g y savings a n d c o n s e r v a t i o n in t h e manufacturing s e c t o r

-

j u s t as t h e y did to some e x t e n t in t h e c a s e of household f u e l s a n d gasoline demand. However, t h e de- c r e a s i n g e n e r g y intensity of US manufacturing (and US i n d u s t r y ) i s a long-term development, coinciding at times with falling or s t a b l e e n e r g y p r i c e s , e . g . , in t h e post-World W a r I1 p e r i o d . In o t h e r words, t h e c u r r e n t e n e r g y intensity d e c r e a s e w a s n o t c r e a t e d by r i s i n g o i l p r i c e s a l o n e . H e n c e f o r t h i s p e r i o d in h i s t o r y , at l e a s t , t h e r o l e of price-induced s u b s t i t u t i o n (as implied by t h e i n c o r p o r a t i o n of en- e r g y r e s o u r c e s in t h e p r o d u c t i o n function) i s l e s s i m p o r t a n t t h a n h a s some times b e e n assumed. This i s so b e c a u s e t h e f o r c e s at work to s h a p e t h e e n e r g y intensity of t h e i n d u s t r y s e c t o r r e f l e c t t h e c h a r a c t e r i s t i c s of a n aging i n d u s t r i a l s o c i e t y

-

t h e s h i f t f r o m e n e r g y - (and labor-) intensive i n d u s t r i e s t o w a r d i n d u s t r i e s with lower e n e r g y (and l a b o r ) r e q u i r e m e n t s a n d h i g h e r value added. This aging or ma- t u r i n g of t h e i n d u s t r i a l sector i s in s h a r p c o n t r a s t to t h e r a p i d l y i n c r e a s i n g e n e r - gy intensity of developing c o u n t r i e s s u c h as Mexico a n d Brasil.

The a n a l y s i s i s b a s e d o n d e t a i l e d s t a t i s t i c s o n s t r u c t u r e a n d technology impact at t w o levels: a g g r e g a t e of a l l sectors ( t o t a l manufacturing) a n d t h e most e n e r g y - intensive i n d u s t r i e s t h a t t o g e t h e r a b s o r b a b o u t BOX of total manufacturing input.

The conclusions, a n d t h e underlying d a t a , should b e useful f o r f u r t h e r work in t h e s t u d y of i n d u s t r i a l c h a n g e as w e l l as e n e r g y modeling.

T.H. L e e D i r e c t o r

Acknowledgement

I wish t o thank t h e E l e c t r i c Power R e s e a r c h Institute (EPRI) and the Kern- forschungsanlage Jiilich (KFA) f o r t h e i r financial s u p p o r t . My t h a n k s g o also to t h e International Institute f o r Applied Systems Analysis (IIASA) which enabled m e to c a r r y o u t t h e r e s e a r c h , and t o t h e many persons inside and outside t h e Institute who so patiently r e a d t h e d r a f t s and gave m e t h e i r comments and suggestions. I a m especially indebted to t h e l a t e Ed Schmidt of IIASA, f o r the time h e gave me and t h e encouragement to g o on with t h e task.

Claire P. Doblin

Contents

PART I: OVERALL SUMMAK'Y

1. INTRODUCTION

ENERGY INPUT, GNP, AND INDUSTRIAL OUTPUT

2. HISTORICAL TRENDS OF ENERGY PRODUCTIVITY

GROWTH

2.1 Compilation of I n d i c a t o r s

2.2 Comparison of US E n e r g y P r o d u c t i v i t y Compilations 2.3 E n e r g y P r o d u c t i v i t y Growth Abroad

3. DETERMINANTS OF ENERGY PRODUCTIVITY

3.1 Role of P r i c e s

3.2 S t r u c t u r a l Changes i n Output Composition 3.3 Technology Changes

4. SEPARATION OF STRUCTURE AND TECHNOLOGY EFFECTS

4.1 Analysis, 1958-1980 4.2 Evaluation of Results

4.3 E n e r g y Intensity in Developed a n d Developing Economies

5. ROLE OF ELECTRICITY

5.1 Growth a n d Distribution of E l e c t r i c i t y P u r c h a s e s 5.2 Changes in E l e c t r i c i t y Intensity

5.3 S e p a r a t i o n of S t r u c t u r e a n d Technology E f f e c t s 5.4 Comparison with o t h e r R e s e a r c h

- vii

-

6. ENERGY SAVINGS TRHOUGH IMPORT PENETRATION OF DOMESTIC MARKETS

6.1 S h a r e of I m p o r t s i n Domestic P r o d u c t i o n 6.2 E s t i m a t e d E n e r g y a n d E l e c t r i c i t y S a v i n g s 6.3 Comparison with o t h e r R e s e a r c h

7. CONCLUSION R e f e r e n c e s

Appendix 1: E n e r g y I n p u t Methodology Appendix 2: T a b l e s

PART _I.: CASE STUDIES*

PRIMARY METALS (SIC 3 3 ) CHEMICALS AND ALLIED (SIC 2 8 )

PETROLEUM AND COAL PRODUCTION (SIC 2 9 ) PAPER AND ALLIED (SIC 2 6 )

STONE, CLAY, AND GLASS (SIC 3 2 )

STRUCTURAL CHANGES IN U S MANUFACTURING OUTPUT SINCE 1960

=Not attached t o this report.

-

^viii

-

k t of Tablea in the T e x t

Table 1

Table 2

Table 3

Table 4

Table 5

Table 6

Table 7

Table 8

Table 9 Table 10

Table 11

Table 12

Table 13

Table 14

US. The growth of c u r r e n t p r i c e s f o r groups of e n e r g y commodities (index numbers, 1970

=

100).

US. Unit cost of s e l e c t e d fuels and purchased e l e c t r i c i t y con- sumed by all manufacturing industries, 1967, 1971, and 1974-1981.

US. The growth of p r i c e s f o r e l e c t r i c i t y and total e n e r g y p u r - chased by t h e industry sector.

US. The changing s t r u c t u r e of output in manufacturing industries, 1960, 1970, and 1980, measured by sales values and value added.

US. Manufacturing s e c t o r . Distribution of e n e r g y input quantities and manufacturing output (values at 1972 p r i c e s ) i n 1980.

US. S e l e c t s d industries growth of e n e r g y productivity, 1974 to 1980 (technology f a c t o r only).

US. Manufacturing industries. Aggregate e n e r g y input (primary equivalents) and g r o s s output (sales at 1972 p r i c e s ) , 1958-1980, s e l e c t e d y e a r s .

US. The s h a r e of e l e c t r i c i t y in t o t a l e n e r g y purchased by industry f o r h e a t and power.

US. Electricity s a l e s , distribution by industries.

US. E l e c t r i c i t y requirements p e r unit of output in s e l e c t e d industries.

U S . Manufacturing industries. P u r c h a s e d e l e c t r i c i t y input

(excluding government o p e r a t e d plants) and g r o s s output (sales at 1972 p r i c e s ) , 1958-1980, s e l e c t e d y e a r s .

The impact of s t r u c t u r e and technology changes on t h e energy and e l e c t r i c i t y intensity of t h e US manufacturing sector.

US. The s h a r e of imports in domestic production of s e l e c t e d , e n e r g y intensive industries (percentage).

US. Energy savings through imports, 1980.

List of Figures

Figure 1

Figure 2

Figure 3

Figure 4

Figure 5

Figure 6

Figure 7

Figure 8

Figure 9

Figure 10 Figure 11 Figure 12

Figure 13

Figure 14

Total primary and s e c t o r a l e n e r g y consumption in four countries, 1970-1983 (index numbers, 1970

=

100).

US. Industry sector. The growth of production and e n e r g y input since 1951 (index numbers, 1970

=

100).

US. Manufacturing s e c t o r . The growth of production and

t h e input of purchased e n e r g y f o r h e a t and power s i n c e 1967 (index numbers, 1970

=

100).

US. Manufacturing sector. The growth of production and t h e

input of a g g r e g a t e e n e r g y since 1967 (index numbers, 1971

=

100).

US. Industry sector. The growth of e n e r g y productivity, various compilations.

FRG. Manufacturing s e c t o r . The growth of final energy

input p e r value added since 1950 (index numbers, 1980

=

^100).

France. Industry sector. The growth of e n e r g y input

p e r industry output since 1962 (index numbers, 1970

=

^100).

International Energy Agency member countries. The growth of a v e r a g e e l e c t r i c i t y a n d oil p r i c e s in r e a l terms.

US. Energy-intensive industries (excluding chemicals), production growth.

US. Primary metals, production growth.

US. Chemicals, petroleum refining, production growth.

US. Manufacturing s e c t o r . The growth of purchased fuels

and e l e c t r i c i t y f o r h e a t and power and self-generated e l e c t r i c i t y minus sales.

US. Manufacturing sector. The growth of e l e c t r i c i t y inten- sity. Purchased e l e c t r i c i t y p e r unit of manufacturing output.

Industry s e c t o r . The growth of e l e c t r i c i t y intensity.

Purchased e l e c t r i c i t y p e r unit of industrial output.

THE IMPACT ON ENERGY CONSUMPTION O F CHANGES

IN THE ~ U

OF

US

b M N U F A m N G

~ E

PARTI:

OVERALL

SURVEY

C t a i r e P. Doblin

1.

INTRODUCTION

ENERGY INPUT. GNP, AND INDUSTRIAL OUTPUT

In t h e y e a r s of r a p i d economic expansion t h a t followed World War 11, t o t a l con- sumption of all forms of p r i m a r y energy and Gross National P r o d u c t ( G N F ) in con- s t a n t p r i c e s expanded at much t h e same r a t e s . But since t h e oil embargo of 1973, t h e growth r a t e s of energy and GNP have diverged, and t h e e n e r g y used p e r unit of output f o r t h e economy as a whole measured by t h e energy/GNP r a t i o h a s con- tinuously decreased. This d e c r e a s e is commonly r e f e r r e d t o a s declining energy intensity; conversely, i t a l s o signifies growing e n e r g y productivity. For purposes of t h e analysis, both terms a r e used alternately.

T h e r e is a s t r o n g belief s h a r e d by economists and t h e public at l a r g e t h a t en- e r g y productivity in t h e US and o t h e r Western industrialized countries w a s in- creasing because of conservation measures and energy savings adopted in response t o t h e high and rising costs of energy. However, t h e post embargo period, specifically t h e decade from 1974-1984, was not t h e f i r s t time rising e n e r - gy productivity h a s been observed. Sam H. S c h u r r , in a pioneering work E n e r g y in t h e A m e r i c a n Economy ( S c h u r r , 1960), and more specifically, in his 1982 lec- t u r e E n e r g y E m c i e n c y a n d P r o d u c t i v e EQgiciency: Some T h o u g h t s Based o n t h e A m e r i c a n E x p e r i e n c e ( S c h u r r , 1984), shows, i n t e r a l i a , t h a t t h e r e had previously been a long period (1920-1953) of growing energy productivity of t h e US economy (energy/GNP r a t i o ) and t h e industrial s e c t o r (energy/industrial output ratio).

Since t h e f i r s t oil p r i c e shock in 1973, t h e e n e r g y demand of t h e industrial s e c t o r has d e c r e a s e d more than t h a t of t h e economy a s a whole. This i s t r u e not only f o r t h e US but f o r o t h e r industrialized countries a s well. Figure 1 shows t h e growth of e n e r g y consumption in industry and o t h e r s e c t o r s in t h e US, the FRG, France, and t h e UK. In t h e USSR (not shown in Figure I ) , t h e growth of energy consumption in t h e industrial s e c t o r is a l s o trailing t h e national total

-

though both a r e still rising.

This analysis t r a c e s t h e f a c t o r s primarily responsible f o r t h e acceleration of energy productivity in US manufacturing, which r e p r e s e n t s about 807. of US indus- t r y . An attempt w a s made t o quantify t h e impact of s e v e r a l f a c t o r s t h a t influence t h e industrial energy intensity. These a r e : compositional, o r as some s a y , s t r u c - t u r a l changes in t h e output mix; technological changes in manufacturing p r o c e s s e s t o improve fuel utilization efficiency; t h e special r o l e of electricity in enhancing energy productivity; and e n e r g y savings resulting from import penetration of domestic markets f o r energy-intensive products. These various f a c t o r s were in- vestigated in c a s e studies of primary metals, chemicals, petroleum refining, p a p e r , and cement.

- * 'Total Primary .-d@HumhoMs

Road Tnnsuort (a8solinr)

FIGIJRE 1. Total p r i m a r y a n d s e c t o r a l e n e r g y c o n s u r n p t i o n ~ in f o u r c o u n t r i e s , 1970-1983 (index n u m b e r s , 1970 = ^100).

The c a s e studies a n d a review of t h e s t r u c t u r a l changes in t h e volume of manufacturing production a r e contained in P a r t I1 of t h i s r e p o r t .

2- HISTORICAL

TRENDS

OF ENERGY PRODUCTIVITY GROWTH

2.1.

C o m p i l a t i o n o f Indicators

The analysis of e n e r g y productivity in t h e manufacturing s e c t o r i s handicapped by t h e lack of annual d a t a f o r purchased e n e r g y f o r h e a t a n d power in t h e pre-1974 and post-1981 periods, where such d a t a are available only at five-year i n t e r v a l s as p a r t of t h e full Census of Manufactures. Moreover, t h e input of e n e r g y used as r a w materials (feedstocks) had t o b e partially estimated from industry s o u r c e s because i t was (till now) not adequately c o v e r e d by t h e censuses1 (see Appendix Tables 1 , 2 , and 3).

I n d u s t r y Sector

While t h e r e are s e r i o u s g a p s (time and o t h e r deficiencies) in t h e m a n u f a c t u r i n g s e c t o r ' s e n e r g y input, t h e i n d u s t r y s e c t o r ' s consumption of all forms of e n e r g y i s compiled annually since 1949

-

f i r s t by t h e Department of t h e I n t e r i o r , and l a t e r by t h e Department of Energy (DOE) u n d e r t h e s e r i e s of "Consumption of Energy by End-Use S e c t o r s " (US Department of Energy, Energy Information Administration, 1985). These s e r i e s are in primary e n e r g y equivalents and implicitly include e n e r - gy used as r a w materials, a s well a s losses in e l e c t r i c i t y generation and distribu- tion. However, i t should b e noted t h a t by DOE definition of industry, t h e e n e r g y in- put of a g r i c u l t u r e , mining, construction, e l e c t r i c i t y , and g a s utilities a r e inextri- cably lumped with t h a t of manufacturing. Still t h e e n e r g y productivity t r e n d s in the industry s e c t o r c a n s e r v e as a guide t o t h e developments in t o t a l manufactur- ing. This i s s o because manufacturing a b s o r b s t h e major s h a r e of t h e industry s e c t o r ' s e n e r g y input (80%). Moreover, t h e Federal R e s e r v e Board (FRB) produc- tion indices f o r industry and manufacturing follow quite similar growth t r e n d s . S e e Figure 2 f o r t h e industry s e c t o r ' s e n e r g y productivity growth, compiled from t h e above discussed DOE and

FRB

indices.

This shows t h a t e n e r g y input p e r unit of industria1 output d e c r e a s e d , and en- e r g y intensity d e c r e a s e d while e n e r g y productivity i n c r e a s e d o v e r t h e e n t i r e period of t h e study (1958-1984). F u r t h e r , e n e r g y productivity i n c r e a s e d most ra- pidly from 1980-1984, which included y e a r s of s e v e r e recession following t h e second oil p r i c e explosion in 1979. This i n c r e a s e in e n e r g y productivity of t h e e a r l y 1980s i s in c o n t r a s t with t h e slight d e c r e a s e of e n e r g y productivity observed during t h e r e c e s s i o n s of 1969/1970 and again 1975, a f t e r t h e f i r s t oil p r i c e shock of 1974, when a slump i n industrial production and concomitant falling c a p a c i t y utilization f o r c e d an i n c r e a s e in t h e amount of e n e r g y used p e r unit of output.

~ U a n u f i d u r i n g

The manufacturing s e c t o r ' s r e a l g r o s s output (sales values at 1972 p r i c e s ) w a s plotted against t h e growth of "final p u r c h a s e d e n e r g y f o r h e a t and power" and "ag- g r e g a t e e n e r g y input in primary e n e r g y equivalents". S e e Figures 3 and 4 , based on Appendix Table 2 , with d a t a f o r s e l e c t e d y e a r s since 1967.

' ~ ~ d r o c a r b o n and f u e l s used a s raw materials w e r e c o l l e c t e d In a s p e c l a l enqulry by t h e C e n s u s f o r t h e Department o f E n e r g y ( W E ) p e r t a i n i n g t o t h e y e a r s 1979 and 1980. S e e t h i s d i s c u s s e d I n Ap- pendix 1 {Methodology).

FRB

Industrial Production Index . Enerw Input par

Unit of Output

DOE Industry Sector - Energy Consumption

FIGURE 2. US. Industry s e c t o r . The growth of production and e n e r g y input since 1951 (index numbers, 1970 = 100). SOURCE: Appendix Table 4.

A comparison of t h e two e n e r g y measures shows t h a t since t h e mid-1970s pur- chased e n e r g y f o r h e a t and power tended t o fall more rapidly t h a n primary ag, a r e - g a t e . The r e a s o n s a r e twofold: demand f o r hydrocarbon feedstocks f o r chemicals and petroleum refining grew f a s t e r t h a n purchased e n e r g y f o r h e a t and power.2 A s s t a t e d by industry s o u r c e s , t h i s was due in p a r t t o t h e p r i c e f a c t o r , favoring hy- d r o c a r b o n feedstocks o v e r petroleum products

-

in c a s e s where feedstock (as f o r example liquid petroleum gas (LPG)) could substitute f o r petroleum products.

Secondly, t h e e l e c t r i c i t y input, when measured in primary e n e r g y equivalents and including losses in generation and distribution, grows f a s t e r t h a n delivered elec- t r i c i t y

-

a m a t t e r not t o b e overlooked with growing electrification.

Thus, since t h e mid-1970s, e n e r g y productivity tended t o follow a slower c o u r s e when based on primary a g g r e g a t e e n e r g y input, and a f a s t e r c o u r s e when based on final purchased e n e r g y , a s derived from t h e Census (see again Figures 3 and 4).

2-2- C o m p a r i s o n o f US E n e r g y P r o d u c t i v i t y C o m p i l a t i o n s

The g r e a t e r growth of e n e r g y productivity in manufacturing was a l s o observed in t h e r e s u l t s of r e s e a r c h based on Census e n e r g y input and

-

Value added, studied by Myers and Nakamura (1978) f o r t h e y e a r s 1967-1976;

-

Values of shipments at 1972 p r i c e s , in t h e study conducted by Samuels e t a l . (1984), who used a depression y e a r a s basis f o r t h e i r 1975-1980 observations;

and

'see e l s o statement on feedstock input by t h e chemicals industry In US Department of

Energy/Energy Information Administration (1983).

Purchased Energy for Heat and Power (Final Energy)

'--. ..

'.,Energy lnput per Unit of Manufacturing Output

FIGURE 3. US. M a n u f a c t u r i n g sector. The g r o w t h of p r o d u c t i o n a n d t h e i n p u t of p u r c h a s e d e n e r g y f o r h e a t a n d p o w e r s i n c e 1 9 6 7 (index n u m b e r s , 1 9 7 1 = 1 0 0 ) . SOURCE: Appendix T a b l e 5. NOTE: T h e r e are n o d a t a f o r 1970 p u r c h a s e d e n e r g y f o r h e a t a n d p o w e r .

.

^-

. . '. ..".

Manufacturing Production

'-.

^{. . .:'(Real} Gross Output)

- .

. . .:.... "

. .

'

Estimated Aggregate Energy Input (Primary Energy Equivalents)

-.

_*

i.

\

---.-.-.-.

\.Energy lnput per Unit of Manufacturing Output

F1GTJR.E 4 . IJS. Manufacturing s e c t o r . The g r o w t h of p r o d u c t i o n a n d t h e i n p u t of a g g r e g a t e e n e r g y s i n c e 1 9 6 7 (index n u m b e r s , 1 9 7 1 = 100). SOURCE: Appendix Table 5. NOTE: T h e r e a r e n o d a t a f o r 1 9 7 0 p u r c h a s e d e n e r g y f o r h e a t a n d p o w e r .

-

Time s e r i e s d a t a f o r input-output i n d u s t r i e s provided by t h e Bureau of L a b o r S t a t i s t i c s used i n t h e Energy Information Agency's work f o r t h e 1974-1981 period, r e c e n t l y p r e s e n t e d by \Verbos (Boyd st al., forthcoming).

The above summary, and o u r ovrn p r e s e n t a t i o n s (Figures 3 and d ) , l e a d o n e t o s u s p e c t t h a t t h e calculations f o r e n e r g y productivity growth d o not substantially

differ:

-

whether t h e industries are studied at only t h e two-digit level of t h e SIC, o r whether they are distinguished by a more refined device; o r

-

whether t h e analysis i s based on constant p r i c e d g r o s s output, o r whether t h e more refined value added concepts are used.

Instead, t h e determining f a c t o r s are:

-

Whether t h e energy tnput comprises only purchased e n e r g y f o r h e a t and power, o r t h e t o t a l input of all forms of energy in primary equivalents.

-

Whether or not the time series are based o n an unusual y e a r , e.g., depression y e a r , when energy p r o d u c t i d ty w a s exceptionally low.

U n f a r t m t e l y , t h e selection of t h e energy input and t h e y e a r s studied are constrained by t h e availability of data. Similar handicaps apply also

to

e n e r g y productivity calculations derived from I n p u t a u t p u t analysis, which in t u r n i s based on t h e Census, and hence excludes important energy inputs such as captive fuels f o r i r o n and steel making and hydrocarbon feedstocks f o r chemicals and petroleum refining.

The slower d e c r e a s e of e n e r g y intensity, and hence t h e slower growth of energy productivity ( o r efficiency) in t h e 7nanuftzcturing sector based on pri- mary and more complete e n e r g y input (Figure 4), tends to a g r e e with t h e Likewise slower growth of energy productivity in the i d u s t r y s e c t o ~ , shown in Figure 2.

This similarity justifies (1) t h e selection of the m o r e complete e n e r g y input in pri- mary equivalents, and (2) t h e assumption t h a t in t h e y e a r s f o r which energy input by manufacturing industries i s not available, t h e manufacturing sector's e n e r g y productivtty i s likely to follow t h e same growth t r e n d as t h a t of t h e industry sec- kor. This assumption is f u r t h e r justified by the agreement between

our

e n e r g y productivity compiLations in the industry s e c t u r with o t h e r r e s e a r c h in t h i s field, as f o r example the e n e r g y productivity growth in t h e industry s e c t o r , published by W E (US Department of Energy, Energy Information Administration, 1983, Table 32), based on r e s e a r c h of Data Resources, Inc. (DRI). They used t w o measures of output:

-

Energy weighted index of industrial output reLative

to

1981; and

-

Industrial real output.

The industrial real output i s defined as a measure t h a t accounts f o r i n c r e a s e s in the physical output (tons) and quauty. To t h e e x t e n t t h a t t h e quality of output p e r ton w a s increasing, e n e r g y use p e r unit of real o u t p u t would show m o r e e n e r g y conservation than simple e n e r g y use p e r ton. ³

%eel output i n 18 menufacturlng i n d u s t r i e s I s t a k e n from the Bureau of Labor S t a t i s t i c s , Ttms Ssrvlcts M a fw Input-Output Znduzttlas, whlch appears i n BLS Bulletin 2104 but w e r e h e r e t a k e n from XOUTBLS/WUTBLS In t h e SAS file NATIONAL ESTIMATES. Data on t h e public a r c h i v e t a p e described In t b e PVRHAPS model f o r documentation, DOWELA-O4ZO/l. (An updated v e r s i o n o f b a s i c chemlcal output, however, cam from a BLS printout.) Real output i n four manufacturing s e c t o r 8 comas from t h e Data Resources, Inc., InpuWutput Service. End-use e n e r g y by manufacturing industry(welght8) In 1981 I s d i r e c t from t h e 1983 Census o f Manufactures, but with purchased c o k e subtracted, and raw material u s s d added (based on 1981 data t a k e n from t h e 1983 Annual Enetgy O u t h k ) . Raw materials u s e s a r e allocated t o Industries (Including b a s i c v e r s u s o t h e r chemicals guided b y t h e 1981 Annual S u r v e y o f Manufacturea (US Department o f Energy, Energy Information Admlnistratlon, 1984, p. 104).

DOE/DRI Total Energy Consumption/

/Energy Weighted Production

DOEIDRI End Use Energy Consumption1 Industria Real Output

DOE Industry Sector's Energy Consumption/

FRB Industrial Production Index

FIGURE 5. US. lndustry s e c t o r . The growth of e n e r g y productivity, various com- pilations. SOURCE: Appendix Tables 4 , 6, and 7.

Thc e n e r g y productivity growth r a t e s , compiled by variolls s o u r c e 5 , a r e sum- marized in Figure 5, based on Appendix Tables 3 and 4 .

. F i g w e 5 shows t h a t t h e e n e r g y productivity index which w e compiled from t h e industry sector's consumption of a l l forms of e n e r g y in primary equivalents, a n d t h e FRB industrial production index, a g r e e s largely with t h e DOE/DRI r e s e a r c h . The agreement p e r s i s t s despite t h e s e minor differences: In t h e long pre-1974 period, t h e fall in e n e r g y intensity (and hence t h e growth i n e n e r g y productivity) was slower i n t h e DOE/DRI r e s e a r c h than t h i s would a p p e a r from o u r data; and f o r t h e short-term recession of t h e e a r l y 1980s, DOE/DRI r e s e a r c h shows a somewhat s t r o n g e r f a l l in e n e r g y intensity than w e do.

2.3. Energy Productivity G r o w t h Abroad

Continuous growth of e n e r g y productivity i n t h e manufacturing s e c t o r o c c u r r e d in t h e FRG; i t was p a r t i c u l a r l y r a p i d in t h e period of reconstruction following World War 11. In France, t h e decline of e n e r g y input p e r industry output coincided with s t a b l e o r declining e n e r g y p r i c e s in t h e 1960s. continuing through t h e inflation of t h e 1970s (end of t h e d a t a base). These t r e n d s c a n b e s e e n in Figures 6 a n d 7 (based on Appendix Tables 8 a n d 9).

Interfuel substitution w a s one of t h e r e a s o n s f o r the growth of e n e r g y produc- tivity in t h e industry sector. The displacement of coal by oil, a n d of coal and oil by gas, o c c u r r e d in Europe somewhat l a t e r t h a n in the US. Also, progressive elect- rification of industry in t h e U S a n d a b r o a d h a s r a i s e d t h e efficiency of end-use e n e r g y utilization in all industrialized countries.

FIGURE 6 . FRG. Manufacturing s e c t o r . The growth of final energy input p e r value added since 1950 (index numbers, 1980

=

100). SOURCE: Appendix Table 8 .

150

Industrial Production Index

-

\

- '.

Energy Input per 1. Unit of output

- '. _{-. '.}

- '.\

- .\. '-.

Manufacturing Output

FIGURE 7 . France. Industry sector. The growth of energy input p e r industry out- put s i n c e 1962 (index numbers, 1970

=

100). SOURCE: Appendix Table 9 .

(Net Production) ^{a ,}

..-.

...

- . . . :....

^:

100

-

- -

- .... ...

..em

! I 1 I I I

1950 1960 1965 1970 1980 1984

3. DETERMINANTS

OF

ENERGY PRODUCTIVITY 3.1. _{R o l e} of Prices

I t i s commonly b e l i e v e d t h a t t h e d r o p i n i n d u s t r i a l demand f o r e n e r g y , l a r g e r t h a n t h a t in o t h e r s e c t o r s , i s b a s e d o n p r i c e movements 4 as vie11 as o n t h e slow economic growth a f f e c t i n g a l l s e c t o r s . In f a c t , t h e p r i c e of t o t a l e n e r g y (fuels a n d e l e c t r i c i - t y ) p u r c h a s e d b y t h e i n d u s t r y s e c t o r h a s r i s e n f a s t e r t h a n t h a t p u r c h a s a d b y t h e household s e c t o r . This o b s e r v a t i o n n o t only holds t r u e f o r t h e U S , b u t f o r t h e FRG, F r a n c e , a n d t h e U K as well ( a s shown in Table 1 ) .

Total e n e r g y p u r c h a s e d b y i n d u s t r y i n c l u d e s a h i g h e r s h a r e of p e t r o l e u m p r o - d u c t s a n d n a t u r a l g a s a n d a r e l a t i v e l y low f r a c t i o n of e l e c t r i c i t y when c o m p a r e d with household e n e r g y b u d g e t s . G e n e r a l l y , o i l a n d g a s p r i c e s t h a t s t a r t e d f r o m a l o w e r b a s e h a v e i n c r e a s e d f a s t e r t h a n e l e c t r i c i t y p r i c e s i n t h e US a n d o t h e r coun- t r i e s . Table 1 shows t h e u n e v e n g r o w t h of c u r r e n t p r i c e s in t e r m s o f index n u m b e r s (1970

=

1 0 0 ) f o r g r o u p s of e n e r g y commodities. I n t h i s t a b l e , t h e p r i c e i n d i c e s f o r t h e v a r i o u s e n e r g y commodities are r a n k e d in o r d e r of t h e i r g r o w t h within e a c h of t h e f o u r c o u n t r i e s . This c l e a r l y shows t h a t e l e c t r i c i t y p r i c e s (to- g e t h e r with h o u s e h o l d g a s a n d g a s o l i n e ) g e n e r a l l y o c c u p y t h e lottier t i e r s , w h e r e a s p e t r o l e u m p r o d u c t s (excluding g a s o l i n e ) a n d n a t u r a l g a s a p p e a r at t h e t o p of t h e p r i c e r a n g e . The e x c e p t i o n to t h i s r u l e i s t h e G'K, w h e r e t h e p r i c e g r o w t h of na- t u r a l g a s - w h e t h e r u s e d b y i n d u s t r y o r in h o u s e h o l d s

-

h a s continuously t r a i l e d b e h i n d t h o s e of o t h e r f u e l s a n d e l e c t r i c i t y , thariks t o t h e G'K e n e r g y po1ic:- a n d t h e a b u n d a n c e of n a t u r a l g a s f r o m t h e N o r t h Sea.

The p r i c e of e l e c t r i c i t y a n d f u e l s p u r c h a s e d f o r h e a t a n d p o w e r b y i n d u s t r y i s also compiled b y t h e US Census of M a n u f a c t u r e s , shown as t h e u n i t c o s t i n c u r r e n t d o l l a r s p e r million Btu of f i n a l , d e l i v e r e d e n e r g y a n d s e e n h e r e in T a b l e s 2 a n d 3.

On a p u r e Btu b a s i s , t h e ( a v e r a g e ) p r i c e in t h e Census f o r p u r c h a s e d e l e c t r i - c i t y i s f a r h i g h e r t h a n t h a t f o r any- f o s s i l fuel.5 The g a p was widest i n t h e pre-1973 p e r i o d . F o r e x a m p l e , in 1 9 6 7 t h e u n i t c o s t of e l e c t r i c i t y p e r Btu w a s m o r e t h a n nine times h i g h e r t h a n t h a t of n a t u r a l g a s a n d s i x times h i g h e r t h a n t h a t of r e s i d u - a l f u e l oil. A f t e r t h e A r a b o i l e m b a r g o a n d t h e ensuing f i r s t o i l p r i c e e x p l o s i o n , t h e g a p h a s n a r r o w e d . By 1 9 8 1 , t h e p r i c e of e l e c t r i c i t y p e r Btu was less t h a n f o u r times h i g h e r t h a n t h a t of n a t u r a l g a s a n d a l i t t l e o v e r two times h i g h e r t h a n t h a t of r e s i d u a l f u e l o i l s ( s e e T a b l e 2).

The d i s c r e p a n c y b e t w e e n t h e g r o w t h of p r i c e s of e l e c t r i c i t y a n d of o i l w a s s t r e s s e d i n a r e c e n t s t u d y of t h e I n t e r n a t i o n a l E n e r g y Agency (IEA) (1985). A com- p a r i s o n of t h e 1 9 7 3

=

100 b a s e d i n d i c e s of a v e r a g e e l e c t r i c i t y a n d oil p r i c e s i n t h e Western i n d u s t r i a l i z e d c o u n t r i e s a p p e a r s i n F i g u r e 8.

In t h e US, t h e cost i n c e n t i v e t o u s e e l e c t r i c i t y w a s p r o v i d e d b y t h e p r i c e of n a t u r a l g a s r a t h e r t h a n t h a t of oil, r e l a t i v e to p u r c h a s e d e l e c t r i c i t y .

4 ~ h i s s e c t i o n on the growth of p r i c e s and consuorption i s based on Doblitr (19R2), whlch has s i n c e beet) expeltdud and updated, and Doblin (1983).

o ow ever,

the cutnpilations of (average) e l e c t r i c i t y p r i c e s do trot r e f l e c t the i n t r i c a c i e s of the r a t e s t r u c t u r e attd long-term c o n t r a c t s that narrow tlte gap hetween f o s s i l f u e l s and e l e c t r i c i t y on e Btu b a s i s for large consumers. Moreover, the e l e c t r i c i t y prices have not been adjusted f o r the efficiettcy or other advatltages (clean alr, convenience) wit11 '~ltlclr po~ver IS used. And certainly no adjustment has been trrede t o allow for- the high capital c o s t of power generation that i s a donr- inant f a c t o r in the contit~uous preference of ir~dustrial u s e r s f o r purcltased o v e r self-generated e l e c t r i c ! t y .

TABLE 1. CTS. The growth of c u r r e n t p r i c e s f o r g r o u p s of e n e r g y commodities (index numbers, 1970

=

^100).

Y e a r

Commodity 1973 1978 1979 1980 1981 1982 1983

- - -- - - - -- - -

USA

N a t u r a l g a s

P e t r o l e u m p r o d u c t s P e t r o l e u m p r o d u c t s Gas utilities

E l e c t r i c i t y Solid f u e l s E l e c t r i c i t y Gasoline FFG

P e t r o l e u m p r o d u c t s N a t u r a l g a s

P e t r o l e u m p r o d u c t s Solid Fuels

Solid Fuels Gasoline E l e c t r i c i t y E l e c t r i c i t y Gas utilities France

P e t r o l e u m p r o d u c t s N a t u r a l g a s

P e t r o l e u m p r o d u c t s Solid f u e l s

Gas utilities Gasoline E l e c t r t i c i t y E l e c t r i c i t y UK

P e t r o l e u m p r o d u c t s P e t r o l e u m p r o d u c t s Solid f u e l s

E l e c t r i c i t y Solid f u e l s E l e c t r i c i t y Gasoline N a t u r a l g a s Gas u t i l i t i e s

I

-

^{industry; HH}

-

households.

SOURCE: Doblin (1982); updated.

The d i f f e r e n c e b e t x e e n t h e growth of p r i c e s f o r e l e c t r i c i t y and o t h e r e n e r g y forms in t h e post-embargo p e r i o d played a direct r o l e in e n e r g y s a v i n g s t h r o u g h t h e incentive i t p r o v i d e d f o r f u r t h e r e l e c t r i f i c a t i o n . This s h i f t i s in itself a n im- p o r t a n t means t o improve t h e efficiency with which e n e r g y i s used.

TABLE 2. US. Unit c o s t of selected fuels and purchased e l e c t r i c i t y consumed by all manufacturing industries, 1967, 1971, and 1974-1981.

Pur- Resi- Distil- Bit.Coa1,

Total chased dual l a t e Lignite, Coke

Pur- Elec- Natural Fuel Fuel Anthra- and

Year chased t r i c i t y Gas Oil Oil c i t e Breeze

Unit Cost (dollars p e r million Btu)

1967 0.65 2.55 0.32 0.42 0.62 0.28 0.71 1971 0.80 2.89 0.38 0.61 0.74 0.41 0.89 1974 1.44 4.02 0.64 1.83 2.04 0.86 1.87 1975 1.93 5.06 0.95 1.93 2.24 1.12 2.58 1976 2.20 5.58 1.26 1.88 2.38 1.07 2.98 1977 2.59 6.42 1.56 2.15 2.70 1.13 3.37 1978 2.92 7.37 1.76 2.10 2.34 1.25 3.61 1979 3.32 8.15 2.07 2.76 3.81 1.33 3.78 1980 4.05 9.71 2.59 3.76 5.47 1.41 4.13 1981 4.78 11.23 3.14 4.74 6.55 1.58 4.21

Ratio of Purchased Electricity P r i c e s t o Those of Other Energy

1967 3.92 1.00 7.97 6.07 4.11 9.11 3.59 1971 3.61 1 .OO 7.67 4.74 3.91 7.05 3.25 1974 2.79 1.00 6.28 2.20 1.97 4.67 2.15 1975 2.62 1.00 5.33 2.62 2.26 4.52 1.96 1976 2.54 1 .OO 4.43 2.97 2.34 5.21 1.87 1977 2.48 1 .OO 4.12 2.99 2.38 5.68 1.91 1978 2.52 1 .OO 4.19 3.51 2.60 5.90 2.04 1979 2.45 1 .OO 3.94 2.95 2.74 6.13 2.16 1980 2.40 1 .OO 3.75 2.85 1.78 6.39 2.35 1981 2.35 1 .OO 3.58 2.37 1.71 7.11 2.67

SOURCE: U S Department o f Commerce, Bureau o f the-Census, 1982 C e n s u s o f Manufactures, F u e l and E l e c t r i c Energy Consumed, MC 8 2 - 5 4 (1982).

TABLE 3. US. The growth of p r i c e s f o r e l e c t r i c i t y and total e n e r g y purchased by t h e industry s e c t o r .

Electricity Total Energy

Census BLS Census BLS

Year

'

Index Numbers, 1970

=

¹⁰⁰

SOURCES: S e e T a b l e s 1 and 2.

NOTE: The growth impllcft i n t h e e l e c t r i c i t y u n l t c o s t complled by t h e C e n s u s r o s e f a s t e r than t h e BLS producer p r i c e s f o r e l e c t r i c i t y .

Due to data availability. includes only Canada, U.S.A., Japan, Austria. Denmark, Germany, Italy. Netherlands, N o w a y , Portugal, Switzerland and the U.K.

FIGURE

8. I n t e r n a t i o n a l E n e r g y Agency member c o u n t r i e s . The g r o w t h of a v e r a g e e l e c t r i c i t y a n d o i l p r i c e s in real t e r m s .

P r i c e - d i r e c t e d i n t e r f u e l substitution also played a r o l e when o i l a n d g a s w e r e d i s p l a c e d by c o a l f o r e l e c t r i c i t y g e n e r a t i o n

-

a n a c t i v i t y t h a t by s t a n d a r d s of t h e US c l a s s i f i c a t i o n of i n d u s t r i a l a c t i v i t i e s (SIC) f a l l s o u t s i d e t h e i n d u s t r y s e c t o r . M o r e o v e r , f a s t e r rising p r i c e s of petroleum p r o d u c t s as c o m p a r e d to t h o s e of LPG

-

a f e e d s t o c k f o r p e t r o c h e m i c a l s a n d p e t r o l e u m refining

-

l e d t o a s u b s t i t u t i o n by t h e s e i n d u s t r i e s of LPG f o r petroleum p r o d u c t s . Finally. t h e s h r i n k i n g volume of t h e p e t r o l e u m r e f i n e r i e s themselves p r o v i d e s a n i m p o r t a n t example of consumer r e s p o n s e t o e s c a l a t i n g p r i c e s of petroleum p r o d u c t s , n o t a b l y t h o s e u s e d b y house- holds a n d motorists. Another example f o r t h e d i r e c t r o l e of p r i c e s i s s e e n in t h e migration of aluminum s m e l t e r s from t h e US n o r t h w e s t a c r o s s t h e b o r d e r to Cana- d a , in s e a r c h f o r lower e l e c t r i c i t y p r i c e s in long-term c o n t r a c t s .

The l a r g e s t impact on e n e r g y s a v i n g s b y t h e i n d u s t r y s e c t o r came from t h e adoption of e n e r g y saving technologies, motivated b y e s c a l a t i n g f u s l p r i c e s , as f o r example t h e t r a n s i t i o n in p r i m a r y p a p e r manufacturing t o r e c i r c u l a t e d waste f u e l s a n d c o g e n e r a t i o n , as well as t h e p r i m a r y metals' growing i n p u t of s c r a p , a n d in t h e 1 9 8 0 s t h e switch of cement making from "wet" to "dry" p r o c e s s e s .

However, t h e h i s t o r i c a l a n a l y s i s h a s shown t h a t e n e r g y saving technologies w e r e a l s o i n t r o d u c e d , a n d t o a l a r g e r e x t e n t , when e n e r g y p r i c e s w e r e g e n e r a l l y s t a b l e o r falling, a n d t h a t e l e c t r i f i c a t i o n of t h e i n d u s t r y (and household) s e c t o r s were s t r o n g e r when t h e g a p between p u r c h a s e d e l e c t r i c i t y a n d t h a t of fossil f u e l s w a s more pronounced. This l e a d s o n e t o conclude t h a t in t h e 1974-1980 p e r i o d t h e i n d u s t r y s e c t o r ' s d e c r e a s i n g e n e r g y i n t e n s i t y w a s n o t c a u s e d by r i s i n g oil p r i c e s alone. R e s e r v a t i o n s o n t h e impact of e n e r g y p r i c e s o n t h e i n d u s t r y s e c t o r ' s e n e r - gy demand come a l s o from t h e r e s e a r c h of J e n n e a n d Catell (1983) who state t h a t

"There i s s t i l l a subconscious tendency ... t o think t h a t t h e oil c r i s i s s p a r k e d off a n improvement in e n e r g y use. This may b e s o in t h e t r a n s - p o r t and domestic e n e r g y s c e n e where t h e final consumer h a s d i r e c t con- t r o l o v e r t h e e n e r g y p u r c h a s e s . I t i s not t r u e , however, f o r t h e industri- a l s e c t o r of t h e U K

..."

a n d "All t h a t c a n b e said with confidence ... is t h a t f u e l p r i c e r i s e s a r e n e i t h e r n e c e s s a r y n o r p a r t i c u l a r l y a f f e c t i v e o n t h e i r own at increasing e n e r g y efficiencyJ'.

Besides, quoting from t h e s a m e a u t h o r s "The r o l e of price-induced sub- stitution as envisaged by use of a production function i s l e s s important t h a n h a s o f t e n b e e n assumed" and "while a g g r e g a t e production functions have long s i n c e lost t h e t h e o r e t i c a l b a t t l e , t h e r e i s a question o v e r t h e i r use a s a n em- p i r i c a l tool.

"

A more mediate, l e s s d i r e c t impact of e n e r g y p r i c e s i s f i l t a r e d t h r o u g h t h e s t r u c t u r a l c h a n g e s i n t h e manufacturing s e c t o r ' s o u t p u t mix. Given t h e complexity of t h e s u b j e c t , t h e r o l e of e n e r g y p r i c e s in changing t h e o u t p u t mix i s not f u r t h e r considered, f o r t h i s would b e a n e n d e a v o r going beyond t h e t e r m s of r e f e r e n c e of this r e p o r t .

3.2- Structural C h a n g e s in O u t p u t C o m p o s i t i o n

The c o n c e p t of s t r u c t u r a l c h a n g e s used h e r e d i f f e r s from t h e b r o a d e r o n e t h a t r e f e r s t o what i s consumed, s a v e d , a n d t r a d e d , a n d t o t h e mix of l a b o r , land, capi- tal, e n e r g y , materials, and technology in production a c t i v i t i e s of t h e economy.

P r o d u c t i o n VoLume, P e r c e n t a g e S t r u c t u r e

S t r u c t u r a l c h a n g e s , as used f o r t h i s analysis, consist i n c h a n g e s in t h e composition of t h e nation's o u t p u t mix. These a r e r e f l e c t e d in t h e v a r i o u s i n d u s t r i e s ' p e r c e n - t a g e s h a r e s of t o t a l manufacturing o u t p u t o v e r a p e r i o d of time, where continuous i n c r e a s e of s h a r e s signifies f a s t growth and continuous d e c r e a s e means slower o r n o growth (Doblin, 1984a; Doblin, 1984b).

Table 4 shows t h a t t h e s a m e i n d u s t r i e s fall i n t o t h e same slow o r r e s p e c t i v e l y f a s t growth p a t t e r n r e g a r d l e s s of w h e t h e r t h e classification i s b a s e d on constant- p r i c e d (1972) s a l e s values o r value added. T h e r e is, however, o n exception: b a s e d on s a l e s vaLues t h e s h a r e of chemicals and allied (SIC 28) i n t o t a l manufacturing was still rising, though at a slower r a t e , from 7.13% in 1970 t o 7.97% in 1980. While i n t e r m s of vaLue a d d e d t h e s h a r e s d e c r e a s e d from 7.0% i n 1 9 7 0 t o 6.3% in 1980.

This d i s c r e p a n c y r e f l e c t s t h e high frequency- of intra-industry s a l e s , as t h e chemi- c a l i n d u s t r y i s known t o be i t s own b e s t customer. More important, both t h e s l o w l y rising s h a r e s (sales values) and t h e d e c r e a s i n g s h a r e s (value added) r e f l e c t t h e

"maturing" t h a t came with m a r k e t s a t u r a t i o n , a s f o r example t h e slowdown in t h e growth of petrochemicals (SIC 286), and t h e absolute decline of inorganic chemi- c a l s (SIC 281). The falling demand f o r inorganic industrial chemicals i s not d i r e c t - ly r e l a t e d t o t h e e n e r g y p r i c e . I t i s a l s o doubtful ivhether in t h e e a r l y 1980s t h e slowdown in t h e demand f o r petrochemicals tvas d i r e c t l y r e l a t e d t o t h e e n e r g y p r i c e escalations. The impact of e n e r g y p r i c e s on t h e demand f o r petrochemicals p r o d u c e d in Western, industrialized c o u n t r i e s , i s in s t o r e f o r t h e time (if a n d when) oil-rich developing c o u n t r i e s , especially t h o s e in t h e Gulf a r e a s , will expand t h e i r petrochemicals i n d u s t r y .

The r e l a t i v e l y low c o n t r i b u t i o n t o value added by t h e energy-intensive indus- t r i e s i s worth noting. Tabla 5 shows t h a t t h e five i n d u s t r i e s which in 1980 used 80%

of t h e man~lfacturing s e c t o r ' s t o t a l e n e r g y p u r c h a s e d f c r h e a t and power ( o r 86%

of t h e estimated a g g r e g a t e d e n e r g y input) provided l e s s t h a n one-third of t h e

TABLE 4 . US. The c h a n g i n g s t r u c t u r e of o u t p u t i n m a n u f a c t u r i n g i n d u s t r i e s , 1 9 6 0 , 1 9 7 0 , a n d 1 9 3 0 , m e a s u r e d b y sales v a l u e s a n d v a l u e a d d e d .

Sales v a l u e s at 1 9 7 2 p r i c e s Value a d d e d at 1 9 7 2 p r i c e s 1 9 6 0 1 9 7 0 1 9 8 0 1 9 6 0 1 9 7 0 1 9 8 0

SIC % X 9, % % %

-

1 . Slow g r o w t h s i n c e 1 9 6 0 2 0 Food & b e v e r a g e s 1 7 . 8 4

2 1 T o b a c c o 1.24

2 3 A p p a r e l 3 . 9 6

24 Lumber 2.92

2 9 P e t r o l e u m & c o a l 4 . 0 1

31 L e a t h e r 1 . 2 6

3 2 S t o n e , c l a y & g l a s s 3 . 1 2 33 P r i m a r y m e t a l s 8.95 37 T r a n s p o r t . e q u i p m e n t 1 3 . 1 9

2 7 P r i n t i n g 4.50

60.99 2. Slow g r o w t h s i n c e 1 9 7 0

2 2 T e x t i l e mill 3.19

2 6 P a p e r 3 . 6 1

2 8 Chemicals 5 . 7 4

30 R u b b e r & p l a s t i c s 1.89 3 4 F a b r i c a t e d m e t a l p r o d . 6.96

39 Miscellaneous 1 . 4 6

2 2 . 8 5 G r o u p s 1 & 2 8 3 . 8 4 3. F a s t g r o w t h s i n c e 1 9 6 0

35 N-E m a c h i n e r y 7 . 5 1 3 6 E l e c t r . & e l e c t r o n i c 5.45 38 I n s t r u m e n t s 1 . 8 2 1 4 . 7 8 4 . No c h a n g e

2 5 F u r n i t u r e

NOTES: B a s e d o n v a l u e a d d e d a t 1972 p r i c e s , SIC 28

-

c h e m i c a l s a n d a l l l e d ' s s h a r e I n t o t a l m a n u f a c - t u r i n g o u t p u t d e c r e a s e d b e t w e e n 1970 a n d 1980; w h e n m e a s u r e d I n s a l e s v a l u e s a t 1972 p r i c e s , t h e c h e m l c a l s ' s h a r e still s h o w e d a s l i g h t i n c r e a s e . L i k e w i s e , t h e F R B p r o d u c t i o n i n d e x o f SIC 2A g r e w a t a f a s t e r p a c e t h a n t o t a l m a n u f a c t u r i n g .

SOURCE: S a l e s v a l u e s a t 1972 p r i c e s Pronl US C o m m e r c e D e p a r t m e n t , BIA c o m p u t e r p r i n t o u t s . V a l u e a d d e d , see n a t i o n a l i n c o n l a w i t h o u t c a p l t a l c o n s u m p t l o t i a d J u s t n l e n t b y i n d u s t r y , I n c u r r e r i t p r i c e s i n U S C o m m e r c e D e p a r t m e n t , BEA, t h e N a t i o n a l I n c o m e a n d P r o d u c t A c c o u n t s o f t h e U n l t e d S t a t e s 1929-1976. S t a t i s t l c a l T a b l e s a n d S u r v e y o f C u r r e n t B u s i n e s s , No. 7, J u l y 1982.

D a t a i n c u r r e n t v a l u e s c o n v e r t e d t o c o n s t a n t p r i c e s \v!th d e f l a t o r s i m p l i c i t I n sales v a l u e s p r o v t d - e d b y BIA.

v a l u e a d d e d ( a t 1 9 7 2 p r i c e s ) . F o r e x a m p l e , t h e c h e m i c a l s (SIC 2 8 ) a n d p e t r o l e u m a n d c o a l p r o c e s s i n g i n d u s t r i e s (SIC 2 9 ) , which t o g e t h e r a c c o u n t e d f o r m o r e t h a n o n e - t h i r d of p u r c h a s e d e n e r g y f o r h e a t a n d po:ver ( o r n e a r l y one-half of t h e e s - timated a g g r e g a t e e n e r g y i n p u t ) , g e n e r a t e d less t h a n 99. of v a l u e a d d e d . On t h e o t h e r h a n d , all fast-growing i n d u s t r i e s a r e in t h e g r o u p s t h a t halie comparativelq-

modest e n e r g y r e q u i r e m e n t s , g e n e r a t i n g high value added. Thus t h e g r o u p s t h a t t o g e t h e r consumed l e s s t h a n 20% of p u r c h a s e d e n e r g y f a r h e a t and po;.ier (and u n d e r 14X of t h e estimated a g g r e g a t e e n e r g y input), p r o d u c e d o v e r 70% of value added. The f a s t e r growth of t h e low e n e r g y r e q u i r i n g and high value added gcn- e r a t i n g i n d u s t r i e s e x p l a i n s t o some e x t e n t why t o t a l i n d u s t r i a l o u t p u t (weighted by value a d d c d j h a s grown s o much f a s t e r t h a n t o t a l e n e r g y input.

TABLE 5. US. Manufacturing s e c t o r . Distribution of e n e r g y i n p u t quantities and manufacturing o u t p u t (value added at 1972 p r i c e s ) in 1980.

SIC Description 1 28 Chemicals 33 P r i m a r y metals 29 Petroleum a n d c o a l 26 P a p e r

32 S t o n e , c l a y e a n d g l a s 20 Food a n d b e v e r a g e s

1

S u b t o t a l

I

S I C Description 2 34 F a b r i c a t e d metal

,

³⁷ T r a n s p o r t a t i o n equipment 35 N-E Machinery

,

22 Textile mill

36 E l e c t r i c i t y a n d e l e c t r o n i c 30 R u b b e r a n d p l a s t i c s 24 Lumber

S u b t o t a l

SIC Description 3 27 P r i n t i n g 38 Instruments 23 A p p a r e l 25 F u r n i t u r e 39 Miscellaneous 3 1 L e a t h e r 2 1 Tobacco S u b t o t a l

E n e r g y Input Manufacturing P u r c h a s e d Output (value

f o r H e a t added at 1973 Aggregate and Poi~rer

(9.1

(XI

p r i c e s ) (9.1

Growth P a t t e r n

slow slow b>

~ 1 0 1 ~ slow

3.023 7.4 b)

2.897 9.7 slow

2.813 14.4 f a s t

2.484 3.2 ^b)

2.021 11.9 f a s t

1.878 2.8 ^b)

1.676 2.9 slow

16.794 52.3

5.6 slow

4.0 f a s t

3.9 slow

1.6 no c h a n g e

1.7 ^c)

0.8 slow

0.8 slow

18.4

1980 Aggregate e n e r g y i n p u t trillion Btu 16,877 1980 P u r c h a s e d e n e r g y f o r h e a t a n d power trillion Btu 11,873 11980 Value a d d e d at 1972 p r i c e s $ billion 21.4

a) Eased on value addcd only, growth turned from f a s t t o low In the 1970s.

b)Based on value addcd end s a l e s values, growth turned from f a s t t o slow I n t h e i 0 7 0 s . ')Based on s a l e s values only, growtll turned flVom f a s t t o slow I n the 1070s.

SOURCES: Appendix Table 1 and Table 4.

H e r e o n e could s p e c u l a t e t h a t t h e growth g a p between e n e r g y i n p u t a n d t h e i n d u s t r y s e c t o r ' s o u t p u t would t e n d t o b e n a r r o w e r , if t h e weights were c o n s t i t u t e d by e n e r g y o r l a b o r input, i n s t e a d of value added.

P r o d u c t i o n G r o w t h I n d i c e s

The s t r u c t u r a l c h a n g e s in t h e volume of o u t p u t c a n a l s o b e m e a s u r e d b y i n d u s t r i a l p r o d u c t i o n indices. Whereby t h e growth of t h e manufacturing s e c t o r as a whole i s c o n s i d e r e d t h e national a v e r a g e , deviations from t h i s a v e r a g e by individual indus- t r i e s mark t h e i r growth p a t t e r n s : f a s t if t h e i n d u s t r i e s ' g r o w t h e x c e e d s , a n d slow if i t l a g s behind t h a t of t o t a l manufacturing. Our measurement of s t r l ~ c t u r a l c h a n g e s r e l i e s o n a s e t of 8 0 p r o d u c t i o n indices (FRB a n d q u a n t i t i e s ) b a s e d at 1970

=

1 0 0 , with a n n u a l d a t a s i n c e 1954. (See t h e c a s e s t u d y on " S t r u c t u r a l Changes in US Manufacturing Output s i n c e 1960" i n P a r t I1 of t h i s r e p o r t . ) Some of t h i s infor- mation i s r e p r o d u c e d in F i g u r e s 9-11.

F i g u r e 9 shows t h a t i n t h e n e a r l y two d e c a d e s p r i o r to t h e f i r s t oil p r i c e s h o c k only a few of t h e energy-intensive i n d u s t r i e s h a d long-term slow growth.

These w e r e p r i m a r y metals ( b e c a u s e of t h e slowdown in s t e e l ) , cement, a n d a l s o , but n o t shown in t h e f i g u r e s , food a n d k i n d r e d p r o d u c t s . However, a f t e r t h e mid- 1 9 7 0 s , t h e c h a n g e w a s d r a m a t i c . The growth lag between s t e e l a n d t o t a l manufac- t u r i n g a c c e n t u a t e d s h a r p l y , a n d n e a r l y all of t h e energy-intensive i n d u s t r i e s t u r n e d to slow growth. This includes p e t r o l e u m r e f i n i n g , aluminum ( a f o r m e r v e r y fast-growth i n d u s t r y ) , a n d most i n o r g a n i c chemicals. A t t h e same time b a s i c s r g a n - i c chemicals ( t h a t include p e t r o c h e m i c a l s ) w e r e s t i l l expanding f a s t e r t h a n t o t a l manufacturing - b u t n o l o n g e r at as wide a margin t h a n e a r l i e r . This a n d how t h e r e c e s s i o n of t h e e a r l y 1 9 8 0 s a c c e l e r a t e d t h e d e c l i n e of t h e energy-intensive indus- t r i e s may b e s e e n from F i g u r e s 9 , 1 0 , a n d 11.

S t - r u c t u r a l C h a n g e s A b r o a d

The U S w a s not t h e only c o u n t r y with ailing, slow-growth energy-intensive indus- t r i e s . S t e e l , aluminum, a n d cement, f o r example, a l s o declined in t h e FRG a n d F r a n c e , a s discussed in t h e m o r e d e t a i l e d analysis of s t r u c t u r a l c h a n g e s in P a r t I1 of t h i s r e p o r t .

The declining growth r a t e of Western E u r o p e ' s chemical i n d u s t r y was t h e sub- j e c t of a r e c e n t s t u d y of t h e Organisation f o r Economic C o o p e r a t i o n a n d Develop- ment (OECD) (1985). I t emphasized t h e "maturing of t h e chemicals i n d u s t r y " c a u s e d by developments in p e t r o c h e m i c a l s , w h e r e

"...substantial growth d i f f e r e n t i a l t h a t p e t r o c h e m i c a l s h a d long e n j o y e d b y comparison with most o t h e r i n d u s t r i a l s e c t o r s n a r r o w e d s h a r p l y f r o m t h e e n d of t h e 1 9 6 0 s onwards. G r a d u a l s a t u r a t i o n of t h e main m a r k e t s c o u p l e d with s l o w e r g e n e r a l economic growth no d o u b t e x p l a i n s t h e v e r y much s l o w e r g r o w t h in demand o v e r t h e p a s t t e n y e a r s . "

The OECD s t r e s s e d t h a t t h e t w o o i l p r i c e s h o c k s of t h e 1970s, a n d t h e c h a n g e s t h e y b r o u g h t a b o u t in t h e o i l p r i c e m a r k e t , h a s t e n e d t h e maturing p r o c e s s in t h e p e t r o c h e m i c a l s m a r k e t s t h a t b e g a n (in Western E u r o p e ) a t t h e e n d of t h e 1970s.

O t h e r f a c t o r s playing a r o l e in t h i s maturing p r o c e s s a r e t h e limits t o s u b s t i t u t i o n a n d in some, v e r y limited, c a s e s t h e r e v e r s a l of s u b s t i t u t i o n , s u c h as t h e i n t r o d u c - tion of r a d i a l t i r e s r e q u i r i n g a g r e a t e r p r o p o r t i o n of n a t u r a l r u b b e r . Besides p e t r o c h e m i c a l s , t h e r e w a s a l s o a slowdown in t h e p r o d u c t i o n of i n o r g a n i c chemi- c a l s , f o r example in F r a n c e , d i s c u s s e d in P a r t 11. S e e a l s o Appendix Table 1 0 f o r t h e g r o w t h of US o r g a n i c a n d i n o r g a n i c chemicals.

Total Manufacturing

150

C

Index Numbers, 1970 = 100

I

Primary Paper

Petroleum Refining Cement Lumber Primary Metals

FIGURE 9. US. Energy-intensive i n d u s t r i e s (excluding chemicals), p r o d u c t i o n g r o w t h .

Total Manufacturing

Aluminum Copper

Crude Steel

I I I I I I I

1954 1960 1965 1970 1975 1980 1984

FIGURE 1 0 . US. P r i m a r y metals, p r o d u c t i o n growth.

Index Nwnbon. 1970

-

¹⁰⁰

Total I Chemicals

Basic Organic Ethylene

Total Manufacturing

Petroleum Refining Alkalies and Chlorine Synthetic Rubber

FIGURE 11. US. Chemicals, petroleum refining, production growth.

T h e r e a r e many r e a s o n s f o r a n i n d u s t r y ' s stagnation, decline, o r growth.

Most energy-intensive i n d u s t r i e s p r o d u c e p r i m a r y material; t h e s e a r e d i r e c t l y a f - f e c t e d by any c h a n g e s in investments f o r i n f r a s t r u c t u r e development. During t h e l a t e 1960s and e a r l y 1970s, i n f r a s t r u c t u r e o p e r a t i o n s x e r e p r i m a r i l y c o n c e r n e d with maintenance a n d r e p a i r of b r i d g e s , tunnels, a n d r o a d s r a t h e r t h a n with expan- sion. The switch led t o d e c r e a s e s in p r i m a r y metals, s t o n e a n d e a r t h , a n d c e r t a i n basic chemicals. Another f a c t o r contributing t o t h e decline of energy-intensive i n d u s t r i e s i s t h e substitution of l i g h t e r f o r h e a v i e r m a t e r i a l s . O t h e r c h a n g e s i n t h e i n d u s t r i a l s t r u c t u r e a r o s e from growing affluence and t h e concomitant c h a n g e s in t a s t e s and h a b i t s ; t h e migration of i n d u s t r i e s a b r o a d (aluminum); a n d t h e pene- t r a t i o n of domestic m a r k e t s by c h e a p e r imports, like t h o s e which e x a c e r b a t e d t h e plight of t h e automobile a n d t h e aging s t e e l i n d u s t r i e s , while n e a r l y wiping out s u c h nonenergy-intensive i n d u s t r i e s as l e a t h e r and s h o e s .

3.3. Technology Changes

The technology c h a n g e s c o n s i d e r e d f o r t h i s analysis a r e limited t o e x e r g y s a v i n g t e c h n o t o g i e s . These e m b r a c e a l l means designed t o improve t h e efficiency with which e n e r g y is used. This r a n g e s from p r o c e s s technology (e.g., t h e switch from o p e n h e a r t h t o e l e c t r i c s t e e l production a n d continuous c a s t i n g ) t o housekeeping m e a s u r e s (e.g., cleaning a n d r e p a i r i n g of t h e flues). Some of t h e important, c h a n g e s in p r o c e s s technology, a d o p t e d by t h e energy-intensive i n d u s t r i e s , a r e summarized belovr.