Driving Energy Efficiency in Heavy Industries

Global benchmarking of energy efficiency in the iron and steel sector and the cement sector indicates that many G20 countries have made strong progress. It also shows that countries could further improve efficiency considerably by optimising production processes and implementing best available technologies. Policy makers could use this benchmarking to identify major potential for improvement, set and track adequate targets, and promote the sharing of best practices internationally.

Benchmarking of processes – comparing their performance to best practices or standard indicators – is a powerful way of gauging whether they have improved. Improving the availability, scope and quality of country-level data on energy consumption in industrial sectors could enhance the value of global energy efficiency benchmarking as a tool for policy makers. International co‑operation will be key to collecting further data and progressively harmonising data collection across countries.

Governments can use a range of policy measures to scale up efficiency investments in key technologies and business solutions in the industry sector, including regulations, incentives and information. In combination, these measures can boost energy efficiency across the market when they promote installation of energy-efficient equipment, optimisation of production processes through better controls and maintenance, and retrofitting with more energy-efficient and less carbon-intensive technologies. Digitalisation can create new opportunities for policy makers to capture the untapped energy efficiency potential revealed by global benchmarking.

Implementing efficiency measures will help countries to unlock a range of benefits during a time of economic challenges. These benefits include creating jobs, enhancing industries’ competitiveness, triggering technological innovation, cutting energy bills, strengthening the security of energy supply, protecting the environment and reducing greenhouse gas emissions.

The rate of global energy efficiency improvement has undergone a worrying slowdown over the last decade. The Covid‑19 crisis has exacerbated this slowdown by creating liquidity stress and pushing down energy prices, delaying investments in clean and efficient technologies. Global energy efficiency is expected to improve by only 0.8% in 2020, roughly half the rates for 2019 (1.6%) and 2018 (1.5%) and well below the rate of 3% needed to achieve global climate and energy goals.

The industry sector, including iron, steel, cement, chemicals and petrochemicals, accounts for over 30% of global total primary energy demand. In 2020, the Covid‑19 pandemic pushed down energy use significantly across all industrial sub-sectors. Output of less energy-intensive sub-sectors has declined more sharply than the output of the energy-intensive sub-sectors of iron and steel, and cement. This creates a structural effect on industrial energy intensity that is expected to increase in the next few years.

Energy efficiency has numerous benefits for our societies and economies. It increases industries’ competitiveness, boosts technological innovation, reduces energy bills, reinforces the security of energy supply, safeguards the environment and helps to limit climate change. Energy efficiency’s potential to create millions of jobs is particularly important as the world seeks to recover from the effects of Covid‑19 pandemic through economic stimulus. Energy efficiency is job intensive, relying heavily on the availability of skilled workforces and the supply of energy-efficient products and services. The recent IEA report Sustainable Recovery shows that 18 jobs could be created per USD 1 million invested in industrial efficiency, for example by upgrading key equipment such as motors, fans and pumps, introducing digital technologies to improve monitoring and controls, and installing waste recovery technologies.   

The Global Commission for Urgent Action on Energy Efficiency, convened by the executive director of the IEA in response to the global slowdown in energy efficiency progress, has found that stronger policy action is needed to ensure rapid implementation of measures that boost energy efficiency. The commission’s recent recommendations also highlighted the importance of strengthening international collaboration and exchange, which will create important opportunities for countries to learn from one another and identify untapped potential for further efficiency gains.

The global benchmarking of industrial energy efficiency, which Japan embarked on when it held the G20 presidency in 2019, creates such opportunities for international exchange as it develops energy efficiency benchmarks for energy-intensive industry sectors. These benchmarks can help policy makers to:

• identify major potential for improvement
• set and track adequate targets 
• promote the sharing of best practices internationally
• justify the need for new policies
• develop specific measures, including industry-wide and company-level energy efficiency targets.

Global benchmarking enables policy makers to assess the energy efficiency performance of their key industries in the wider international context. Levels of efficiency vary significantly from country to country. In the absence of benchmarking, no global baseline or common methodology would be readily available to help policy makers set or update efficiency targets.

The global benchmarking project begun by Japan indicates the efficiency gains that each country could achieve by applying to their industrial processes energy efficiency technologies that are readily available in the markets or best available technologies. Currently, the project focuses on heavy industries, in particular the iron and steel sub-sector and the cement sub-sector, given the significance of energy use for steel and cement production and the availability of comparable datasets.

The project calculates the current efficiency levels of targeted industry sub-sectors in G20 countries using a range of datasets (see annex) to determine the specific energy consumption (e.g. thermal or electricity) required to produce each tonne of crude steel, clinker or cement. The efficiency data of the best available technologies for key steps in each production process are pulled together from an extensive literature review and expert consultation. Then the levels of efficiency are calculated that each country could achieve if it applied all the best available technologies across production processes and intermediary steps. Thus the global benchmarking analysis not only enables a cross-country comparison of efficiency levels but also indicates opportunities for efficiency gains in each country, within the limits of available data and levels of detail (for data limitations, see Annex).

Since 2019 the project has gone through several steps:

• establishment of benchmarking methodology and modelling
• analysis of existing datasets
• identification of the best available technologies
• quantification of the energy efficiency potential of best available technologies.

Preliminary outcomes of the global benchmarking analysis were reported at the joint workshop hosted by the IEA in September 2019. The meeting highlighted emerging interests among key countries in the project as an effective means to understand the current levels of efficiency in the wider context and to identify opportunities for improving efficiency. Further benchmarking analysis by the IEA in close collaboration with Japan has led to several key findings about efficiency in the iron, steel and cement sub-sectors.

Iron and steel sub-sector

Demand for steel is estimated to have declined by 5% in 2020 relative to 2019. However, industry will return to a robust growth trajectory once the Covid‑19 pandemic is brought under control and economic activity resumes. Economic development, population growth and intensifying urbanisation will push up demand for goods and services. Global demand for steel is likely to grow by more than a third through to 2050. Among heavy industries, the iron and steel sub-sector accounts for the second-largest share of energy consumption and the largest source of emissions. Targeted early measures to improve energy efficiency and lock in higher efficiency in industrial assets are necessary to curb the sub-sector’s growing energy consumption and CO₂ emissions.

Three process routes dominate steel manufacturing. The blast furnace-basic oxygen furnace process route, which uses iron ore and coke to produce steel, represents 90% of primary production. The direct reduced iron-electric arc furnace uses high-quality iron pellets and natural gas as the main heat source. The third main route, scrap-based electric-arc furnaces, are 60‑70% less energy-intensive than the other routes because they use recycled metal. While many G20 countries have made strong progress on energy efficiency in the iron and steel sub-sector, there is still considerable cost-effective potential for further gains, given the energy intensity obtainable using the best available technologies.

The global benchmarking project estimated the specific energy consumption involved in producing each tonne of crude steel in 2018, covering the consumption of thermal energy and electricity across all iron and steel manufacturing processes, including blast furnaces and coke ovens. The project also calculated the G20 average of energy intensity in the iron and steel sub-sector, as well as energy intensity for each G20 country, by taking into account the share of process routes and applying the best available technologies’ efficiency values to each of those processes. The distance between countries’ specific energy consumption and the energy intensity possible using best available technologies varies significantly from country to country, as shown in the figure below, indicating substantial potential for efficiency gains in many countries.

Another important finding is that some process routes present greater efficiency potential than others. Comparing the current levels of specific energy consumption with the share of the blast furnace-basic oxygen furnace route in G20 countries indicates that electrified process routes, such as direct reduced iron-electric arc furnaces and scrap-based electric arc furnaces, are more energy-efficient.

Steel plants are capital-intensive, long-lasting assets that typically operate over 40 years. That is why it is vital to ensure that best available technologies are used in all key production processes at the time of construction or during major upgrades. In new and existing production facilities and equipment, efficiency can be improved by:

• optimising processes through better controls and monitoring
• upgrading process equipment to commercially available best available technologies
• integrating artificial intelligence to enhance productivity
• recovering waste heat, for example by using coke dry quenching  or top-pressure recovery turbines.

In addition, implementing energy management systems can ensure that best practices are in place at minor cost.

An energy saving of around 20% per tonne of crude steel would be possible globally if all blast furnace-basic oxygen furnace production facilities invested in readily available cost-effective technologies. Efficiency gains are also possible, along with reductions in greenhouse gas emissions, through fuel switching – from coal to less carbon-intensive alternatives, such as natural gas, bioenergy or even hydrogen – and electrification with increased use of scrap metals through more effective scrap collection.

New technologies that have yet to be commercialised will play an increasingly important role in meeting long-term ambitions for net-zero emissions and decarbonisation. They will pave the way for improving energy efficiency by switching to lower-carbon energy carriers, expanding the use of low-carbon hydrogen and deploying carbon capture, utilisation and storage.

Cement sub-sector

Among heavy industries, the cement sub-sector also accounts for a large share of energy consumption and of CO₂ emissions. Global cement demand, which had remained flat over a couple of years before the Covid‑19 crisis, is expected to shrink by 4% in 2020. In the long term, however, the production of cement is projected to continue rising as populations grow and infrastructure needs increase, especially in emerging economies. Without effective measures to improve energy efficiency, curb global cement demand and create markets for innovative technologies, CO₂ emissions from cement production will continue to rise.

The global benchmarking project shows that the cement sub-sector, like iron and steel, has significant potential to improve efficiency.  The potential can be seen by looking at the specific thermal energy consumption to generate the high temperatures needed to produce clinker, the key ingredient in cement, which is typically made of a mixture of limestone and clay. The G20 average of specific thermal energy consumption is well above the energy consumption possible using the best available technology. In 2018, only India came close to achieving the thermal specific consumption possible with best available technology across its cement sector.

Replacing fossil fuels with alternative fuels is a key path to decarbonise the cement sector, taken notably by Germany, the United Kingdom and the European Union as a whole. Alternative fuels include biogenic and non-biogenic wastes and biomass. A cautious approach is needed when using non-biogenic wastes, which can be CO₂ intensive.

Comparing specific consumption of electricity in the cement sector with electricity use possible with the best available technology shows that almost all countries have potential to use less electricity per tonne of cement produced. 

As with the iron and steel sub-sector, the global benchmarking project identifies untapped opportunities for efficiency gains in the cement sub-sector in many G20 countries. The energy efficiency of clinker and cement production facilities is largely determined by the original engineering design. Dry kilns with a precalciner and a staged cyclone preheater – which heat the raw materials before they reach the kiln – are the most efficient kilns commercially available today and are deployed extensively across the world. To achieve maximum potential efficiency, however, adequate machinery maintenance and operation are essential, as well as process automation. Strategies to improve specific consumption of electricity include switching to more efficient grinding technologies, such as from ball mills to high-pressure grinding rolls and vertical roller mills, as well as using excess heat recovered from the kiln for power generation.

In addition, the energy intensity of cement production can be lowered by substituting clinker with other materials (e.g. blast furnace slag, fly ash from coal plants, calcinated clay) to create blended cement mixes and hence reduce the clinker-to-cement ratio. In 2019, clinker made up about 72% of cement on average worldwide. The potential to replace is highly dependent on local availability of clinker substitutes, as well as on the required properties of the final concrete product, which are determined by local standards and end-use applications.

Additional technological improvements include readily available efficient technologies and a range of innovative low- or nearly-zero carbon technologies that require further research and development.

Improving the availability, scope and quality of country-level data on energy consumption in industrial sectors would further enhance the value of global energy efficiency benchmarking analysis as an effective tool for policy makers. As illustrated in the analysis of the iron and steel sub-sector, detailed and mutually comparable data of each process would make it possible to produce a solid cross-country comparison. International co‑operation will be key to improving the collection and progressive harmonisation of data across countries. The IEA will continue to work with countries to improve data collection, quality and analysis.

Policy action is necessary to exploit the full energy efficiency potential identified through global benchmarking. Governments can use a range of policy measures to scale up efficiency investments in key technologies and business solutions in the industry sector, including regulations, incentives and information. In combination, these measures can boost energy efficiency across the market when they promote installation of energy-efficient equipment, optimisation of production processes through better controls and maintenance, and retrofitting with more energy-efficient and less carbon-intensive technologies.

Regulations are a mainstay of such policy packages, laying out legal requirements and pushing industries to be more efficient in their operations and outputs. Regulations on key industrial equipment (e.g. motors, pumps, fans and heating and cooling equipment), such as minimum energy performance standards, are among the best cross-cutting approaches that raise efficiency across key industrial sub-sectors. Minimum energy performance standards have been implemented at the national level, such as the US Energy Star Program and Japan’s Top Runner Program, and at a broader regional level, such as the EU Ecodesign regulation and the Pacific Appliances Labels and Standards (PALS).

Utility-funded programmes, such as energy efficiency obligations found in North America and Europe, are another cross-cutting approach. They unlock efficiency’s benefits by placing binding energy saving targets on energy utilities, often combined with tradable certificates, and requiring them to work closely with energy users to improve efficiency. In Canada and the United States, combined spending on utility-funded energy efficiency and demand response programmes totalled almost USD 9 billion in 2017. As of 2020, there are 49 utility-funded energy efficiency programmes in 24 countries

Requiring businesses to meet specific improvement targets is another way of creating a regulatory push on energy-consuming industries. Designated energy users are required to bring the efficiency of their industrial operations up to the target levels. Failure to meet the target can lead to fines. Some countries have established energy efficiency trading schemes that provide incentives for businesses to go beyond allocated targets by monetising the additional savings in the form of tradable certificates. For example, China’s Top 10 000 Programme sets energy savings targets for more than 10 000 large energy-intensive companies and closely follows their progress through regular quarterly monitoring by local authorities via energy audits and energy management systems. China’s Strategic Action Plan for Energy Development (2014‑2020) restricts the expansion of highly energy-consuming production facilities while speeding up the elimination of inefficient production capacity and the implementation of key energy savings projects.

Another example comes from India where the Perform, Achieve and Trade scheme sets sector- and company-specific targets for specific energy consumption in energy‑intensive industries. The scope of PAT is being expanded to cover multiple sectors, including commercial buildings (hotels) and efforts are being made to improve energy efficiency in small and medium-sized enterprises. PAT is associated with a market-based mechanism to encourage the cost-effective reduction of energy consumption. Industries that surpass their goals are offered incentives in form of energy saving certificates that they can trade with lower-performing industries through a market-based mechanism.

Information is an important pillar of the policy package. Managers and operators cannot make informed decisions about energy efficiency without access to relevant, timely data and other information. Several information tools are readily available that support the implementation of energy audits and energy management systems. Information campaigns and training workshops are particularly effective for small and medium-sized enterprises, where investment decisions depend on one or just a few individuals who may not be aware of efficiency benefits and opportunities.

Comprehensive data sets enable managers to identify untapped opportunities in each process route or even at each production step by comparing the efficiency of their operations with global averages or the efficiency obtainable using the best available technologies. Such detailed data can help policy makers and industries benchmark their levels of efficiency, providing a sound basis for setting ambitious, achievable efficiency targets. In Germany, information on energy efficiency is made available via a range of platforms, including the Energy Efficiency Networks Initiative, which promotes the transfer of know-how between countries, and a public list of professional energy auditors that create trust in the market.

India organises a series of workshops and training programmes to support the designated companies in implementing the Perform, Achieve and Trade scheme. In the Indian state of Gujarat, qualified energy auditors implemented an information-based scheme called the Micro, small and medium-sized enterprises such as metal-processing, re-rolling, foundry and chemical industries could register for these audits, later claiming financial incentives to cover the fees of the auditor. Auditors would conduct simple visual investigative audits and table-top surveys of manufacturing facilities’ energy bills, and submit an audit report containing recommendations on how to save energy.

Financial incentives can remove barriers to investment in energy efficiency, trigger private capital and help businesses to make significant changes to technologies. In Germany, a leader in implementing certifications of ISO 50001 –international standard for energy management systems – industries’ voluntary commitments to implementing energy efficiency measures are strongly supported by governments through a range of financial schemes. These include lowering energy and electricity taxes, funding for key technologies, such as the use of waste heat and renewables for process heat, and funding for key industrial equipment. Industries also have several opportunities to finance the introduction of digital technologies for better monitoring and controls of their industrial processes, and to finance the use of green hydrogen and other low-carbon technologies.

Further examples come from Spain, Brazil and Poland. Spain’s Programme of Energy Efficiency Actions in small and medium sized enterprises and large companies encourages energy efficiency action and reduction of CO₂ emissions. The programme offers financial support as well as the Industrial Competitiveness Incentive Programme, which backs industries’ investments in improving industrial facilities. Brazil has begun the third cycle of its Strategic Alliance Programme for Energy Efficiency, in which the government will fund up to 40% of the cost of energy efficiency consulting services for industrial plants. The programme will target measures to decrease electricity consumption. Poland has introduced Energy Plus, an incentive programme combining loans and grants for industry that will run from 2019 to 2025. The programme aims to reduce wastage of primary raw materials by improving production processes that minimise or utilise downstream waste and waste heat.

In the context of stimulus spending to counteract the economic effects of the Covid‑19 crisis, governments could consider increasing finance for efficiency measures by expanding pre-existing mechanisms and public funds for installing energy efficient, low-carbon technologies. Direct public financing, such as grants, is likely to be particularly important in many sectors in the short term, and could be designed both to maximise immediate activity and to leverage additional private investment.

Governments could also consider a range of innovative approaches that aim to get finance flowing to where it is needed. Measures that have proven effective in attracting private sector finance include technical and commercial derisking support, such as the credit guarantee programme for industries in China, and innovative finding schemes, such as on-bill financing linked to utility bills for commercial or industrial buildings in the United States. Energy services companies design, install and, in some cases, finance energy efficiency projects through a contractual agreement with the energy-using customer. Usually using an energy performance contract, the energy services company identifies and implements energy efficiency opportunities, the financial returns from which are subsequently shared with the customer.

The age profile, investment cycles and the availability of recyclable materials all influence the actual efficiency levels of key industrial processes, and the combination of these regulations, incentives and information provision will help policy makers drive efficiency improvements to the BAT efficiency levels as identified through the global industry efficiency benchmarking analysis. The implementation of energy management systems will ensure that every opportunity for efficiency improvement is identified and implemented, optimising industrial operations and processes.

Beyond the key technological dimensions of efficiency improvements, efficiency opportunities will also come from digitalisation, which is opening up a new generation of efficiency thinking and increasing its value to energy systems. Digitalisation includes not only enhanced data collection but also analytics that produce actionable insights by drawing on computation of vast amounts of data, as well as greater connectivity that increases the exchange of data between machines and humans.

Digital technologies can increase energy efficiency by reducing energy used per unit of activity, or end-use efficiency. By increasing connectivity, they can also improve the efficiency of the entire energy system (system efficiency). And by increasing connectivity among end-use applications or even between applications and grid systems, digitalisation can take energy efficiency thinking one step further, with smart digital technologies reducing costs, overcoming investment barriers and enabling new business models.

Digital technologies create a range of opportunities to increase efficiency within industrial plants and beyond. Smart sensors enable better monitoring of more parameters in depth, ranging from operating conditions to equipment status. Such monitoring allows for more thorough diagnosis of systems, early detection of potential faults and optimisation of the whole industrial process. Manufacturing processes can also be optimised by using advanced energy management systems, in which traditional energy management systems are supported by digital technologies and advanced software applications.

For instance, advanced data analytics can enable the creation of digital twins that can be used to enhance simulation and optimisation of industrial design, resulting in more sophisticated control of industrial processes and equipment. In certain industries, such as construction, use of industrial robots and 3D printing is also becoming a common, improving optimisation of product design and manufacturing processes. Cloud-based solutions and similar collaborative online platforms open up opportunities for optimising product value chains beyond individual factories through active exchange of information and more efficient management of resources and materials.

Digital technologies also allow for a more modernised, rounded concept of energy efficiency that considers system optimisation. The greatest potential efficiencies lie in large industrial thermal loads and processes that are already providing demand-side flexibility for grids. In the United States, for example, the combined wholesale demand response capacity of all regional system operators grew to around 27 GW by 2020 (around 6% of peak demand), with an additional 5 GW offered through retail programmes. Load control, interruptibility services and reserves markets also expanded elsewhere in the country.

A few countries are already exploring new markets and business models through dedicated platforms and pilot projects that bring together industries and experts, such as industrial platforms and investment support for digitalisation of industry in Europe, a national manufacturing portal in the United States – Manufacturing USA – to feature new manufacturing initiatives, and the Smart Manufacturing Innovation Centre in Korea.

Policy interventions can unlock this potential when well designed and implemented as part of a wider effort to scale up end-use efficiency and system level efficiency. The IEA policy framework Readiness for Digital Energy Efficiency highlights a set of critical policy considerations for harnessing digital technologies for energy efficiency. The framework is designed to ensure that the benefits of digital energy efficiency are realised through policies that address a range of issues, from balancing data accessibility with data privacy to helping remove regulatory barriers to innovation.

Many countries have set or are actively considering net-zero emissions targets. Energy efficiency will play a central role in reaching these targets. While much of the discussion on decarbonisation has focused on the supply of energy, such as renewables, biofuels and hydrogen, it is equally important to consider early ways to cut demand for energy. Energy efficiency can accelerate energy transitions by locking in higher levels of efficiency across key industrial assets that will operate for decades to come and therefore significantly lower their energy intensity and carbon intensity. Efficiency improvements are a mainstay of long-term decarbonisation strategies, indicating a potential improvement in the global average energy intensity of industrial activity of 25% to 30%, particularly in the aluminium, paper and cement sub-sectors. While the focus of this report is on the improvements available through energy efficiency, material efficiency achieved by extending the lifetime of products (such as buildings); improving the design of goods and using alternative materials such as timber (to reduce demand for materials with a high energy and carbon intensity); and developing reuse and recycling chains can also play a major role in achieving decarbonisation ambitions.