Driving Industrial Energy Efficiency Through Energy Tax Rebates

Transcription

1 Industrial Energy Efficiency Driving Industrial Energy Efficiency Through Energy Tax Rebates

2 Payoff for Efficiency Sweden s rebate program encourages voluntary energy efficiency improvements No Swedish industries paid tax on their electricity use in A year later, they all did, to comply with the European Union s industrial tax directive of EUR 0.5 per megawatt hour (MWh). 1 In order to protect industry competitiveness, in 2005 the Swedish Energy Agency launched a program that exempts energy-intensive industries from paying the energy tax if they adopt energy efficiency measures. Sweden targeted the rebate program to the industrial sector because it accounts for about one-third of the energy used in Sweden. Three energy-intensive sectors paper and pulp, iron and steel, and the chemical industry dominate industrial energy consumption and represent 75 percent of total industrial energy use. Similarly, one-third of total Swedish carbon emissions come directly from industry; the largest emitters are the iron and steel, and the mineral sectors (dominated by the cement sector) with almost half of emissions. 2 The tax rebate program, called the Program for Energy Efficiency, imposed many requirements on industry participants based on qualitative targets rather than quantitative measurements for electricity savings. Almost 100 percent of participating firms complied with its demands, and the Program for Energy Efficiency has been a success, resulting in nearly a 4 percent reduction in total electricity used by participating companies. 3 Energy- and carbon-intensive industries share best practices Participation in the rebate program was targeted to energy or carbon intensive companies whose energy purchases amount to at least 3 percent of production and/ or whose taxes on carbon emissions and sulfur amount to at least 0.5 percent of its added value. Thus, participating companies belong to the pulp and paper, mining, iron and steel, non-metal minerals and industrial chemicals sectors. In some cases, food processing industries, saw mills and engineering industries also qualify as energy-intensive. A corporation could choose to have the entire corporation, or just its energy-intensive, independently-run subsidiary, participate in the program. The program period started when a company enrolled, and was a five-year agreement. During this time, participating companies were eligible for a complete rebate on the EUR 0.5 per megawatt hour tax for electricity use, provided they complied with the requirements of the program. 1

3 During the first two years a participating company was required to: Implement and obtain certification for a standardized energy management system; Carry out energy auditing and analysis, in order to identify both its electricity consumption needs, as well as measures to improve efficiency; Document and report its identified electricity savings measures to the Swedish Energy Agency, and implement those measures with a straight payback period of less than three years; Adopt procedures for energy efficient procurement and project planning; Evaluate the impact of alternative choices for energy requirements as soon as possible. During the next three years the company was required to: Implement the actions in the list submitted to the Swedish Energy Agency; Assess the impacts of its energy-efficient planning and purchasing routines. 4,5 To ensure effective implementation of the Program for Energy Efficiency, the Swedish Energy Agency provided information and guidance in the form of manuals on energy mapping and analysis, life-cycle costing, and procurement. It also integrated all participants in a network with the aim of sharing best practices. Clear goals led to energy-savings and emissions reductions While approximately 1,200 companies were eligible for Program for Energy Efficiency membership, the Swedish Energy Agency expected only the largest 100 companies to enroll because participation involved additional expenses for the firms, such as certification for the energy management system, which costs about USD 10,000. The Program for Energy Efficiency opened for applications in January 2005, and by the end of 2006, 117 companies with over 240 separate production sites had joined in. The participants used about 30 terawatt hours (TWh) of electricity per year (both purchased and self-produced), representing 55 percent of industrial electricity demand and 20 percent of all electricity consumed in Sweden. 6,7 When a second five-year program period was launched in 2009, with no significant modifications compared to the first one, most of the initial participants extended their agreements. During the first five-year phase of the Program for Energy Efficiency, electricity savings surpassed expectations. Instead of the expected annual electricity savings of 0.5 TWh, participating companies reported estimated savings from the investments in energy efficiency between and TWh (1 TWh per year represents three to 4 percent of the total electricity used by the companies). They also made investments totaling USD 102 million in more than 1,200 electricity efficiency measures, and carried out over 350 other measures to increase energy performance (for example by replacing fossil fuels with renewable energy sources). The tax exemptions have led to USD 19 million per year in savings for the enterprises. In addition, savings from using at least 1 TWh per year less electricity translate into annual cost savings of about USD 71 million. During the first two years of running the Program for Energy Efficiency, half of the electricity efficiency improvements were in production processes, and the rest in auxiliary systems. Improvement measures included speed control, adjustment of processes, changing to more energy efficient products, and shutting down unnecessary equipment. The greatest energy savings were made in the pulp and paper industry (about 64 percent of the total), but this is also the sector that uses the most electricity (about 22 TWh per year). Electrical efficiency improvements varied by sector. (Figure 1.) 2

4 Figure 1: Electrical Efficiency Improvements Varied by Sector (2007) Sawmills & Manufacturing of Wood Materials 7.6 Foodstuffs and Drinks 7.1 Mines and Ore Processing 6.6 SECTOR Other Industries Steel & Metals Production Pulp and Paper 2.1 Chemical ELECTRICAL EFFICIENCY IMPROVEMENTS (%) Source: Swedish Energy Agency. By improving their efficiency in electricity use, the companies participating in the tax-rebate efficiency program helped mitigate the environmental and climate effects of their activities. The companies reported average electricity savings of just under 1 TWh per year, which would result in reducing million metric tons CO 2 emissions per year (considering 1 MWh of electricity from a coal fired power station to be equivalent to a CO 2 emission of ton). 8 The Program for Energy Efficiency was successful in overcoming several challenges to realizing greater industrial energy efficiency. Participants developed a network and disseminated good practices, helping to build expertise and lower investment risk, which had previously been a key barrier. By involving tax money, the rebate program made energy issues a management task, which gave it higher priority in companies. Moreover, several firms educated all employees in energy issues due to the energy management system. The program imposed specific requirements and clear deadlines, which proved essential in preventing energy efficiency issues from being put aside for other strategic or more acute ones. Finally, the energy review and analysis introduced by the Program for Energy Efficiency made it easier for companies to plan, implement, follow-up and review their energy efficiency progress. Notwithstanding its success, the tax exemption under the voluntary agreement is scheduled to end at the end of 2012 due to a new EU directive on energy taxation. 3

5 References Stenqvist, C., & Nilsson, L. J Energy efficiency in energyintensive industries: an evaluation of the Swedish voluntary agreement Program for Energy Efficiency. Energy Efficiency [doi: /s ]. < download?func=downloadfile&recordoid= &fileo Id= > Sustainable Energy Technology at Work. Program for energy efficiency in energy intensive industry (PFE). SETatWork Database. < R178.htm> 4

6 Endnotes Note: currencies were converted to US dollars on July 9, 2012 at the exchange rate of 1 USD = 7.02 SEK. 1 Stenqvist, C., & Nilsson, L. J Process and impact evaluation of PFE a Swedish tax rebate program for industrial energy efficiency. Presented at the ECEEE 2009 Summer study. Act! Innovate! Deliver! Reducing energy demand sustainably. Web. June < conference_proceedings/eceee/2009/panel_5/5.269/paper> 2 Johansson, B., Modig, G., & Nilsson, L. J Policy instruments and industrial responses experiences from Sweden. Presented at the ECEEE 2007 Summer Study. Saving energy - just do it! Web. June < euiclimatepolicybibliography.net/2012/07/17/policyinstruments-and-industrial-responses-experiencesfrom-sweden/> 3 Stenqvist, C., & Nilsson, L. J Energy efficiency in energy-intensive industries: an evaluation of the Swedish voluntary agreement Program for Energy Efficiency. Energy Efficiency [doi: /s ]. 4 Sustainable Energy Technology at Work. Program for energy efficiency in energy intensive industry (PFE). SETatWork Database. Web. July 5, < database/products/r178.htm> 5 Stenqvist, C., & Nilsson, L. J., 2011, op cit. 6 Swedish Energy Agency (SEA) Two years with PFE. The first published results from the Swedish LTA programme for improving energy efficiency in industry. 7 Stenqvist, C., & Nilsson, L. J., 2011, op cit. 8 Sustainable Energy Technology at Work, op cit. Figure References Figure 1: Electrical Efficiency Improvements Varied by Sector (2007) Swedish Energy Agency (SEA) Two years with PFE. The first published results from the Swedish LTA programme for improving energy efficiency in industry. 750 First Street, NE, Suite 940 Washington, DC p CCAP CENTER FOR CLEAN AIR POLICY