Cutting Carbon And Making Money

Since 1994, Dow Chemical has saved $8.6 billion and avoided 86 million tons of carbon dioxide emissions thanks to energy efficiency improvements. Toyota has cut the energy used to build a car by 30% since 2002. And between 1997 and 2006, United Technologies Corp. doubled its revenues while cutting its energy use by 19%.

These are some of the results of a two-year investigation by the Pew Center on Global Climate Change. Pew surveyed 100 companies on how they use energy and examined six leading companies in detail—Dow, Toyota, United Technologies, Best Buy, PepsiCo, and IBM.

Energy use closely tracks CO₂ and other greenhouse gas emissions, notes William Prindle, author of the Pew report, “From Shop Floor to Top Floor,” and a vice president of consulting firm ICF International. If Congress passes climate-change legislation, he says, energy reduction measures will become even more important.

The report predicts that a combination of fossil fuel depletion, global climate change, and market and political forces are converging to bring to an end the era of cheap energy that drove the Industrial Age. For companies to be successful in the future, they must do more than marginally shave energy costs, which was the approach they took during the energy crisis of the 1970s. Instead, the report says, companies need to embrace corporate-wide innovations, with energy efficiency forming the “backbone” of efforts to address energy challenges.

The study determined that companies do best in reducing energy use when they set aggressive energy reduction targets, closely monitor whether they meet those targets, involve top management in energy reduction programs, and take a broad look at energy use that includes manufacturing and even marketing.

Many of the companies that were surveyed, the report notes, are providing energy efficiency support even to their suppliers and are examining the energy implications in productivity, product design, and other activities that on the surface do not appear to be directly related to energy use but in fact have energy implications.

For some companies, the report says, energy currently appears to be a small cost, averaging less than 5% of revenues. But the same is not true for chemical companies.

About half of every dollar Dow spends worldwide pays for energy—mostly in the form of natural gas and natural gas liquids that are used for feedstock, according to the report. About two-thirds of every energy molecule purchased by the company is used as feedstock. According to the report, Dow uses the same amount of energy, including feedstock, annually as does the country of Australia.

In total, some 30% of Dow’s energy-related spending is for direct energy use and about 15% of all of Dow’s spending is for direct energy needed to run the company’s plants.

Dow has created a business unit solely for energy, which controls about 10% of the company’s assets, the report notes. The business is Dow’s second largest, resting between the top-ranked olefins unit and the chlorine unit.

The energy business unit is largely independent, selling electricity, steam, and natural gas to other businesses within Dow. It has even sold energy wholesale.

At Dow’s Freeport, Texas, facility, the firm operates some 1,000 MW of generation capacity, the report states, which is equivalent to the output of a nuclear power plant. The Freeport facility is tied to the Texas electricity grid, and on occasion Dow shuts down plant production units when demand and pricing are high enough that selling electricity to the grid is more profitable than making chemicals.

The energy business unit’s leadership team is spread throughout other Dow business units and sites. Consequently, the report notes, the team has a coordinated view of all Dow energy activities.

To encourage plant changes driven by energy efficiency and to overcome reluctance of manufacturing managers who are driven by production rather than energy savings, the report says, the energy teams work through “tech centers” in each business unit. The tech centers, made up of production experts and energy team members, develop and explore energy-based changes in products or manufacturing processes before taking changes to the production line.

The report credits Dow’s energy reduction success in large part to the involvement of Dow Chief Executive Officer Andrew N. Liveris, who has called for a series of efficiency gains. In 1995, Dow set an efficiency reduction target of 20% by 2005, which it exceeded by 2%. In 2006, Liveris set another 25% goal.

It hasn’t been all roses for Dow, which has been hard hit by an explosion in natural gas prices. From 2002 to 2007, the report notes, Dow’s energy bill rose from $8 billion to $27 billion due primarily to a hike in natural gas prices. The company would have spent an additional $8.6 billion for energy in 2007 without the efficiency gains, according to the report.

The report is available at pewclimate.org.