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Spurring a Manufacturing Renaissance: Increasing Competitiveness through Energy Efficiency

Energy Efficiency and Competitiveness

By Matthew Stepp and Amanda Kibbe, Center for Clean Energy Innovation

U.S. Representative Matt Cartwright recently introduced the Job Creation through Energy Efficient Manufacturing Act (H.R. 4162), which would encourage the use of energy efficient technologies in the manufacturing sector. While some manufacturers are modestly benefitting from cheaper natural gas, it’s important to think how to the United States continue can advance true long-term international competitiveness rather than short-term advantages. The Energy Efficient Manufacturing Act (EEM Act) is a step in the right direction by providing manufacturers the ability to leverage emerging innovations in clean energy and energy efficiency to lower their energy costs for good.

U.S. international industrial competitiveness is critical to the economic well-being of the United States as other countries fiercely compete for jobs, emerging industries and economic growth. This is particularly important in traded sectors of the economy-such as clean energy, aerospace, and ICT technologies-that are central to the economic health of the United States. Unfortunately, America’s traded sectors have not fared well during the last decade. From 1990 to 2007 U.S. traded sectors achieved nearly no growth in jobs, manufacturing output declined by 11 percent, and the U.S. trade deficit in manufacturing products topped at $4 trillion. In recent years, fortunes have shifted some as cheap domestic natural gas flooded the market and provided U.S. manufacturers a modest advantage, though its only slowed, not stopped domestic manufacturing decline. In addition, this competitive advantage may not last forever as natural gas prices are expected to rise and the U.S. is expected to export more of its domestic supply. As a result, it’s important to think more comprehensively how to achieve a more robust, long-lasting and competitive manufacturing sector in the future.

What’s truly needed is a manufacturing competitiveness strategy that spurs innovation links new technologies to domestic manufacturers and creates an environment for manufacturing to grow in the United States, not just a decline slower. The EEM Act aims to add at least another rung to a broader strategy. EEM would create a new Financing Energy Efficient Manufacturing program at the Department of Energy that would provide grants to states to expand or create programs to finance the implementation or retrofitting of energy efficient technologies in manufacturing centers.

While a modest-sized program—the Act would appropriate $250 million—EEM would leverage small dollars to solve a big problem to deploying innovative efficiency technology: their high up-front costs. Despite the potential long-term energy savings, costs savings, and carbon reductions, manufacturers are still often deterred from installing new technologies. As a result, even combined with declining sector growth, the Energy Information Administration predicts that the industrial sector’s primary energy use will grow 18.1 percent by 2040 compared to 2011 levels. 

In addition, if implemented, the EEM Act would be one of a number of policies addressing manufacturing innovation issues and advancing a more efficient and competitive manufacturing sector. While the goals of these programs are similar—increase the competitiveness of U.S. manufacturing— they all solve different innovation challenges.

For example, the EEM Act would fill part of a policy gap left by the expiration of the 48C Manufacturing tax credit. As part of the American Recovery and Reinvestment Act in 2009, the U.S. implemented a 30 percent tax credit to firms that invested in clean energy manufacturing facilities. All told, the program awarded $2.3 billion in tax credits to manufacturers which supported building or retrofitting 183 manufacturing facilities.  While the EEM Act is not necessarily a replacement for renewing 48C—the 48C tax credit was awarded to firms based on what they are producing (clean energy), whereas the EEM Act awards firms based on how they are producing—it’s impact could be just as extensive. Instead of just boosting the clean tech manufacturing sector, the EEM Act is applicable to all manufacturers as long as they use energy efficient technologies and clean energy.

In addition, EEM could provide a useful policy tool for the existing Advanced Manufacturing Office (AMO). The AMO helps bring innovative technologies to scale in the manufacturing sector by investing in facilities and R&D, and brings federal agencies together to support manufacturing through the Advanced Manufacturing Partnership (AMP).  It develops energy-efficient technologies that improve production, reduce energy costs, spur activities in shared facilities (such as demonstration), and education and workforce development. Through training and site assessments, the AMO also provides industrial Technical Assistance, which is intended promote strategic energy management and deploy energy efficient technologies such as combined heat and power. The AMO would continue to developing more energy efficient technologies, and the EEM will provide manufacturers with new financial opportunities to install these energy efficient technologies.

Lastly, EEM would provide a potentially interesting option for leveraging the National Network for Manufacturing Innovation (NNMI). NNMI is a new initiative proposed by the President that would create a network of regional hubs called Institutes for Manufacturing Innovation (IMIs) to help manufacturing processes and technologies progress from basic science and research to implementation. The President has called Congress to authorize a $1 billion investment, which would be matched using funds from the private sector to create fifteen IMI’s in 2014. In the meantime, existing funds have been used to award funding to four IMI’s, one each on additive manufacturing, power electronics, digital manufacturing, and lightweight materials. While IMI’s continue to develop the newest innovative technologies, the EEM would provide manufacturers state and regional pathways to installing these technologies by covering the upfront costs once they have been developed.

The EEM Act would support manufacturing innovation, reduce industrial carbon emissions, and make U.S. manufacturers more competitive. According to Representative Cartwright (D-PA), “Investing in energy efficiency manufacturing will help revitalize and modernize the American industrial and manufacturing sector while reducing energy costs and helping the environment. When we establish innovative programs at the state-level, we encourage the necessary conditions for economic growth.  This legislation would help support middle-class American jobs and benefit American businesses.” The EEM Act is not the whole solution, but it’s part of a more comprehensive national manufacturing strategy the U.S. certainly needs.

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John Miller's picture
John Miller on April 16, 2014

Improving or encouraging the Manufacturing Sector’s energy efficiency in producing durable and non-durable goods definitely has its benefits.  However, the Federal Government’s ability to support significant and sustainable improvements to facilitate a re-growth of the Manufacturing Sector and possibly improve the U.S. balance of trade through the proposed legislation/policies is highly questionable.  Energy costs do make up a significant percentage of the total costs to produce most goods sold domestically or exported.  Other costs normally make up the majority of total manufacturing expenses including labor, feedstocks, maintenance, transportation, taxes and company administrative expenses; particularly for various regulatory compliance actions.  Also, the current Federal Government Agencies have not done a very good job of picking winners and losers (example: clean energy) over the past six years.

Yes, the U.S. Manufacturing Sector has been in decline, and, was very negatively impacted by the 2007-09 economic recession.  As a result, most Manufacturers have struggled to more fully recover from the recession, as most the overall economy; which has experienced a historic weak recovery since 2009 compared to past recessions.  Having spent most my career in the Energy Manufacturing Sector I suggest that each Manufacturer class or specific goods Sector normally has more than adequate incentive to properly manage their operating expenses including energy efficiency, and generally do a good job of sharing technologies and upgrade innovations without the Government’s help.

Where the Federal Government can best help the U.S. Manufacturing Sector is by reducing current very high U.S. corporate taxes, minimizing onerous-wasteful regulations & required compliance costs, and better manage our trade policies with other countries that unfairly disadvantage U.S. Manufacturers.  These and other improvements such as making regulations more effective/efficient or eliminating wasteful policies, will much better enable a re-growth of the U.S. Manufacturing Sector and facilitate a much stronger overall U.S. economic recovery.  Benefits: substantial added jobs, increased wages, increased tax revenues/reduced Government deficits, and possibly improved trade balances.

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