Cost-Energy Dynamics: An Engineering - Economic Basis for Industrial Energy Conservation Policies

Abstract

This paper develops a theory called cost-energy dynamics that can be used to shape policies for industrial energy conservation. It is built on two hypotheses commonly observed in process engineering; namely, cost varies as positive power function while energy varies as negative power function of the system size and/ or complexity. These two hypotheses, which have roots in thermodynamics, give rise to a technological parameter (denoted c) that can be determined for each unit process. Cost-energy dynamics ranks energy conservation potentials of industrial processes by the technology parameter c, aggregates energy consumption by unit processes, considers energy embodied in the investment, considers the trade-offs between cost and energy, and distinguishes bases for decision making in the public and private sectors. Five unit processes are used to represent the U.S. manufacturing industry. The aggregated technology parameter for industry is determined to be about 3.5. This value and the data on existing energy consumption allow the determination of energy conservation potentials, extra capital investment requirements, and the possible energy picture by the year 2000. Several public policy tools are evaluated for their effectiveness in stimulating energy conservation.