Monday, December 18, 2006

Energy Policy, Energy Programs: Who Speaks for Industry?

Industrial energy cost issues are addressed by a variety of interest groups. By virtue of their professional training, these camps have very different approaches to the subject, and each group speaks a “language” that is often undecipherable to outsiders. As will be noted below, this creates problems when it comes to developing and prioritizing energy policy options. It helps to start this discussion by clarifying what constitutes energy “policy” versus energy “programs.”

Energy policies, in general, either restrict or encourage certain investment activity. Restrictions tend to focus on the terms and conditions for fossil fuel exploration, extraction, refining, and the interstate transmission of gas and electricity. Restrictions also prescribe performance standards to which entities must adhere when designing buildings and operating certain energy-using equipment. Policies often impose penalties against entities that don’t meet prescribed criteria, which obviously requires some kind of administrative enforcement. Energy markets are influenced by policies that encourage investment, usually through tax incentives, in certain kinds of energy-related equipment. Policies also authorize the development of energy-themed programs.

Programs are activities carried out by government agencies. Each program reflects an agenda with clear themes, milestones, and objectives. Note that policies authorize programs, but program funding usually requires a separate legislative action. In other words, the policy act of authorization “makes a parking space” for a program concept, but the decision to allocate (or “park”) funds is a separate matter.

Industrial energy consumption is a complicated matter that touches many decision-makers in a variety of ways. If policy is the result of “listening” to constituents, then who speaks for industry?
Industry’s corporate leaders are keenly aware of their rising energy expenses. These leaders demand relief primarily in the form of lower prices.
Facility managers note the growing lack of skilled human resources needed to run their plants and keep pace with new technologies. They want training resources for existing staff as well as properly-educated new employees.
Vendors want to sustain industry’s demand for the motors, pumps, insulation, controls, and other equipment that manufacturers rely on for their operations. Vendors want tax credits and other incentives to raise the demand for their products.
Facility engineers are responsible for the reliability of plant equipment. They evaluate the technology options for meeting production goals. Engineers want unbiased guidance to sort out the promises made by equipment vendors.
Universities host much of the activity funded by energy research and development expenditures. They want sustained government support for new technology development.
Gas and electric utilities must maintain the infrastructure that delivers energy to all consumers, including industry. Business planning is a difficult chore for utilities, since their customers’ energy supply and demand projections must be sorted out before utilities can decide on their optimal level of infrastructure investment.
Environmental advocates challenge the unnecessary depletion of natural resources, and seek to restrict energy-related practices that negatively impact air and water quality.
Efficiency proponents remind us that energy depletion can at least be tempered through advanced technologies and best-practice procedures. Efficient use of traditional energy sources helps to buy time while advanced technologies and alternative fuel sources are being developed.

All of these stakeholders have a valid agenda. There are distinct advocacy groups that back each approach, and obviously these groups need money to operate. Each group in turn has its backers who will benefit if the government were to support their particular niche. Only so many federal dollars can be allocated to “energy” programs, so these become competing options. Note, for example, that many general observers tend to confuse “renewables” with “efficiency.” This confusion becomes problematic when deciding where to allocate sponsorship dollars. Advocates are compelled to stick to their niche, because visibility lent to other agendas may be at the expense of one’s own. It’s easier for lawmakers to craft individual policies for each of these agendas. But taken singularly, none of these agendas represent a comprehensive solution to industrial energy challenges.

Segmented energy policy concepts are valuable to individual advocacy groups, but are of limited value to industrial energy consumers. Unfortunately, a comprehensive energy policy, for which the whole has a greater value than the sum of the parts, has no backer. For advocates, it simply “doesn’t pay” to take a comprehensive position.

Manufacturers can’t expect policy alone to solve energy cost challenges. Remember this fact: of all energy delivered to U.S. industrial facilities,
about 40 percent is not applied as intended to works in progress
. In other words, a lot of energy is wasted. While lower fuel prices certainly help, energy cost control comes primarily from within industrial facilities. Each industrial facility must take control of its own energy fate through energy optimization plans that set goals, establish internal leadership, and assign accountability for results. Each facility is unique, and so is its optimal energy strategy. Public policy is weak medicine for energy issues, and certainly no replacement for good managerial decision-making.



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