Friday, November 10, 2006

Embedded Energy Costs as a Competitive Handicap

How do energy costs impact U.S. industrial competitiveness? Consider something called "embedded energy costs." I’ll give you an example. The direct energy cost for assembling my car might have been $70. That’s about three-tenths of one percent of the retail cost… no big deal, right? But think again— there was energy consumed in mining the iron ore, copper, and bauxite; in metal treating; and in producing the plastics, paints and dyes, carpet fibers, rubber, and glass. The upstream energy costs are disguised in the cost of inputs, and it’s eating profit margins at every link in the value chain. So that’s one opportunity. Product fabricators can partner with their input suppliers to map their energy intensity and strategically squeeze out those costs. 3M is a good example. They reduced their energy per pound of product by 27 percent between 2000 and 2004. They beat their own goal, and make that fact public as they market their products to other industrial consumers. Companies like Wal*Mart and Toyota are always partnering to achieve economies in distribution and inventory, so why not in energy management? The information technology exists. It can be done.



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