Estimating the impact of investing in a resource efficient, resilient global energy-intensive manufacturing industry

Abstract

To examine the prospects of creating a resource efficient, low-carbon economy, this paper focuses on the impacts of investing in energy, water and waste. The broader industrial sector, as well as six energy-intensive manufacturing industries is studied. A system dynamics model is developed for each selected sub-sector, which is embedded in a broader integrated framework to fully appreciate the linkages within the industries and across the economy, environment and society. This study further simulates and analyzes the key factors affecting the economic performance and environmental impacts of these industries in a resource efficient scenario compared to a business-as-usual (BAU) case. Our analysis indicates that with no additional resource-efficiency and conservation actions taken, these industries – highly exposed to rising fuel prices under BAU – will suffer from declined profitability over time. Under the alternative scenario however, an incremental investment in efficiency will not only substantially curb energy demand and emissions, but will also effectively reduce energy expenditures in all analyzed industries yielding an overall positive return on investment after nine years. Though the extent of cost saving varies across the sub-sectors due to the variation in energy mix, they will all see considerable reduction in unit production costs and increase in operating margins and profits in the medium to longer term.