Sustainable Recovery

World Energy Outlook Special Report
River running through a forest

Industry

The Covid-19 crisis has led to a sharp slowdown in industrial activity around the world. This matters for both employment and emissions: one-in-four jobs globally are in the industry sector, which accounts for around 30% of final energy use. Demand growth for materials, such as cement was projected to be slow in 2020 even before the Covid-19 crisis, and now has been hit by a sudden halt in construction and other activities, plus an expected downturn in future projects. The slowdown in economic activity is likely to be disproportionately felt by small and medium enterprises (SMEs) in industry, which can be very cash-flow sensitive and are often dependent on providing services to larger industry players or acting as surge producers. Many companies have had to delay new projects and plant upgrades, as well as idle some capacity or accelerate its retirement. 

Impact of Covid-19 crisis on industrial sectors

 

 

World

China

India

European Union

United States

Share of GDP in 2019

Industry

28.2%

39.6%

29.2%

25.8%

18.4%

Production in 1st quarter 2020
(% year-on-year)

Industry

-5.4%

-9.4%

-3.3%

-5.8%

-2.1%

Steel

-1.4%

1.2%

-5.3%

-10.0%

-1.0%

Cement

-4.4%

-23.9%

-4.9%

-0.5%

7.7%

Petrochemicals*

-2.7%

-5.0%

-11.7%

-4.4%

-0.2%

Manufacturing

-9.2%

-7.7%

0.5%

-5.6%

-4.3%

Total jobs (million)

Industry

797

220

126

48

33

Share of total employment

Industry

23.0%

28.2%

25.6%

26.2%

19.8%

 

*Ethylene supply is taken as proxy for petrochemicals. Sources: IEA (2019c); Trading Economics (2020a); Trading Economics (2020b); Trading Economics (2020c); Federal Reserve (2020); World Steel Association (2020); CEMNET (2020); CEIC (2020); S&P Global Platts (2020); Institute for Supply Management (2020); Statista (2020); IHS (2020b); ILO (2020).

Steel production remained relatively robust amid rising oversupply concerns due to contracting demand. Blast furnaces face technical limitations for flexible operation and production cuts were short-lived in China, the world’s largest producer. Production of petrochemical products has been affected by a growing overhang of capacity and a drop in demand muted by a surge in demand for packaging and sanitary materials. The crisis has also triggered delays or reversals to bans on single-use plastics, amid worries that reusable plastics could spread the virus, and there has been a slowdown in recycling activity. 

This section explores two particular measures to stimulate economic activity and generate jobs in the industry sector . Investment in innovative industrial technologies that could help develop new industrial capacity is also important in this context, which is discussed in the section "Strategic opportunities in technology innovation".

Improve energy efficiency and electrification: Investment in energy efficiency would create on average around 10 jobs per million dollars spent. These jobs could be created rapidly, would provide immediate support for retrofitting and energy service jobs, and would be effective in stabilising the ailing SME segment, where sizeable energy efficiency potential remains untapped. Investment in more energy efficient industrial electric motors, heat pumps for low-temperature process heat and agricultural irrigation pumps typically have attractive payback periods: they could quickly generate savings that would allow industry to increase expenditure on core business operations. Options for governments to promote such investment include: tax deductions, guaranteed lending, rebates, cash-for-replacement schemes incentives for energy management systems and training and hiring energy managers. In addition to the immediate increase in employment and positive long-term economic benefits, energy efficiency improves productivity, reduces import dependency, saves emissions and strengthens crisis resilience.

Expand waste and material recycling: Recycling has gained momentum in recent years, but is facing challenges from concerns about the re-use of plastics and from low prices for virgin material as a result of Covid-19. Waste collection and sorting could be ramped up quickly to provide support for jobs, with around 15-40 jobs created for every million dollars of spending. Existing waste management systems could be improved by facilitating sorting, improving product designs, and reforming taxes and levies. 

Payback period of measures in the industry sector in the Sustainable Recovery Plan

Openexpand

Abatement cost in the industry sector in the Sustainable Recovery Plan

Openexpand

Net job creation in the industry sector in the Sustainable Recovery Plan

Openexpand
Improve energy efficiency and increase electrification

Industrial efficiency gains make up a large share of the potential for total energy intensity improvements worldwide, and in recent years have seen annual investment of around $40 billion. Improvements in industrial energy efficiency, however, are likely to stay at relatively low levels in the short term, with low capacity utilisation and low fuel prices extending payback periods in the current crisis and its aftermath. SMEs are key stakeholders for realising wholesale changes in energy efficiency, but many are facing financial difficulties and cannot easily fund retrofits and investment.

Industrial energy efficiency could be stimulated by direct financial incentives, tax deductions, accelerated depreciation and government-backed lending. Rebate and cash-for-replacement programmes could accelerate retrofits of industrial motors (e.g. to IE3+ worldwide, IE4 in advanced economies irrigation and heat pumps).1 SMEs should also be incentivised to adopt energy management systems and to improve the energy efficiency of their operations. Policy instruments could incentivise the achievement of energy savings by making support conditional on audited energy savings.

Energy efficiency is a cost-effective means of improving productivity in many industrial sectors. Payback periods for investment in electric motors, industrial low-temperature heat pumps and other industrial efficiency measures are generally attractive, even with the current low fuel prices. Energy efficiency measures would quickly create new jobs at retrofitters and energy service companies (ESCOs), especially in the ailing SME sector, and in manufacturing and installation. There would be some job losses in some segments over time, but the jobs created would greatly outnumber them (figure below). In aggregate, it is estimated that industrial energy efficiency measures would create around 10 jobs per million dollars invested.

Implementing all cost-effective industrial energy efficiency measures would reduce emissions in 2030 by around 2 Gt CO2 and would require around $50 billion additional investment per year. The use of more efficient electric motors, which can have very attractive payback periods, would provide around half of these savings and avoid more than 1 200 TWh of energy use in 2030. Increased energy efficiency would improve the resilience of local production to supply and price disruptions in the future, strengthen domestic value chains, improve international competitiveness and reduce import dependency.

Job creation through investment in heat pumps in the Sustainable Recovery Plan

Openexpand

Agriculture is the single largest employer in the world. It sustains the livelihood of 3.1 billion people, many of them living in poverty. Increasing the productivity of this sector is widely recognised as an effective means of stimulating socio-economic development and fighting poverty. Every 10% increase in farm yield leads to an estimated 7% reduction in poverty in Africa and 5% reduction in poverty in Asia (UNEP, 2012).

Estimated stock of agricultural irrigation pumps in India, 2010-2022

Openexpand

Energy efficiency measures offer a major opportunity for productivity gains and resource savings in agro-industries. Electrifying and improving the motors used in water pumps, ventilation and air circulation yields savings of up to 30%. India’s government programmes have added around 0.5 million new pumps each year since 2010, accounting now for around 20 million electrified pumps. Options to combine pumps with solar photovoltaics (PV) reduce payback periods and provide potential further benefits in terms of jobs, environmental impact and resilience, especially when accompanied by measures to tackle over-irrigation practices.

Expand waste and material recycling

The production of industrial materials is energy intensive, and accounts for around 30% of total final energy consumption worldwide. Implementing economically viable recycling technologies can shorten supply chains, increase resilience and create new jobs, while reducing additional demand for virgin materials. An increasing number of moves have been made in a number of countries and businesses to increase recycled plastic content and ban or reduce one-time use plastics. However, less than 20% of plastic is recycled today because of low collection rates and technical sorting challenges. Recycling rates are higher for metals and paper, but there are still huge variations in rates between countries. The Covid-19 crisis has added to the challenges. Lockdowns led to the temporary closure of waste and recycling operations in many countries; the halt in construction activity has affected scrap availability for secondary metal production; and the plastic recycling industry has been hit by policy changes and by a reduction in the value of recycled product as a result of low oil prices.

In advanced economies, existing waste management systems can be enhanced by facilitating sorting, standardising and improving product designs to adequately account for end-of-life aspects, and reforming taxes and levies on waste and scrap. Well-designed “cash-for-clunkers” programmes have the co-benefit of increasing scrap availability for secondary electrified steel making, aluminium and petrochemicals.

In developing economies, where 15-20 million waste pickers work in the informal sector, progress could be made by equipping municipalities with the financial resources to take ownership of waste management. Also by encouraging the installation of new waste collection and sorting technologies and adopt best practices for collection.

Waste and material recycling has large job creation potential, especially in developing countries, where establishing recycling industries creates around 15-40 jobs per million dollars of investment. Measures to improve recycling would cost more than an additional $500 per tonne of waste processed (with variations across materials, but would bring benefits in terms of health, environment and reduced GHG emissions). 

Net job creation of recycling per million dollars of spending in the Sustainable Recovery Plan

Openexpand

Increasing global average recycling rates (for all materials) from around 41% today to 47% in 2030 would reduce emissions from material production by around 20% from today. Growth in recycling would be likely to come primarily from plastics and steel, where current rates are lower than for paper and aluminium. Recycling and scrap usage reduces environmental damage, adverse health effects and import dependency. It also reduces landfill disposal and incineration, and the costs associated with landfills. Today, 37% of global waste goes to landfills and the open burning of waste is associated with significant negative health impacts.

References
  1. Motors are benchmarked to the International Electro-technical Commission’s “International Efficiency” standards, which range from low (IE0) to super premium (IE4), with minimum efficiency requirements based on size and number of poles.

Next Fuels