We review the relationship between energy efficiency improvement measures and productivity in industry. We propose a method to include productivity benefits in the economic assessment of the potential for energy efficiency improvement. The paper explores the implications of how this change in perspective might affect the evaluation of energy-efficient technologies for a study of the iron and steel industry in the U.S. It is found that including productivity benefits explicitly in the modeling parameters would double the cost-effective potential for energy efficiency improvement, compared to an analysis excluding those benefits. We provide suggestions for future research for this important area.

Conservation supply curves are a common tool in economic analysis. As such, they provide an important opportunity to include a non-linear representation of technology and technological change in economy-wide models. Because supply curves are closely related to production isoquants, we explore the possibility of using bottom-up technology assessments to inform top-down representations of energy models of the U.S. economy. Based on a recent report by LBNL and ACEEE on emerging industrial technologies within the United States, we have constructed a supply curve for 54 such technologies for the year 2015. Each of the selected technologies has been assessed with respect to energy efficiency characteristics, likely energy savings by 2015, economics, and environmental performance, as well as needs for further development or implementation of the technology. The technical potential for primary energy savings of the 54 identified technologies is equal to 3.54 Quads, or 8.4 percent of the assumed2015 i ndustrial energy consumption. Based on the supply curve, assuming a discount rate of 15 percent and 2015 prices as forecasted in the Annual Energy Outlook2002, we estimate the economic potential to be 2.66 Quads - or 6.3 percent of the assumed forecast consumption for 2015. In addition, we further estimate how much these industrial technologies might contribute to standard reference case projections, and how much additional energy savings might be available assuming a different mix of policies and incentives. Finally, we review the prospects for integrating the findings of this and similar studies into standard economic models. Although further work needs to be completed to provide the necessary link between supply curves and production isoquants, it is hoped that this link will be a useful starting point for discussion with developers of energy-economic models.