COMMENTARY

Peter Burgess

Picking up the $500 Billion Bill on The Ground: Driving the Next Industrial Revolution Through Efficiency

“There is an old joke, widely told among economists, about an economist strolling down the street with a companion when they come upon a $100 bill lying on the ground. As the companion reaches down to pick it up, the economist says ‘Don’t bother — if it were a real $100 bill, someone would have already picked it up’.”

While Obama urged Congress to take a series of tax steps to encourage businesses to bring jobs back to the United States, RMI has strong evidence that industry can take cost-saving efficiency steps without waiting for policy-makers. Doing so can quantifiably improve U.S. manufacturing’s competitive advantage right now.

Stories about the death of U.S. manufacturing are a recurring theme since the “Japanese invasion” of electronics and autos in the early 1980s, and the sector hemorrhaged 5.5 million jobs over the past decade. But U.S. manufacturing is far from dead, in fact providing a rare bright spot in today’s economy.

Manufacturing employment has grown each of the last two years, driven by a rebounding auto sector, and now employs 11.7 million people. A number of trends are coinciding to make U.S. manufacturing increasingly competitive globally. Wages and benefits are growing rapidly in China—as Obama noted in his speech—at the same time that U.S. manufacturing wages are falling. The risks of operating a supply chain that stretches halfway around the world are growing: rising transportation costs, the threat of import duties, less product flexibility, slower time to market, intellectual property theft, and product safety/reputation risks are growing concerns when moving manufacturing offshore. All of these factors are translating into making U.S. manufacturing more appealing.

Efficiency and whole-system design can help industry accelerate these growing advantages. Analysis from Reinventing Fire, RMI’s blueprint to running a 158 percent bigger 2050 U.S. economy powered by efficiency and renewables reveals that the industrial sector can achieve 84 percent greater production using 9 to 13 percent less energy, and save $0.5 trillion net.

JR: That’s a big bill on the ground waiting to be picked up (see also “Energy efficiency is THE core climate solution. Part 1: The biggest low-carbon resource by far”).

For example, with RMI’s help, Texas Instruments (TI) built a new, million-square-foot semiconductor fabrication plant in Richardson, Texas. This facility, opened in 2009, was the first LEED Gold rated semiconductor facility, and its innovative design saved $4 million in annual energy operating cost and 35 percent of its water use compared with TI’s previous chip fab built just four miles away. Building this facility added up to less than 1 percent of the construction budget.

These savings were generated through a combination of simple steps, including building orientation and exterior shade screens to minimize solar gain, light shelves to increase daylighting, big, straight pipes that reduce friction and pumping energy compared to small, crooked pipes. The design team was even able to remove an entire floor, saving the materials needed to build it and energy needed to operate it. Most importantly, these energy savings were obtained while exceeding management’s target of spending 30 percent less capital than the prevailing design. Meeting that goal meant the facility and its 1,000 jobs stayed in Texas rather than heading overseas.

The Texas Instruments story is recently joined by a wave of good news as companies from GE to Intel bring manufacturing back to the U.S. and invest in factories here. Rust Belt economies devastated by offshoring over the past decade are starting to repopulate their vacant industrial land (albeit with lower-wage jobs) while manufacturing in the South continues to grow.

The rising tide does not assure continued U.S. manufacturing growth, though. A number of clouds remain on the horizon. These barriers include a burdensome tax structure — Obama’s target Tuesday — stifling and lengthy permitting processes, and a lack of skilled workers to operate increasingly complex and automated manufacturing processes. Many of these barriers will require some act of Congress for real progress. But industry can take many clear steps on its own.

“The easiest way to save money is to waste less energy,” President Obama said, proposing that manufacturers be incentivized to eliminate energy waste in their factories as a way to lower energy bills, cut pollution, ramp-up manufacturing and provide more American jobs.

Radical energy efficiency improvements, made possible through whole-system design, can unlock far greater efficiency gains than typically thought possible, often at the same or lower capital cost than conventional designs. Because whole-systems design brings together all project stakeholders, from the designers and engineers to the production staff and owners, it can also break down costly assumptions and rules of thumb and yield diverse benefits such as improved productivity, product quality and working conditions.

Successfully nurturing a whole-systems design process from inception to construction is not easy. Despite all the benefits, the approach poses number of sticky challenges to navigate along the way. Whole-systems design takes more time than an off-the-shelf solution, and the exact outcome cannot be predicted at the outset. New approaches not yet familiar to the design team carry perceived technical risks, but a growing body of robust examples show the power of whole-systems design.

Manufacturing serves as the bedrock of our economy. It is the engine that has driven our dramatic economic growth and lifestyle gains since World War II. It has the largest multiplier of any other sector by far—for every $1 in manufacturing value added, $1.40 of value is created in other areas of the economy. It is worth our attention and persistent investment in ensuring its success. Alan Mulally, CEO of Ford Motor Co. after leading a resurgence at Boeing, underscores the point: “We have to make manufacturing a priority. It’s the foundation of everything associated with the economy.” It’s time to unlock the next industrial revolution through efficiency.

– Ryan Matley is an electricity consultant with the Rocky Mountain Institute. This piece was originally published at the Rocky Mountain Institute blog.