‹ Analysis & Projections

International Energy Outlook 2013

Release Date: July 25, 2013   |  Next Release Date: September 2014   (See release cycle changes)    |  correction    |  Report Number: DOE/EIA-0484(2013)

Industrial sector energy consumption

Overview

The industrial sector uses more delivered energy43 than any other end-use sector, consuming about one-half of the world's total delivered energy. The industrial sector comprises a diverse set of industries, including manufacturing (food, paper, chemicals, refining, iron and steel, nonferrous metals, nonmetallic minerals, and others) and nonmanufacturing (agriculture, mining, and
construction). The mix and intensity of fuels consumed in the industrial sector vary across regions and countries, depending on the level and mix of economic activity and technological development, among other factors. Energy is consumed in the industrial sector for a wide range of purposes, such as processing, assembly, producing steam, cogeneration, heating, air conditioning, and lighting in buildings. Industrial sector energy consumption also includes natural gas and petroleum products (naphtha and natural gas liquids) used as feedstocks to produce non-energy products, such as fertilizers for agriculture and petrochemicals for the manufacture of plastics.

Figure 116. World industrial sector and all other delivered end-use energy consumption, 2005-2040
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Energy consumption worldwide by the industrial sector in the IEO2013 Reference case is expected to grow from 200 quadrillion Btu in 2010 to 307 quadrillion Btu in 2040, increasing by an average of 1.4 percent per year (Table 18). The industrial sector accounted for a majority of the decline in energy consumption during the global economic recession that began in 2008 and lingered into 2010, primarily because of substantial cutbacks in manufacturing that were more pronounced than the impacts on other sectors [328]. In the IEO2013 Reference case, over the long term growth in industrial energy consumption begins to level off as most developing countries reach the height of their industrialization (Figure 116).

Figure 117. OECD and non-OECD industrial sector delivered energy consumption, 2010-2040
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Most of the long-term growth in industrial sector delivered energy consumption occurs in the non-OECD countries. From 2010 to 2040, industrial energy consumption in non-OECD countries grows by an average of 2.3 percent per year, compared with 0.4 percent per year in the OECD (Table 18). The non-OECD countries, which accounted for 64 percent of world total delivered energy in the industrial sector in 2010, grows to account for 72 percent of world total delivered energy consumption in the industrial sector in 2040 (Figure 117).

Figure 118. World industrial sector delivered energy consumption by energy source, 2010 and 2040
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While liquids consumption, which includes both oil-based products and natural gas liquids used for both feedstocks and fuel, in the industrial sector increases at an average annual rate of 1.2 percent from 2010 to 2040 (Figure 118), the liquids share of total delivered energy consumption in the industrial sector declines over the same period. In contrast, industrial sector electricity consumption grows by an average of 1.8 percent per year over the projection period, but its share of total consumption rises from 14.6 percent in 2010 to 16.3 percent in 2040. Natural gas consumption and coal consumption in the industrial sector increase by annual average rates of 1.5 percent and 1.4 percent, respectively, in the IEO2013 Reference case. The industrial sector fuel mix differs between the OECD and non-OECD countries. In 2010, liquids made up 38 percent of industrial sector energy consumption in OECD countries, compared with 23 percent in non-OECD countries, and coal represented 12 percent of OECD industrial sector energy consumption, compared with 34 percent of non-OECD industrial sector energy consumption.

Figure 119. OECD industrial sector delivered energy consumption by energy source, 2010 and 2040
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There are some small shifts in the industrial sector fuel mix in both OECD and non-OECD countries over the 2010 to 2040 projection period (Figures 119 and 120). Both liquids and coal are slowly displaced by growing industrial sector consumption of natural gas, electricity, and renewable energy sources (largely biomass). As a result, the liquids share of OECD industrial sector delivered energy consumption falls slightly, from 38 percent in 2010 to 37 percent in 2040, while the natural gas share increases from 27 percent to 29 percent. In the non-OECD countries there is also a slight shift away from liquids and coal consumption in the industrial sector, with natural gas and electricity showing small gains in their respective shares of total industrial sector delivered energy consumption.

Figure 120. Non-OECD industrial sector delivered energy consumption by energy source, 2010 and 2040
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In 2010, the global industrial sector consumed 15 quadrillion Btu of renewable energy for non-electricity uses, representing about 7.6 percent of total industrial sector delivered energy consumption [329]. From 2010 to 2040, renewable energy consumption in the industrial sector grows by an average of 1.5 percent per year. Biomass currently provides the vast majority of renewable energy consumed in the industrial sector and continues to do so throughout the projection period, largely because of its role in the paper and pulp industry.

Industrial sector delivered energy consumption in each OECD and non-OECD country varies as a function of total industrial sector output and the energy intensity (measured as energy consumed per unit of output) of the mix of industries. The five most energy-intensive industries (chemicals, pulp and paper, iron and steel, refining, and nonmetallic minerals) consume about one-half of the energy used in the industrial sector. For years, the energy-intensive industries have focused on reducing energy consumption, which represents a large portion of their production costs [330]. Enterprises can reduce energy consumption in a number of ways, including improving industrial sector processes to reduce energy waste and to recover energy lost (often process heat), increasing the use of cogeneration capacity, and recycling materials and fuel inputs to reduce input costs and improve efficiency.

The development trajectories of individual countries play a major role in the rate of growth of industrial sector delivered energy consumption. When economies initially begin to develop, industrial sector energy consumption rises as manufacturing output makes up a rapidly growing portion of GDP, as is occurring in many non-OECD economies, most notably China. When developing countries achieve higher levels of economic development, their economies tend to become more service-oriented, and their industrial sector energy consumption levels off, as can be seen in most OECD countries.

Energy-intensive industries

Figure 121. Shares of total world industrial sector delivered energy consumption by major energyintensive industries, 2010
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The chemicals, pulp and paper, iron and steel, refining, and nonmetallic minerals industries account for about one-half of all energy used in the industrial sector (Figure 121). Consequently, the quantity and fuel mix of future industrial sector delivered energy consumption will be determined largely by energy consumption in those five industries. In addition, the same industries emit large quantities of carbon dioxide, related to both their energy consumption (combustion emissions) and their production processes (process emissions).

The largest industrial sector consumer of delivered energy is the chemical industry, which accounted for 19 percent of the global total in 2010. Energy inputs represent a large portion of the chemical industry's operating costs and an even higher percentage—up to 85 percent [331]—in the petrochemical subsector, which uses large amounts of energy products as feedstocks. Petrochemical feedstocks (liquefied petroleum gas [LPG], naphtha, and natural gas) accounted for roughly 60 percent of the energy consumed in the chemicals sector in 2010. Intermediate petrochemical products, or building blocks, which go into products such as plastics, require a fixed amount of hydrocarbon feedstock as input. For any given amount of chemical output, depending on the fundamental chemical process of production, a fixed amount of feedstock is required, which greatly reduces opportunities for decreasing fuel consumption in the absence of any major shifts toward recycling and bio-based chemicals [332].

By volume, the most important building block in the petrochemical sector is ethylene, which can be produced from various feedstocks. In Europe and Asia, ethylene is produced primarily from naphtha, which is refined from crude oil. In North America (the United States, Canada, and Mexico) and the Middle East, where domestic supplies of natural gas are more abundant, ethylene is produced from ethane, which typically is obtained from natural gas reservoirs. Because petrochemical feedstocks represent such a large share of industrial sector energy consumption, patterns of feedstock use play a substantial role in determining the industrial sector fuel mix in each region.

Most of the expansion of petrochemical production and consumption in recent years took place in non-OECD Asia and the Middle East. The combination of high energy prices in 2008 and the global recession in 2009 that reduced demand in client industries, such as construction, had a significant impact on the chemical industry. Demand for petrochemicals bounced back in 2009, however, when crude oil prices declined significantly from their 2008 highs. With the exception of Japan, petrochemical production is expected to grow steadily over the next few years. With the recent growth in U.S. supplies of domestic shale gas and, concurrently, natural gas liquids (NGL), especially ethane and propane, the United States has ramped up its production of ethylene, propylene, and other petrochemicals. In addition, feedstock consumption has shifted from naphtha to ethane, as owners of flexible-feed hydrocarbon processors (crackers) have opted for less expensive ethane over petroleum-based naphtha feedstock, the price of which is closely linked to oil prices [333]. Ethylene production in Canada also increases, with plans to ship growing ethane supply from the U.S. Marcellus shale formation to Canadian crackers in Sarnia, Ontario, by way of the Mariner West pipeline [334].

Petrochemical production in North America accelerates over the next 10 years, while chemical production in Europe remains relatively flat. Markets in Asia, the Middle East, and Latin America (including Mexico) largely outperform the global trend over the next five years, with growth led by China, where the petrochemical operations of domestic firms such as Sinopec and PetroChina have expanded rapidly, and there has been an influx of petrochemical sector investment from multinational firms, such as ExxonMobil. China also is starting to exploit its own abundant coal resources as feedstock for basic petrochemicals (olefins and methanol) [335]. Saudi Arabia is leading the Middle East with a large buildup of chemical plants to produce basic petrochemicals such as ethylene, propylene, and their immediate derivatives.

The second-largest user of energy in the world industrial sector is the iron and steel industry, which accounted for 15 percent of industrial sector delivered energy consumption in 2010. Energy represents roughly 15 percent of production costs in the iron and steel industry [336]. The amount of energy consumed in the production of steel depends on the process used. In the blast furnace process, super-heated oxygen is blown into a furnace containing iron ore and coke. The iron ore is reduced (meaning that oxygen molecules in the ore bond with the carbon), leaving pure molten iron and carbon dioxide [337]. Coal consumption and heat generation make the process highly energy-intensive. In addition, it requires metallurgical, or coking, coal which is more costly than steam coal because of its lower ash and sulfur content. Two-thirds of global steel production uses the blast furnace process, and in China—by far the world's largest producer—90 percent of steel production employs the blast furnace method. In Japan, the world’s second-largest steel producer, 77 percent of production comes from blast furnaces [338].

The other major type of steel production process uses electric arc furnaces to produce steel by melting scrap metal with an electric current. The only countries that make most of their steel with electric arc furnaces are the United States (60 percent in 2011) and India (61 percent in 2011) [339]. The process is more energy-efficient and produces less carbon dioxide than the blast furnace process but depends on a reliable supply of scrap steel. As a supplement to scrap steel in an electric arc furnace, direct reduced iron (DRI) can be used. DRI is much less energy-intensive than the blast furnace process (and requires only natural gas as opposed to coking coal, although thermal coal may be used), but the iron must be used in an electric arc furnace immediately after production. India is by far the world leader in the use of DRI, followed by Iran, Mexico, Saudi Arabia, and Russia [340]. DRI currently accounts for only 6 percent of world iron production, but because of expanding supplies of cheap natural gas (in the United States and, potentially, other regions that may be able to exploit shale gas resources), that percentage is likely to grow.

Figure 122. OECD and non-OECD steel production by major producing countries, 2011
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Over the past decade, there has been a major expansion of steel consumption in non-OECD countries, especially in Asia, with a corresponding increase in global production. Fueled by demand from the construction and manufacturing sectors, China provides almost one-half of the world total—more than the seven next-largest steel-producing nations combined (Figure 122). China's rapidly growing construction industry helped to stabilize its steel industry throughout the global economic downturn. In the medium term, world demand for steel grows steadily, spurred by infrastructure projects in non-OECD countries, with corresponding growth in energy consumption for steel production. Over the long term, however, the growth of energy consumption in the steel industry slows, as increasing inventories of scrap iron drive down the price of inputs for the electric arc process, and the fuel mix shifts from coal to electricity.

The third-largest energy-consuming industry is nonmetallic minerals, which includes cement, glass, brick, and ceramics. Production of those materials, which requires a substantial amount of heat, accounted for 7 percent of global industrial sector delivered energy consumption in 2010. The most significant nonmetallic minerals industry is cement production, which accounts for 85 percent of energy consumption in the nonmetallic minerals industry. Although the cement industry has improved energy efficiency over the years by switching from the wet kiln production process to the dry kiln process, which requires less heat, energy costs still constitute 20 to 40 percent of the total cost of cement production.

The demand base for cement—the vast majority of which is used for construction—is less diversified than that for steel. Consequently, the impact of the 2008-2010 economic downturn on the cement industry was severe. The most significant growth in cement production over the next few years will be in the non-OECD, where construction continues to boom. China is the
largest cement producer by a wide margin, churning out 58 percent of global production in 2011 [341]. Because the production of cement generates carbon dioxide directly, the industry has responded to pressure to address climate change impacts by focusing considerable attention on reducing fossil fuel use and improving energy efficiency. In the future, the energy efficiency of cement production will increase as a result of continued improvements in kiln technology, the use of recycled materials and waste for heating fuels (known as co-processing), and increased use of additives to reduce the amount of clinker (the primary ingredient in marketed cement) needed to produce a given amount of cement [342]. However, cheap fossil fuels (especially petroleum coke) are now being used by cement manufacturers in China and India, where relatively weak regulations on sulfur content partially offset the environmental benefits of improved kiln technology.

Pulp and paper production, which accounted for about 3 percent of global industrial sector delivered energy consumption in 2010, remains at about the same percentage through 2040. Paper manufacturing is an energy-intensive process, but paper mills typically generate about one-half of the energy they use through cogeneration, primarily with black liquor and biomass from wood waste. In some cases, integrated paper mills generate more electricity than they need and are able to sell their excess power to the grid. As is the case in other industries, recycling significantly reduces the energy intensity of production in the paper sector. The production of recycled paper produces more carbon dioxide, however, because the energy used in the process comes from fossil fuels rather than biomass [343].

Electronic media and digital file storage may cause global demand for paper to contract over time. Such trends have been observed in North America, for example, where reduced demand for newsprint and an aging capital stock have led the paper industry to reduce capacity [344]. For much of the rest of the world, however, output from the paper industry expands steadily in the IEO2013 Reference case, in part because of growing needs for a variety of paper products in non-OECD Asia, including paperboard for packaging and materials for diapers and toilet paper.

Production of nonferrous metals, which include aluminum, copper, lead, and zinc, accounted for 2 percent of industrial sector delivered energy consumption in 2010, mostly for aluminum production. Although aluminum is one of the more widely recycled materials, two-thirds of the aluminum industry's output still comes from primary production [345]. Energy accounts for about 30 percent of the total cost of primary aluminum manufacturing and is the second most expensive input after the raw material, alumina. The impact of the 2008-2009 global recession on downstream economic sectors, such as construction and automobile manufacturing, reduced aluminum demand globally, but the trend was far less severe in non-OECD countries. Although some analysts expect a greater portion of OECD aluminum production to be exported to non-OECD countries in the future [346], non-OECD countries still will increase their market share of global aluminum production.

To guard against electricity outages and fluctuations in electric power prices, many aluminum producers have turned to hydropower, going so far as to locate plants in areas where they can operate captive hydroelectric facilities. For example, Norway, which has considerable hydroelectric resources, hosts seven aluminum smelters. In 2010, more than one-half of the electricity used in Norway’s primary aluminum production came from hydropower [347].

Aluminum production from recycled materials uses only one-twentieth the energy of primary production [348]. Although aluminum recycling is encouraged by the aluminum industry and many governments, it is unlikely that the share of aluminum made from recycled product will increase appreciably in the future because most aluminum is used in the construction and manufacturing sectors and remains in place for a long time. Because three-fourths of the aluminum ever produced still is in use [349], it is expected that the aluminum industry will continue to consume large amounts of electricity.

Regional industrial energy outlooks

OECD countries

The OECD has transitioned in recent decades from manufacturing to more service-oriented economic activity. Partially as a result of this transition, industrial sector delivered energy consumption in OECD countries grows more slowly than commercial sector delivered energy consumption from 2010 to 2040 in the IEO2013 Reference case, at an average rate of 0.6 percent per year in the industrial sector, compared to 0.9 percent per year in the commercial sector. In addition to the shift away from manufacturing to services, slow growth in OECD industrial sector delivered energy consumption can be attributed to relatively slow growth in overall economic output. OECD gross domestic product (as measured in purchasing power parity terms) grows by 2.2 percent per year on average from 2010 to 2040 in the IEO2013 Reference case, but the industrial sector's 52-percent share of global economic output in 2010 falls to about 34 percent in 2040. As discussed above, the relative fuel mix for this region changes only slightly over the projection period.

OECD Americas

Figure 123. U.S. industrial sector delivered energy consumption by energy source, 2010 and 2040
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The industrial sector in the United States consumes more energy than the industrial sector of any other OECD country, a position that is maintained through 2040 in the IEO2013 Reference case. The growth in U.S. industrial sector delivered energy consumption is small, however, increasing at an average annual rate of 0.6 percent, from 24 quadrillion Btu in 2010 to 28 quadrillion Btu in 2040. The industrial sector's share of total U.S. delivered energy consumption remains at approximately 25 percent through 2040. Although oil prices rise steadily in the IEO2013 Reference case, liquids consumption in the U.S. industrial sector increases slightly through 2025, with the growth in production of bulk chemicals consuming an increasing volume of natural gas liquids. Low natural gas prices resulting from the strong growth in shale gas production support more rapid growth in natural gas consumption than liquids consumption in the U.S. industrial sector. The U.S. industrial sector's consumption of renewable fuels, such as waste and biomass, grows at a faster rate than the consumption of any other energy source in the Reference case, with the renewable share of U.S. industrial sector delivered energy consumption rising from 10 percent in 2010 to 13 percent in 2040 (Figure 123).

The projected growth in U.S. industrial sector delivered energy consumption is moderated by legislation aimed at reducing the energy intensity of industrial processes. For example, the U.S. Department of Energy supports reductions in energy consumption through its Advanced Manufacturing Office, guided by the Energy Policy Act of 2005, which is working toward a 25-percent reduction in the energy intensity of U.S. industrial sector production by 2017 [350]. The Energy Independence and Security Act of 2007 also addresses energy-intensive industries, providing incentive programs for additional waste heat recovery and supporting research, development, and demonstration for efficiency-increasing technologies [351].

Although there is no comprehensive set of federal rules in place to limit greenhouse gas emissions from the industrial sector in the United States, in 2012 California introduced a cap-and-trade policy (California Assembly Bill 32) aimed at reducing emissions [352]. In addition, the U.S. Environmental Protection Agency implemented an extension of the National Emissions Standards for Hazardous Air Pollutants for industrial sector boilers and process heaters (Boiler MACT). Each rule has a modest effect on industrial sector delivered energy consumption in the Reference case [353].

In Canada, industrial sector energy consumption grows by an average of 1.3 percent per year in the Reference case and accounts for just over one-half of Canada's total delivered energy consumption over the projection period. Industrial sector energy efficiency in Canada has been increasing at an average rate of about 1.5 percent per year in recent decades, largely reflecting provisions in Canada's Energy Efficiency Act of 1992 [354]. The government increased those efforts in 2007, releasing its Regulatory Framework for Industrial Greenhouse Gas Emissions, which calls for a 20-percent reduction in greenhouse gas emissions by 2020. The plan stipulates that industrial enterprises must reduce the emissions intensity of their production by 18 percent between 2006 and 2010, and by 2 percent per year thereafter. The plan exempts fixed-process emissions from industrial processes in which carbon dioxide is a basic chemical byproduct of production. Therefore, most of the abatement must come from increased energy efficiency and fuel switching [355].

Figure 124. Mexico and Chile industrial sector delivered energy consumption by energy source, 2010 and 2040
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Mexico and Chile's combined economy grows by 3.7 percent per year from 2010 to 2040 in the Reference case, which is the highest economic growth rate among all OECD countries. At 2.6 percent, Mexico and Chile also have the highest average annual rate of growth in OECD industrial sector delivered energy consumption, which increases from 3.4 quadrillion Btu in 2010 to 7.5 quadrillion Btu in 2040. Petroleum and other liquids and natural gas account for the largest share of industrial sector delivered energy consumption in Mexico and Chile through 2040 (Figure 124).

Chile, added to the OECD in 2010, is the world's largest producer of copper, and the mining industry accounts for 16 percent of total fuel consumption in the country's industrial sector. In 2005, Chile's National Energy Efficiency Programme was passed. Together with the Chilean Economic Development Agency, the National Energy Efficiency Programme created an Energy Efficiency Pre-Investment Programme that provides public resource monies to all but the largest companies to hire consultants or conduct audits to develop plans for improving energy efficiency [356].

Mexico's industrial sector continues to consume liquids and natural gas for most of its energy needs. In December 2009, the Mexican government introduced its Special Climate Change Program 2009-2012, which included many initiatives for the industrial sector, such as requiring the increased use of cogeneration and improvement of the operational efficiency of Petróleos Mexicanos (the state-owned oil company) and other Mexican industrial sector enterprises [357].

OECD Europe

In the IEO2013 Reference case, OECD Europe continues its transition to a service economy, with commercial sector energy consumption growing by 1.1 percent per year while industrial sector energy consumption grows by a slower 0.3 percent per year. Energy and environmental policies significantly influence the trends in industrial sector energy consumption in OECD Europe. In December 2010, the European Parliament passed the 20-20-20 plan, which targets a 20-percent reduction in greenhouse gas emissions, a 20-percent improvement in energy efficiency, and a 20-percent share for renewables in the fuel mix of European Union member countries by 2020 [358]. In debates on the plan, representatives of energy-intensive industries voiced concern about the price of carbon allocations. They argued that fully auctioning carbon dioxide permits to heavy industrial sector enterprises exposed to global competition would simply drive industrial sector production away from Europe and slow carbon abatement efforts at the global level [359]. The resulting compromise was an agreement that 100 percent of carbon allowances would be given free of charge to industries that are exposed to such carbon leakage, provided that they adhere to benchmark requirements for using the cleanest available technology [360]. As a result, the impact of the 20-20-20 plan on industrial sector emissions in the European Union is limited relative to its original intention.

OECD Asia

In OECD Asia, which includes Japan, South Korea, and Australia/New Zealand, short-term trends in industrial sector delivered energy consumption are likely to be tempered by events unfolding in Japan. Japan is the largest economy in OECD Asia and the largest industrial sector energy consumer.

Along with slow economic growth, a major factor behind Japan's slow growth in industrial sector energy consumption is increasing efficiency. The energy intensity of Japan’s industrial sector is among the lowest in the world. Since 1970, Japan has reduced the energy intensity (in terms of energy per unit of gross output) of its manufacturing sector by 50 percent, mostly through efficiency improvements, along with a structural shift toward lighter manufacturing [361]. An amended version of Japan's Energy Conservation Law went into effect in April 2009, introducing efficiency benchmarks for energy-intensive industries, including cement and steel [362]. There have also been efficiency gains in industrial sector electricity use, motivated by the national consensus to conserve electricity in the wake of Fukushima [363].

South Korea, which experienced rapid industrial sector development during the later decades of the 20th century, also is beginning to make a transition to a service-oriented economy. In the IEO2013 Reference case, South Korea's GDP grows by an average of 3.3 percent per year. The largest consumer of industrial sector energy in South Korea is the chemicals industry, and remains so through 2040 according to the Reference case projections. Liquids consumption, primarily naphtha for feedstock use, maintains the largest share of South Korea's industrial sector energy consumption through 2040. In addition, South Korea currently is the sixth-largest steel producer in the world. A large portion of its steel (39 percent in 2011) is produced by electric arc furnaces [364]. Steel production triples from 2010 to 2040, resulting in significant increases in consumption of both electricity and coal.

In Australia and New Zealand, industrial sector delivered energy consumption grows by 0.8 percent per year in the Reference case, from 2.3 quadrillion Btu in 2010 to 2.9 quadrillion Btu in 2040, while the industrial sector share of total delivered energy consumption does not change materially. As a result of growing natural gas production in Australia [365], natural gas fuels much of the growth in the region's industrial sector energy consumption, and the natural gas share of industrial sector delivered energy consumption rises from 36 percent in 2010 to 44 percent in 2040.

Non-OECD countries

Non-OECD industrial sector delivered energy consumption grows at an average annual rate of 1.8 percent in the IEO2013 Reference case—almost three times the OECD average. The
industrial sector in non-OECD countries accounted for about 63 percent of total non-OECD delivered energy consumption in 2010, but the share declines to 58 percent in 2040 as energy-intensive industries become more energy-efficient and the non-OECD economies become more service-oriented. With non-OECD economies expanding at an average annual rate of 4.5 percent in the Reference case, much faster than the OECD, their share of total global output increases from 35 percent in 2010 to 66 percent in 2040.

Non-OECD Asia

Non-OECD Asia will be a major center of global economic growth in the coming decades. In the Reference case, the economies of non-OECD Asia, led by China, expand by an average of 5.4 percent per year, and industrial sector delivered energy consumption increases across the region. Industrial sector delivered energy consumption in China increases by 77 percent from 2010 to 2040, at an average annual growth rate of 1.9 percent.

The industrial sector, which accounted for 74 percent of China's total delivered energy consumption in 2010, still accounts for about two-thirds of total delivered energy consumption in China in 2040. After the beginning of economic reform in 1979, China's GDP growth averaged 9.8 percent per year through 2007 [366]. With strong economic growth through 2015 and beyond, China accounts for more than one-fourth of total global GDP growth from 2010 to 2040 in the IEO2013 Reference case.

In addition to the impact of strong economic growth, continued rapid increases in industrial sector energy consumption can be explained in part by the structure of China's economy. Although the energy intensity of production in individual industries has improved over time, heavy industry still constitutes a major portion of China's total output. Energy consumption in China directly reflects the composition of its economy, where the iron and steel, nonmetallic minerals, and chemical industries together account for more than one-half of the country's industrial sector energy consumption over the 2010-2040 projection period. Those industries provide inputs to China's export and construction sectors, which continue to expand in the Reference case. The potential for structural change in the Chinese economy represents a major source of uncertainty in IEO2013.

Figure 125. China industrial sector delivered energy consumption by energy source, 2010 and 2040
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China's industrial sector fuel mix changes somewhat over the projection period, due in part to increases in light manufacturing. Despite its abundant coal reserves, direct consumption of coal in China’s industrial sector grows by an average of only 1.6 percent per year in the Reference case, while industrial sector consumption of electricity (most of which is from coal-fired power plants) grows by 2.9 percent per year (Figure 125). As a result, coal's share of the industrial sector fuel mix falls from 60 percent in 2010 to 54 percent in 2040, while electricity's share increases from 19 percent to 25 percent. The drop in coal share partly reflects the slower growth in steel output compared with other industries, in particular the non-energy-intensive industries. Natural gas consumption in the industrial sector grows by 3.2 percent per year on average from 2010 to 2040—faster than the consumption of any other fuel—but represents only 5.0 percent of China's total industrial sector fuel mix in 2040. Renewable energy does not play a material role in China's industrial sector energy consumption in the IEO2013 Reference case.

In addition to its primary focus on economic development, the Chinese government has introduced policy initiatives aimed at improving industrial sector energy efficiency. The 12th Five Year Economic Plan, approved in 2011 [367], includes a goal of reducing energy intensity by 16 percent and carbon emissions per unit of GDP by 17 percent between 2011 and 2015.

In August 2010, the Chinese government announced that 2,087 steel mills, cement works, and other energy-intensive factories would be required to close by September 30, 2010, solely to meet its energy intensity reduction goal. The closure of the factories did not have a large effect on industrial sector energy consumption, because many of the targeted factories were old and inefficient and were operated at low utilization rates. The IEO2013 Reference case assumes that China will continue to update its factories and become less energy-intensive [368]. The government is seeking further reductions in energy intensity, by 40 to 45 percent in 2020 relative to 2005. In the IEO2013 Reference case, based on projected gross output and total projected industrial energy consumption, China achieves a 1.5-percent average annual improvement from 2010 to 2020 in energy intensity and a 2.6-percent average annual improvement from 2010 to 2040.

Figure 126. India industrial sector delivered energy consumption by energy source, 2010 and 2040
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India has the world's highest rate of GDP growth in the IEO2013 Reference case, averaging 6.1 percent per year from 2010 to 2040, which leads to an average increase of 1.5 percent per year in industrial sector delivered energy consumption. Although India's 2010 to 2040 economic growth rate is faster than China's, its levels of GDP and energy consumption continue to be dwarfed by those of China throughout the projection period. Much of India's economic growth over the next few decades is driven by light manufacturing and services rather than heavy industry. As a result, the industrial sector share of total energy consumption in India falls from 46 percent in 2010 to 32 percent in 2040, and commercial sector energy consumption grows more than twice as fast as industrial sector energy consumption. Those changes are accompanied by a shift in the industrial sector fuel mix. Consumption of petroleum and other liquids in the industrial sector grows more rapidly than coal consumption, and natural gas consumption nearly doubles (Figure 126).

India has reduced the energy intensity of production in its industrial sector over the past 20 years. Most of its steel production comes from electric arc furnaces, and as in the rest of the world, most of its cement production uses dry kiln technology [369]. A major reason for the reduction in industrial energy intensity is India's public policy, which provides subsidized fuel to citizens and farmers but requires industry to pay higher prices for fuel. These market interventions have spurred industry to reduce energy costs, and India is now one of the world's lower-cost producers of both aluminum and steel [370] as well as the world's largest producer of pig iron, which can be used in place of scrap metal in electric arc furnaces [371].

The quality of India's indigenous coal supplies has contributed to the steel industry's efforts to reduce its energy consumption. India's metallurgical coal is low quality, forcing steel producers to import supplies [372]. As a result, producers have invested heavily in improving the efficiency of their capital stock in order to reduce the use of relatively expensive imported coal.

The Indian government has facilitated further reductions in industrial sector energy consumption over the past decade by mandating industrial sector energy audits in the Energy Conservation Act of 2001 and requiring specific consumption decreases for heavy industry as part of the 2010 National Action Plan on Climate Change. Under the 2001 Act, the central government is
able to target designated consumers—including paper, steel, aluminum, and some chemical industries—for reductions in energy consumption [373]. The new plan also calls for fiscal and tax incentives to promote efficiency and creates an energy-efficiency financing platform and a trading market for energy savings certificates, wherein firms that have exceeded their required savings levels will be able to sell the certificates to firms that have not [374]. Those measures contribute to a reduction in India's projected industrial sector energy intensity in the Reference case, which averages 2.5 percent per year from 2010 to 2040.

Outside of China and India, industrial sector energy consumption trends in the countries of non-OECD Asia follow diverse trajectories in the IEO2013 Reference case. Mature economies, such as Taiwan, Hong Kong, and Singapore, follow patterns similar to those in the OECD countries—transitioning from energy-intensive industries to activities with higher added value. Much of the growth in commercial sector energy consumption occurs in those countries. Other economies in the region, notably Vietnam, expand manufacturing and increase industrial sector energy consumption.

Non-OECD Europe and Eurasia

Industrial sector delivered energy consumption in Russia is shaped largely by the country's role as a major energy producer. Russia's economy grows by an average of 2.8 percent per year from 2010 to 2040 in the IEO2013 Reference case, with the industrial sector accounting for almost 40 percent of the country's total energy consumption throughout the projection period. The energy intensity of Russia's economy is the highest in the world, and although it declines in the Reference case, Russia remains among the world's least energy-efficient economies through 2040, due in part to its continued reliance on blast furnace technology. The energy intensity of Russia's industrial sector (as measured by industrial sector energy consumed per unit of GDP) is almost twice the world average. The relative inefficiency of Russian industry can be attributed to the continued use of Soviet-era capital stock and abundant and inexpensive domestic energy supplies. In the Reference case, natural gas—one of Russia's more abundant domestic fuels—accounts for more than 40 percent of industrial sector energy consumption. The share of electricity, most of which is provided by nuclear and natural gas-fired generation, increases through 2040, when it accounts for 17 percent of industrial sector energy consumption.

Industrial sector energy consumption in other parts of non-OECD Europe and Eurasia is relatively constant through 2040. The iron and steel sector constitutes the largest single energy-consuming industry in the region, which consists primarily of states that were once part of the Soviet Union. Ukraine is the region's largest—and the world's eighth-largest—steel producer. More than one-quarter of Ukraine's steel production industry uses open hearth furnaces, the least energy-efficient steelmaking process [[375], [376]]. As in Russia, energy intensity in the other countries of non-OECD Europe and Eurasia remains high, and the region continues to be one of the world's least energyefficient through 2040.

Central and South America

Figure 127. Brazil industrial sector delivered energy consumption by energy source, 2010 and 2040
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Brazil's industrial sector energy consumption grows by an average of 1.7 percent per year from 2010 to 2040 in the IEO2013 Reference case, while its GDP expands by 3.4 percent per year. Industrial sector energy consumption accounted for 60 percent of Brazil's total delivered energy consumption in 2010 and remains at roughly that share through 2040. A large share of delivered energy consumption in Brazil's industrial sector (more than 40 percent in 2010) comes from renewable sources, with biomass often the fuel of choice for heat generation in the industrial sector. In addition, many of Brazil's steel producers use charcoal (a wood-based renewable) instead of coking coal in the production process, and the government plans to support that practice as part of its National Plan on Climate Change [377]. The effects of the government's push to use renewable charcoal are seen to be minor, however, and coal consumption in the industrial sector—primarily for steelmaking—grows faster than the consumption of any other fuel (Figure 127).

Compared to Brazil , economic output in the remaining countries of Central and South America grows more slowly, averaging 3.3 percent per year, and industrial sector delivered energy consumption in those countries increases from 6.0 quadrillion Btu in 2010 to 7.3 quadrillion Btu in 2040. Chemicals and refining account for the largest shares of industrial sector energy consumption in the Central and South America region in the IEO2013 Reference case. Natural gas displaces some liquids consumption in the industrial sector energy mix, fueled by growth in the region's domestic natural gas production. In 2010, liquids and natural gas accounted for 34 percent and 44 percent of industrial sector energy consumption, respectively. From 2010 to 2040, industrial sector natural gas consumption increases by an average of 0.7 percent per year, while liquids consumption increases by 0.5 percent per year. As a result, the natural gas share of industrial sector energy consumption increases to 45 percent in 2040, and the liquids share falls to 32 percent.

Other Non-OECD regions

Industrial sector energy consumption in the Middle East grows on average by 2.5 percent per year from 2010 to 2040 in the IEO2013 Reference case. The largest energy-consuming industry in the Middle East is the chemical industry [378]. High world crude oil and natural gas prices have spurred new investment in the region's petrochemical industry, where companies can rely on low-cost feedstocks, and the trend continues despite the current global slump in demand for chemicals. Numerous petrochemical mega-projects currently are under construction in Saudi Arabia, Qatar, Kuwait, the United Arab Emirates, and Iran, although many faced considerable delays from 2009 to 2011 as a result of the global economic downturn [379]. Construction activity is now back on track, and the Middle East is becoming a major manufacturer of the olefin building blocks that constitute a large share of global petrochemical output, with the region's ethylene capacity doubling from 2009 to 2012 [380]. Because of the availability of relatively cheap fossil fuels and the heavy emphasis on developing the domestic petrochemical and refining sectors, liquids and natural gas maintain at least a 95-percent combined share of the Middle East's industrial sector fuel mix through 2040 (Figure 128).

Figure 128. Middle East industrial sector delivered energy consumption by energy source, 2010 and 2040
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Although 15 percent of the world's population in 2010 lived in Africa, the continent's industrial sector energy consumption that year was only 4.2 percent of the world industrial total, and its share increases only modestly in the Reference case. Africa's total industrial sector energy consumption grows on average by 2.3 percent per year from 2010 to 2040 in the IEO2013 Reference case. Africa's total GDP grows at an average rate of 4.6 percent per year over the projection period, but a substantial portion of the increase comes from the production of commodities. Although commodity extraction is an energy-intensive process, it does not support the expansion of industrial sector energy consumption on the same scale as the development of a widespread manufacturing base. Without a substantial departure from historical patterns of economic activity, low levels of industrial sector energy consumption in Africa continue through 2040 in the IEO2013 Reference case.