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Analysis & Projections

The Energy Efficiency Gap and Energy Price Responsiveness in Food Processing

Release date: October 22, 2020

The National Energy Modeling System (NEMS) is an integrated energy forecasting tool used by the U.S. Energy Information Administration (EIA) to prepare the Annual Energy Outlook and other analytic products. NEMS includes modules for the energy supply sectors as well as sources of energy demand. In particular, the NEMS Industrial Demand Module (IDM) estimates energy consumption by energy source (including fossil fuel used as a feedstock) for 15 manufacturing and 6 non-manufacturing industries.

One of these manufacturing industries is food processing. Although food processing is less energy intensive than sectors such as steel or cement, it is still considered energy intensive in the NEMS IDM because of its relatively large energy consumption (1.1 quadrillion British thermal units of energy according to EIA's 2014 Manufacturing Energy Consumption Survey).

The IDM uses an end-use approach for modeling the food processing industry. End-use models use a capital stock vintage accounting framework that models energy use in new additions to the stock and in the existing stock. The model assumes that energy intensity decreases for both but that energy intensity of existing stock declines more slowly. Specifically, new additions employ state-of-the-art technologies to bring down energy intensity at a given rate, while existing stock undergoes retrofitting and replacement of equipment from normal wear and tear, which incorporates 50% of the improvement that is achieved by adding new stock.

By design, the existing end-use approach uses the observed average efficiency across firms in its estimation process. To understand potential future changes in energy intensity, one approach seeks to assess the energy efficiency gap—generally defined as the difference between the actual level of efficiency and an estimated, practically achievable level.

To better understand this, EIA commissioned Leidos, Inc., to prepare the following report The Energy Efficiency Gap and Energy Price Responsiveness in Food Processing. The report provides an analysis of this efficiency gap, as well as elasticities calculated in the stochastic frontier energy demand estimation process, which allow EIA to estimate how much of an efficiency improvement may be available in the food processing industry. In simulating efficiency improvements (by setting the target level of efficiency based on a percentile of the cumulative efficiency distribution), the estimate of potential reduction in energy use is by definition smaller but empirically more reasonable. The report finds that a practical improvement modeled by bringing the bottom half of the distribution up to the median can result in a 13.0% reduction in the efficiency gap when averaged across all models. If the lower end of the distribution is brought up to the ENERGY STARĀ® rating of the 75th percentile, the reduction in the efficiency gap increases to an average of 15.5%, and when targeting the 95th percentile, the reduction in the efficiency gap increases to 20.0%.

When referencing the report, cite it as a report by Leidos, Inc., prepared for the U.S. Energy Information Administration.


see full report