tial for further energy efficiency savings in the U.S. industrial sector as a whole:

  • Savings potential of 18-26% (IEA 2007).

  • Savings potential of 3.9 quads of energy reduction (about 12%) in 2020 (McKinsey 2007).

  • Savings potential of 16.6% from 2000 to 2020 with advanced policies (Interlaboratory Working Group 2000).

With continuing emphasis on energy efficiency in industry and likely increases in the cost of energy, energy use for industrial heating in 2030 will probably be somewhat lower than levels in 2007. NAS/NAE/NRC (2009a) finds the following:

  • “Independent studies using different approaches agree that the potential for improved energy efficiency in industry is large. Of the 34.3 quads of energy forecast to be consumed by U.S. industry in 2020 (EIA 2008b), 14 to 22% could be saved through cost-effective energy efficiency improvements (those with an internal rate of return of at least 10 percent or that exceed a company’s cost of capital by a risk premium). These innovations would save 4.9 to 7.7 quads annually.”

  • “Additional efficiency investments could become attractive through accelerated energy research, development, and demonstration. Enabling and crosscutting technologies—such as advanced sensors and controls, … and high temperature membrane separation—could provide efficiency gains in many industries as well as throughout the energy system ….”

SUMMARY

Externalities associated with heat production come from all sectors of the economy—residential and commercial buildings and industry. Most heat is generated from combustion of natural gas or from electricity. Combustion of natural gas results in relatively lower emissions compared with emissions from coal combustion, which is the main energy source for electricity generation. Therefore, damages related to providing heat directly from natural gas combustion are much less than damages related to use of electricity for heat. The better emissions performance of natural gas for direct heat also is reflected in the externality estimates of 11 cents/MCF (2007 USD) each for residential and commercial use, excluding GHGs. These results do not vary much regionally, although some counties have much higher externalities than others. Assuming industrial externality is 11 cents/MCF, aggregate damages from combustion of natural gas for direct heat is approximately $1.4 billion per year. The industrial sector contribution to this estimate reflects only natural gas use for heat generation. Including externalities from



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