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Bipartisan Bill Invests In Industrial Energy, Water Efficiency

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Chairman Jeff Bingaman (D-NM) has introduced a bipartisan bill that would create incentives for America's industrial sector to greatly enhance its end-use energy efficiency -- a move that could save tens of billions of dollars annually. Senators Olympia Snowe (R-ME) and Dianne Feinstein (D-CA) are original co-sponsors of S. 3352, the Expanding Industrial Energy and Water Efficiency Incentives Act.

"A major study on energy efficiency found that the industrial sector represents the largest potential for increasing energy efficiency in the country," Bingaman pointed out. "Such improvements could save $47 billion annually. This bill offers focused, short-term incentives to help the industrial and manufacturing sectors make the next generation of efficiency investments necessary for these sectors to remain globally competitive and to continue to push innovation."

Snowe added: "Maine's manufacturing sector has consistently raised the high cost of energy as a major competitive disadvantage. While I continue to work to expand natural gas utilization for manufacturers, the easiest method is through investments in energy efficiency. This legislation will catalyze investments in technologies that use finite and expensive energy more efficiently, reducing operating costs and increasing our global competitiveness. I thank Sen. Bingaman for his leadership in developing this legislation and look forward to working with him and Sen. Feinstein in enacting this bill into law."

And Feinstein said: "This bill will help California businesses be more energy efficient and increase their productivity. The bill uses efficiency measures to reduce energy consumption of industrial motors by up to 2.3 billion kilowatt hours annually just in California, saving our industrial sector more than $200 million each year. The bill also includes a unique tax credit to reduce water consumption in the desert Southwest -- the sort of policy we desperately need to reduce water waste while supporting our industrial base."

S. 3352 creates incentives in four critical areas -- water reuse, advanced motors with adjustable speed drives using process control and connection to Smart Grid, chillers and highly efficient thermal biomass -- and it enhances incentives for combined heat and power systems.

First, it establishes an incentive for industrial motors, which on average account for two-thirds of industrial energy users' electricity use -- a percentage that is even higher in industries such as water supply, mining and oil and gas extraction. The bill creates a $120 per horsepower tax credit for manufacturers that incorporate advanced motor systems -- those that offer variable or multiple speed operation and use a set of approved technologies -- into new or redesigned appliances, machines, or equipment.

Second, the bill creates an Industrial Process Water Use Project Credit for investments in reuse, recycling and efficiency measures for industrial and manufacturing facilities. The U.S. currently re-uses only 6 percent of its water, and there is significant potential for gains in this area. The new credit takes a tiered approach, providing a credit as high as 30 percent for systems that achieve the highest water use savings.

Third, it adds a new incentive for replacing old chillers that harm the atmosphere. Chillers are the engines of air-conditioning systems for almost all large buildings. The bill establishes a credit of $150 per ton, plus an additional incentive of $100 for each ton downsized during replacement. Replacing these obsolete systems would allow for the recovery of 37 million pounds of ozone-depleting CFCs -- or 64 million metric tons of carbon dioxide equivalents; the replacement chillers' enhanced efficiency will save an additional 17.2 million metric tons of carbon dioxide.

Finally, the bill improves upon the incentive for combined heat and power systems that Congress enacted in 2008. By expanding the credit's applicability from the first 15 megawatts to the first 25 megawatts of system capacity and removing the overall system size cap of 50 megawatts, it will allow a greater number of combined heat and power projects to be financially viable and move forward.

Currently, no incentives exist to promote thermal-only biomass use for commercial and industrial applications. Using biomass for thermal applications has numerous advantages over using biomass to produce electricity. Thermal use is significantly more efficient, less polluting and more appropriately-scaled to biomass resources, which are limited to certain "haul distances." S. 3352 creates a tiered investment tax credit for highly efficient thermal biomass incentives: 15 percent for systems that achieve 65 percent or greater efficiency and 30 percent for systems that achieve 80 percent or greater efficiency. (The definition of biomass is the same as in Section 45 of the Tax Code.)

Taken together, these five industrial energy efficiency incentives capture a large portion of the energy efficiency potential in the industrial sector, catalyzing new technology deployment to decrease carbon emissions and protect our natural resources -- all while saving money on energy expenses and creating jobs. Several stakeholder groups have endorsed the bill, including the U.S. Combined Heat and Power Association, the Air Conditioning, Heating and Refrigeration Institute, the Alliance to Save Energy, the National Electrical Manufacturers Association, the Biomass Thermal Energy Council, the American Council for an Energy Efficient Economy, and the Alliance for Industrial Efficiency.

The bill has been referred to the Senate Finance Committee; Bingaman and Snowe are senior members of that panel. A section-by-section of the legislation is posted on the Senate Energy Committee website.

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