Over the past 20 years, U.S. steel manufacturing has experienced an episode of creative destruction. Iron-ore based steel plants closed over 50 million tons of annual capacity while scrap-based steel plants concurrently constructed nearly 30 million tons of capacity. Barnett and Crandall (1986), Hogan (1987), and Preston (1991) tell the story well. The general decline in U.S. steel production masks the creative destruction. In 1970, domestic producers poured 131 million tons of raw steel, 85 percent of which they produced in open-harth--that is, basic oxygen--furnaces (American Iron and Steel Institute Annual Statistical Report, various issues). In 1990, steel producers poured 99 million tons, 63 percent from basic oxygen furnaces. Electric furnace output nearly doubled from just over 20 million tons in 1970 to about 37 million tons in 1990. Electric furnaces installed after 1970 produced the bulk of that output.
The analysis here focuses on this creative destruction's effects on electricity use in steel manufacture. Steel's changing energy requirements change the form of environmental pollution. Steel plants use large amounts of energy to convert iron or to refine scrap into steel. Blast furnace-basic oxygen steel furnace plants rely on coal and coke. The National Energy Accounts report that steel manufacturers' fossil energy use declined from 3.2 Quads in 1970 to 1.7 Quads in 1985. Steel use of electricity increased from 49.4 billion kWh in 1970 to a maximum of 64.3 billion kWh in 1979 before falling to 51.0 billion kWh in 1988. An electric furnace plant uses about half the energy that a blast furnace-basic oxygen furnace plant uses principally because melting steel scrap requires much less energy than does reducing ore to iron (Ross, 1987).
An electric furnace plant's electricity demand can equal a city's (Preston, 1991, p. 178). Barnett and Crandall (1986, p. 85) estimate that 80 percent of a plant's power use goes to operate the electric furnaces. Electric furnace steelmakers have reduced their electricity consumption. Figure 1 traces an engineering assessment of steel furnaces' minimal energy intensity and gives a chronology of improvements in electric furnace practice between 1965 and 1985. The energy intensity of a state-of-the-art electric furnace has been falling at the rate of about 10 kWh per ton of raw steel each year.
Potential improvements in minimills' electricity use indicate that minimills may be good targets for energy demand policies. They are large single users of electricity with a demonstrated engineering potential for reductions. The analysis here involves a disaggregated examination of the roles that plant vintage and capacity utilization rates play in determining energy intensity and overall technical efficiency. Energy's direct and indirect roles in environmental issues have a far reaching impact. The coke ovens that serve blast furnaces are direct sources of sulfur dioxide ([SO.sub.2]), nitrogen dioxide ([NO.sub.x]), and carbon dioxide ([CO.sub.2]). The new Clean Air Act subjects [SO.sub.2] to emission limits and permit trading and may impose additional controls on [NO.sub.x] as a source of urban ozone. Electric arc furnaces produce fewer pollutants at the plant site, but their great electricity demand indirectly creates greater pollution from electric generating plants. Although [SO.sub.2] and [NO.sub.x] emissions affect local communities, the global warming debate has centered on [CO.sub.2] emissions. Policymakers have shown renewed interest in encouraging cost effective reductions in energy use through policy instruments such as energy-emission taxes, tradable permits, and investment credits including demand side management efforts from the utility sector.
The results of the analysis here indicate that policymakers with pollution abatement or [CO.sub.2] reduction goals in mind have several options for reducing industrial energy use. …