Climate Protection Potential of Digitalised Production Processes Lower than Expected

The need to make economic processes sustainable and the use of digital technologies have increased significantly in recent years. In addition, it is generally assumed that digital technologies can lead to energy efficiency improvements and thus significantly reduce CO₂ emissions, especially in the energy-intensive manufacturing sector. In fact, digital technologies do reduce energy intensity in manufacturing, but to a much lesser extent than previously expected. The increased use of digital technologies in companies is therefore not necessarily accompanied by a significantly improved energy intensity. These are the key findings of a study by ZEW Mannheim.

“Digital technologies consume energy themselves, but theoretically they also have the potential to reduce energy consumption due to improved energy efficiency, for example through the optimised control of heating and cooling systems, and the dematerialisation of products. However, the overall effect remains uncertain,” says Janna Axenbeck, researcher in the ZEW “Digital Economy” Department and author of the study. “For the manufacturing sector, this is extremely relevant: In 2019 alone, it was responsible for 28 per cent of Germany’s energy demand.”

In a large-scale empirical study, ZEW researchers have now for the first time investigated the climate protection potential of digitalised production processes at the firm level, i.e. the connection between the use of digital technologies and energy intensity improvements at the firm-level. For this purpose, they analysed administrative panel data from the German statistical offices on 28,600 firms in the manufacturing sector between 2009 and 2017. The ratio of software use to output served as an indicator of a company’s degree of digitalisation. One indicator of energy efficiency is energy intensity, i.e. the actual amount of energy used to generate one unit of output.

The study results show a statistically significant correlation between the use of digital technologies and an improvement in energy intensity, but to a much lesser extent than expected. For example, a one per cent increase in relative software use is associated with an average decrease in energy intensity of between 0.007 and 0.011 per cent among the companies studied. While there was a large increase in software use over time, energy intensity only decreased to a much lesser extent over the same period. “An increase in digital technologies in companies is not necessarily associated with substantial improvements in energy intensity,” explains Dr. Thomas Niebel, ZEW researcher and study author. “However, the effects – reduction in relative energy consumption when using digital technologies – are more pronounced in very energy-intensive companies and sectors. Energy-intensive sectors with greater improvements include, for instance, chemicals, metal production, manufacturing of glass and glassware, ceramics, processing of stone and earth, and paper and paper products.” Moreover, major differences are more apparent between rather than within companies. For example, companies that use more software appear to be less energy intensive on average. However, when software use changes within a company, the impact is much smaller.

The results of the study are particularly relevant against the background of increasing digitalisation and pressing climate policy measures. “Our results are important for policymakers, consultants and companies who overestimate possible synergies between digital technologies and energy savings in production. Only with the targeted use of digital technologies as well as a sound legal framework that, for example, mitigates potential rebound effects, can the climate protection potential of digital technologies actually be harnessed and CO₂ emissions reduced,” says Janna Axenbeck.