Electricity Consumption Increases with Advancing Digital Transformation

Research

The digital transformation raises hopes for ICT-based climate action measures and improved energy efficiency in production. However, information and communication technologies consume energy, which is why potential adverse effects on the environment are increasingly coming into focus. A recent analysis by ZEW Mannheim and the University of Göttingen of more than 28,700 German manufacturing companies provides new insights into the relationship between digital technologies and energy consumption.

As the manufacturing industry is responsible for a large proportion of global CO2 emissions, improving its ecological footprint is particularly important. According to a statement from the International Energy Agency in 2020, the manufacturing industry accounts for 26 per cent of global CO2 emissions and 38 per cent of global energy consumption.

New digital technologies, such as smart sensors and further developments in data analysis, make it possible to use energy and resources more efficiently, thus conserving them. There is hope among policymakers that this will increase productivity in the manufacturing industry while also reducing energy consumption and greenhouse gas emissions. “However, the relationship between digital technologies and energy consumption is by no means as clear-cut as it seems at first glance,” says Janna Axenbeck, researcher in ZEW’s “Digital Economy” Unit and co-author of the study. As more and more digital devices are produced, used and disposed of, the negative consequences for the environment come into sharper focus. What exactly the relationship between digital transformation and environmental benefits looks like, is being discussed among researchers – but so far empirical evidence at the firm level is scarce.

In a recent study, researchers at ZEW Mannheim and the University of Göttingen addressed this topic for the first time. They analysed more than 28,700 German-based companies in the manufacturing industry for the period 2009 to 2017. Data comes from the Official Firm Data for Germany (AFiD), which makes it possible to combine micro data from both economic and environmental statistics.

Greatest increase is in electricity consumption

The main focus of the study is on the difference in company-wide energy demand when using digital technologies. As the study shows, for the vast majority of companies there is a trade-off between the use of digital technology and absolute energy savings. On average, energy consumption in companies with increased use of ICT grew by 1.03 per cent within one year. A separate analysis of electricity consumption and fossil fuel consumption (excluding use for electricity production) showed an even more pronounced increase in electricity consumption of 1.34 per cent within one year. For the consumption of fossil fuels, however, no significant effect can be observed. The results thus suggest that the overall rise in energy consumption is due to an increase in electricity consumption, which makes sense since digital technologies run on electricity.

So, contrary to previous assumptions, digital technologies seem to raise rather than lower energy consumption at the company level. “With electricity at least, there is the possibility to switch from fossil fuels to renewable sources. This could contribute to the decarbonisation of the German economy,” adds co-author Anne Berner, expert of statistics and analysis at the German Energy Agency (dena) and researcher at the University of Göttingen.

Conflict of interest between environmental and economic policies

Furthermore, the analysis shows that on average there is a greater increase in electricity consumption in small and medium-sized enterprises in economically underdeveloped regions compared to large companies in economically stronger regions. “This result points to a political conflict of interest, namely between reducing energy consumption on the one hand and providing economic support to small and medium-sized enterprises in structurally weak regions on the other,” says Janna Axenbeck.

Further research in this area is necessary to understand the interdependencies between increased ICT usage and energy consumption. Only then can policymakers systematically coordinate guidelines to promote technological progress and measures to reduce energy consumption.

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