China s Progress in Energy Efficiency and. CHINA JAPAN U.S. Cooperation

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1 China s Progress in Energy Efficiency and Emission i Rd Reduction and Implications i for CHINA JAPAN U.S. Cooperation Gang He Research Associate, Stanford University Program on Energyand Sustainable Development PhD student, Energy and Resources Group University of California, Berkeley Washington, DC Oct 25, 2010 Outlines Background: rising China s greatest transformation Progress in China s the energy efficiency and emission reduction PESD s research for China s low carbon future: CCS in China as a case study Implications: understanding China s domestic political economy and align with China s domestic incentives Conclusion and implications 2 1

2 Background: Rising China s Greatest Social Economic Transformation Greatest transformation Four major socio economic transformations Industrialization Urbanization Motorization Modernization General socio economic target 2000, well off society 2020, all round well off society 2050, middle developed countries level Why China s energy and climate problems are extremely challenging? 3 Coal Dominates China s Primary Energy and Power Supply Hydro electric 6% Nuclear Energy 1% Oil 20% Hydro 17% Nuclear 2% Wind Others Natural Gas 3% Coal 70% Total: 2.65 btce 70% of China Primary Energy from Coal Source: 2007 data from China National Bureau of Statistics, 2008 Total: 3,427 TWh 81% Electricity Generated by Coal Source: 2008 data from China Electricity Council Coal fired 81% 4 2

3 Economy: Export Oriented and Energy Intensive Export oriented Labor intensive Energy intensive Resources intensive Chart source: Google Public Data. News source: 5 Highlights on China s Energy Efficiency and Emission Reduction Progress and Prospective Energy Saving: 600 million tce Emission Reduction: 1.5 Bt CO2 Source: tttp://news.xinhuanet.com/english2010/china/2010 Source: McKinsey, China s green opportunities. 03/13/c_ htm 6 3

4 China Tops the Clean Energy Booming GW In 2009, China was the biggest PV exporter New wind capacity installer Nuclear Capacity under construction Investor in clean energy Wind Nuclear 5 Solar Data Source: China Statistic Yearbook; CEC; Chinese Renewable Energy Industry Association. 7 China s Renewable Energy Will Account 15% of Total Energy Consumption by 2020 GW Wind Nuclear Solar Data Source: China Statistic Yearbook; CEC; Chinese Renewable Energy Industry Association targets proposed by Chinese planners, not officially released yet. 8 4

5 China s Green Infrastructure: High speed train and High voltage Transmission Lines A CRH train departs Shanghai station. Source: Xinhua. Source: Ministry of Railway, Towards Market Oriented Environment and Climate Governance 11 th five year plan mostly rely on command and control Carbon tax, environmental tax and climate tax in discussion Chinais is discussing a Cap and Trade and demonstration project Key energy intensive sectors: power, oil, chemical; SOEs Low carbon demonstration cities: Tianjin, Liaoning, etc It s not a big deal but has big implications Domestically: show the transformation, building the capacity and infrastructure for future implementation Internationally: deliver a clear message of China s take on climate change Try and test: will first be voluntary, to see how it can work 10 5

6 Stanford University Program on Energy and Sustainable Development Initiated in 2001 Works on political, economic and institutional perspective of global energy system Completed research 1) Electricity Markets and Power Sector Reform 2) Global Natural Gas Markets Active research 1) Climate Change Policy 2) The Global Coal Market Business Models for Carbon Capture & Storage (CCS) 3) National Oil Companies and the World Market 4) Building a Low Carbon Electricity Industry and the Smart Grid 5) Low Income Energy Services 11 Highlight Research on China s Low Carbon Future China s coal and power sector Industry organization Coalandpower and sectorreformreform China s clean coal technology Carbon capture and storage Carbon policy and Clean Development Mechanism Reform Increasing research on Fuel switch to natural gas Integrating renewable energy to the smart grid 12 6

7 Mtoe Coal is the World s Fastest Growing Source of Fossil Fuel and China Consumes 43% of It Increase in primary demand, (IEA) 4.8% % = average annual rate of growth 1.6% 2.6% 22% 2.2% Coal Oil Gas Renewables Nuclear Russia, 177.5, 4% Total Global Coal Consumption: 4.9 Btce Germany, 114, 2% Poland, 84.8, South Africa, 133.2, 3% Japan, 161.5, 3% India, 377.1, 8% Korea, 91.2, 2% Rest of World, 756.2, 15% 2% Australia, 81.3, 2% 0.8% USA, 788.1, 16% China, , 43% Consumption in million metric tons and share of global total, 2008 Sources: IEA WEO 2008, IEA Coal Statistics Note: Consumption is expressed in "million tons of coal equivalent. Other OECD N. America, $51, 2% The Conventional Wisdom: China is Required CCS Deployment to 2050 Power sector CCS investment in billion USD (IEA) USA, $270, 12% OECD Europe, $268, 12% OECD Pacific, $215, 9% Other Developing Ai Asia, $306, 13% Middle East, $86, 4% Africa, $248, 11% India, $204, 9% China, $467, 20% Eastern EU and Russia, $126, 5% Cent. and S. America, $59, 3% Number of power sector CCS projects to be deployed (IEA) Other OECD OECD N. America, Pacific, 148, 66, 4% 9% USA, 175, 11% OECD Europe, 187, 12% Other Developing Asia, 149, 9% Middle East, 103, 6% Africa, 117, 7% India, 147, 9% China, 307, 19% Cent. and S. America, Eastern EU 52, 3% and Russia, 181, 11% Total World: 1,623 projects Total World: 2.3 trillion USD The Current CCS Logic: Climate Change > CCS > Coal > China > CCS in Chinese Power? Source: IEA CCS Roadmap Assumptions based on IEA Blue Map mitigation scenario. 14 7

8 CCS at Scale Could Harm China s Energy Security Chinese Coal Flows (2.9 B tons in 2009; 3.3 B tons estimated in 2010) CCS at scale requires an extra million tonnes of coal Source: IEA CCC 2007, Coal Supply Challenges for China. Coal railway bottlenecks already a major constraint CCS at scale implies huge additional infrastructure costs new coal production additional rail build additional port capacity additional shipping capacity Total est. additional costs: ~USD 50 billion Note: Our calculations show that achieving IEA s Blue scale requires 375 GW (gross) CCS equipped coal capacity. Assumptions: 50% gross efficiency; 5% auxiliary consumption; 10% efficiency loss from capture; that is, 35% net efficiency with capture; 85% capture rate; 0.8 plant load factor. Given that today s ~600 GW of coal capacity consumes 1.2 billion tonnes per year coal, an additional 25% for 375 GW (due to decreased efficiency) would represent an additional 190 million tonnes of coal (conservatively). 15 Coal power Conflict: Why International Financial Mechanism is Needed for Scaling up CCS in China : China's power market cannot even bear the cost of coal Shanghai Grid (RMB / KWh) Coal Cost (RMB / KWh) /20/08 2/20/08 3/20/08 4/20/08 5/20/08 6/20/08 7/20/08 8/20/08 9/20/08 10/20/08 11/20/08 12/20/08 Cheap power to fuel economic development and tame inflation is a political imperative that constrains cost recovery for CCS at scale Chinese power companies lost RMB 70 billion (USD 10 billion) in 2008 because power prices remain tightly controlled by the central government while coal prices are not, illustrating a key problem: the power market cannot internalize increased costs Without power markets that allow for cost recovery, scaling of CCS technology is likely to prove elusive Source: He and Morse. Power price is Shanghai grid as reported by Shanghai Development and Reform Commission. Coal price is Qinhuangdao spot price as reported by Reuters. 16 8

9 Uneven Reform of Coal and Power Sector Twh, Mt Central Planning Two tier system introduced in Central Planning Generation partial open Market expanding, electricity coal price gradually relax State power corporation Coal negotiation Conference end in 2009 Major Market oriented Reform Power Generation Coal Production Coal Power Data source: China Energy Statistic Yearbook. Indicative Reform stage summarized by Gang He. 17 China s Core Interests in Energy Supply and Climate Policy Implications Economic growth and macroeconomic/social stability Energy security : ensure lack of energy doesn t impede growth supply diversification, efficiency improvement Keep energy prices low to end users: economic growth and social stability Develop leadership in energy technology manufacture Reduction of local pollution Pollution controls on coal plants Efficiency improvement Fuel switching away from coal Climate change mitigation Efficiency improvement Fuel switching away from coal 18 9

10 Lessons: Strongest Motivation Emerges Where Goals Align! For Example Higher efficiency coal technology (e.g., USC, IGCC) Energy Security: POSITIVE (better efficiency) i Technology Capability Development: POSITIVE Pollution Reduction: POSITIVE (better efficiency, less pollutant) Climate Mitigation: POSITIVE (better efficiency) Post Combustion Carbon Capture and Storage (CCS) Energy Security: NEGATIVE (energy penalty need even more coal) Technology Capability Development: POSITIVE Pollution Reduction: NEUTRAL Climate Mitigation: POSITIVE 19 China s CCS Projects Align with the Analysis CCS Projects Technology Partnership model Financial arrangement Status GreenGen Corporation IGCC Huaneng with seven Registered capital: RMB Under construction Pre combustion decarbonisation Gasification or partial oxidation shift plus CO 2 other state owned companies Peabody Energy 300 million (USD 44 million) Huaneng 51%, and other 7 in the group 7% each separation. Total investment will reach RMB 7 billion. Shenhua CTL Huaneng Beijing Thermal Power Coal to synfuels (direct coal liquefaction) Post combustion Shenhua Group Sasol West Virginia University Huaneng Australia CSIRO Near Zero Emission Coal R&DD UK China Ministry of Science and Technology COACH Project (Cooperation Action within CCS China EU) Shanghai Huaneng Shidongkou USD 1.4 billion USD 4 million research project by CSIRO USD 5.6 million equivalent from the UK Government s Department of Energy andclimate Change CTL operational, CCS expected to start in late 2009 Operational since 2008 In planning stages R&DD COACH project groups 20 Partially funded by In planning stages partners (R&D, European Union Manufacturers, Oil & Gas Companies, etc) 12 for Europe and 8 for China Post combustion Huaneng Corporation investment Under construction Source: Summarized from company profile and news

11 Final Comments: Low Carbon Opportunities in China s Energy/Power Sector Efficiency: Using coal more efficiently Supercritical/Ultra supercritical technology Integrated CoalGasificationCombinedCycle Combined Cycle (IGCC) Poly generation and co generation CCS: Capture and store CO 2 from coal plants Displace coal Nuclear power Natural gas Increase the use of renewable energy Won t be significant in the near future but can be a game changer Not just about renewable capacity, need actual generation 21 Things to Watch 12 th five year plan: continuing energy conservation and emission reduction effort; the target won t more aggressive, but the implementation will be more market oriented Two major targets by 2020: 40 45% emission intensity 15% renewable energy Booming of new energy Nuclear, wind, solar, biomass, Others Low carbon cities demonstration Environment exchange, carbon exchange setting up the infrastructure of market oriented approach Carbon tax, environmental tax 22 11

12 Conclusions and Take home Messages China is under its greatest social economic transformation and the opportunities lie with challenges China is progressing gaggressively in energy efficiency and emission reduction, and is leading the global clean energy revolution Domestic political economy has huge implication on applying international climate policy to China The best way to work with China is engaging China s core interests. 23 Thanks! Questions and comments are welcome: Gang He ghe@stanford.edu 24 12