Impacts of emission reduction target and external costs on provincial natural gas distribution in China

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1 Available online at ScienceDirect Energy Procedia 105 (2017 ) The 8 th International Conference on Applied Energy ICAE2016 Impacts of emission reduction target and external costs on provincial natural gas distribution in China Xueqin Yang a, Hailong Li b *, Fredrik Wallin b, Zhen Wang a a Academy of Chinese Energy Strategy, China University of Petroleum(Beijing), Beijing , P. R. China b School of Business, Society & Engineering, Malardalen University, Vasteras SE-72123, Sweden Abstract Natural gas is playing a more and more important role in emission reduction, and it is regarded as inevitable choice for the future energy consumption. In this study, a mathematical model was developed to identify an optimal solution for natural gas distribution in China. In line with previous research studies, the economic cost is the most important criterion that was considered. Additionally, the external cost of emissions was included as a second criterion. In order to satisfy the energy conservation and emission reduction target, the paper contributes with an optimization approach of the provincial distribution of natural gas with the aim to minimize the comprehensive costs. The problem was solved using Lingo software. An important contribution of the paper is that external costs was considered in the optimization of natural gas distribution from a provincial level perspective The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license 2016 The Authors. Published by Elsevier Ltd. ( Selection and/or peer-review under responsibility of ICAE Peer-review under responsibility of the scientific committee of the 8th International Conference on Applied Energy. Keywords: natural gas; distribution optimization; external costs; emission reduction Nomenclature D demand IC investment cost i province uti maximum utilization capacity spl supply n conversion factor e emission factor E emissions r e CO 2 emission reduction target r E energy consumption reduction target Ec external cost ecf external cost factor * Corresponding author. Tel.: address: hailong.li@mdh.se The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license ( Peer-review under responsibility of the scientific committee of the 8th International Conference on Applied Energy. doi: /j.egypro

2 Xueqin Yang et al. / Energy Procedia 105 ( 2017 ) Introduction The pollution and climate change have become even more serious in the world. China s energy consumption and pollutant emissions have dramatically increased as well. Geographic variations in carbon emissions have resulted in different degrees of environmental pollution across the country. For instance, China s capital Beijing is suffering of seriously air pollutions, and many related health and life issues have been pointed out, which left the government faced with unprecedented challenge. In its 12 th Five-Year Plan [1], a compulsory target has been proposed, with a target for 17 percent reduction in carbon intensity from 2010 levels. As a substitute for coal and oil, natural gas is considered as viable choice to reduce the above mentioned problem. Natural gas was only accounted for 4.9% of China s energy consumption in The Chinese government anticipates to increase its natural gas share to around 10% by 2020 [2]. In order to develop the natural gas market and to promote natural gas use, the government proposed policies on the utilization of natural gas in These policies were formulated for the purpose of encouraging, guiding and regulating the field for utilizing natural gas. In this paper, we aim to optimize natural gas distribution from a provincial level perspective, which could achieve high valuable allocation of natural gas resources to contribute to emission pollution. 2. Methodology The problem was solved through mathematical programming, with the aim of optimizing the national gas distribution system. Based on the decision variables, parameters and constraints, an objective function was developed and the optimal solution could be obtained. 2.1 Structure In this study, the optimization model is decomposed to energy consumption system, economy system and carbon emission system, the detailed model introduction is given as follows Economic system Fig.1. Framework of optimization model From the perspective of economic system, total costs of energy consumption after optimization should be minimum. For each kind of energy source, economic cost could be expressed as: (1)

3 3328 Xueqin Yang et al. / Energy Procedia 105 ( 2017 ) here, stands for the amount of coal equivalents for each kind of energy source. The investment cost is used to represent the unit cost of energy consumption, so minimization of the energy consumption costs could be expressed as below: F 1(Q) = (2) Pollutant emission system The pollutant emission cost is expressed as external costs. External costs of energy are related to environmental and social impacts, which could be categorized as below: health, agriculture, buildings, ecosystem and climate change [3]. All these impacts are usually not reflected in the energy price, but if including external cost, it could contribute to least-cost solutions from a social-cost perspective. External costs of energy have been widely discussed in literature. Qingyu Zhang [4] summarized the external cost factors of air pollutants in China. ExternE is the acronym for External Costs of Energy and a synonym for a series of projects starting from early 90s till All the results of the ExternE have been made available on the ExternE project webpage [3]. They adjusted the ExternE results to reflect the aggregation level of China, and climate change external cost was adopted the result of CO 2 control costs. The main pollutant emissions considered in this paper are CO 2, SO 2, NO x and PM 10. External costs vary from province to province because of differences in the cost of reducing emissions. According to the results of China, we could estimate the external cost factors for different provinces, population density and disposable income per capita were selected as adjustment factors. This method is adopted from Rong Zhang [5], when he estimated the external costs of Chinese freight transport. The initial estimate formula of external costs could be expressed as: external cost = unit cost degree of harm intensity volume [6]. So, the external cost of coal could be expressed as: (3) Total external costs should be the sum of each kind of energy source (j): F 2(Q)=Min (4) Energy consumption system While optimizing distribution, the amount should satisfy some basic requirements as well: (1) total energy consumption should meet the minimum demand of energy: (5) (2) regional natural gas distribution should be no less than the minimum amount (equals demand of the last year) and could not exceed the maximum utilization capacity [7]: (6) (7) (3) oil consumption in each region should be no more than its maximum supply: (8) (4) total consumption of oil and gas should be no more than national supply level: (9) (10) (5) the solution should satisfy the emission reduction and energy conservation target for each province: (11) (12)

4 Xueqin Yang et al. / Energy Procedia 105 ( 2017 ) Multi-objective optimization model When establishing the optimization model some assumptions are necessary: (1) Because of the data availability, year 2013 is our target year instead of So the emission reduction target of 12th Five-Year Plan is adjusted to in 2013, which is assumed to be half of the CO 2 emission reduction target in (2) In the model, the petroleum quantity is fixed to be equal to the quantity in 2013, in this way, we could pay more attention on the change of the coal and gas. (3) CO 2 emission is assumed to only come from fossil fuel, in this paper, it includes coal, oil and natural gas. Therefore, the final objective would be minimization of the above costs. Min F(Q)=F 1(Q)+ F 2(Q) (13) 3. Results and Discussions 3.1 Scenario comparison Natural gas and coal consumption will be changed after optimization, which will lead to better results in terms of external costs and CO 2 emissions. Compared with non-optimized scenario, external costs in majority of regions decrease to some extent, and total external costs in China could decrease by 10%. The same as external costs, CO 2 emissions will decrease in most of regions as well and it could decrease by 7% in total. Table 2 shows it in detail. Taking Beijing as an example. External costs would decrease 14% and CO 2 emission would decrease 2%. The reduction rate is not the highest one because of its large base and special urban function. If we use the current calculation model, external cost would account for 87% of the total cost, which has again proved that external cost is so significant to be considered in the cost system. In this way, the distribution model could be more reasonable and available. Table 1. Comparison of external costs and CO 2 emissions Province Non-optimized scenario External costs (ten million RMB) CO2 emission (10 4 tons) Optimized scenario External costs (ten million RMB) CO2 emission (10 4 tons) Beijing 9, , Tianjin 10, ,

5 3330 Xueqin Yang et al. / Energy Procedia 105 ( 2017 ) Hebei 8, , Shanxi 5, , Inner Mongolia 0, , Liaoning 6, , Jilin 1, , Heilongjiang 0, , Shanghai 71, , Jiangsu 26, , Zhejiang 12, , Anhui 4, , Fujian 3, , Jiangxi 1, , Shandong 21, , Henan 9, , Hubei 3, , Hunan 2, , Guangdong 14, , Guangxi 1, , Hainan 0, , Chongqing 1, , Sichuan 1, , Guizhou 1, , Yunnan 0, , Shannxi 2, , Gansu 0, , Qinghai 0, , Ningxia 0, , Xinjiang 0, , Total 226, , Regional natural gas distribution Under optimized scenario, oil and gas consumptions are different from the actual consumption in Consumption changes could be shown clearly in figure 2 and figure 3. Fig.2. Changes of coal distribution (10 4 tons) Fig.3. Changes of natural gas distribution (10 8 cbm)

6 Xueqin Yang et al. / Energy Procedia 105 ( 2017 ) As the above table shows, coal consumption will decrease in majority of provinces compared with the actual consumption in 2013, which confirms with the trend of emission reduction. It could also indicate that external cost is relatively lower in these provinces, so they could sacrifice a little bit to achieve countries reduction targets. On the contrary, natural gas consumption of some provinces increase significantly. Especially in Beijing, Shanghai, Jiangsu and Hainan, it shows that natural gas has higher value in these provinces, because the cost to reduce emissions is relatively higher in these provinces. So, the distribution of natural gas would be inclined to these provinces 4. Conclusion and implications We establish the natural gas distribution model in this paper, which is aimed to minimize the energy consumption cost and external cost. The objective is set under the constraints that CO 2 emission reduction target should be satisfied. Through the model, the following results could be obtained: (1) Natural gas consumption in some provinces increase significantly after optimization, it indicates that natural gas has higher value in these regions. On the contrary, for those regions where coal consumption increase indicates that they have to sacrifice to achieve national level goal, due to their relatively low costs. (2) The optimized scenario could lead that external costs and CO 2 emissions decrease in majority of regions. Total external costs in China decrease by 10%, CO 2 emissions will decrease by 7% in total. (3) Based on the criteria of comprehensive costs and emission reduction target, some provinces could be picked out as key regions, and they should be paid more attention to take the lead to carry out emission decreasing measures in the future. References [1] Cui L B, Fan Y, Zhu L, et al. How will the emissions trading scheme save cost for achieving China s 2020 carbon intensity reduction target[j]. Applied Energy, 2014, 136: [2] Energy Information Administration. Natural gas serves a small, but growing, portion of Chian s total energy demand [3] European Commission. In: Bickel P, Friedrich E, editors. ExternE: externalities of energy methodology 2005 update. EUR Brussels: European Co. [4] Zhang Q, Weili T, Yumei W, et al. External costs from electricity generation of China up to 2030 in energy and abatement scenarios[j]. Energy Policy, 2007, 35(8): [5] Zhang R, Li P. Calculation of External costs of Road and Railway Freight Transportation and Internalization[C]. Transportation Research Board 95th Annual Meeting ( ). [6] Fridell, E, Belhaj, M Wolf, C Jerksjö. Calculation of external costs for freight transport. Transportation Planning and Technology, Vol.34, No.5, 2011, pp [7] Chen Z H, He Z Y. Macroeconomic research[j]. Natural gas distribution based on efficiency and fairness in China, (Chinese) [8] Fan Y, Liang Q M, Wei Y M, et al. A model for China's energy requirements and CO 2 emissions analysis[j]. Environmental Modelling & Software, 2007, 22(3):