Carbon emission trading scheme and energy transition: The case of Guangdong, China

Transcription

1 Governance for Sustainable Energy Transitions: The Perspectives of the Asian-Pacific Region, July 17, 2017 Carbon emission trading scheme and energy transition: The case of Guangdong, China Dr. Akihisa MORI, Kyoto University Secretary General, East Asian Association of Environmental and Resource Economics 1

2 Contents _ Background and Research questions _ Analytical Methodology _ Analysis: Underlying factors Behind the Trade _ Discussions: Energy implications of the Carbon ETS _ Conclusions 2

3 I. Background and Research questions 3

4 Growth of CO 2 Emission decreases, especially from coal combustion Million ton of CO 2 Source: Author compilation based on IEA (2016) 4

5 China s Carbon ETS: Developments Year Policies Launched a demonstration program of 5 low-carbon pilot provinces and 8 pilot cities The 12th Five year plan announces a 17% reduction target of carbon per unit of GDP NDRC officially approved seven carbon ETS pilots schemes Launched a pilot carbon emission trading scheme (ETS) at five cities and two provinces Released the National Plan for Climate Change describing stabilization of CO2 emissions from the steel and cement sectors in 2020 at 2015 levels The 13th Five year plan announces a 18% reduction target of carbon per unit of GDP Launched a pilot carbon ETS at Fujian Province 2017 Will implement a nationwide ETS 5

6 Local Carbon ETS Pilots in Brief Shenzhe n Starting Date GHG Emissions in 2012 (MtCO2-e) Carbon intensity reduction targets Shanghai Beijing Guangdo ng Tianjin Hubei Chongqi ng Jun. 13 Nov. 13 Nov. 13 Dec. 13 Dec. 13 Apr. 14 Jun ( ) ( ) 45/ Cap Covered emissions Electricity and heat Manufactur ing

7 ETS-Benefits Driven emissions reductions, even when accounting for external factors Delivers cost-effective abatement by providing flexibility, encouraging low-carbon devt, and promoting deployment and innovation of lowcarbon technology. Support further public policy objectives by generating revenues, producing and sharing emission data, creating co-benefits, and adapting to country-specific contexts, and linking with other systems (Eden et al. 2016) 7

8 ETS-Expected Benefits in China Reduce economic cost in carbon emission reduction target (Wang et al. 2015) Brings about negative impact on economy without subsidy for energy technology improvement (Tang et al. 2015) Co-benefits of SO 2 and NOx emissions reduction (Cheng et al 2015) Desire to engage in international climate change policy regime, such as EU-ETS (Lo 2015) Linking to EU-ETS brings about smaller sectoral output reductions than auctioning (Hübler et al 2014). 8

9 ETS in China- Challenges Manage the overlapping policies (Swartz 2016) Energy vs carbon intensity reduction target Intensity vs absolute reduction target Non-fossil fuel targets Regulated wholesale and retail pricing policies Setting a strong cap and stringent allocation process Over-allocation Grandfathering vs auctioning Inaccuracy of the quota allocation (Liu et al. 2015) Reliable system of MRV (Jotzo and Löschel 2014; Lo 2015) 9

10 Renewable Energy and ETS: Synergies or Conflicts? Coupling the RE and ETS scenarios appears to be the most economically efficient scenario to achieve the desired carbon and energy intensity targets (Cheng et al 2015) A strict energy savings target reduces the demand for emissions credits (Liu 2017) FIT will reduce demand for emissions permits, lowering carbon price and weakening incentive for reducing consumption (Lin et al 2016) 10

11 Research Questions What are the energy implications of China s carbon ETS? Does ETS advance or retard the deployment of renewable energy? What enables or blocks off ETS s potential impact on energy transition, if it has any? 11

12 II. Analytical Methodology 12

13 A Dynamic Multilevel Perspective on System Innovation Source: Verbong and Loorbach (2012:8). 13

14 Key Concepts for Analyzing the Mediation of Connections Market competition between niche innovators and incumbents Power relation Innovative power Constitutive power Transformative power Interpretation Propagation of new interpretation of rules Source: Gioia, D.A. and Pitre (1990); Avelino and Rotmans (2009) 14

15 Feedback effects Renewable energy has high potential Technological feedback effects Modify political costs and options (Jordan and Matt 2014) Change norms, policies, regulations and prevailing institutions (Verbong and Geels 2007) Policy feedback effects distribute resources and creating material incentives to create or strengthen particular social interest groups transform state capacities and institutions to affect later prospects for policy implementation transform the interests, identity and political participation of large group of people to mobilize support (Pierson 1993) 15

16 Feedback Effects in Germany in Kyoto Phase ( ) CDU/CSU and SPD (Party in central govt) Electric power companies Econ. Coalition Ministry of Economy Internal distributional conflicts manufacturers Elites General public Auctioning as a harsh political backlash (Grundinger 2016) Ministry of Env Env. Coalition Feed-in tariff Economics of scale Renewable power producers Renewable manufacturers 16

17 III. Analysis of Underlying Factors behind the Trade 17

18 Carbon Price: Downward Trend with Turbulences except Beijing Source: China Carbon Emission Trading (

19 Possible Underlying Causes Emitters efforts Renovation Ultra-super-critical coal power Combined heat and power (CHP) Investments in renewable electricity Investments in emission reduction Improvements in energy management External factors Economic downturn Large incoming of renewables as offset credits Carbon leakage 19

20 Wind Power Installation by Country MW Source: Author compiled based on Mori (2015) and Global Wind Energy Co Ltd (2013) 20

21 Solar Power Installation by Country MW Others UK Australia Spain Japan China Korea India France United States Italy Germany Source: Author compiled based on Mori (2015). 21

22 Offset Mechanism Limit as a share of annual allocation annual compliance obligation local generation Cumulative traded amount by May 2017 (MtCO2-e) Cumulative traded CCER amount by May 2017 (MtCO2-e) Shenzhe n Shanghai Beijing Guangdo ng Tianjin Hubei Chongqi ng 5% % 5% % 10% % 10% % 70% n.a n.a 299 n.a 10 n.a 19 n.a n.a n.a n.a Source: Author compilation based on various sources 22

23 Large Curtailment Disables Massive Incoming of RE as Offset Credits Wind curtailment increased up to 15% in 2015 and 13% in 2016 (REN ). Govt requires cancellation of new coal power projects (Song and Hong, 2016) Source: Davidson, M. (2013) 23

24 Does Ultra High Voltage Transmission Lines Accelerate Nationwide Offset Trade? Source: Roberts (2017) 24

25 Still Challenges Remain to be Unsolved Equal Share Dispatching Policy/System Prohibit operators from adjusting the electricity production level in reaction to the increase of carbon cost (Teng 2016) De facto priority dispatch for coal power (Goggin 2015) Regulated wholesale and retail pricing policies Prohibit power plants from passing through the carbon cost (Lo 2015) 25

26 Possible Underlying Causes Emitters efforts Renovation Ultra-super-critical coal power Combined heat and power (CHP) Investments in renewable electricity Investments in emission reduction Improvements in energy management External factors Economic downturn Large incoming of renewables as offset credits Carbon leakage 26

27 Enables a province to satisfy increasing electricity demand without an associate increase in carbon emission by investing/encouraging coal power in other provinces 27 Carbon Leakage China s pilot ETS covers both direct and indirect emissions that are linked to electricity used in the production of goods imported into the covered area (Zhang et al, 2014).

28 Coal Consumption in Guangdong Province million ton Thermal power Heating Coking Industry Others 28

29 Power Generation by Type of Energy in Guangdong Province 6,000 5,000 4,000 3,000 2,000 1, million kwh Moving in from other provinces Others Solar Wind Nuclear Hydropower Thermal Total final consumption 29

30 IV. Discussion: Energy Implications of Carbon ETS 30

31 Reflection of the Findings 1. Credit is highly likely to be over-supplied National target Initial allocation Economic downturn Large room for win-win options 2. Carbon emission can be displaced Local pilots, but provinces are subject to the responsibility target system No limit 31

32 Feedback Effects in China in Local Carbon ETS Pilots State and the CPC State coal power companies Coal Consumption cap Econ. Coalition Coalmines Local govts NDRC Internal distributional conflicts Backing their foreign business (Mori mimeo) Env. Alliance? Feed-in tariff Economics of scale Renewable power producers Renewable manufacturers 32

33 V. Conclusions 33

34 Conclusions 1. Credit is highly likely to be over-supplied under the current local carbon ETS pilots. 2. Provinces can keep or increase power consumption by displacing power generation to other provinces. 3. Carbon ETS is less likely to intensify internal distributional conflicts within incumbent power generators that advance energy transition unless seriously addressing two remaining challenges Equal share dispatching policy/system Regulated wholesale and retail price 34

35 References (1) Avelino, F. and J. Rotmans, Power in transition: An interdisciplinary framework to study power in relation to structural change, European Journal of Social Theory 12 (4) (2009) Cheng B., H. Dai, P. Wang, D. Zhao and T. Masui (2015) Impacts of carbon trading scheme on air pollutant emissions in Guangdong Province of China, Energy for Sustainable Development 27, Cheng B., H. Dai, P. Wang, Y. Xie, L. Chen, D. Zhao and T. Masui (2015) Impacts of low-carbon power policy on carbon mitigation in Guangdong Province of China, Energy Policy 88, China Carbon Emission Trading (2017) State of carbon market, accessed on July 15, Davidson, M. (2013) Transforming China s Grid: Obstacles on the Path to a National Carbon Trading System, 35

36 References (2) Eden, A., C. Unger, W. Acworth, K. Wilkening, C. Haug (2016) Benefits of Emissions Trading, International Carbon Action Partnership, Berlin. Goggin, M. (2015) Analysis on China s move to green dispatch, accessed on July 14, Grundinger, W. (2017) Drivers of Energy Transition: How Interest Groups Influenced Energy Politics in Germany, Springer. Hübler M., S. Voigt, and A. Löschel (2014) Designing an emissions trading scheme for China An up-to-date climate policy assessment, Energy Policy Jitzo, F. and A. Löschel (2014) Emissions trading in China: Emerging experiences and international lessons, Energy Policy Jordan, A. and E. Matt (2014) Designing policies that intentionally stick: Policy feedback in a changing climate, Policy Science 47,

37 References (3) Liu, L., C. Chen, Y. Zhao, E. Zhao (2015) China s carbonemissions trading: Overview, challenges and future, Renewable and Sustainable Energy Reviews 49, Liu, X.B. (2017) Carbon pricing to accelerate the diffusion of low carbon technology in China, Policy Brief 40, Institute for Global Environmental Strategies. Lin, W., A. Gu, X. Wang and B. Liu (2015) Aligning emissions trading and feed-in tariffs in China, Climate Policy 16, Lo, A.Y. (2015) Challenges to the development of carbon markets in China, Climate Policy 16, Mori, A. (2015) Green growth and low carbon development in East Asia: Achievements and challenges, in Yoshida F. and Mori A. (eds.) Green Growth and Low Carbon Development in East Asia, Routledge, Pierson, P. (1993) When effect becomes cause: Policy feedback and political change, World Politics 45(4), REN21 Renewables 2017: Global Status Report, f (2017), accessed on June 20,

38 References (4) Roberts, D. By 2020, Every Chinese coal plant will be more efficient than every US coal plant: China s efforts to tackle coal are comprehensive and ambitious, a new report shows, Vox (May 16, 2017), accessed on July 1, Song, R. and Hong M. (2016) China s punch to tackle wasted renewable energy, World Resource Institute Blog, accessed on July 26, Swartz, J. (2016) China: An Emission Trading Case Study, IETA, Case Studies/China case study.pdf, accessed on July 14, Tang L., J. Wu, L. Yu, Q. Bao (2015) Carbon emissions trading scheme exploration in China: A multi-agent-based model, Energy Policy 81: Teng, F., X. Wang Z. LV (2014) Introducing the emissions trading system to China s electricity sector: Challenges and opportunities, Energy Policy 75,

39 References (5) Verbong, G. and F. Geels (2007) The ongoing energy transition: Lessons from a socio-technical, multi-level analysis of the Dutch electricity system ( ), Energy Policy 35, Wang, H. (2016) Evaluating regional emissions trading pilot schemes in China s two provinces and five cities, Working Paper , Asian Growth Research Institute, accessed on July 14, Wang P., H.C. Dai, S.Y. Ren, D.Q. Zhao, T. Masui (2015) Achieving Copenhagen target through carbon emission trading: Economic impacts assessment in Guangdong Province of China, Energy 79: Zhang, D. et al (2014) Emissions trading in China: Progress and prospects, Energy Policy 75:

40 Thank you 40