How does Chinese government move the energy regime toward lowcarbon. critical review of energyclimate

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1 Energy Workshop at Hong Kong Baptist University March 2, 2017 How does Chinese government move the energy regime toward lowcarbon development? A critical review of energyclimate policy Dr. Akihisa MORI, Kyoto University Secretary General, East Asian Association of Environmental and Resource Economics mori.akihisa.2a@kyoto-u.ac.jp 1

2 Contents Background and Research questions Analytical Methodology China s Energy System Transition in Brief Analysis Conclusions 2

3 I. Background and Research questions 3

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

5 Chinese govt has implemented few climate change policies Year Policies 2007 Published a National Climate Change Programme Launched a demonstration program of 5 lowcarbon pilot provinces and 8 pilot cities The 12th Five year plan announces a 17% reduction target of carbon per unit of GDP 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 2017 Will implement a nationwide ETS 5

6 Previous Researches Energy intensity targets is binding than carbon intensity target due to active reduction in power sector (Cao and Karplus, 2014) Greater role of the govt in the emergence of renewable energy industry (Lewis, 2007; Groba and Cao, 2015; Hochstetler and Kostka, 2015) Difference in wind and solar (Zhang 2011) Possibility of carbon leakage from increased renewable to non-ets covered sectors (Qi, Zhang, Karplus 2014) No improvement of energy security due to passive reaction of energy policies to macroeconomic reform (Yao and Chang 2015) 6

7 Coal Consumption is about to Peak Out amid Rise in Renewable 4500 million tce % Hydro, nuclear and others Natural Gas Crude Oil Coal Ratio of Hydro, nuclear and others Ratio of Natural Gas Ratio of Crude Oil Ratio of Coal Source: Author compilation based on China Statistical Office (2016) 0 7

8 Research Questions What are the drivers for China to move the energy regime toward the one that advance low carbon development? What are the enabling factors for China to get over the barriers to the transition of energy regime? 8

9 II. Analytical Methodology 9

10 A Dynamic Multilevel Perspective on System Innovation Source: Verbong and Loorbach (2012:8). 10

11 Typology of Transition Pathway Acceptance of renewables to a certain portion Change the perceptions of regime insiders Innovations are still limited to a niche Competition between incumbents Transformation De-alignment and re-alignment Regime experiences major internal problems Multiple niche innovations co-exist, eventually one of them becomes dominant Decentralized energy system or region-wide super-grid Regime takes certain niche into the system Change guiding principles, beliefs and practices Reconfiguration and alternatives Source: Verbong and Geels (2010). 11

12 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) 12

13 III. China s Energy System Transition in Brief 13

14 Landscape Developments Year Events Asian Economic crisis, followed by reform of electricity 1997 industry and shutdown of small coal mines Accession to WTO 2001 Define rules and guidelines of the Kyoto Mechanism Frequent reports on disasters in coal mines. Border carbon adjustments bills at the US congress Copenhagen accord: Pledged a 40-45% reduction of carbon intensity by 2020 compared to the 2005 level. The Fukushima nuclear disaster 2011 US embassy s release of concentration of PM Pledged to peak CO 2 emissions around 2030 and best efforts to peak early at the US-China summit. 14

15 China suffered serious electricity shortage in the early 2000s 6000 Billion kwh Billion kwh Others Wind power Nuclear power Thermal power Hydropower Consumption

16 Govt Addressed Power Shortage by Saving and Efficiency Year Target and Policies The 11th FYP announced a 20% reduction target for energy consumption per unit of GDP NDRC launched a Top 1000 Energy Consuming Enterprise program (expanded to installations) Revised the Energy Conservation Act to clearly appoint responsible entity for energy conservation; Down-by-one-vote system of personnel evaluation Energy-conservation standard and energy efficiency labels The 12th FYP announced a 16% reduction target for energy consumption per unit of GDP Issued an energy development plan to cap primary energy consumption at 4.8 billion toc per year by 2020 Released the action plan on the efficient use of coal, aiming at decreasing coal by 160 million tonnes 16

17 Long-term Contracts on Pipeline Gas Country Year of Contract Myanmar 2008 Kazakhstan 2009 Benefits to counterpart Myanmar has a stake of 2 bcm USD 1.7 billion of loan from CEXIM USD 3.3 billion of investment by CNPC Amount of purchase 5.2 bcm (2013- ) 5 bcm Uzbekistan bcm (2012- ) Turkmenistan 2009 Turkmenistan 2010 Russia 2014 USD 4 billion of loan from China Devt Bank USD 4 billion of loan from China Devt Bank USD 25 billion of loan from China Devt Bank 40 bcm ( ) 65 bcm (2020- ) 38 bcm ( ) 17

18 Coal Import has increased as well, Let Alone Oil and Natural Gas million tce LNG import Natural gas import Crude oil import Coal import Import share in natural gas consumption Import share in crude oil consumption Import share in coal consumption %

19 CDM projects by Host Country Host As of August 13, 2007 As of August 1, 2011 Number Total emission reduction by 2012 (mil t-co2) Number Total emission reduction by 2012 (mil t-co2) China India Brazil Mexico Malaysia Indonesia Others Total Source: Mori (2013) 19

20 China s Renewable Energy Policy Year Target and Policies Govt auction for development of selected wind sites, with 50% (70% during ) local contents requirement. Renewable Energy Act: mandatory purchase and connection provisions, and favorable tariffs for wind, biomass and solar Midterm Development Plan for Renewable Energy set out goals for non-fossil fuel as 10% by 2010 and 15% by Implement a feed-in-tariff for wind power (applied to solar power in 2012) Amendment to the Renewable Energy Act: mandate grid companies to purchase minimum amount Create renewable energy devt fund to compensate margin The 12th FYP announced a target of 11.4% of total energy use from non-fossil fuel share by 2015 and 15% by 2020 The 13th FYP announced a target of 15% of total energy use from non-fossil fuel share by

21 Top Wind Turbine Supplies in 2011 Ra nk Company Delivery (MW) Global Market Share (%) 1 Vestas (Demark) 5, (14.8) 2 Sinovel Wind (China) 3, (11.1) 3 Goldwind (China) 3, (9.5) 4 Gamesa (Spain) 3, (6.6) 5 ENERCON (Germany) 3, (7.2) 6 GE Energy (USA) 3, (9.6) 7 Suzlon (India) 3, (6.9) 8 Guodian United Power (China) 3, (4.2) 9 Siemens (Germany) 2, (5.9) 10 Minyang Wind Power (China) 1, Source: Mori (2015) 21

22 Wind Power Installation by Country MW China United States Germany Spain India UK Italy France Canada Portugal Denmark Sweden Japan Netherlands Australia Korea Others Source: Mori (2015) 22

23 Top PV Module Suppliers in 2012 Ra nk Company (rank in 2011) Delivery (MW) Global Market Share (%) 1 Yingli (China) (3) 2, (4.8) 2 First Solar (USA) (2) 1, (5.7) 3 Trina Solar (China) (4) 1, (4.3) 4 Suntech (China) (1) 1, (5.8) 5 Canadian Solar (China) (5) 1, (4.0) 6 Sharp (Japan) (7) 1, (2.8) 7 Jinko Solar (China) (13) (2.3) 8 SunPower (USA) (6) (2.8) 9 REC Group (Norway) (15) (1.9) 10 Hanwha SolarOne (Korea) (9) (2.7) Note: Based on 35.5GW produced in 2012 Source: Mori (2015) 23

24 Solar Power Installation by Country MW Germany China Italy Japan United States Spain France Australia Bergium UK Korea Others Source: Mori (2015) 24

25 IV. Analysis of Market Competition, Power Relation and Interpretation 25

26 Interpretation 1. Energy Security additional development of oil and gas around the world as enhancing energy security of China through increasing global energy security (Hayashi 2006) 2. Climate change as an issue of development for new industrial development (NDRC 2007) 3. Renewable energy as creating new growth point (Mori 2015) 4. Air pollution/ PM2.5 as shaking the legitimacy of govt (Ren and Shou 2013) 26

27 Increasing Market Competitiveness of Renewables Cost down through Competition Cheap labor and technology supplier Cheap/subsidized capital Economics of scale Learning by doing High renewable target Feed-in tariff Protection from foreign competitors Export to countries with renewable promotion Technological upgrade by Merger and acquire Phase-out of coal subsidy 27

28 Govt-backed Loan to Solar Power Manufacturers in China US and EU impose antidumping tax 28

29 No Alliance of Innovative and Transformative Power: Govt Orchestrate! Renewable energy manufactures Renewable energy developers Local content requirement Renewable target Feed-in tariff State grid companies CPC and state Responsibility for emission reduction Investment in long distance transmission line Shut down of small coal power/ miners Technological upgrade Financial support for foreign investment Local govts Coal miners Coal powers 29

30 Land Subsidence and Ruins Increases after the Coal Boom Source: Coal mining areas suffer from land subsidence and increasing economic burden after the coal boom in China, Newsweek Japanese edition, August 17, 2016 (in Japanese) 30

31 Local Grid Prioritizes Coal Power and CHP, Causing Wind Curtailment Wind curtailment increased up to one-third in 2015 (World Nuclear Association, 2016). Govt requires cancellation of new coal power projects (Song and Hong, 2016) Source: Davidson, M. (2013) 31

32 Constitutive Power is not Limited to Coal Miners and Power, but Consumers as well Skyrocketing coal price in 2016 Carbon emission trading scheme (2014) Import ban/ tariff on low quality coal (2014) Scrap of domestic coal production capacity (2016) Halting scrap of coal production capacity Inflation Adverse economic impact 32

33 V. Conclusions 33

34 Key Takeaways 1. Global climate governance, coupled with deteriorating air pollution, coupled and visible profit from energy import and renewable energy industry has motivated the state to transit the energy regime. 2. Changes in recognition, market competition and power relation has been orchestrated by the state, not by an alliance initiated by innovative power. 3. Supporting foreign investment of coal powers and miners are indispensable to advance transformation. 34

35 References (1) Avelino, F. and Rotmans, J. (2009) Power in transition: An interdisciplinary framework to study power in relation to structural change, European Journal of Social Theory 12 (4), Cao, J. and Karplus, V.J. (2014) Firm-level determinants of energy and carbon intensity in China, Energy Policy 75, Davidson, M. (2013) Transforming China s Grid: Obstacles on the Path to a National Carbon Trading System, Gioia, D.A. and Pitre, E. (1990) Multiparadigm perspectives on theory building, Academy of Management Review 15, Groba, F. and Cao, J. (2015) Chinese renewable energy technology exports: The role of policy, innovation and markets, Environmental and Resource Economics 60, Hayashi, K. (2006) Conditions for high-performer in international oil and gas upstream industry: A CERA proposal for increasing international competitiveness of Japanese firms, Oil and Gas Review 40 (3), (in Japanese). 35

36 References (2) Hochstetler, K. and Kostka, G. (2015) Wind and solar power in Brazil and China: Interests, state business relations, and policy outcomes, Global Environmental Politics 15 (3): IEA (2016) CO 2 Emissions from Fuel Combustion (2016 Edition), Paris: OECD/IEA. Lewis S. (2007) Technology acquisition and innovation in the developing world: Wind turbine development in China and India, Studies in Comparative International Development 42: Mori, A. (2013), Regional environmental regime in East Asia: Collapse or arrested development?, in Mori, A. (ed.) Environmental Governance for Sustainable Development: An East Asian Perspective, Tokyo: United Nations University Press, 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, NDRC (2007) China s National Climate Change Programme. 36

37 References (3) Qi, T., Zhang, X., and Karplus, V.J. (2014) The energy and CO 2 emissions impact of renewable energy development in China, Energy Policy 68: Ren, B. and Shou, H. (2013) Introduction: Dynamics, challenges and opportunities in making green China, in Ren, B. and Shou, H. (eds) Chinese Environmental Governance: Dynamics, Challenges and Prospects in a Changing Society, Palgrave McMillan, Song, R. and Hong M. (2016) China s punch to tackle wasted renewable energy, World Resource Institute Blog, accessed on July 26, Verbong, G.P.J. and Geels, F.W. (2010) Exploring sustainability transitions in the electricity sector with socio-technical pathways, Technological Forecasting & Social Change 77, World Nuclear Association (2016) Nuclear power in China, accessed on December 11, Yao, L. and Chang Y. (2015) Shaping China s energy security: The impact of domestic reforms, Energy Policy 77,

38 Thank you