Asia: The coming climate challenge

Transcription

1 Caisse des Dépôts quarterly Mission climat newsletter n 9 June 27 E dito Asia: The coming climate challenge The Asian continent is home to 54% of the world s population, although it accounts for only 21.5% of the world s GDP. The difference between these two figures reflects the continuing widespread presence of poverty throughout Asia. On the other hand, Asia emits one-third of the world s greenhouse gases. The weight of agriculture and forestry in total emissions is very high on account of the predominance of rice farming and the rapid pace of deforestation. The weight of transportation, on the other hand, is very low, reflecting the population s limited mobility. The percentage of emissions generated by power generation remains, on average, below that observed in the West. The scope of the climate challenge is primarily the result of the size of the continent and is amplified by the unprecedented pace at which it is emerging from underdevelopment. This forced march is exerting significant pressure on both economic and Carbon intensity of Asian economies in 23 CO2 emissions of per unit of GDP (KCO2/1 USD) India Vietnam Pakistan Indonesia Bhoutan Philippines Bangladesh Laos Sri Lanka Myanmar Nepal Cambodia 5 China Thailand Malaysia ecological resources, especially in China and India. The political responses to this challenge are emerging more gradually. Japan, as Taishi Sugiyama has shown in his valuable analysis, is reluctant to rely entirely on market instruments. In Japan, voluntary measures are providing an opportunity to test new tools, although they are not exerting any driving effect on the international market for carbon credits as the European Emissions Trading Scheme is doing. Asian countries account for 77% of the world supply of credits under the Clean Development Mechanism (CDM). The mecha nisms of the draft Kyoto Protocol are therefore being tested on a very large scale and are generating significant flows of investments. This explains the regional exchange projects cited by Luke Redmond and Emilie Alberola. (Kg of CO2 emitted per USD 1 of GDP given parity of purchasing power) Korea (South) Taiwan Singapore Japan Per capita GDP (USD) The carbon intensity of the Asian economies seems to have a positive correlation with the GDP below the threshold of USD 1, per capita. Above that, it seems to decrease as countries become richer. Source: Caisse des Dépôts Mission climat, based on data from the WRI and FMI Summary Asia: The coming climate challenge Christian de Perthuis The climate policy of Japan Interview with Taishi Sugiyama The Asian market Emilie Alberola / Luke Redmond The Chinese equation Xin Wang / Benoît Leguet Key figures of Asia Raphaël Naïm The article on China by Benoît Leguet and Xin Wang also shows how far the CDM utilization strategy has to go if it is going to reduce the country s emissions. Economic overheating has interrupted the gains in efficiencies that were reducing the Chinese economy s carbon intensity. Since 2, Chinese emissions of CO2 have increased faster than the GDP and will make China the world s No. 1 emitter of greenhouse gases as early as next year or even before the end of this year. The challenge for the coming decades is to find a balance between the fastest possible emergence of Asia from under-development and a reduction in the rate of growth of emissions. The response to date has been insufficient. In the absence of stronger commitments by governments, the new economic instruments will have limited effectiveness. Therefore, preparations must be made quickly for a post- 212 context which will broaden the actions taken on the ground. This will be the major challenge facing the annual climate conference which is being held late this year in Bali Christian de Perthuis, tel.: christian.deperthuis@caissedesdepots.fr

2 I nterview The climate policy of Japan Japan is the world s second largest economy and the fourth largest energy consumer and greenhouse gases (GHG) emitter. It is also the only country in Asia with a Kyoto target. Taishi Sugiyama a Senior Researcher at the Central Research Institute of Electric Power Industry in Japan answers our questions. What climate change policies and measures has Japan adopted in order to meet its target under the Kyoto Protocol? Under the Kyoto Protocol, Japan agreed to reduce its GHG emissions by 6% below their 199 levels during the period. There has been an intensive and successful energy conservation policy has been in place since 1973 ; that consists of developing new technologies, promoting energy conservation standards and implementing a tax break. The energy conservation policy has been further intensified since 1997 and remains the major pillar up to now. In April 25, Japan adopted the Kyoto Target Achievement Plan, which provides policies and measures for achieving the Kyoto target: 1) a mandatory GHG accounting and reporting system for large emitters, effective since April 26; 2) a voluntary emission trading scheme, which started in April 26; and 3) an upfront payment system for CDM and JI projects. How did Japan establish a voluntary domestic emissions trading scheme (ETS) for big emitters? After a pilot domestic ETS implemented in 23, the Ministry of Environment launched in February 25 the Japanese Voluntary ETS (JVETS). 31 private industrial firms are involved, representing only 27 Mt CO2 emissions, with self-imposed GHG emissions reduction targets and private financial firms which taking part in emissions trading. Transactions of allowances took place from April 26 to March 27. The verification of emissions is being carried on from April to August 27. Results appear quite disappointing as the effectiveness of the ETS hasn t been proven so far. As for the future, keeping manufacturers strong and diversifying energy sources are two stakes of critical national interest. Even if Japan commits itself to cap its post-212 emissions, the target would be conservative in face of these risks and inherent uncertainty of future emissions. Price signals to innovate in energy efficiency are given by other instruments than the ETS since innovation requires higher shadow prices than those attached to the ETS. What are the other initiatives taken by Japanese companies which are not concerned by the JVETS? Companies are involved in voluntary actions in two ways. First, company federations gathered around a common, but differentiated target of emissions reduction. Presently about 7% of industrial emissions are covered by this Keidanren Voluntary Action Plan on the Environment. Launched in 1997, this plan is stated to play a central role in the industrial and energy-conversion sectors efforts. In 26, it gathered 35 industries accounting approximately for 44% of Japan s total emissions and 83% of CO2 emissions from the industry/energy conversion sectors in 199. The second way is related to private CDM programs. The Development Bank of Japan, the Japan Bank for International Co - operation and Japanese private companies launched Japan GHG Reduction Fund, the first Asian carbon fund (US$141.5 million in 27) in December 24 to purchase CERs and ERUs efficiently and to support CDM/JI project development effectively. How is Japan involved in Post-212 discussions? Beyond 212, Japan will make every effort to move forward towards the UNFCCC objective. The Post-Kyoto framework needs to be underpinned by the mutual recognition of national policies. Japanese climate policies could be mixed with the European (ETS, renewable directives, etc ) and US (carbon capture, etc...) measures. Japan, like other countries, is divided on the question of continuing with a Kyoto-style binding cap regime for the Post-212 regime. There seems to be a broad consensus that the binding cap approach is not very promising for developing countries in the near future, and that the CDM is not yet a major driver for massive energy savings and emissions reductions in these countries. From this perspective, we worked last year to propose our research findings on the development of technology cooperation in Asia and the implementation of sectoral approaches, proposals which can be housed either within the Kyoto Protocol regime or other regimes. Interview conducted by Emilie Alberola Tel.: emilie.alberola@caissedesdepots.fr CO2 emissions, energy intensity and CO2 emissions intensity of the Japanese economy: 14 years of evolution Indice base 1 = : Keindaren Volontary Action Plan for Environment : The first pilot ETS 1998: Law Amendment Energy Conservation/Reinforcement + 24% + 4% + 3% Energy Intensity CO2 Emissions CO2 Intensity Since 199, CO2 emissions have grown by 24%. In the same time, the energy and CO2 intensities of the Japanese economy have also increased, but to a lesser extent. In these conditions, Japan will have trouble complying with its Kyoto target. Source: Energy International Agency, 26 2

3 K yoto Projects The Asian market The land of choice for the majority of CDM projects, Asia now has exchanges for trading carbon credits The World Bank estimates that since 22, 8% of the credits from CDM have come from an Asian country. Asia is therefore far and away the dominant force in the primary CDM market. By 212, China is projected to represent more than 49% of the CDM credits, i.e. 942 million credits generated. By comparison India, the second largest country in Asia, is projected to generate only one-fifth of these emissions reductions. Numerous projects have been accepted by the Indian authorities dating back to the days when they were promoting sustainable development. Nevertheless, to be certified by the United Nations, the projects must also be characterised by additionality (i.e. projects that would not be economically viable without the use of the credits associated with the emissions reductions). This requirement explains why, out of the 6 projects approved by the local authorities, only slightly more than one-third have been registered, and more than half of the projects that have been rejected or are the subject of a request for re-examination by the CDM Executive Board are in India. Tigers and dragons All the countries in the region are more or less involved in the market for CDM projects. In South Korea, slightly more than thirty CDM projects are currently in the development process, the majority of which are based on two technologies: wind energy and landfill biogas. Korea is home to the only tidal energy power project registered by the United Nations, which is projected to generate approximately 1 million credits by 212. The country is also under strong pressure to make quantified emissions reductions commitments after 212. The state-owned Korean Development Bank has also announced that it is prepared to invest 1 million euros in the purchase of pre- or post-212 CDM credits. Malaysia, with a strong agricultural tradition, is home to about fifty projects based on two technologies: the use of palm oil residue to generate power, with a potential reduction of close to 12 Mt CO2 by 212, and the composting of waste, with a potential reduction of more than 1 Mt CO2 by 212. The Malaysian electronics industry is mobilising and developing small projects that are expected to generate approximately 5, tonnes of reductions by 212. Finally, Indonesia has thirteen projects approved by its authorities in its portfolio, eight of which have already been registered with the United Nations. Indonesia s emissions, not counting deforestation, are low: 45 Mt CO2 annually. But if deforestation is included in the calculation, total emissions skyrocket to more than 3 billion tonnes of CO2 annually, which makes Indonesia the world s third-highest source of emissions after the US and China. The inclusion of prevented deforestation in the Kyoto Protocol project mechanisms could therefore make Indonesia the future CDM giant in Asia. Exchanges for trading carbon credits in Asia On account of its market power, China has an enormous influence on the organization of trading. China not only has a strategy on the primary market, it is also involved in the secondary trading of credits among investors. In February 27, China and the United Nations announced their intention to establish both a credits exchange in Beijing and carbon credits brokerages in twelve Chinese provinces. This initiative is in addition to the two Asian exchanges that already exist: the Asian Carbon Exchange (ACX) and the Asia Carbon Trade Exchange based in Japan, Singapore and China. In the short term, the growth of these new markets is coming up against the limits of the technical infrastructure. The connection between the European and UN computer systems, the CITL and the ITL is not yet operational, which makes it impossible to deliver the credits to the accounts of the buyer countries or companies. In the medium term, it will also run into competition from other marketplaces. Several allowance trading markets in Europe, such as ECX in London and EEX in Germany, and in the United States have recently announced their intention to develop credit-trading platforms. Emilie Alberola, tel.: emilie.alberola@caissedesdepots.fr Luke Redmond, tel.: luke.redmond@caissedesdepots.fr Distribution of CDM projects in Asia in the course of registration by the United Nations The Asian Giants Tigers and dragons Volume of credits by 212 (MtCO2) 6 Pending validation 2 4 Pending registration Registered Pending validation 1 5 Pending registration Registered Asia - Pacific China India Indonesia Malaisia Philippines South Korea Thailand In Asia, more than 5% of the CDM projects are pending validation by the United Nations. India has registered 48% of CDM projects in terms of numbers, although China is home to 36% of the region s CDM projects, which are expected to generate 64% of the Asian credits by Volume of credits by 212 (MtCO2) Source: UNEP/RISOE CDM Pipeline 3

4 China The Chinese equation The Chinese government has incorporated CDM projects into its climate strategy, although it has not yet had any visible effect on the skyrocketing of its emissions. CDM or Chinese Development Mechanism? As of May 31, 27, China was home to 84 projects recorded by the Executive Board of the CDM representing approximately 49% of the emissions reductions expected in the context of the mechanism. The largest supplier of CDM credits in the world is generating the majority of its emissions reductions on the basis of five types of projects: hydroelectric projects, with the focus on two principal sites: the Yangtze, where only large-scale projects are installed, and farther north, the Yellow River, where both small and larger projects are being developed; some fifteen high-power wind farms; improvements in the energy efficiency of existing installations; the recovery of methane from mines and landfills, principally concentrated around major metropolitan areas such as Guangzhou and Beijing; the destruction of N2O in chemical plants and the incineration of HFC23, which involves half a dozen projects, most of which are located in the Shanghai region. The large-scale reforestation projects being carried out in Southeastern China, which has a tropical climate, involve several tens of thousands of hectares, although they will only sequester significantly lower quantities of carbon. The politics of the supply of CDM Principal characteristics of Chinese CDM projects Hydro Wind EE Own- Coal bed/mine Generation methane Landfill gas Credits generated by 212 Biomass energy The Middle Kingdom made the CDM an integral part of its climate strategy by defining a regulatory framework in October 25. The Chinese authorities want to control the revenues from CDM projects and promote those that have higher returns for the domestic economy in terms of transfers of technology and operation of the energy system. Only companies that are majority Chineseowned can obtain the approval from authorities that is necessary to get the credits. A minimum selling price of the Certified Emissions Reduction (CER) unit, the May 27 level of which was USD 1 or 8 /t, is defined by the government on the basis of the prices of the CO2 allowance observed Fossil fuel switch Projects to reduce the largest quantities of greenhouse gases (N2O and HFC) have little driving effect on the operation of the energy system. N2O HFCs Others Volume of credits generated (MteqCO2) Source: UNEP/RISOE CDM Pipeline on the European market. This double criterion guarantees that the profits resulting from the sale of emissions reductions will benefit the Chinese economy. The authorities frequently promote certain technologies by imposing differentiated tax rates on the income from the sale of CER units, on three levels: 2% for projects based on energy-efficiency, renewable energies and the capture of biogas, 3% for N2O emissions reduction projects and 65% for HFC incineration projects. The revenue raised via this tax is earmarked for a Chinese CDM Fund, the major objectives of which will consist of providing financial resources or making loans at preferential rates for certain priority CDM projects - or any other climate-related projects - as well as to finance research. On the basis of the projects currently in development, this fund should have at least 2.5 billion euros in 212. Effects on the skyrocketing of emissions still uncertain The results of this policy are still uncertain. The real challenge for China in the long run is to gain control over the growth of its emissions. But since the beginning of the decade, the pace at which emissions are increasing has been accelerating. At the current rate, with one coal-fired electric power plant coming on line every four days, the country is on target to become the world s largest emitter of greenhouse gases in 28. The first report by the Chinese authorities evaluating the impact of climate change, which was made public in late 26, sets the objective of reducing domestic carbon intensity by 4% between 2 and 22. It has apparently been found impossible to stick to this objective. The Chinese climate plan, published in early June, mentions no objective for 22, which gives reason to expect problems in implementing the national policy to prevent global warming. In this context, the CDM allows China to test projects and import additional resources without yet unveiling a strategy to actually reduce its emissions. Xin Wang and Benoît Leguet, Tel.: benoit.leguet@caissedesdepots.fr 4 This newsletter was written as part of the Climate Task Force of the Caisse des Dépôts. The analysis and opinions expressed are not binding on the Caisse des Dépôts. The Climate Task Force of the Caisse des Dépôts directs and co-ordinates the research and development initiatives in the area of the fight against climate change. Publication director: Christian de Perthuis Contact: Florence Belloy, Tel.: Caisse des Dépôts 56, rue de Lille Paris 7 SP ISSN :

5 K ey figures of Asia Contextual data The table presents the principal macroeconomic aggregated data for the Asian region, demonstrating its unique position in the world: an exemplary economic growth rate, a significant portion of the world population and a greenhouse gas emissions level of close to one-third of the global level in 2. Indicators World Asia China India Japan Indonesia South Korea Pakistan Thailand Vietnam Philippines GHG emissions, 2 (Mt CO2) 33,67 1,428 4,726 1,866 1, GHG Emissions CO2 emissions, 23 (Mt CO2) CO2 Emissions per capita, 23 (tco2 per capita) 25,938 8,748 4,497 1,148 1, CDM : Mt CERs expected until 212 2,9 1,553 1,15 32 (1) Energy Power consumption per capita, 24 (KWh) Share of fossil fuels in the primary energy consumption, 24 (%) 2,67 1,343 1, , , , GDP 24 (USD milliard) 41,462 8,87 1, , Share in the world GDP (%) 21.4% 4.7% 1.7% 11.%.6% 1.6%.2%.4%.1%.2% GDP Annual growth, 24 (%) (2) GDP per unit of energy use (2 PPP $/ kg oil equivalent) Population, 24 (in millions) 6,362 3,433 1,296 1, Population Share of the world population (%) 54.% 2.4% 17.% 2.% 3.4%.8% 2.4% 1.% 1.3% 1.3% Annual growth, 24 (%) Sources: WRI, Energy Information Administration, World Bank, UNEP/RISOE CDM Pipeline (1) Japan is part of the Annex I countries of the Kyoto Protocol (2) Aggregated data from East Asian countries of the Pacific Region Raphaël Naïm, Tel.: raphael.naim@caissedesdepots.fr 5

6 K ey figures of Asia The top 1 Asian emitters of greenhouse gases in 2 This map of Asia presents the relative portion of different economic sectors in total GHG emissions levels in 2. Three groups of countries take shape: developing countries where GHG Emissions from agriculture are higher than those which result from the production of electricity; developed countries, where GHG emissions from the production of electricity and heat compose the majority and countries in transition (China, Thailand) where the relative share of the GHG emissions resulting from the two sectors is roughly equal South Korea Pakistan ,9 1,466 China Japan India Thailand Vietnam Taiwan Philippines Indonesia (Data in Mt CO2 eq) GES Emissions including CO2, CH4, N2O, PFCs, HFCs, SF6 and excluding land use change. The total volume of GHG emissions in 2 is presented in the table on page 5. Source: WRI Electricity & Heat Manufacturing & Construction Transportation Others Industrial Processes Agriculture Waste 6