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1 Sector-Based Approach: Overview & Lessons from Country Anaysis Jake Schmidt, Internationa Program Manager Center for Cean Air Poicy Diaogue on Future Internationa Actions to Address Goba Cimate Change Paris, France Apri 26 Presentation Outine Sector-based approach» What is it? Overview of sector GHG emissions and projections» Goba, Non-Annex I Overa structura options» Sector-wide & Country-based sectora Straw sector proposa» Covered sectors and countries» Estabishing the No Lose Target» Technoogy Finance Package» Appication to Deveoped Countries, Emissions Trading/CDM Sectora Program s potentia to maintain 45ppm path Lessons from Preiminary China Anaysis

2 What is a Sectora Approach to Post-212 GHG Reductions? Bottom-up method for encouraging deveoping country sectora (e.g. stee, cement, eectricity) pedges and for deriving Annex I country targets Based on anaysis of what is technoogicay feasibe and economicay cost-effective in each industria sector both gobay and in each country For deveoping countries, goa is no-ose target pedge to reach intensity eve in given sector, rewarded if achieved, no penaty if not achieved For A1, creates buiding bock for next nationa economy-wide target Estabishing the No-Lose Sector Target A vountary no ose intensity target (e.g., CO2 / ton of stee) is estabished» No penaty for not meeting the pedge Emissions reductions beyond the vountary pedge are eigibe for sae» As emissions reductions credits (ERCs) for sae to deveoped countries» Vountary intensity target effectivey becomes the country s CDM baseine Emissions Intensity Years Actua No Lose Target Baseine Contribution to the Atmosphere Avaiabe for Sae

3 Technoogy Financing and Assistance Package Technoogy Finance Package» avaiabe to encourage more aggressive no ose target Goa is to hep mobiize private sector finance Hep w/ technoogica innovation & improvement» Package coud incude G-8 stye assistance: commitments to demonstration a poo of concessionary financing with WB, ECAs, oans, grants, & securitization support for deveopment of smaand medium-sized enterprises etc. Tota GHG Emissions No Lose Target Country's Pedge Baseine Support from Technoogy Finance Package Which Sectors Covered? Program coud focus on the Energy and Major Industry Sectors» eectricity, iron & stee, auminum, oi refining, cement & ime, paper, pup & printing» reativey sma number of entities, easier data coection, reativey homogenous products (except oi refining and pup & paper), and operate in internationa trade (except eectricity)» 33% of non-annex I emissions (2; w/o LUCF); 39% of ESCAP emissions w/o LUCF & 29% w/ LUCF» 15% of goba emissions (2; w/o LUCF)» Bottom-up definitions (e.g., eectricity faciities >2 MW) used to define individua faciities invoved in the system» Ony direct emissions (e.g., on-site fue combustion) incuded for the sectors of Non-Annex I Emissions of Goba Emissions 2.3% 9.5% 67.5% 32.5% 84.8% 15.2% 3.% 2.7%.3% 5.9%.3% 1.4% 1.3%.1% 2.7%.1% Others Iron & Stee Auminum Paper, Pup and Printing Eectricity Chemica & Petrochemica Cement & Limestone Others Iron & Stee Auminum Paper, Pup and Printing Eectricity Chemica & Petrochemica Cement & Limestone Figure 3. Non-Annex I emissions from the sectors in the proposed program as a share of tota non- Annex I and goba emissions

4 Country-Based Program: Top 1 Share of Emissions Covered 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % % of DC % of Word Eectricity Iron & Stee Chemica & Petrochemica Non-Ferrous Metas Non-Metaic Mineras Paper, Pup and Printing Share of Non-Annex I and Word Emissions from the Covered Sectors Accounted for by the Ten Highest Emitting Non-Annex I Countries for each Sector in 2 Source: Schmidt et a., 25 Note: non-metaic mineras is cement and imestone; non-ferrous metas is mosty auminum How is the No Lose Target Estabished? Independent agency (e.g., IEA) assesses and defines benchmark(s) refecting a imited number of the major processes within the sectors» Defined as energy intensity of commerciay avaiabe technoogy, taking account of cost» Updated every 7 years (simiar to the CDM) Participating countries pedge a GHG intensity target (e.g., GHG / ton of stee) for each sector that they can meet on their own based upon the benchmark, fue mix, impact on competitiveness of their products, and other factors (e.g., energy security, air quaity, and sustainabe deveopment) Deveoped countries negotiate what support they wi provide through the technoogy finance and assistance package and the impact that wi have on the no ose target Likey negotiation wi produce different no ose targets for each country, but wi begin from the same starting point the benchmark

5 Key Impementation Questions? Where to set the GHG intensity targets?» How to account for different starting points and nationa circumstances (e.g., fue avaiabiity, type of current pant, etc.)?» What technoogies are avaiabe to reduce emissions in the key sectors?» What intensity eves can be achieved at various cost eves? What eve of support coud be needed for the technoogy and finance assistance package?» What impact coud it have on intensity eves?» What technoogies coud be supported and at what cost? How does the top-down ECOFYS anaysis compare w/ the bottom-up country resuts? GHG Anaysis in Brazi, China, India, and Mexico Assisting Deveoping Country Cimate Negotiators through Anaysis and Diaogue project funded by UK DFID and Hewett Foundation Partners in these countries conducting bottom-up anaysis of GHG emissions projections and mitigation cost of various options for key sectors of the economy.» Brazi: Federa University of Rio de Janeiro, Thema Krug, Braziian Agricutura Research Corporation, and Harodo de Oiveira Machado Fiho» Mexico: Mario Moina Center» China: Tsinghua University» India: The Energy and Resources Institute (TERI) Considering two reference scenarios which consider emissions eves with:» poicies adopted before 2 (pre-2 case)» Poicies adopted before 25 (pre-25 case)

6 Iron & Stee GHG Intensity Varies: 2 Because: Brazi uses renewabe charcoa for 24% of iron and stee» No other country uses charcoa Brazi has ess integrated stee faciities (56% of production)» India 42% t CO 2 / t of cement Brazi China Adjusted* India Cement GHG Intensity Varies: 2 Because: China has significant amount of vertica shaft kins (88% of production) China has high amount of wet or semi-wet process pants» Brazi has no wet process faciities» India has mosty dry faciities (99%) in 24 Most predominatey use coa, but Brazi uses charcoa (24% of energy use)» India uses oi for 15% of energy t CO 2 / t of cement Brazi China India

7 Impact of Impementation of Existing Govt Poicies/Programs (in 22) Cement Emissions Reductions from Impementation of Existing Gov't Poicies Iron & Stee Emissions Reductions from Impementation of Existing Gov't Poicies MTCO Brazi China India MtCO e.g., China shutting down sma faciities and improving efficiency of others e.g., China goas to be near the word s best 199 eve by 21 Eectricity Emissions Projections: China Emissions projected to increase under either baseine scenario» % b/t 2 and 22 4 Eectricity production increases 196% 35 3 GHG intensity decines under both baseine scenarios» 2: 1.22 kgco2/kwh» 22: 1.6 (pre-2 case); 1.2 (pre-25 case) Emissions coud decine further w/ introduction of additiona mitigation options miion metric tons CO Pre-2 Pre-26 Mitigation Scenario

8 Eectricity Mitigation Options in 22 Margina mitigation cost (US $/tco 2 ) Tota emission reduction (MMt CO 2 ) Measures CFBC (Circuating Fuidized bed combustion) Demand side management Supercritica/Utra supercritica pant Reconstruction of conventiona therma power Nucear power Hydropower Natura gas Wind power IGCC (integrated gasification combined-cyce )PFBC (pressurized fuidized bed combustion) CCS Soar therma What GHG Intensity Leve Coud be Achieved? Coud reduce intensity to 1.14 for ess than $ per ton» Tota cost saving of $91.2 miion 1.1 for around ess than $15 per ton» Tota cost of $128.6 miion 1. for around $5 per ton» Tota cost of $1.9 biion Kg CO 2 per kwh Pre-2 Pre-26 < $/ton < $2/ton < $5/ton

9 What eve of technoogy financing woud be needed in Eectricity? If China met < $/ton measures (1.14 kg CO2 / kwh) on its own and int community provided support for going to $15/ton (1.1 kg CO2 / kwh) China uniatera net cost of $128.6 miion» China impements CFBC, demand-side management, supercritica pant, reconstruction of conventiona therma power on its own Int support of $1.8 biion woud be needed» Int community supports buiding nucear faciities» Instead of going to nucear, cost going to: IGCC: $374 miion (reducing emissions by 3.8 MtCO2) IGCC-CCS: $676 miion (reducing emissions by 5 MtCO2) Wind: $197.4 (reducing emissions by 2.1 MtCO2) If instead China met measures up to ~$15/ton (1.1 kg CO2 / kwh) & int community supported going to IGCC-CCS:» China uniatera cost of $128.6 miion & int cost of $374 miion Iron & Stee Emissions Projections: China Emissions projected to increase under either baseine scenario, but decine after 22» 14-86% b/t 2 and 22 GHG intensity decines under both baseine scenarios» 2: tco2/t» 22: 1.99 (pre-2 case); 1.82 (pre-25 case) Energy intensity aso decines by 26-32% b/t 2 and 22 Emissions coud decrease even farther w/ additiona mitigation options miion metric tons CO Pre-2 Pre-26

10 Iron & Stee Mitigation Options in 22 Margina mitigation cost (US $/tco 2 ) Tota emission reduction (MMt CO 2 ) Measures Increase coa power injection eve More advanced continuous casting machine Estabish energy management center and increase management capacity More advanced coke oven More advanced bast furnace with TRT Adjust ratio of iron/stee Appy dry coke quenching More advanced sinter machine More advanced direct stee roing machine Appy smet reduction iron-making process More advanced oxygen bown converter for stee-making More advanced eectric furnace for steemaking What GHG Intensity Leve Coud be Achieved in Iron & Stee? Coud reduce intensity to 1.78 for ess than $ per ton» Tota cost saving of $227.4 miion for ess than $8 per ton» Tota saving of $17.7 miion for around $2 per ton» Tota cost of $417.8 miion tco 2 per ton iron & stee Pre-2 Pre-26 > $/ton > $1/ton > $2/ton > $3/ton > $8/ton

11 What eve of technoogy financing woud be needed in Iron & Stee? If China met < $8/ton (1.759 t CO2 / t iron & stee) on its own and int community provided support for going to $2/ton (1.739) China net saving of $17.7 miion Int support of $588 miion woud be needed Int community supports more advanced bast furnace with TRT, and adjusting the ration of iron/stee Cost for int community to support going to:» Appying dry coke quenching: $145 miion (reducing emissions by 1.89 MtCO 2 )» More advanced sinter machine: $467.6 miion (reducing emissions by 5.83 MtCO 2 ) Cement Emissions Projections: China Emissions projected to increase under either baseine scenario» 48% b/t 2 and 22 GHG intensity from fue use decines under both baseine scenarios» 2:.47 tco2/t» 22:.41 tco2/t Additiona emissions reductions can occur w/ additiona mitigation options miion metric tons CO Pre-2 Pre-26 Mitigation Scenario

12 Cement Mitigation Options in 22 Margina mitigation cost (US $/tco 2 ) Tota emission reduction (MMt CO 2 ) Measures Preventative Maintenance Use of Waste Derived Fues Process management and Contro Kin She Heat Loss Reduction High-Efficiency Motors and Drives Active Additives Composite Cement Conversion to Muti-stage pre-heater kin Combustion System Improvement High-efficiency roer mis High-efficiency Powder Cassifiers Efficient transport systems What GHG Intensity Leve Coud be Achieved in Cement? Coud reduce intensity to.42 for ess than $ per ton» Tota cost saving of $98.2 miion.398 for ess than $4 per ton» Tota cost saving $86 miion.384 for around $17 per ton» Tota cost of $113 miion tco 2 per ton cement Pre-2 Pre-26 > $/ton > $5/ton > $1/ton > $2/ton

13 What eve of technoogy financing woud be needed in Cement? If China met < $1/ton (.392 tco2/t cement) on its own and int community provided support for going to $2/ton (.384) China net savings of $14 miion Int support of $9.6 miion woud be needed Int community supports combustion system improvement and high-efficiency roer mis Top-Down vs. Bottom-Up Reference Scenarios 6% % Compared to 2 Leves 5% 4% 3% 2% 1% % Brazi China India Top-Down Eectricity Reference Bottom-up Eectricity Reference Top-Down Iron & Stee Reference Bottom-up Iron & Stee Top-down Cement Reference Bottom-up Cement Reference

14 Comparing Top-Down Sectora vs. Bottom-Up Country Anaysis ECOFYS conducted top-down anaysis of the sectora proposa for eectricity and major industry sectors» At this point ony incuded eectricity, iron & stee, and cement Comparison of top-down ECOFYS anaysis vs. bottom-up anaysis of in-country partner teams» Reference case projections» Mitigation scenarios Three Goba Scenarios: ECOFYS Anaysis Scenario Mid Annex I exc. USA -3% beow 199 eve in 22 Strong USA +% at 199 eve in 22 Sector ony USA Non-Annex I Non-Annex I A countries Condition -15% beow 199 eve in Annex I exc. USA 22 +1% above 199 eve in 22 Reference Sectora for eectricity, iron & stee and cement Sectora for eectricity, iron & stee and cement Eectricity Iron & Stee Cement Reduce carbon intensity of production (C/kWh) by 3% per year; growth in eectricity production reduced by.5% for EE improvements Convergence in CO 2 /t stee by 225 to.8 (today s avg. 1.63) Convergence in CO 2 /tcement by 22 to.6 (today s avg..78) Annex I countries economy-wide emissions are imited to fixed quantities» NOT impied that emissions reductions must be achieved» Domestic emissions coud exceed these eves if additiona ERCs were purchased Annex I countries can purchase ERCs from both covered sectors w/ No Lose target or other sectors (e.g., transportation through sectora CDM)

15 Impications for Emissions Stabiization Leves: Preiminary Resuts Goba CO2 emissions (GtC) Goba CO2 Emissions under the Anaysis to Stabiize CO2 at 45 ppm Reference Mid Ony sectora Strong Required reductions for goba CO2 stabiization eves after 22:» 45ppm Strong: 2.2% per year; Mid: 6.5% per year» 55ppm Strong:.6% per year; Mid:.9% per yea Source: Höhne et a., 25 Top-Down vs. Bottom-Up Mitigation Scenarios: Cement Intensity in India Brazi Sectora Convergence

16 Top-Down vs. Bottom-Up Mitigation Scenarios: Iron & Stee Intensity in India Brazi Sectora Convergence Top-Down vs. Bottom-Up Mitigation Scenarios: Compared to 2 Leves in Each Anaysis 6% % Compared to 2 Leves 5% 4% 3% 2% 1% % -1% Brazi China India Top-Down Eectricity Mitigation Bottom-up Eectricity Mitigation Top-Down Iron & Stee Mitigation Bottom-up Iron & Stee Mitigation Top-down Cement Mitigation Bottom-up Cement Mitigation

17 Top-Down vs. Bottom-Up Mitigation Scenarios: Emissions in 22 9 India 6 Brazi MTCO2 5 4 MTCO India Brazi Top-Down Eectricity Reference Bottom-up Eectricity Reference Top-Down Iron & Stee Reference Bottom-up Iron & Stee Top-down Cement Reference Bottom-up Cement Reference Top-Down Eectricity Reference Bottom-up Eectricity Reference Top-Down Iron & Stee Reference Bottom-up Iron & Stee Top-down Cement Reference Bottom-up Cement Reference 45 4 China 35 3 MTCO China Top-Down Eectricity Reference Bottom-up Eectricity Reference Top-Down Iron & Stee Reference Bottom-up Iron & Stee Top-down Cement Reference Bottom-up Cement Reference Top-Down vs. Bottom-Up Mitigation Scenarios: Emissions in 22 for Eectricity, Cement, Iron & Stee MTCO Brazi China India Tota Top-Down Mitigation Bottom-up Mitigation

18 Concusions and Key Questions Top-down reference scenarios are significanty different than bottom-up resuts» Top-down eectricity reference scenarios higher in Brazi, ower in China, higher in India» Top-down iron & stee higher in China, ower in India, higher in Brazi» Top-down cement higher in Brazi and China, ower in India Top-down mitigation scenarios vs. bottom-up in absoute eves in 22» Chinese iron & stee and cement reativey cose, but eectricity significanty higher in bottom-up» Brazi eectricity cose, but iron and stee higher in top-down anaysis» Top-down eectricity higher in India, but ower in iron & stee and cement GHG intensity can be reduced in China s eectricity, iron & stee, and cement sectors at reativey ow cost (e.g., $ to $1 per ton) In the China exampe,» Where shoud China set its domestic uniatera pedge?» How woud you take account of China s goas/poicies?» How much technoogy financing woud the int community be wiing to support and for what technoogies?» Where woud the utimate no ose target be set?