Abatement Cost Curves for China, Japan, Korea and Mongolia 18 February 2012, Tsukuba, Japan National Institute for Environment Studies Tatsuya Hanaoka Mizuho Information & Research Institute Inc. Kazuya Fujiwara/Yuko Motoki/Go Hibino
Contents Background Methodology Results Policy implications Conclusion 2
Background ADB's project which is named, Economics of Climate Change and Low Carbon Growth Strategies in Northeast Asia. ADB s website says one of the objectives of the project is to contribute to the regional and national debate on the economic costs and benefits of the actions on climate change mitigation. Mission Projecting abatement cost curves for China, Japan, Korea, and Mongolia. Projecting GHG emissions and mitigations for these four countries. The following results are the preliminary findings for the ADB study. 3
Background Outcomes GHG emissions and mitigations in 2020/30 Abatement cost curves in 2020/30 Calculation tool AIM/Enduse ACC tool Bottom-up modeling tool Detail technology selection framework Static analysis Mitigation options under a certain carbon price are selected 4
Technology D Technology E Technology F Technology G Abatement cost Technology A Technology B Technology C Methodology Key factor of the abatement cost curve analysis GHG abatement cost =Additional annual cost of technology/ Reduction of GHG GHG Reduction Annual cost of technology =Investment cost Capital recovery factor*+ O&M cost -Reduction of annual energy cost *Capital recovery factor = a(1+a) t /((1+a) t -1)= 1/Payback period a : discount rate t : lifetime Abatement cost curves provide technological mitigation potentials and technological implementation costs in each region. Be careful that abatement cost curves vary depending on the setting of: future energy price technology data (technology costs, discount rate, payback periods, etc) baseline scenario (socio-economic settings and energy service demand) 5
Methodology Data collection Activity amount (= driving force) Driving forces collected by consultants and researchers from four countries are used for our projection. Mitigation option (= technology) or more options are prepared. Simulation cases Baseline case: Technology frozen case Scenarios: Carbon price:,, USD/tCO2 Payback period: Short, Long Time horizon Base year: 8, Target year: 2020/30 6
Japan Activity amount Base year Target year Sector Indicator Unit 8 2020 2030 Industry Iron & Steel Production Million tons 106 120 120 Cement Production Million tons 66 67 66 Industrial Production Index 8 = 101 Residential No. of Households Million HHs 52 54 52 Commercial Floor Space Million m2 1,817 1,932 1,920 Transportation Passenger Traffic Volume Billion p-kms 1,292 1,307 1,304 Freight Change in Traffic Volume 8 = 114 114 Agriculture Livestock Livestock 0 heads 4,420 4,280 4,280 Crops Cultivation Area 0 ha 4,270 4,9 4,9 7
Reduction (MtCO2) Emission (MtCO2) Japan GHG Emission/Mitigation Potential 1,0 1,000 0 0 1,298 8 Base RF 1,443 1,286 1,267 1,210 1,421 1,175 1,103 1,023 157 177 233 246 318 398 0 300 400 0 RF 2020 2030 Ruduction vs RF Non energy Energy Transportation Commercial Residential Industrial Non energy Energy Transportation Commercial Residential Industrial 8
Abatement costs (US$/tCO2eq) Japan Abatement Cost Curve 80 60 Energy Agriculture Industrial Residential/Commercial Trasnport Wind PP Insulation Biomass PP 40 20 Efficient gas boilers Eff. Fridge -20-40 Reduction quantity (MtCO2eq) In 2020 Short Payback Period (high discount rate) 9 0 40 80 120 160
Korea Activity amount Base year Target year Sector Indicator Unit 8 2020 2030 Industry Iron & Steel Production Million tons 56 74 88 Cement Production Million tons 53 70 83 Change in GDP 8 = 131 155 Residential Population 8 = 48 Commercial Change in GDP 8 = 131 156 Transportation Passenger Traffic Volume Billion p-km 332 393 445 Freight Traffic Volume Billion t-km 171 426 639 Agriculture Livestock Number of Livestock Million heads 615 593 595 Crops Cultivation Area 0 ha 1,210 1,248 1,267 10
Reduction (MtCO2) Emission (MtCO2) Korea GHG Emission/Mitigation Potential 1,000 800 600 400 0 536 8 Base RF 0 300 400 748 623 612 562 125 136 186 912 698 686 609 RF 215 226 304 2020 2030 Ruduction vs RF Non energy Energy Transportation Commercial Residential Industrial Non energy Energy Transportation Commercial Residential Industrial 11
Abatement costs (US$/tCO2eq) Korea Abatement Cost Curve 80 60 Energy Agriculture Industrial Residential/Commercial Trasnport Biomass PP Wind PP Efficient motor 40 Natural gas vehicles Efficient vehicles 20-20 -40 Reduction quantity (MtCO2eq) In 2020 Short Payback Period (high discount rate) 0 30 60 90 120 1 12
China Activity amount Base year Target year Sector Indicator Unit 8 2020 2030 Industry Iron & Steel Production Million tons 406 610 570 Cement Production Million tons 1,168 1,600 1,600 Change in Secondary Industry GDP 8 = 213 340 Residential Population Million ps 1,329 1,388 1,394 Commercial Transportation Agriculture Change in energy service demand 8 = 122 141 Passenger Traffic volume Billion p-km 2,571 4,999 8,033 Freight Traffic volume Billion t-km 3,224 6,188 9,357 Livestock Number of Livestock Million head 10,544 12,884 14,520 13 Crops Cultivation Area Million ha 123 151 170
Reduction (MtCO2) Emission (MtCO2) China GHG Emission/Mitigation Potential 20,000 15,000 10,000 5,000 0 8,116 8 Base RF 13,270 10,2 9,976 9,314 0 2,000 4,000 6,000 8,000 3,019 3,294 3,956 17,382 11,562 11,101 10, RF 5,821 6,281 7,282 2020 2030 Ruduction vs RF Non energy Energy Transportation Commercial Residential Industrial Non energy Energy Transportation Commercial Residential Industrial 14
Abatement costs (US$/tCO2eq) China Abatement Cost Curve 80 60 40 20 Energy Agriculture Industrial Residential/Commercial Trasnport Efficient steel making process Efficient gas PP Efficient gas boilers Wind PP Efficient gas furnace -20-40 Reduction quantity (MtCO2eq) In 2020 Short Payback Period (high discount rate) 0 700 1,400 2, 2,800 3,0 15
Mongolia Activity amount Base year Target year Sector Indicator Unit 8 2020 2030 Industry Iron & Steel Production 0 tons 157 2, 2, Cement Production 0 tons 169 1,2 1,2 Change in Secondary Industry GDP 8 = 166 239 Residential Number of Household 0 HHs 678 759 847 Commercial Number of Employee 0 persons 282 335 375 Transportation Passenger Traffic Volume Million p-kms 3,607 6,800 8,700 Agriculture Freight Traffic Volume Million t-kms 9,051 23,010 46,515 Livestock Number of Livestock 0 heads 43,774 36,865 36,865 Crops Cultivation Area 0 ha 178 181 182 16
Reduction (MtCO2) Emission (MtCO2) Mongolia GHG Emission/Mitigation Potential 40 30 20 10 0 21 8 Base RF 34 25 23 22 9 11 12 40 23 22 21 RF 17 17 18 Ruduction vs RF Non energy Energy Transportation Commercial Residential Industrial 0 5 10 15 20 2020 2030 Non energy Energy Transportation Commercial Residential Industrial 17
Abatement costs (US$/tCO2eq) Mongolia Abatement Cost Curve 80 60 40 20 Energy Agriculture Industrial Residential/Commercial Trasnport Wind PP Efficient motor Efficient gas PP Efficient gas PP -20-40 Efficient steel making process Reduction quantity (MtCO2eq) In 2020 Short Payback Period (high discount rate) 0 2.4 4.8 7.2 9.6 12 18
Policy implications (1) Effective policy varies for the type of technologies Mitigation options are divided by abatement cost into some groups. The effective policy/action varies for each group. (2) Payback period has a large impact Only in Japan were there major changes in reduction potential depending on the payback period. (3) Measures for climate change enhance the stability of energy supply Especially in China, coal consumption increases tremendously without actions for climate change. On the other hand, in the event that actions are taken, coal consumption increase could be held to a small amount. 19
Policy implications (1) Effective policy varies for the type of technologies In following example, mitigation options are divided into three groups. Technologies with very HIGH (~) abatement cost Technologies with MIDDLE (0 ~ ) abatement cost Technologies with NEGATIVE abatement cost Abatement cost $US /tco2 $0US /tco2 Technologies with HIGH abatement cost Technologies with MIDDLE abatement cost Technologies with NEGATIVE abatement cost Reduction 20
Policy implications (1) Effective policy varies for the type of technologies HIGH $US /tco2 MIDDLE $0US /tco2 NEGATIVE Japan/Korea [ENE] Gas PP [RSD/COM] Insulation, Eff. equipment [IND] Eff. Furnace [ENE] Solar PV [ENE] Wind PP, Biomass PP [TRT] Bio-fuel for vehicles [IND] Eff. Machinery [RSD/COM] Eff. lamp (CFL/LED) China/Mongolia [RSD/COM] Insulation, Eff. equipment [IND] Eff. Furnace [ENE] Gas PP [TRT] Eff. truck (Natural gas truck), Eff. vehicle Support for R&D or commercialization of Low carbon techs Carbon pricing (to extend low carbon tech s competitiveness) Regulation (building code, eff. standard, etc) Visualization of advantage of replacement 21
Abatement Cost (US$/tCO2) Policy implications (2) Payback period has a large impact There are major changes in reduction potential depending on the payback period in Japan. 80 In 2020 Short Payback Period (high discount rate) 60 40 20 22 0-20 -40 Reduction (MtCO2) In 2020 Long Payback Period (Low discount rate) 1 2 300
Abatement Cost (US$/tCO2) Policy implications (2) Payback period has a large impact Measures for extending payback period are required to make reduction larger. 80 In 2020 Short Payback Period (high discount rate) 60 40 Industrial Residential/Commercial Trasnport 20 23 0-20 -40 Reduction (MtCO2) In 2020 Long Payback Period (Low discount rate) 1 2 300
Mtoe Policy implications (3) Measures for climate change and energy security Energy consumption structure in 2020/30 in China. 6,000 5,000 4,000 3,000 2,000 1,000 0 2,037 371 1,323 3,498 603 2,233 2,979 2,961 2,772 711 711 323 675 438 420 1,581 1,464 1,330 5,125 1,153 2,918 4,153 4,133 3,809 880 878 812 843 1,036 932 2,006 1,796 1,645 Gas Base RF RF Oil Coal % 80% 60% 40% 20% 0% 8 2020 2030 18% 17% 24% 24% 24% 23% 21% 21% 21% 15% 17% 65% 64% Base RF 11% 15% 15% 18% 20% 25% 24% 12% 12% 13% 10% 10% 11% 53% 49% 48% 57% 48% 43% 43% RF 8 2020 2030 Gas Oil Coal 24
Policy implications (3) Measures for climate change and energy security Energy consumption structure in 2020/30 in China. Coal consumption in China would increase tremendously in the event that no mitigation options were introduced. On the other hand, in the event that measures are taken, it was found that the increase from the base year could be held to a small amount. Measures for GHG emission reduction are thought to be an important policy from the standpoint of energy security as well. 25
Conclusion Emission Projection, MAC curve Emission/mitigation in 2020/2030 Abatement cost curve Policy Implications The effective policy will vary for technologies and countries. Policy for extending payback period is crucial for Japan. Actions for GHG emission reduction seem to be able to realize more stable energy security for China. 26
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