China s Climate Change Mitigation Initiatives and Energy Outlook The 37 th IAEE International Conference June 15-18, 2014 New York City Prof. Zhang Xiliang Prof. Valerie J. Karplus
By primary energy type China s energy system: A snapshot By end-use sector Coal use by sector 2
Energy and Environment Challenges in China The largest energy consuming nation in the world Coal (66.1%) Oil (18.5%) Natural gas (5.8%) 3.75 billion tons of standard coal equivalent in 2013 Non-fossil fuel (9.8%) 58% of China s oil consumption comes from international market; The largest CO2 emitter in the world; Energy use is a major contributor to air quality degradation and smog.
How to balance? Human Development Industrial Development & Resource Needs globalchange.mit.edu www.china.org.cn Global Climate Change Local Pollution www.wikimedia.org www.flickr.com 4
Key players in China s energy and climate policy Universities Research Institutes National Panel on Climate Change Led by Premier Li Keqiang Provincial Leading Group on Energy Conservation & Climate Change Director of the Leading Group is often the provincial governor Pricing policy Investment targets Project approval Carbon trading State-Owned Assets Supervision and Administration Commission Renewable energy targets Feed-in tariff/surcharge Evaluates leaders achievement of energy-saving targets Energyefficiency standards Energy-saving subsidies Pollution AAQS Environmental levy Environmental Taxation Renewable Energy Fiscal Fund National Climate Fund (CDM) Research Development Demonstration International Climate Negotiations 5
(1) Historical Context: Energy Intensity Targets Eleventh FYP: To reduce China s energy intensity by 20 percent from 2005 to 2010. (Proposed by the State Council and Ratified by National People s Congress in 2006.) China s energy intensity reduction targets and outcomes in previous five-year plans. Source: Ye Qi, Tong Wu, Jiankun He and David A. King, Nature Geoscience, 2013, 6, 507-509. 6
Institutional Innovations & Capacity Building Disaggregating the energy conservation target to provinces and major enterprises Provincial governors and managers of enterprises are primarily responsible for achieving the energy conservation targets Energy conservation agreements between enterprises and the government Energy Conservation Reporting and Verification Systems Evaluation system for energy conservation performance of provinces & enterprises
Command-and-Control Measures Enforced retirement of low energy efficiency production capacity during the 11 th FYP 70GW of coal-fired power plants More than 100 million tons of iron & steel production capacities 260 million tons of cement production capacities Energy efficiency requirements for new investment project approval & the market entrance of new products Energy efficiency requirements for new buildings Government purchase of energy efficiency products
Economic Incentives Tax and levy Surcharge of electricity for renewable electricity Import & export tax and tariffs Subsidy & bonus for energy savings Lines of credit to support policy implementation Pricing Differentiated electricity tariffs Feed-in tariffs for renewable electricity
(2) Present: China s Near Term Domestic Commitments to 2015 Twelfth FYP (2011-2015) Target Mechanisms Sectors Energy intensity target: Reduce 16%relative to 2010 Top 10,000 Enterprises Program energy efficiency (~40% of total energy savings expected) Small plant closures Structural change / rebalancing Extractive industries Electric power Manufacturing (energyintensive) Non-fossil energy: 11.4% of non-fossil fuel in primary energy use by 2015 CO 2 intensity target: Reduce 17%relative to 2010 Renewable targets, tax breaks, feed-in tariff Feed-in tariffs for wind, solar and biomass Alt. liquid fuel incentives Emissions trading pilots Electric power Industrial direct use Low carbon liquid fuels Results from above measures to reduce energy intensity and increase share of non-fossil energy use 10
Emissions trading system to help support achievement of CO 2 emissions intensity targets Provincial/city level pilots starting in 2013: Tianjin, Shanghai, Beijing, Chongqing, Guangzhou, Hubei, Shenzhen. Many scales, different system designs In: Zhang et al., 2014, Energy Policy, forthcoming. (CECP manuscript) 11
China s ETS Roadmap Learning phase in pilot regions Formal regional ETS National ETS VER trading CDM project
New Policy Developments in China Third Plenumin November 2013 defined important future directions for policy: Deepening economic reform Decisive role of the market (reduce overcapacity) Pursue a relatively lower but sustained economic growth Develop environmental protection markets, support energy reduction, markets for carbon, air pollution, water, etc. Air Pollution Action Plan (September 2013) New momentums for renewable energies & nuclear 13
Carbon tax Policy scenarios analyzed using C-GEM Measures No Policy Continued Effort Accelerated Effort None Carbon price required to achieve CI reduction (~3%/year, $30/ton in 2035 and $73/ton in 2050) Carbon price rises to achieve CI reduction (~4%/year, $55/ton in 2035 and $126/ton in 2050). Fossil resource tax None Crude oil/natural gas: 5% Coal: 8 CNY/ton (~$1.2/ton) Crude oil & Nature gas: 8% Coal: 10% Feed-in tariff for wind, solar and biomass electricity None A 3.8% surcharge is applied to electricity prices to finance an FIT A 6.5% surcharge is applied to electricity prices to finance an FIT Hydro resource development Only economically viable hydro resources are deployed with no policy constraint. Achieve the existing target of 350 GW in 2020 and slowly increase to its economic potential of 400 GW by 2050. Same as the Continued Effort assumption. Nuclear power development policy No targets or measures to promote nuclear energy development. 1) 40 GW in 2015 and 58 GW in 2020; 2) Assumes site availability of 160 GW. 1) Same as the Continued Effort assumption. 2) Assumes site availability of 400 GW. 14
The Accelerated Effort scenario shifts away from coal toward cleaner low carbon energy sources 15
Energy Trends 16
Coal Average annual growth rate Carbon price and resource taxes cause significant reductions in coal use in the Continued Effort and Accelerated Effort scenarios. Coal use peaks in 2020 in the Accelerated Effort scenario. Large reductions in coal use will help reduce pollution and improve air quality. 17
Natural gas Average annual growth rate Long term reliance on natural gas falls as carbon price rises Natural gas demand grows faster under Continued Effort and Accelerated Effort scenarios. By 2040 in the Accelerated Effort scenario, natural gas use begins decreasing because it still emits carbon. 18
Oil Average annual growth rate Oil demand is not very sensitive to a carbon price due to the lack of substitutes for its use, especially in transportation. A higher gasoline tax is needed to address energy security concerns, as a carbon price mainly require reductions from electricity and industry. 19
Nuclear Average annual growth rate If nuclear plans are met through 2020, growth of nuclear will be very high (given small starting level). Both Continued Effort and Accelerated Effort scenarios see significant additional nuclear deployment. 20
Renewable electricity Total non-fossil energy shares grow: Continued Effort: 20% in 2030, 26% in 2050 Accelerated Effort: 26% in 2030, 39% in 2050 21
CO 2 price 22
CO 2 emissions 23
What is the Tsinghua-MIT China Energy and Climate Project? A five-year collaborative research effort to develop new tools and analysis for supporting strong climate and energy decisions in China. MIT Founding Sponsors: Tsinghua Sponsors: Sustaining Sponsors: Joint Program on the Science and Policy of Global Change MOST NDRC NEA Institute for Energy, Environment and Economy 10 team members (5 students) Closely integratedresearch team Separate funding at MIT & Tsinghua Offices in Cambridge & Beijing 24
Thank you 谢谢! globalchange.mit.edu/cecp 25