5th IAEE Asian Conference

Mitigating the environmental impactMitigating the environmental impact of energy consumption in Chinagy p

Ying FanCenter for Energy and Environmental Policy Research (CEEP)

School of Economics and Management, Beihang University

Feb. 14-17, 2016 Perth

Content

Energy consumption Energy consumption

Energy demand and policy target

Policy intension

Challenges and opportunities

Energy consumption China's rapid economic growth was accompanied with the fast increase of

energy consumption In 2000-2014, --Primary energy consumption growth rate is 7.9%

--Energy production growth rate is 7.1% In 2015, Economic growth is 6.9%; Energy consumption is 4.3 btce, the lowest

growth since 1998.g

3000.0Mt

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5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4

Data source :BP statistical review of world energy 2015

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Coal Oil Natural Gas Nuclear Hydroelectricity Renewables

Energy Mix

In 2014, coal consumption is 66.02%, oil is 17.51%, natural gas is 5.62%, nuclear is 0.96%, hydro is 8.10, renewables is 1.79%

Natural gas consumption was increased to 193.2 bcm, till 5.6% of totalNatural gas consumption was increased to 193.2 bcm, till 5.6% of total Non fossil energy was increased to 10.85%

100.00%

Energy mix of China

70 00%

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Data source :BP statistical review of world energy 2015

19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

coal oil Natural Gas Nuclear Hydroelectricity Renewables

Energy pollution

SO2, NOx, dusts pollution is still high because of coal burning The pollution is being decreased in recent years, due to increasing environmental

protection policies

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protection policies

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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

二氧化硫（千吨） 氮氧化物（千吨） 烟(粉)尘排放总量（千吨）

Data source :CEIC和中国环保部环境公报

Frog and Haze120

140

PM2.5 density in average of 74 cities (mcg/m3)

Almost all of north, east and central China are suffering heavy haze

Coal provides not only 80% of China's 6080

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p yelectricity, but also the lion's share of its air pollutants, from soot to SO2

PM2.5 density increases in winter0

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Data source :CEIC

Contributions of main sources of PM 2.5 in Beijing (Zhang et al, 2013)

Energy demand and policy target

The estimated energy consumption in 2015 is 4.3 btce, only 0.5% increase

Energy demand will increase till 2040, but the increase rate will slow down, accompanied with the economy going to the New Normaldown, accompanied with the economy going to the New Normal

CO2 emissions per unit GDP will be decreased by 40-45% by 2020 compared to 2005. Non-fossil energy to energy mix will reach 15% by 2020

CO2 emissions per unit GDP will be decreased by 60-65% by 2030 compared to 2005. Non-fossil energy to energy mix will reach 20% bycompared to 2005. Non fossil energy to energy mix will reach 20% by 2030

Besides the intensity target, a total energy consumption control policy has been adopted

Policy Intension -1 Total energy consumption control

In , the control target was 4.8btce (3.36 btoe) till 2020

In , The target f th t 4 6bt (3 22 bt ) till 2020was further set as 4.6btce (3.22 btoe) till 2020

This target will be allocated to every province . With energy intensity reduction target energy consumption cap is set as 4 36intensity reduction target, energy consumption cap is set as 4.36 btce in 2016, only a slight increase to 2015

Energy efficiency improvement is the first priorityEnergy conservation targetEnergy use standardResources taxTens of thousands of enterprises for energy saving and lowTens of thousands of enterprises for energy saving and low

carbon action plan

Policy Intension -2

Reform of the energy supply side

Promote the revolution of energy consumption energy supply Promote the revolution of energy consumption, energy supply, energy technology and energy system

Resolve overcapacityp y Rebuild energy infrastructure system to adapt the new normal

economy A l h l f l h d l f l d Accelerate the clean use of coal, the development of natural gas and

renewable energy and other clean energy, safe development of nuclear powernuclear power

Coal consumption proportion drops below 60% by 2020 and below 50% by 2030y

Clean and low carbon energy consumption proportion rises to 25% by 2020 and rises to 35% by 2030.

Policy Intension -3

Renewable energy development

The share of non-fossil energy in primary energy consumption h 15% i 2020 20% i 2030reaches 15% in 2020, 20% in 2030

Renewable energy promotionFeed-in tariff (wind, solar, )R&D investment to renewable energy technologyNew energy vehicles industry

Policy Intension -4

Coal to Gas

To reduce the consumption of coal and change energy mix, gas is a To reduce the consumption of coal and change energy mix, gas is a good replacement for electricity generation and residential use

In , thousands of coal fired boilers were replaced by clean energy.

Small and outdated boilers in key regions will be removed by 2017 Small and outdated boilers in key regions will be removed by 2017 Key provinces have signed the “coal to gas supply agreement” Finance subsidy policy is issued to support the replacement of coal to y p y pp p

gas. Domestic natural gas pricing will be reformed more market oriented I th t ti f t l i f t t Improve the construction of natural gas infrastructure Stable domestic natural gas supply and import

Policy Intension -5

Emission Trading Scheme

Cost effectiveness Environment effectiveness Fairness (Burden allocation) Feasibility

National ETS will start in 2017

BeijingBeijing

Tianjin

Shanghai

Hubei

Chongqing

GuangdongShenzhen

Pilots Responsible organ  Participation units Beijing China Beijing Environment Exchange 

ShanghaiShanghai Center of Saving Energy and Reducing Emissions

Shanghai Information CenterShanghai Legislation Research Institute

Development and Reform Commission 

in each region

Tianjin Tianjin Climate Exchange

Chongqing Chongqing United Assets and Equity ExchangeChongqing Carbon Exchange (as planned)Guangdong Commission of Carbon Emissions Trading Policy

Guangdong Guangdong Commission of Carbon Emissions Trading TechnologyGuangdong Center of Climate Change Strategy Research

Shenzhen China Shenzhen Emission ExchangeHubei China Hubei Emission Exchange

The market performance of the pilots

Region Starting time Allowanceaverage price

Accumulatedallowance

Accumulatedallowance

(RMB/tCO2) volumes traded(million tons)

volumes traded(million RMB)

Beijing 2013.11.28 44.75 5.33 238.5244.75 5.33 238.52

Tianjin 2013.12.26 17.66 2.05 36.20

Shanghai 2013 11 26Shanghai 2013.11.26 28.12 4.84 136.11

Chongqing 2014.06.19 24.21 0.28 6.78

Hubei 2014.04.02 24.43 22.61 552.41

Guangdong 2013.12.19 22.42 8.35 187.19

Note: date updated till Jan 8th 2016;

Shenzhen 2013.06.18 45.94 6.43 295.39

14

Note: date updated till Jan. 8th, 2016;data source: Sino-Carbon, 2016.

The market performance in the ETS pilots

15

Policy Intension -6

B iji h i d ibilit it t f th i t f i ll ti

Intensive policies for haze control Beijing has signed responsibility commitment for the improvement of air pollution

in 2017, that investment will reach 760 billion RMB Policy measures Accelerating the implementation of PM2.5 standards, establishing long-term

mechanism for haze prevention Insisting on clean energy development strategy making progress on smoke Insisting on clean energy development strategy, making progress on smoke

pollution control Encouraging green travel, developing and programming public transportation Restricting vehicle emissions, eliminating old cars, improving oil quality Optimizing the industrial structure, deepening industrial pollution regulation Controlling dust pollution, measuring contingency plans for heavy pollution g p , g g y p y p

weather Enhancing energy efficiency, increasing R&D in alternative energy, developing

d l b i dgreen energy and low-carbon economic mode

Policy Intension -7

Released policies

Energy market reform

Released policies Coal-electricity pricing linkage (2004): allowing power companies to float the

on-grid electricity rate to cover 70 percent of the coal cost Oil d t f i Xi ji (2011) th t t Oil and gas resources tax reform in Xinjiang (2011): the tax rates are

5%, eliminate other fees and taxes Ladder-type electricity price (2012): adjusting the sale price classification

structure, implementing ladder ascending price of residential electricity New refined oil pricing mechanism (2013): shortening the price adjustment

period to 10 working days and cancelling the threshold of 4% change in international crude oil prices

Non-residents natural gas prices reform (2013): incremental valve station prices are determined by 85% of alternative energy (fuel oil , liquefiedprices are determined by 85% of alternative energy (fuel oil , liquefied petroleum gas) prices

Carbon emissions trading pilot (2013): 7 provinces launch pilot carbon trading Residents gas price ladder system (2014): the first second and third gear gas Residents gas price ladder system (2014): the first, second and third gear gas

prices on the principle of parity 1:1.2:1.5

Challenges and opportunities -1

The role of natural gas

Natural gas will play an important role to replace coal in short termin short term

Gas fired power generation has co-benefit to reduce air pollution and GHG emissionsp

There is no technological barrier

R Resources Price

700

Natural gas production and demand (by IEA)

b

Natural gas supply

100200300400500600

Import pipeline Capacity (bcm/y)Russia west 30Russia east 38 0100

2014 2020 2025 2030 2035 2040

production  demand

Russia east 38Central Asia

(A、B、C、D) 85

Myanmar 12Pipeline Total 165

Domestic pipeline Capacity (bcm/y)Domestic pipeline Capacity (bcm/y)West to east line I 17West to east line II 30West to east line III 30West to east line IV 30West to east line V 30

Data source: IEA World Energy Outlook 2015Total 137

Natural gas supply

LNG接收站地点 所属省份 经营者 投产年份 一期 二期大鹏 广东 中海油 2006 370 700大鹏 广东 中海油 2006 370 700莆田 福建 中海油 2008 260 500洋山 上海 中海油 2009 300 600如东 江苏 中石油 2011 350 650如东 江苏 中石油 2011 350 650大连 辽宁 中石油 2011 300 600东莞 广东 九丰能源 2011 100宁波 浙江 中海油 2012 300 300宁波 浙江 中海油珠海 广东 中海油 2013 300曹妃甸 唐山 中石油 2013 350 650揭阳 广东 中海油 2014 200海南 海南 中海油 2014 300北海 广西 中石化 2014 300 200大连 辽宁 中石化 2015 300深圳 广东 中海油深圳 广东 中海油 2015 400青岛 山东 中石化 2015 300 600澳门 澳门 中石化 2015 500Receiving Capacity (10thousand t/y) 4930 4800Receiving Capacity (10thousand t/y) 4930 4800

Gas equivalent (bcm) 69 67.2数据来源：中国产业信息网

Natural gas price elasticity

Sector Price elasticity

Gas to gas Oil to gas Electricity to gas Coal to gas Income to gas

Industrial Short:3.14; Short:0.808 2.015 ‐0.762 ‐‐‐

long:‐1.225 ;

long:1.486

id i l Sh 0 156 Sh 0 175 1 390residential Short:0.156;

long:0.326

‐‐‐ ‐‐‐ Short:0.175;

long:0.125

1.390

Electricity Short: 0 555; Short:0 097;Electricity Short:‐0.555;

long:2.518

‐‐‐ ‐‐‐ Short:0.097;

long:1.738

‐‐‐

Commercial 1 858 0 903 2 098Commercial ‐1.858 ‐‐‐ 0.903 ‐‐‐ 2.098

‐‐‐denote coefficient insignificant

Natural gas demand is sensitive to price

2020年 2030年 2040年 2050年

Natural gas demand (in bcm)

2020年 2030年 2040年 2050年

BAU 300.8 477.9 610.9 678.8

Low growth 256.3 422.7 5429.07 629.4

New policy 371.6 524.8 666.0 736.6

2020年 2030年 2040年 2050年

Natural gas demand when gas price increases by 50% (in bcm)

2020年 2030年 2040年 2050年

BAU 259.5 411.8 5258 584.2Low growth 221.8 366.1 470.8 541.9New policy 318.8 445.7 569.1 630.5

Challenges and opportunities -2

Emission trading as a key market based instrument

Cost effective? Transaction cost

Target

Regional impactsRegional impacts

Regulations

Coordinated with other policies such as renewable

policypolicy

Reasonable transaction cost level MRV costs rather than trading fees ha e imposed ob io s impacts on the MRV costs rather than trading fees have imposed obvious impacts on the 

cost‐effectiveness of the ETS; The cost effectiveness of the ETS in pilot regions could be reached when 

MRV costs less than 20,000 RMB or the reduction percentage is greater than 10% compared to BAU scenarios;

Increasing the reduction requirements will make more firms cost effective.  

90 00%

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B iji Ti ji60.00%

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m Beijing TianjinShanghai ChongqingHubei GuangdongShenzhen ETS pilots linkedreference level(83.33%)

50.00%0 1 2 3 4 5 6 7 8 9 10

The p ef

fe

MRV cost per annum(ten thousand)Note: Reference level:83.33% in EU ETS

To increase the reduction targets to reach the reference level

The level of the Region Percentage of emissions MRV cost

Region greduction requirementBeijing 16%Tianjin 19%

Sh h i 17%

80,000-100,000 RMBShanghai 17%

Chongqing 20%Hubei 20%

Guangdong 19%Shenzhen 19%

all pilot regions to be linked 19%Beijing 7%Tianjin 10%

20,000-30,000 RMBShanghai 10%

Chongqing 12%Hubei 16%

Guangdong 11%g gShenzhen 11%

all pilot regions to be linked 12%

The percentage of emissions reductions should be more than 10% in almost regions as transactionThe percentage of emissions reductions should be more than 10% in almost regions as transaction cost remains unchanged

Regional impacts

The distributed impact of a nationwide ETS should be taken serious The distributed impact of a nationwide ETS should be taken serious attention, such as industry impact, employment, welfare and regional economic disparity

The affordability of transaction costs for the underdeveloped areasshould be paid attentions. A differentiation strategy for transaction p gycosts could be adopted. 

Emissions reduction targets could be increased moderately, as toEmissions reduction targets could be increased moderately, as to overcome the adverse effects from the transaction cost.

Challenges and opportunities -3

ETS and renewable policy such as renewable portfolio standard (RPS),

need to be coordinated to avoid offset or conflict

Negative effect:

– Weaken carbon price signal– Increase social cost– Price out low emission fossil technologies

The co-existence of ETS and renewable policy is necessary

– Renewable policies lead positive externality, due to new technology

spill over effect

– Large investment to renewables can speed the development of

renewable

27

renewable

Relation between ETS and RPS

There is RPS target and ETS (since 2017), coordinated design is

needed.

ETS: emission CAP

RPS h f blRPS: share of renewable

power in grid

28

Concluding remarks

• China has paid increasingly attention to mitigate the environmental impact of energy consumptionenvironmental impact of energy consumption

• Both Total Energy Consumption Control and market based policy instruments are adopted to enhance the performanceinstruments are adopted to enhance the performance 

• The co‐benefit of mitigating GHG emissions and pollution is importantimportant

• ETS is taken as a market based mechanism to mitigate climate changeg

• Natural gas as a cleaner energy type will play a more important role in near future, though price is a key factor

• Renewable and nuclear will be developed continuously

Thank you!Thank you!

Yi FYing FanCenter for Energy and Environmental Policy Research (CEEP)School of Economics and Management, Beihang UniversityEmail: yfan1123@buaa.edu.cn; ying_fan@263.netWeb: www.ceep.cas.cn/en/