the pricing of carbon emissions from the business perspective in northeast asia

The Pricing of Carbon Emissions from the Business Perspective in Northeast Asia

May 27, 2013Presenter: Xianbing LIU

Senior Policy ResearcherKansai Research Centre/IGES, Japan

May 27, 2013 Shanghai Forum 2013 2

Background: The Project on MBIs (Market-based Instruments)

Basic thinking: a) Advantages of MBIs; b) Importance of clear and stable policy signals; c) Successful MBIs

practices in Europe; d) Laggard policy progress in Asia; e) Core competence of IGES; f) Research field of KRC

Overall objective:

To support the related policy

discussions from the business

viewpoints in this region

C2: Current status of firm’ s energy saving practices and analyses of the determinants for identifying policy gaps and directions

C4: Firm’ s awareness and acceptability to carbon emission related tax tools

C6: Development and evaluation of firm’ s preferable policy alternatives with individual tool or combined approaches

Lessons learned Lessons learned

Synthesis summary and integrative policy recommendations

Gap analysis

Literature review and expert hearing

C1: Overview of policies related to industrial energy efficiency and carbon mitigation in the three target countries

Web accessible data

Onsite interviews and hearings

Questionnaire survey

C5: Firm’ s awareness and acceptability to carbon emission trading scheme

Questionnaire surveyQuestionnaire survey

Gap analysis

FY2010

FY2011

FY2012

C3: Analysis of the effectiveness of financial subsidies to firm’ s efforts in carbon mitigation, e.g., subsidies to energy saving investments.

Onsite hearings

Geographical focus: Japan,

China and the Republic of Korea

Policy focus: Financial

subsidies, carbon taxes and GHG

emissions trading schemes

Discussed inthis presentation


Climate Policies in the Three Countries

Japan China Korea

Target To reduce its 1990 emissions by 6% from 2008-2012 To reduce emissions by 25% from 1990 levels by 2020 (based on the premise with the participation of all major emitting countries) To reduce emissions by 80% from 1990 levels by 2050 Improving energy efficiency at least by 30% by 2030

To reduce national energy intensity by 20% by 2010 and to increase renewable energy in the national mix to 15% by 2020 To cut CO2 emissions per unit of GDP by 40-45% by 2020 compared with 2005 levels※These are voluntary targets on its own country conditions

To reduce by 30% by 2020 compared with BAU levels (It is said this equals to a reduction of 4% compared with 2005 level)※It is a voluntary target on its own country conditions

Counter-measures(mainly for the industry)

Keidanren Voluntary Action Plan on Environment Energy saving-related law GHG emissions Calculation, Reporting and Disclosure System Energy-related taxes Carbon offset scheme, carbon financing scheme (voluntary) ETS is under trial, carbon tax introduced since Oct. 1, 2012

(Energy supply side) All new coal-fired power plants to be state-of-the-art commercially available with better technologies (Energy demand side) Imposes a significant portion of overall 20% energy intensity improvement by directly targeting around 1,000 largest state-owned enterprises Resource-related taxes Pilot of GHG ETS, discussions of ETR

Adoption of a legal and regulatory framework, GHG and Energy Target Management System, carbon emission trading, the creation of a national GHG inventory reporting system by 2010 Energy-related taxes Start GHG ETS since 2015, Discussions in carbon tax


Objectives of the Surveys in FY2011

1) Monitor the company’s awareness and overall acceptability of energy

saving and climate policies, particularly the economic instruments;

2) Estimate the company’s affordable carbon prices using the model of

willingness-to-pay (WTP) and MBDC format;

3) Understand the barriers for the company’s energy saving investments

and responses to the emerging carbon pricing policies.

The surveys in China and Korea were conducted in FY2011. The surveyin Japan was arranged in FY2012 as a complementary one under the MBIs project of KRC/IGES in the 5th phase (FY2010-2012).


MBDC Card for Model Estimations & Survey Items

Question: The energy prices would be increased due to the introduction and implementation of market-based climate polices, such as imposing energy taxes or carbon taxes in the sector of energy production and transition. Accordingly, the industrial company’s energy consumption cost would be increased. We would like to understand the viewpoint of your company to the energy cost increases due to the climate policy interventions. Please circle one letter to each increase ratio to indicate the affordability degree of your company.

Your company’s choice Energy

cost

increase

ratio (%)

Very low;

Easily

acceptable

Not high;

Acceptable

Moderate;

Barely

acceptable

High;

Rejection

Very high;

Strong

rejection

0.1 ○A B C D E

0.3 ○A B C D E

0.5 A ○B C D E

0.7 A ○B C D E

1.0 A ○B C D E

3.0 A B ○C D E

5.0 A B ○C D E

7.0 A B ○C D E

10.0 A B ○C D E

15.0 A B C ○D E

20.0 A B C ○D E

30.0 A B C ○D E

50.0 A B C D ○E

70.0 A B C D ○E

100.0 A B C D ○E

15 increaseoptions inEnergycosts

Fivelevels of acceptance

Main Items: Basic information of the ◈

firms;

Firm’s energy use status;◈ MBDC format on the left;◈ Factors affecting firm’s cost ◈

affordability and policy

awareness;

Awareness of policies and ◈energy saving technologies;

Factors affecting firm’s ◈decisions in energy saving

investments;

Firm’s reactions to possible ◈policy interventions;

Pay back time for energy ◈saving investments;

Etc.◈


Estimation Models for Individual Companies

iiiV

)(1)Pr( ijijiij rFrVP

iijij rFP )(1

ii

iijij

rP

1

Affordable energy cost increase ratio, with a CDF F(r)

Mean value of Vi

Possibility for accept an increase threshold, rij

An error term with a mean of zero

Assumed a normal accumulative distribution with a mean of μi and a standard variance of σi

ii 0

A vector of determinant factors


The Survey Areas in China

Shandong Province: 57

Shanxi Province: 79

34 samples from other areas


Distribution of Respondents in China

Number of samplesNumber in

total(Percentage)Small Medium Large Unclear

Iron & steel 14 27 10 1 52 (30.6)

Cement 24 7 1 1 33 (19.4)

Chemical 12 21 4 1 38 (22.4)

Paper 1 8 6 0 15 (8.8)

Others 19 12 1 0 32 (18.8)

Number in total (Percentage)

70 (41.2)75

(44.1)22

(12.9)3 (1.8) 170 (100.0)

3 energy-intensivesectors mainly targeted

in this survey


Company’scharacteristics

Number of samplesNumber in total

(%)Small Medium

Large Medium

Large

Sector

Cement 2 6 2 1 11 (17.7)

Steel - 8 5 3 16 (25.8)

Petro-chemical - 13 13 9 35 (56.5)

Number in total (%) 2 (3.2) 27 (43.5) 20 (32.2) 13 (21.0) 62 (100.0)

TMSTMS 2 26 17 13 58 (93.5)

Non-TMS - 1 3 - 4 (6.5)

Number in total (%) 2 (3.2) 27 (43.5) 20 (32.2) 13 (21.0) 62 (100.0)

Distribution of Samples in Korea


The Survey Area in Japan

► Posted to all the 465 manufacturing companies with annual energy use over 1,500kl TOE;► 117 are members of Hyogo Environmental Protection Association;► 348 are posted with the letter of Hyogo government;► 72 association members responded;► 158 collected with the letter of Hyogo government;► A total of 230 valid samples gathered.


Distribution of Respondents in Hyogo, Japan

Sector

Number of samplesNumber in

total(Percentage)Small Medium Large

Food processing 0 32 10 42 (18.3)

Chemical 0 24 6 30 (13.0)

Iron & steel 0 12 8 20 (8.7)

Electronics 0 12 13 25 (10.9)

Others 4 84 25 113 (49.1)

Number in total (Percentage)

4(1.7)

164 (71.3)

62(27.0)

230(100.0)


Company’s Energy Use Structure in China

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0

In overall (N=104)

Steel (N=29)

Cement (N=19)

Chemical (N=26)

Percentage

Electricity Coal Oil Natural gas Steam Others

62%

62%

32%


Energy Cost Ratios in Total Sales of Chinese Samples

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

In overall (N=156) Steel (N=47) Cement (N=30) Chemical (N=35)

Sector

Per

cen

tage

Below 5% 5-10% 10-20% 20-50% Above 50%

For large and medium firms: 20-30% of energy cost in production cost.


Energy Use Structure of the Samples in Japan

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0

All samples(N=218)

Food processiong(N=42)

Chemical(N=30)

Iron & steel(N=16)

Electronics(N=25)

Percentage

Electricity Coal Oil Natural gas Heavy oil City gas

Heat LPG Gasoline Diesel Kerosene Cokes

49.7% 26%

73.9% 11.3%

33.8%43.2%


Affordability of the Samples in China (N=111)

02

04

06

08

01

00

Pe

rce

nta

ge o

f th

e sa

mpl

es

0 20 40 60 80 100Energy cost increase ratio (%)

Observed data of easily acceptable & acceptable Observed data of barely acceptable and over

Regression curve of easily acceptable & acceptable Regression curve of barely acceptable and over

50% of the samples corresponds to the ratios of 2.8% and 9.3% on the two curves.

Two curves were simulated: One is the sum of easily acceptable + acceptable. The other is the sum of easily acceptable + acceptable + barely acceptable.

The real affordable ratio shall be between these two curves.


Affordability of Steel Companies in China (N=34)

02

04

06

08

01

00

Pe

rce

nta

ge o

f th

e sa

mpl

es






Affordability of All the Samples in Japan (N=153)

02

04

06

08

01

00

Pe

rce

nta

ge o

f th

e sa

mpl

es


Observed data of easily acceptable and acceptable Observed data of barely acceptable and over

Regression curve of easily acceptable and acceptable Regression curve of barely acceptable and over



Affordability of All the Samples in Korea (N=36)

02

04

06

08

01

00

Pe

rce

nta

ge o

f th

e sa

mpl

es




The R squared for regressions of the two sets of data is 0.9565 and 0.9721.

Affordability on the part of 50% of the samples corresponds to energy cost increase ratios of 0.6% and 2.3%.


Distribution of Cost Affordability in ChinaVariable Percentile Centile (%) 95% Conf. Interval (%)

Panel A: All the samples (N=111)

Mean of μ: 8.8%

The std. dev. of μ: 9.0%

10 0.72 0.54 1.94

30 3.95 2.57 5.08

50 6.59 5.20 6.97

70 10.23 7.08 12.86

90 18.50 13.83 28.91

Panel B: Samples from iron & steel sector (N=34)

Mean of μ: 8.8%


10 0.61 0.32 1.73*

30 3.37 0.99 6.72

50 6.74 4.36 10.35

70 11.20 6.75 16.03

90 17.94 13.14 52.6*

Panel C: Samples from cement sector (N=17)

Mean of μ: 7.7%


10 2.19 1.94 5.08*

30 5.17 2.25 6.81

50 6.75 5.08 10.15

70 9.79 6.47 13.12

90 14.31 10.15 19.05*

Panel D: Samples from chemical sector (N=27)

Mean of μ: 9.9%


10 0.84 0.50 3.19*

30 3.65 1.58 5.20

50 5.20 3.61 9.13

70 8.31 5.20 25.71

90 29.58 11.13 44.08*

*: Lower (upper) confidence limit held at minimum (maximum) of sample.

◈ Significantly and negatively associated with competition level;

◈ The large companies have higher affordability.


Calculations of Affordable Carbon Prices in China

Energy typeEnergy use ratios (%)

Current energy price a Emission factor b

Iron & steel Cement Chemical

Electricity 27.85 31.19 18.62 0.618 Yuan/KWh 0.8592 t-CO2/MWh

Coal 61.82 61.67 32.10 746 Yuan/t 1.9383 t-CO2/t

Fuel oil 0.64 2.35 34.86 4450 Yuan/t 3.0358 t-CO2/t

Natural gas 1.03 0.00 2.04 2.78 Yuan/m3 2.1731 t-CO2/1,000 m3

Steam 0.66 0.00 6.51 230 Yuan/t 0.3231 t-CO2/t

MEANAFFORD 8.8% 7.7% 9.9%Data source: a www.askci.com;

www.cngold.org;b (Su et al., 2009); (NDRC, 2010).

Affordable carbonprice (Yuan/t-CO2)

42.7 38.6 83.7

iii

iii

iii

iii

ratioEnergypriceEnergy

pricecarbonAffordableratioEnergyfactorEmission

amountUsepriceEnergy

pricecarbonAffordableamountUsefactorEmissionMEANAFFORD


Distribution of Cost Affordability in Japan

Variable Percentile Centile (%) 95% Conf. Interval (%)

Panel A: All the samples (N=153)

Mean of μ: 2.3%Mean of std.dev. of μ: 3.7%

10 0.4 0.4 0.5

30 0.6 0.5 0.9

50 1.9 1.2 2.3

70 2.9 2.7 3.5

90 5.3 4.7 5.5

Panel B: Samples from food processing industry (N=29)


10 0.5 0.4 0.8a

30 0.9 0.6 1.6

50 1.7 1.1 2.3

70 2.5 1.8 3.8

90 4.3 2.8 5.3a

Panel C: Samples from chemical industry (N=26)


10 0.5 0.4 0.5a

30 0.5 0.5 2.5

50 2.6 0.6 4.3

70 4.8 2.8 5.7

90 7.4 5.0 12.0a

a Lower (upper) confidence limit held at minimum (maximum) of sample

In addition:Iron & steel sector (N=11):Mean of μ: 1.5%

Mean of std. dev. of

μ: 3.1%.

Electronics sector (N=12):Mean of μ: 2.6%Mean of std. dev. of μ: 3.7%.


Carbon Prices Affordable for Companies in Hyogo

Energy use ratios (%)Energy price

(Yen/GJ)

Emission factor

(t-CO2/GJ) All samples(N=218)

Food processing(N=42)

Chemical(N=30)

Iron & steel(N=16)

Electronics(N=25)

Electricity 49.72 43.19 48.87 56.31 73.88 1433 0.0467

Coal 1.80 0.00 1.03 3.94 0.00 407.8 0.0907

Oil 1.71 0.86 3.33 3.38 4.80 1188.5 0.0686

Natural gas 4.91 9.43 8.43 0.00 0.00 781.9 0.0495

Heavy oil 6.64 6.50 8.93 1.81 3.76 2110 0.0693

City gas 26.03 33.83 18.50 27.63 11.28 1834.3 0.0496

Heat 2.47 4.02 6.43 0.00 0.00 5649.0 0.060

LPG 2.83 1.59 1.33 3.00 0.28 1298.6 0.0589

Gasoline 0.05 0.02 0.00 0.00 0.00 3927.7 0.0671

Diesel 0.79 0.02 0.03 0.13 0.00 2859.4 0.0684

Kerosene 2.72 0.45 3.10 0.06 6.00 2356.9 0.0678

Cokes 0.28 0.00 0.00 3.69 0.00 1475.2 0.1078

MEANAFFORD 2.3% 2.0% 3.1% 1.5% 2.6%

Affordable carbonprice (JPY/t-CO2)

739 683 1062 426 801

Big gap with the carbon price needed for realizing Copenhagen pledge of Japan (30-50$/t-CO2)

5-13$/t-CO2


Distribution of Cost Affordability in Korea

Panel A:All the samples (N=36)

PercentileCentile

(%)95% Conf. Interval

(%)Panel C: Cement sector (N=5)

PercentileCentile


(%)

Mean of μ: 2.6%


10 0.38 0..11 0.5

Mean of μ: 2.8% The std. dev. of μ: 4.3%

10 0.11 0.11 1.53

30 0.7 0.48 1.42 30 4.06 0.11 3.88

50 1.59 0.86 2.26 50 1.84 0.11 8.81

70 2.62 1.72 3.62 70 3.86 4.05 8.81

90 9.22 2.75 13.2 90 8.81 20.2 8.81

Panel B: Iron & steel sector (N=11)

PercentileCentile


(%)Panel D: Chemical sector (N=20)

PercentileCentile


(%)

Mean of μ: 2.5%


10 0.48 0.48 0.95

Mean of μ: 2.6% The std. dev. of μ:3.8 %

10 0.27 0.11 0.6

30 0.87 0.48 1.59 30 0.66 0.37 1.64

50 1.59 0.64 2.37 50 1.57 0.65 2.71

70 1.77 1.43 12.7 70 2.69 1.5 6.7

90 11.4 1.74 13.3 90 9.63 2.72 11.3

*: Lower (upper) confidence limit held at minimum (maximum) of sample.


Carbon Prices Affordable for Korean Companies

Energy type

Energy use ratios (%)

Current energy price*1 Emission factor *3Iron & steel

Cement Chemical

Electricity 63.94 29.25 51.33 73.69 KRW/KWh 1.428 t-CO2/toe*4

Coal 3.63 36.88 0.47 113,138 KRW/t 1.059 t-CO2/toe

Fuel oil 5.22 1.62 10.00 612,352 KRW/t 0.875 t-CO2/toe

Gas 24.78 8.18 15.54 552 KRW /m3 0.637 t-CO2/toe

Steam 0.19 0 15.68 30,000 KRW/t *2 0.3231 t-CO2/t

MEANAFFORD 2.52 2.77 2.55

Data source: *1 IEA, 2010 *2 International Journal

*3 IPCC *4 Kim, 2009Affordable carbon

price (KRW/t-CO2)3,772 2,602 3,953

Kwon and Heo (2010): 36,545KRW/t-CO2 (about 31$/t-CO2) for achieving the national mid-term target of Korea. KIFP (Korea Institute of Public Finance) (2008): 25 EURO/t-CO2 and equivalent to 31,328KRW/ t-CO

2 KIFP (2010): Suggested a carbon tax rate at the level of 1/8 of above in the first proposal.


A Brief Summary

◆ This presentation summarizes the estimation results of carbon prices affordable for the companies in China, Japan and Korea;

◆ The MBDC format and WTP model, traditionally used for the individuals, were innovatively applied;

◆ The sampled Chinese companies show relatively higher affordability to energy cost increases than the companies of Japan and Korea;

◆ The carbon prices affordable for the companies in China and Japan are similar at a range of 5-13$/t-CO2, which is around 2-3 times of Korean companies;

◆ The estimated affordable carbon prices are meaningful for the ongoing discussions of carbon pricing policies in this region;

◆ Besides carbon prices, the viewpoints of businesses on the other policy attributes shall be measured for the design of appropriate carbon pricing tools;

◆ The policy gap for the realization of national carbon mitigation targets in medium and long term shall be further identified and bridged;

◆ The possibility for policy integration and coordination at regional level is an essential topic for discussions.


Thank you!

Contacts:

Xianbing LIU

KRC/IGES

Tel: +81-78-262-6634

Fax: +81-78-262-6635

E-Mail: [email protected]

URL: http://www.iges.or.jp

the pricing of carbon emissions from the business perspective in northeast asia

Documents

energy prices

firms awareness

current status of firms

carbon taxes

imposing energy taxes

energy cost incre

industrial energy efficiency

firms decisions