China’s Climate Change Mitigation Initiatives

and Energy Outlook

The 37th IAEE International Conference

June 15-18, 2014New York City

Prof. Zhang XiliangProf. Valerie J. Karplus

China’s energy system: A snapshot

By primary energy type By end-use sector

Coal use by sector

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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.

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www.china.org.cn

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globalchange.mit.edu

Global Climate Change

Human Development

Local Pollution

Industrial Development & Resource Needs

How to balance?

Key players in China’s energy and climate policy

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Provincial Leading Group on Energy Conservation & Climate Change

•Director of the Leading Group is often the provincial governor

Led by Premier

Li Keqiang

State-Owned Assets

Supervision and

Administration

Commission

Pricing policy

Investment targets

Project approval

Carbon trading

Energy-

efficiency

standards

Energy-saving

subsidies

Renewable energy targets

Feed-in tariff/surcharge

Evaluates leaders’

achievement of

energy-saving

targets

Environmental

Taxation

Renewable Energy

Fiscal Fund

National Climate Fund

(CDM)

Pollution

AAQS

Environmental

levy

Research

Development

Demonstration

International

Climate

Negotiations

National Panel on

Climate ChangeUniversities

Research Institutes

(1) Historical Context: Energy Intensity Targets

Source: Ye Qi, Tong Wu, Jiankun He and David A. King, Nature Geoscience, 2013, 6, 507-509.

China’s energy intensity reduction targets and outcomes in previous five-year plans.

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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.)

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 11th 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 (energy-

intensive)

Non-fossil energy:

11.4% of non-fossil fuel in

primary energy use by 2015

Renewable targets, tax

breaks, feed-in tariff

Electric power

Industrial direct use

Low carbon liquid fuels

CO2 intensity target:

Reduce 17% relative to

2010

Feed-in tariffs for wind,

solar and biomass

Alt. liquid fuel incentives

Emissions trading pilots

Results from above

measures to reduce energy

intensity and increase share

of non-fossil energy use

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Emissions trading system to help support achievement of CO2

emissions intensity targets

• Provincial/city level pilots starting in 2013: Tianjin, Shanghai, Beijing,

Chongqing, Guangzhou, Hubei, Shenzhen.

• Many scales, different system designs

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In: Zhang et al., 2014, Energy Policy, forthcoming. (CECP manuscript)

China’s ETS Roadmap

CDM

project

VER

trading

Learning

phase in

pilot

regions

Formal

regional

ETS

National

ETS

New Policy Developments in China

• Third Plenum in 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

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Policy scenarios analyzed using C-GEM

Measures No Policy Continued Effort Accelerated Effort

Carbon tax 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 NoneCrude 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

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Energy Trends

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Coal

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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.

Natural gas

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Long term

reliance on

natural gas falls

as carbon price

rises

Average annual growth rate

• 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.

Oil

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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.

Nuclear

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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.

Renewable electricity

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Total non-fossil energy shares grow:

Continued Effort: 20% in 2030, 26% in 2050

Accelerated Effort: 26% in 2030, 39% in 2050

CO2 price

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CO2 emissions

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What is the Tsinghua-MIT China Energy and Climate Project?

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MIT Founding Sponsors:

A five-year collaborative research effort to develop new tools and

analysis for supporting strong climate and energy decisions in China.

Sustaining Sponsors:

Institute for Energy,

Environment and

Economy

Joint Program on the

Science and Policy of

Global Change

• 10 team members (5 students)

• Closely integrated research team

• Separate funding at MIT & Tsinghua

• Offices in Cambridge & Beijing

Tsinghua Sponsors:

MOST NDRC NEA

globalchange.mit.edu/cecp 25

Thank you

谢谢!