Energy and Environment Issues in China from Japanese Perspective

Kazuhiro Ueta, Kyoto University

ueta@econ.kyoto-u.ac.jp

Our concern onclimate change policies

Japan : Negative impactChina : Not urgent issue

Positive strategy for both China and Japan

Basic Idea and Viewpoint

Environment vs. Economy

Global (CO2) vs.

　　 Local-Regional (SO2)

China vs. Japan

MAC of CO2 Emissions

0

100

200

300

400

500

600

700

800

900

1000

0 10

0

20

0

30

0

40

0

50

0

60

0

70

0

80

0

90

0

10

00

11

00

12

00

USA

JPN

EEC

CHN

IND

MAC 1985USD per ton

Mill. Carbon ton

Source: Ellerman, A. D., Jacoby, H. D., and A. Decaux (1998),http://web.mit.edu/globalchange/www/MITJPSPGC_Rpt41.pdf

Japan

China

CO2 Emissions in China and Japan

0

100

200

300

400

500

600

700

800

900

Japan China

Mill. ton

1971 1980 1990 2000

Comparison: Energy Balance Table in 2001

Energy share in China Coal 56%,Petroleum 20% ，Biomass 19%Natural gas 3%

Nuclear Power0.4%

Coal55.9%

Crude Oil18.9%

New Energy18.9%

Hydro Power2.1%

Natural Gas2.8%

Petroleum1.0%

Natural Gas12.4%

Coal19.2%

Crude Oil41.0%

Petroleum8.2%

Nuclear Power16.0%

New Energy1.7%

Hydro Power1.4%

Energy share in JapanCoal 19%Petroleum 49% ，Nuclear Power 16% ，Natural gas 12%

Potentiality of Energy Savingin China

Coal power plant’s heat rate China 0.317 and Japan 0.425

Efficiency of coal power plant China 3.157 (=1/0.317) Japan 2.354 (=1/0.425)

China’s energy efficiency is 25% lower than Japan’s

EBM Simulation Menu

Baseline forecast

Sim1: 25% efficiency improvement in coal power plants

Sim3: Energy switch: coal to natural gas by 2%

EBM Simulation ResultsSim1: 25% efficiency improvement 　

⇒ CO2 reduction by 9.6%

Sim3: Coal to natural gas by 2% point

CO⇒ 2 reduction by 1.3% SO2 reduction by 3.5%

Simulation results of EBM Technology transfer in CDM =Win-Win game⇒

Source: China Environment Yearbook (2000)

Distribution of SO2 Emissions (1999)

Total and Marginal Damage Costs in China

Total Damage Costs

Marginal Damage Costs

1993(mil.RMB) 1995 ($ by SO2-ton)

Health 13,800 221.24

Acid Rain

Forest 10,600

128.26Crops 2,200

Building 3,200

Investment for Environment Protection (Million RMB)

Drainage Waste GasSolid

WasteNoise Others Total

1991 29.21 19.73 6.72 1.83 2.24 59.73

1992 29.81 21.51 8.01 1.78 3.55 64.67

1993 29.42 25.46 8.56 1.54 4.34 69.33

1994 34.70 30.36 12.10 1.85 4.30 83.33

1995 45.59 33.16 14.07 2.15 3.76 98.73

1996 47.36 28.12 9.10 0.96 10.08 95.61

1997 72.79 28.72 6.31 0.83 7.79 116.44

1998 71.68 32.38 8.72 0.77 8.50 122.05

1999 68.83 50.98 8.34 0.92 23.51 152.73

2000 109.59 90.92 11.47 6.02 21.44 239.44

Source: China Environment Yearbook (2001)

Amount of SO2 Charge

0

100

200

300

400

500

600

1993 1994 1995 1996 1997 1998

(Million RMB)

SO2 Emission Charge in China

1st Phase 2nd Phase 3rd Phase

1982-93 1993-97 1997-99

Scope of charge

Nation wide2 provinces

9 cities2 control

zonesNew charge rate schedule

Objective of charge

Waste gas Fuel burning Fuel burningFuel burning and waste gas

(total emissions)

Character of charge

Standard-exceeding

Total emissions

Total emissions

New charge

rate

Demonstrative charge rate

Rate of charge

0.04 RMB/kg

0.2 RMB /kg

0.2 RMB /kg

1.26

RMB /kg0.63

RMB /kg

Waste Gas by Industries (in 2000) Industry

Waste Gas100 Mill. m3

SO2

1,000 ton

Electricity 48,028 7199.6

Cement 22,850 1003.4

Chemicals 8,787 822.7

Steel and Iron 21,343 755.3

Non ferrous 8,533 715.0

Foods 3,218 410.4

Oil products 3,915 378.2

Paper 2,553 337.9

Mining 3,541 330.8

others 10,890 2315.8 Source:China Environment Yearbook (2001)

Sulfur Emissions of Each Province in China 1990

SO2 Emissions of Each Province in China 1995

Sulfur Deposition in Japan by Sources in 1990 and 1995

0 50 100 150 200 250 300 350

1990

1995

Japan North East China Rest of China South Korea North Korea Others

K-ton Sulfur

Japan

North E

ast China

Domestic & Regional Optimal Solution

Cost

Abatement

MACD

MDCR

MDCD

MDCH

Domestic Health

Domestic Total

Regional Aggregation

QH QD QR

Marginal Abatement Cost Curves for SO2, Japan and China

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000

Abatement(kt-SO2)

Cost ($)

Marginal Abatement CostSO2 in Japan (1995)

Marginal Abatement Costof SO2 in China (1995)

Source of data: IIASA, Rains-Asia CD-ROM ver.7.52

Domestic Optima for China in 1990 and 1995

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000

Abatement (kt-SO2)

Cost ($)

MAC in China(1995)

MAC in China(1990)

Willing to pay in China (1995)

Willing to pay in China (1990)

WTP in China (1995)

WTP in China (1990)

Domestic and Regional Optima for China in 1990 and 1995

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000

Abatement (kt-SO2)

Cost ($)

Willing to pay in Japan(upper: 1995, lower 1990)

MAC in China(1990)

MAC in China(1995)

Willing to pay in China(upper: 1995, lower 1990) WTP in China + Japan

WTP in China

Outline of the CDM

Base line Case CDM Case

New Chongming（IGCC)

Power Power

Project #3

10years

2005

2008

2009

2014

2015

2025

2034

New Chongming（Semi -Critical）

Comparison

CreditPeriod

EvaluationPeriod

21years

30years

Base line Case CDM Case

New Chongming（IGCC)

Power

Project #3

10years

2005

2008

2009

2014

2015

2025

2034

2005

2008

2009

2014

2015

2025

2034

New Chongming（Sub -Critical）

Comparison

CreditPeriod

EvaluationPeriod

21years

30years

Power

Cost & Benefit Structure of CDM

InvestorPower Plant

China

Gov.Local

ResidentsJapan Korea D. C.

Cost of CDM

Project

(1)Construction

Fuel Saving

(2)Fuel Saving

(*)

Reduction of

GHG(3) CER (*)

(7) 2% of CER

Reduction of SO2

(*)(4)

Charge(4)

Charge(5) Air quality

(6) Acid rain

(6) Acid rain

Reduction of Air Pollutant of Each Project

0

50,000

100,000

150,000

200,000

250,000

Project #1 Project #2 Project #3 Project #4 Project #5

SO2(ton)NOx(ton)Dust(ton)

Benefit from Reduction of Air Pollutant (RMB)

0

100

200

300

400

500

600

700

800

Project #1 Project #2 Project #3 Project #4 Project #5

SO2

NOx

Benefit from Reduction of Acid Rain

0

5

10

15

20

25

30

35

Million RMB

Project #1 Project #2 Project #3 Project #4 Project #5

Japan SO2

Japan NOx

Korea SO2

Korea NOx

Revenue and Cost for the Investor

-6,000

-5,000

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

Project #1 Project #2 Project #3 Project #4 Project #5

Cost of Project

Fuel Saving

Revenue from CER

Million RMB

Net Benefit of Stakeholders

-600

-400

-200

0

200

400

600

800

1000

1200

10 Year Project

21 Year Project

Million LMB

Local

Resid

ents

Ch

inese

Govern

men

t

Local P

ower

Gen

erator

Investor

Japan

Korea

Develop

ing

Cou

ntries

Discount Rate, CER Price and Revenue in Project #3

-1,000

0

1,000

2,000

3,000

4,000

5,000

0 5 10 15 20 25

CER=$0（USD/tonCO2e )

CER=$5 CER=$10 CER=$20 CER=$50

Revenue: Million RMB

Discount Rate(%)