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10/26/2010

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China’s Progress in Energy Efficiency and E i i R d i d I li i fEmission Reduction and Implications for

CHINA‐JAPAN‐U.S. Cooperation

Gang He

Research Associate, Stanford UniversityProgram on Energy and Sustainable Development

http://pesd.stanford.edu • Stanford Universityhttp://pesd.stanford.edu • Stanford University

Washington, DCOct 25, 2010

Program on Energy and Sustainable Development

PhD student, Energy and Resources GroupUniversity of California, Berkeley

Outlines

• Background: rising China’s greatest transformation• Progress in China’s the energy efficiency and emission

reduction• PESD’s research for China’s low carbon future: CCS in China as

a case study• Implications: understanding China’s domestic political

economy and align with China’s domestic incentives• Conclusion and implications

http://pesd.stanford.edu • Stanford University 2

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Background: Rising China’s Greatest Social Economic Transformation

• Greatest transformation• Four major socio‐economic transformations

– IndustrializationIndustrialization– Urbanization– Motorization– Modernization

• General socio‐economic target– 2000, well off society

http://pesd.stanford.edu • Stanford University

y– 2020, all round well off society– 2050, middle developed countries level

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Why China’s energy and climate problems are extremely challenging?

Oil 20%

Nuclear Energy 1%

Hydro electric 6%

Coal Dominates China’s Primary Energy and Power Supply

Hydro

Nuclear2%

WindOthers

Natural Gas 3%

Coal‐fired

17%


Coal 70%

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70% of China Primary Energy from CoalSource: 2007 data from China National Bureau of Statistics, 2008

Coal‐fired81%

81% Electricity Generated by CoalSource: 2008 data from China Electricity Council

Total: 2.65 btce Total: 3,427 TWh

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Economy: Export Oriented and Energy Intensive

• Export‐oriented• Labor intensive• Energy intensive• Energy intensive• Resources intensive


Chart source: Google Public Data. News source: http://www.nytimes.com/2010/08/16/business/global/16yuan.html

Highlights on China’s Energy Efficiency and Emission Reduction Progress and Prospective


Source: tttp://news.xinhuanet.com/english2010/china/2010‐03/13/c_13209617.htm

Source: McKinsey, China’s green opportunities.

Energy Saving: 600 million tceEmission Reduction: 1.5 Bt CO2

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China Tops the Clean Energy Booming

25

30 GW

Wind

In 2009, China was the biggest•PV exporter•New wind capacity installer

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15

20

Nuclear

•Nuclear Capacity under construction•Investor in clean energy


‐

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1995 1997 1999 2001 2003 2005 2007 2009 2011Data Source: China Statistic Yearbook; CEC; Chinese Renewable Energy Industry Association.

Solar

China’s Renewable Energy Will Account 15% of Total Energy Consumption by 2020

150 140

160

GW Wind

70

40

60

80

100

120

Nuclear


25 20

9

‐

20

40

1990 1995 2000 2005 2010 2015 2020 2025Data Source: China Statistic Yearbook; CEC; Chinese Renewable Energy Industry Association. 2020 targets proposed by Chinese planners, not officially released yet.

Solar

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China’s Green Infrastructure: High‐speed train and High‐voltage Transmission Lines


Source: Ministry of Railway, 2008

A CRH train departs Shanghai station. Source: Xinhua.

Towards Market Oriented Environment and Climate Governance

• 11th five year plan mostly rely on command and control• Carbon tax, environmental tax and climate tax in discussion• China is discussing a Cap‐and‐Trade demonstration projectChina is discussing a Cap and Trade demonstration project

– Key energy intensive sectors: power, oil, chemical; SOEs– Low‐carbon demonstration cities: Tianjin, Liaoning, etc

• It’s not a big deal but has big implications– Domestically: show the transformation, building the capacity and infrastructure for future implementation


– Internationally: deliver a clear message of China’s take on climate change

• Try and test: will first be voluntary , to see how it can work

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Stanford University Program on Energy and Sustainable Development

• Initiated in 2001• Works on political, economic and institutional perspective of

global energy systemglobal energy system• Completed research

1) Electricity Markets and Power Sector Reform2) Global Natural Gas Markets

• Active research1) Climate Change Policy2) The Global Coal Market


2) The Global Coal Market– Business Models for Carbon Capture & Storage (CCS)

3) National Oil Companies and the World Market4) Building a Low‐Carbon Electricity Industry and the “Smart Grid”5) Low‐Income Energy Services

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Highlight Research on China’s Low Carbon Future

• China’s coal and power sector– Industry organization– Coal and power sector reformCoal and power sector reform– China’s clean coal technology

• Carbon capture and storage• Carbon policy and Clean Development Mechanism Reform• Increasing research on

– Fuel switch to natural gas


g– Integrating renewable energy to the smart grid

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Coal is the World’s Fastest Growing Source of Fossil Fuel and China Consumes 43% of ItIncrease in primary demand, 2000–2007(IEA)

800

900

1 000

4.8%South Africa, 133.2, 3%

Germany, 114, 2%

Korea, 91.2, 2%

Poland, 84.8, 2% Australia,

81.3, 2%

Total Global Coal Consumption: 4.9 Btce

Mtoe

300

400

500

600

700

800

1.6%2.6%

2 2%

% = average annual rate of growthChina, 2098.6, 43%

Rest of World, 756.2,

India, 377.1, 8%

Russia, 177.5, 4%

Japan, 161.5, 3%


0

100

200

Coal Oil Gas Renewables Nuclear

2.2%

0.8% USA, 788.1, 16%

15%

Consumption in million metric tons and share of global total, 2008

Sources: IEA WEO 2008, IEA Coal Statistics 2009. Note: Consumption is expressed in "million tons of coal equivalent“.

The Conventional Wisdom: China is Required CCS Deployment to 2050

Africa, $248, 11%

Other OECD N. America, $51, 2%

OECD Pacific, $215 9%

Power sector CCS investment in billion USD (IEA)

Africa, 117, 7%

Other OECD N. America, 66 4%

OECD Pacific, 148,

9%

Number of power sector CCS projects to be deployed (IEA)

China, $467, 20%

Cent. and S. America, $59, 3%

Other Developing A i $306

OECD Europe,

$268, 12%

USA, $270, 12%

$215, 9%China, 307, 19%

Cent. and S. America, 52, 3%Eastern EU

and Russia, 181, 11%

OECD Europe, 187, 12%

USA, 175, 11%

66, 4% 9%


Eastern EU and Russia, $126, 5%

India, $204, 9%

Middle East, $86,

4%

Asia, $306, 13%

Total World: 2.3 trillion USD

India, 147, 9%

Middle East, 103, 6%

Other Developing Asia, 149,

9%

Total World: 1,623 projects

Source: IEA “CCS Roadmap” 2009. Assumptions based on IEA Blue Map mitigation scenario.

The Current CCS Logic: Climate Change ‐> CCS ‐> Coal ‐> China ‐> CCS in Chinese Power?

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CCS at Scale Could Harm China’s Energy Security

CCS at scale requires an extra 200‐300 million tonnes of coal

Chinese Coal Flows (2.9 B tons in 2009; 3.3 B tons estimated in 2010)

• Coal railway bottlenecks already a major constraint

• CCS at scale implies huge additional infrastructure costs

– new coal production– additional rail build– additional port capacityadditional shipping capacity


– additional shipping capacity– Total est. additional costs: ~USD 50 billion

Source: IEA CCC 2007, Coal Supply Challenges for China.

Note: Our calculations show that achieving IEA’s Blue scale requires 375 GW (gross) CCS‐equipped coal capacity. Assumptions: 50% gross efficiency; 5% auxiliary consumption; 10% efficiency loss from capture; that is, 35% net efficiency with capture; 85% capture rate; 0.8 plant load factor. Given that today’s ~600 GW of coal capacity consumes 1.2 billion tonnes per year coal, an additional 25% for 375 GW (due to decreased efficiency) would represent an additional 190 million tonnes of coal (conservatively).

Coal‐power Conflict: Why International Financial Mechanism is Needed for Scaling up CCS in China

0.40

0.50

0.60 2008: China's power market cannot even bear the cost of coal

0.00

0.10

0.20

0.30

1/20/08 2/20/08 3/20/08 4/20/08 5/20/08 6/20/08 7/20/08 8/20/08 9/20/08 10/20/08 11/20/08 12/20/08

Shanghai Grid (RMB / KWh)

Coal Cost (RMB / KWh)

•Cheap power to fuel economic development and tame inflation is a political imperative that


Source: He and Morse. Power price is Shanghai grid as reported by Shanghai Development and Reform Commission. Coal price is Qinhuangdao spot price as reported by Reuters.

Cheap power to fuel economic development and tame inflation is a political imperative that constrains cost recovery for CCS at scale•Chinese power companies lost RMB 70 billion (USD 10 billion) in 2008 because power prices remain tightly controlled by the central government while coal prices are not, illustrating a key problem: the power market cannot internalize increased costs•Without power markets that allow for cost recovery, scaling of CCS technology is likely to prove elusive

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Uneven Reform of Coal and Power Sector

3000

3500

4000Twh, Mt

1000

1500

2000

2500

3000

P G ti

Central Planning Coal

Power

Two‐tier system introduced in 1985

Market expanding, electricity coal price

gradually relax

Major Market ‐oriented Reform

Coal negotiation Conference end in 2009

Central Planning

Generation partial open

State power corporation

1978 1992

1997 2002


0

500

1975 1980 1985 1990 1995 2000 2005 2010 2015

Power Generation

Coal Production

Data source: China Energy Statistic Yearbook. Indicative Reform stage summarized by Gang He.

China’s Core Interests in Energy Supply and Climate Policy Implications

• Economic growth and macroeconomic/social stability→ “Energy security”: ensure lack of energy doesn’t impede

growth → supply diversification, efficiency improvement → Keep energy prices low to end users: economic growth and

social stability→ Develop leadership in energy technology manufacture

• Reduction of local pollution→ Pollution controls on coal plants→ Efficiency improvement


→ Fuel switching away from coal

• Climate change mitigation→ Efficiency improvement→ Fuel switching away from coal

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Lessons: Strongest Motivation Emerges Where Goals Align!

For Example

• Higher‐efficiency coal technology (e.g., USC, IGCC)E S it POSITIVE (b tt ffi i )Energy Security: POSITIVE (better efficiency)Technology Capability Development: POSITIVEPollution Reduction: POSITIVE (better efficiency, less pollutant)Climate Mitigation: POSITIVE (better efficiency)

• Post‐Combustion Carbon Capture and Storage (CCS)Energy Security: NEGATIVE (energy penalty need even more coal)


Technology Capability Development: POSITIVEPollution Reduction: NEUTRALClimate Mitigation: POSITIVE

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China’s CCS Projects Align with the AnalysisCCS Projects Technology Partnership model Financial arrangement Status

GreenGen Corporation IGCCPre‐combustion de‐carbonisationGasification or partial oxidation shift plus CO2

Huaneng with seven other state‐owned companiesPeabody Energy

Registered capital: RMB 300 million (USD 44 million)Huaneng 51%, and other 7 in the group 7% each

Under construction

separation. Total investment will reach RMB 7 billion.

Shenhua CTL Coal to synfuels (direct coal liquefaction)

Shenhua Group SasolWest Virginia University

USD 1.4 billion CTL operational, CCS expected to start in late 2009

Huaneng Beijing Thermal Power

Post‐combustion HuanengAustralia CSIRO

USD 4 million research project by CSIRO

Operational since 2008

Near Zero Emission Coal R&DD UKChina Ministry of Science and Technology

USD 5.6 million equivalent from the UK Government’s Department of Energy and Climate Change

In planning stages


and Climate Change

COACH Project (Cooperation Action within CCS China‐EU)

R&DD COACH project groups 20 partners (R&D, Manufacturers, Oil & Gas Companies, etc)12 for Europe and 8 for China

Partially funded by European Union

In planning stages

Shanghai Huaneng Shidongkou

Post‐combustion Huaneng Corporation investment Under construction

Source: Summarized from company profile and news.

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Final Comments: Low‐Carbon Opportunities in China’s Energy/Power Sector

• Efficiency: Using coal more efficiently– Supercritical/Ultra‐supercritical technology– Integrated Coal Gasification Combined Cycle (IGCC)– Integrated Coal Gasification Combined Cycle (IGCC)– Poly‐generation and co‐generation

• CCS: Capture and store CO2 from coal plants• Displace coal

– Nuclear power– Natural gasI th f bl


• Increase the use of renewable energy– Won’t be significant in the near future but can be a game

changer– Not just about renewable capacity, need actual generation

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Things to Watch…

• 12th five‐year plan: continuing energy conservation and emission reduction effort; the target won’t more aggressive, but the implementation will be more market oriented

• Two major targets by 2020:• Two major targets by 2020:– 40‐45% emission intensity– 15% renewable energy

• Booming of new energy– Nuclear, wind, solar, biomass, …

• Others– Low carbon cities demonstration


Low carbon cities demonstration– Environment exchange, carbon exchange setting up the

infrastructure of market oriented approach – Carbon tax, environmental tax

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Conclusions and Take‐home Messages

• China is under its greatest social economic transformation and the opportunities lie with challenges

• China is progressing aggressively in energy efficiency and p g g gg y gy yemission reduction, and is leading the global clean energy revolution

• Domestic political economy has huge implication on applying international climate policy to China

• The best way to work with China is engaging China’s core interests.


interests.

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Thanks!

Questions and comments are welcome:

Gang [email protected]


[email protected]

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