China Plans a Nationwide Carbon Market

China recently confirmed its plan to place the entire nation under a carbon market (cap-and-trade regime) to lower its annual rate of emitting carbon dioxide (CO₂), the important greenhouse gas, beginning in 2016.

 

• China intends to continue lowering its carbon intensity, i.e., the amount of CO₂ emitted for each US$ of gross domestic product (GDP) that the economy produces.

 

• The goal is to reduce the carbon intensity by 40-45% below the 2005 value by 2020.  Averaged over this 15-year period, this corresponds to a reduction of 2.7-3% per year.  This can arise from increased efficiencies in energy production and use from fossil fuels, and by increased production of energy from renewable sources.

 

• While this accomplishment would be highly significant, the objective does not directly address China’s total CO₂ emission rate.

 

• China’s net annual rate of emitting CO₂ is projected to grow between 2014 and 2040, with much of the increase occurring in the period up to 2020 (see the graphic below).

 

Global projected energy-related carbon dioxide emission rates per year to 2040.  RED, China.  OECD, Organization for Economic Cooperation and Development, representing already industrialized countries of the world; “rest of OECD” excludes the U. S.  Non-OECD represents developing countries of the world; “rest of non-OECD” excludes China and India.

Source: http://www.eia.gov/countries/cab.cfm?fips=CH

 

 

• The average growth rate for China’s energy-related CO₂ emissions from 2010 to 2020 is about 5.3% per year, comparable to the growth in overall energy consumption, about 5.5% per year.  Note that these objective data already reflect any improvements in carbon intensity.

 

• The national carbon market envisioned for China would be far larger than any other carbon market operating in the world today.

 

Significance

 

Cap-and-trade systems are one of two principal strategies for limiting greenhouse gas (GHG) emissions (especially CO₂); the other is a direct tax on carbon-containing fuels.  Cap-and-trade regimes limit emissions by capping each year’s allowed amount of GHG emissions, and lowering the cap each year.  Low-efficiency facilities can acquire more allowances from more efficient ones by trading on an open market or exchange, thus establishing a price for emissions. 

 

A small number of cap-and-trade regimes exists already.  They have varying degrees of effectiveness.  The European Union’s Emission Trading System was highly ineffective for several years because it distributed too large a number of allowances.  The U. S. has not enacted any federal law regulating GHG emissions.  Recently, however, President Obama’s administration has raised efficiency requirements for vehicles and has issued draft rules limiting emissions from electric power plants.  The Regional Greenhouse Gas Initiative, in nine northeastern American states, operates an effective system, but one which is limited both in its goals and because it applies only to large electric power generators.  The state of California is implementing a significant cap-and-trade regime covering its entire energy economy. 

 

As noted above, China’s national cap-and-trade system will be the largest in the world by far.

 

China has been the world’s largest emitter of GHGs since 2009.   China is projected to dramatically increase its overall energy consumption over the period 2010-2040, continuing its rapid growth in use of energy in recent years (see the graphic below).  Most is supplied by fossil fuels.

 



Annual rates of energy usage for China, the U. S. and India.  Actual use up to 2010; projected usage thereafter.  1 quadrillion = 1 million billion.  Btu, British thermal unit.

Source: U. S. Energy Information Administration; http://www.eia.gov/pressroom/presentations/sieminski_07252013.pdf (slide 5).

 

The drastic increase in China’s energy consumption in recent years has resulted in a corresponding growth in its annual rate of CO₂ emissions.  Projecting forward over the period 2010-2040 the Energy Information Administration believes the emissions growth rate will average about 2.1% per year.

 

A major factor contributing to China’s high rates of CO₂ emissions is its reliance on coal to provide almost 70% of its energy.  Of all the fossil fuels, burning coal emits 50% to 90% more CO₂ than the others in order to obtain the same amount of heat energy.

 

China’s Five Year Plans (FYPs) have programmed in the changes detailed here. 

According to the report “Delivering Low Carbon Growth – A Guide to the 12th Five Year Plan”, during the 12^th FYP, covering 2011-2015, the carbon intensity was to improve by 17%, and the 13^th FYP (2016-2020) already included the reduction of 40-45% with respect to the carbon intensity of 2005 mentioned at the outset.  The proportion of energy provided by non-fossil fuels is to be 11.4% in the 12^th FYP and 15.0% in the 13^th FYP.  The actual increase in primary energy consumption was 6.3% per year in the 11^th FYP, and intended to be 3.75-5% in the 12^th FYP.

 

Market-based incentives.  Already during the 12^th FYP China set up 7 regional and provincial pilot cap-and-trade projects, placing limits on CO₂ emissions.  The experience gained from these pilots is to provide useful background for setting up the nationwide system.

 

China and other developing countries, together with developed countries, have to agree to meaningful reductions in the world’s GHG emissions that are currently being negotiated under the United Nations Framework Convention on Climate Change.  China, for one, has emphasized its achievements in lowering its carbon intensity, even though its use of fossil fuels has been increasing resulting in increased annual rates of GHG emissions.   Agreement on a new emissions treaty is intended during 2015, and it is foreseen to enter into force by 2020.  All nations of the world should approach these negotiations in good faith, and strive to achieve agreement on meaningful reductions in GHG emissions.

© 2014 Henry Auer

China Considers Programs to Limit Greenhouse Gas Emissions

Summary.  The world’s use of energy is expanding.  Much of this demand is concentrated in developing countries of the world, especially China.  Their energy needs are furnished primarily by fossil fuels, leading to high annual rates of emission of the greenhouse gas carbon dioxide, increasing in China historically by 6.4% per year.  Coal is its principal fuel.

Jiang Kejun, a scientist at China’s Energy Research Institute, is urging its national energy policymakers to limit CO₂ emissions more aggressively by emphasizing expanded renewable energy sources and energy efficiency.  Mr. Jiang notes that “time for effective action is very limited.”

The drastic, yet feasible, measures promoted by Mr. Jiang are resisted by energy and industrial interests in China, since they adversely affect China’s economic growth rate and threaten the viability of existing energy investments.  In the meantime, China is starting a handful of pilot projects using a cap-and-trade emissions market to limit emissions.  Additionally a carbon tax and direct limits on emissions are also under consideration.

Since China is a major contributor to increased greenhouse gas emissions, it is important that it undertake all feasible policies to limit them.  Global warming from manmade greenhouse gases is indeed a worldwide problem, requiring a global approach to solve it.  The total accumulated level of atmospheric greenhouse gases must be stabilized by reducing annual emission rates toward zero.

Introduction.  The worldwide demand for energy has been increasing relentlessly throughout the period of industrialization.  Most of this energy is provided by burning fossil fuels (coal, oil and natural gas) which results in corresponding increases in the atmospheric content of carbon dioxide (CO₂), a significant and prominent greenhouse gas (GHG).  Combustion of fossil fuels is projected to continue increasing by several percent annually over the coming decades in the absence of meaningful worldwide efforts to minimize GHG emissions.

The annual emissions rate among industrialized countries of the world has been increasing very slowly in the last 10 years or so, because of both intrinsic economic factors and as a result of various reduction policies put in place.  Almost all the increase in the worldwide GHG emissions rate originates from developing countries, especially China, India, Brazil and Russia.  This results from the compounded effects of large populations and high rates of economic expansion as these countries strive to attain middle class living conditions.

This post focuses on actual and proposed policy changes in China that are intended to slow its rate of emitting GHGs.  China has the highest population of any country in the world, and its people are rapidly becoming more prosperous, placing great pressure on its economy to provide them a middle class life style.  These factors are shared across all the rapidly growing developing countries such as those listed above.

China’s economy has been expanding rapidly in recent years.  For the decade 1999-2009 the annualized growth rate of China’s economy (measured as real gross domestic product) was 10.3%.  This has slowed in the most recent years; China expects its growth rate to be 7.5% in 2013.  Such strong growth is necessarily fueled by corresponding growth rates in its use of energy, most of which comes from burning fossil fuels.  For example, the graphic below shows that most of China’s electricity has been generated from fossil fuels (turquoise shading).

Annual electrical energy generated for major input sources of energy.

Source: http://www.eia.gov/countries/cab.cfm?fips=CH

 

In 2011, according to the U. S. Energy Information Administration (EIA), 65% of electric generation and 70% of its total energy use was powered by coal, the fossil fuel that produces about twice as much CO₂ per unit of electric energy obtained as natural gas, which supplied 3% of its energy.  Among renewable sources, 22% of electric power was obtained from hydropower (brown shading), 6% from wind power and only 0.2% from solar.

China’s domestic production of coal increased 9% from 2010 to 2011, becoming the world’s largest producer; including imports China alone consumes half the world’s coal output.  According to the Huffington Post, China brings a new coal-fired power plant on line every 7-10 days.  In addition to electricity generation, coal powers much of China’s industrial production.

By 2020, China seeks to provide 15% of its energy from renewable sources.  Hydropower will supply most of this, with wind power being next. 

China is expected to dramatically increase its overall energy consumption over 2010-2040, continuing its rapid growth in use of energy in recent years (see the graphic below).

 

 

Annual rates of energy usage for China, the U. S. and India.  Actual use up to 2010; projected usage thereafter.  1 quadrillion = 1 million billion.

Source: http://www.eia.gov/pressroom/presentations/sieminski_07252013.pdf (slide 5).

 

As China has drastically expanded its energy consumption in recent years, so too has its annual rate of CO₂ emissions correspondingly.  In 2010 it emitted 7,885 million metric tons of CO₂ (1 metric ton = ~1.1 U. S. (short) ton).  This represents the culmination of an average increase in annual emissions rate of 6.4%.  Projecting forward to the period 2010-2040 the EIA believes the emissions growth rate will fall to 2.1% per year.

It is clear from this background that any international effort to limit global warming by reducing GHG emissions must include China, as well as other developing countries whose emissions rates are increasing. 

Recent Efforts by China to Lower Its GHG Emissions Rate.  The rapid expansion of fossil fuel-driven electricity generation, automobile use and heavy industry in China has led in recent years to severe air pollution in Beijing and other large urban centers.  The New York Times reported on Aug. 31, 2013 that one environmental scientist, Jiang Kejun, working at the Energy Research Institute, is urging the national energy policymakers to limit CO₂ emissions more aggressively than at present.  He is taking advantage of the growing tide of public concern over urban air pollution, which is causing China’s leaders to support “firmer, faster measures for cleaner air” that likely include reducing emissions.   With this change in public opinion behind him, Mr. Jiang and his colleagues advocate a program by which China’s annual emissions rate should reach a maximum by about 2025, and according to which that maximum would be lower than previously predicted.  It advocates more intensive emphasis on developing renewable energy sources, implementing energy efficiency technologies, optimizing China’s economic structure, technology innovation, low-carbon investments, and development and deployment of carbon capture and storage (CCS, see an earlier post and the Note at the end of this post).

Mr. Jiang, like most climate scientists, recognizes that “time for effective action is very limited.”  It still remains for Chinese policymakers to adopt such aggressive measures.  The Times report notes instead that other, less drastic, policies are being implemented or contemplated.  A pilot project is setting up a cap-and-trade emissions market in Shenzhen.  Six more pilots are planned to start by 2015.  The affected emissions are only a miniscule portion of China’s total amount.  Other proposals, not yet implemented, include a tax on carbon dioxide emissions and guiding limits on emission rates.

Growth vs. Emissions Limits.  China’s government has to balance its decades-old imperative of rapidly expanding its economy with the newer considerations of constraining emissions from fossil fuels.  Expansion has relied on conventional technologies that are fossil fuel-intensive; such facilities have useful service lifetimes of several decades and continue to emit GHGs throughout this period.  Policies constraining GHG emissions threaten the investments made in these facilities, since they may have to be extensively retrofitted or removed from service to accommodate emissions limitations.  Even so, over the past decade or so the government has successfully adopted a policy of increasing China’s economic emissions efficiency, the weight of CO₂ released in producing a unit national gross domestic product.  This measure has been reduced significantly over this period, by 2-4% per year.  Nevertheless, since fossil fuel energy demand grows annually by an even larger percentage (see above), China’s net CO₂ emissions continue to increase in spite of gains in efficiency.

Analysis

Global warming refers to the increase in the long-term (annual to decadic) worldwide average temperature above the temperature before the industrial revolution.  It is directly related to total accumulated level of CO₂ and other GHGs in the atmosphere, not to the annual rate of worldwide GHG emissions.  CO₂ in particular, once emitted, persists in the atmosphere for a century or even longer.  There is no natural mechanism that depletes atmospheric CO₂ in this short a time frame.  Therefore even if the countries of the world agree to lower emission rates, GHGs continue to accumulate, until the effective rate approaches zero.  The long-term average worldwide temperature will continue increasing throughout this period, and will stabilize at a new, higher temperature when emissions rates fall toward zero.

Global warming is just that, a worldwide phenomenon that merits international attention.  Countries whose emission rates continue increasing (see the graphic above) are of special concern; this includes large sources in developing countries such as China and others.

The worsening crisis of urban air pollution in China’s major cities appears to be the trigger leading China’s leaders to contemplate putting emissions limits in place.  The corresponding crisis of global warming itself apparently has been insufficient so far to lead to a similar intensification of effort, in spite of harmful extreme weather events occurring in China and elsewhere in Asia.  Such events are at least made worse by, if not wholly due to, the adverse effects of global warming.  Mr. Jiang’s programs, if approved for action, should make a major contribution to reducing China’s GHG emission rate. 

As we grapple with the need to limit GHG emissions in order to stabilize global warming we should understand that abating emissions may be considered a zero-sum enterprise.  When contemplating investing in new energy facilities either we  can continue building conventional facilities (fossil fuel generating plants; fossil fuel-powered cars) with need to expand fuel pipelines and transporting fuels, or we can build renewable energy facilities coupled with new electric transmission lines (providing the energy for electric-powered modes of transportation).  Choosing renewable energy contributes to lowering emissions rates, preserves economic activity and maintains the demand for labor. 

It is strongly recommended to develop renewable energy whenever the choice confronts us.

Note

Carbon capture and storage is an experimental technology, currently operational yet open to improvement, that captures CO₂ from fixed power facilities, compresses it and forces it into underground reservoirs intended to retain it for thousands of years.  As such it is particularly suited for deployment in China, since coal fuels so much of its electricity generation.  Unfortunately, currently there are only four pilot scale CCS projects in China, far fewer than elsewhere in the world.  Not all of them are directly related to capturing and storing CO₂ emissions from power generation.  If CCS technology becomes operational, each power plant would incorporate it and deliver the resulting CO₂ into stable geological storage sites.

© 2013 Henry Auer