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

One-Year Extension of Tax Credits for Renewable Energy in the U. S.

Summary.  The American Taxpayer Relief Act of 2012 included a one-year extension of tax credits favoring renewable energy growth in the U. S.  It liberalizes the credits, expanding their applicability to include projects whose construction will have begun during the present year, 2013.  A primary component within renewable energy that benefits from these tax credits is generation of power by wind.  It is projected that wind energy could provide 20% of U. S. energy by 2030.

Tax credits in the U. S. for renewable energy have a history of being allowed to expire, then being reinstated later, each active period enduring for only one or a few years.  This is highly disruptive for the industry, as it makes long-term planning with certainty largely impossible.  The U. S. needs to implement long term policies governing development of renewable energy in order to provide such certainty.

 

Introduction. Renewable energy is playing an increasingly significant role in the U. S. and around the world.  Wind energy provides a large fraction of this growth, as well as much of the total installed capacity, among the various renewable sources. In addition to wind, these include solar energy, hydroelectric power, biofuels, geothermal energy and ocean or tidal energy.

In the U. S., renewable energy has received subsidies in the form of an investment tax credit (a credit favoring investment in new facilities to promote construction) or a production tax credit (PTC; a credit based on the amount of energy delivered once a facility is operating).  Wind energy has received tax credits, much in the form of PTCs.  In the recent decade the U. S. Congress allowed credits to lapse, and then reinstated them, in an arresting pattern of fits and starts.  This is shown for wind energy in the following graphic:

 

 

History of ITCs and PTCs for wind energy in the U. S. The blue bars show annual wind generating capacity added each year, using the scale for gigawatts added shown on the left vertical axis.  The light blue section of the bar for 2012 shows planned capacity additions at the time this report was prepared late in 2012, presumably in anticipation of the expiration of the PTC at the end of 2012.  The green line shows the total wind capacity installed in the U. S., using the values on the right-hand vertical axis.  The 1603 Grant was a provision of the American Recovery and Reinvestment Act of 2009 (the “stimulus” combating the recession) that made a fractional direct cash payment for renewable energy projects.

Source: U. S. Energy Information Agency; http://www.eia.gov/todayinenergy/images/2012.11.21/windcaplarge.png.

 

It is quite clear from this graphic that periodic expiration of tax credits (see the years following expirations in 1999, 2001, 2003, and 2009) had drastic negative impacts on installation of new generating capacity during the following year.  In addition, as noted in the legend to the graphic, during 2012 wind industry planners were factoring in a scheduled termination of the PTC effective at the end of the year by accelerating new construction.

 

Extension of Renewable Energy Tax Credits.  The so-called “fiscal cliff” in the U. S. raised the possibility of sharply higher taxes and reduced spending as of Jan. 1, 2013.  At literally the last minute, in an effort to avoid this fiscal crisis, the U. S. Congress passed the American Taxpayer Relief Act of 2012 (the “Act”) on Jan. 1, 2013, and President Obama signed it into law on Jan. 3. 

 

In addition to provisions averting many facets of the looming fiscal disaster, the Act included provisions extending tax credits for renewable energy.

 

Renewable Energy Provisions of the Act.  The Act provides extensions of tax credits with slightly more favorable terms than in previous years.  Most of the provisions are summarized here.

 

a)     A production tax credit or an investment tax credit for wind energy is extended for one year ending Dec. 31, 2013, but the terms are liberalized by requiring only that construction must have begun by that date rather than, in earlier versions, been completed by then.  A total of $12 billion may benefit the wind industry over the next 10 years;

b)     a credit for energy efficiency in existing or new homes;

c)     a credit for vehicle refueling facilities providing alternative fuels;

d)     a credit for biodiesel and renewable diesel fuel mixtures, applied to fuels sold after Dec. 31, 2011 and by Dec. 31, 2013;

e)     for the four tax credits described above, the deadline is extended to Dec. 31, 2013, but the subject of the credit must have become available for use after Dec. 31, 2011.  Thus they are retroactive for about one year, and expire after one year;

f)      a credit for producing cellulosic biofuels after Dec. 31, 2008 and before Jan. 1, 2014, applicable to a wide range of newer cellulosic sources and to cultivated algae; thus this provision is retroactive for four years and remains effective for one year.  There is also a special allowance for facilities that produce the newer cellulosic or algal biofuels, placed in service after Dec. 31, 2012 and effective for one year; and

g)     a credit for geothermal facilities whose construction begins before Jan. 1, 2014.

 

The New York Times reports that electricity produced from other forms of renewable energy sources, including tides and ocean waves, landfill methane and hydroelectric facilities were also included in the tax credits.

 

Analysis

Extension of Tax Credits. The American Taxpayer Relief Act of 2012 included several provisions extending PTCs or ITCs for the relatively short period of 1 year, as itemized in this post.  This 1-year extension contributes, albeit only briefly, to helping wind energy and other renewable energy technologies to provide an increased share of America’s energy demand.  In a report issued in July 2008, The Office of Energy Efficiency and Renewable Energy of the U. S. Department of Energy modeled a scenario (EERE) in which wind energy would supply 20% of U. S. demand by 2030.  To achieve this objective, generating capacity would have to expand from about 46 gigawatts (GW) in 2011 (see graphic above) to 305 GW in 2030 (EERE).

 

The legislative wrangling over whether, and how, the fiscal cliff could be averted was itself a cliffhanger.  It was not until the last days before the fiscal cliff deadline of Jan. 1, 2013 that the outlines of the law were assembled, and final passage required a late night session of the lower chamber, the House of Representatives, on New Year’s Eve extending into the early hours of the new year.  Most of the renewable energy credits were extended for only one year.  Thus the Act guarantees yet another period of uncertainty promising yet another contentious legislative struggle over further extensions in one year’s time.  Nevertheless the Act liberalized the credits by extending them to projects whose construction will have begun before the expiration date, replacing the earlier requirement that projects must have been completed by the deadline date.

 

Policymaking by fits and starts is highly disruptive.  Governing in this way, by awarding and withdrawing tax benefits literally at the last minute on a schedule of once a year to once every few years, is extremely disruptive for business activity (see the graphic above).  Corporations and entrepreneurs seeking to develop renewable energy need multi-year periods for planning, funding, and installing renewable energy facilities.  Depending on the particular technology and location, this can include factors such as gaining zoning and siting approval, undergoing environmental impact analysis, assembling financing, garnering purchase contracts for the energy ultimately produced by the renewable source, and construction.  For example, according to the American Wind Energy Association, developing a new wind farm requires 18-24 months.  Many of these factors are interdependent.  Singly or in conjunction with one another, settling these arrangements requires extended periods of time.  It is highly counterproductive for developers to have to contend with short-term provision and expiration of tax credits.  Effective energy policy must create long-term stability in order to enable the justified expansion of renewable energy technologies.

 

It would be far more reasonable and effective to develop policies on subsidizing the development of renewable energy on a long-term schedule. In this way corporations and entrepreneurs could plan the development and implementation of projects secure that subsidy policies were intact, available as scheduled, and could be used as appropriate throughout the lifetime of the project.

This view conforms with the history of the use of subsidies in the

U. S. for newly emerging energy technologies throughout this country’s history, beginning in the nineteenth century. Federal and/or state subsidies were consistently applied, and have been found to be most effective when a new technology was in the  early years of its development.  Unfortunately, at least in the case of crude oil, subsidies continue to be granted even now, more than 100 years after the birth of the industry. Clearly, subsidies are no longer warranted for this industry, given the enormous revenues and profits among the major crude oil producers.  Those expenditures could more justifiably be applied to the current group of nascent technologies encompassed within renewable energy.

 

Advantages of renewable energy.  Construction and development of renewable energy projects have many positive policy features. The new facilities will operate within the U. S., rather than abroad.  In contrast, much new petroleum exploration and development  occurs in more and more remote locations and environments.  Commonly these require deep drilling and frequently involve deep sea operations including development in the extreme conditions of Arctic oceans.  These conditions are fraught with environmental hazards that can come to fruition with disastrous consequences. Furthermore, as drilling operations take place under increasingly challenging technical conditions, their costs increase correspondingly.  In contrast, the costs for renewable energy are well-understood and easily budgeted.

 

Developing renewable energy preserves and/or creates jobs.  The American Wind Energy Association states that currently 75,000 workers are engaged in wind energy.  It expects that the policies in the Act could save as many as 37,000 of those jobs and create many more in later years.  There are almost 500 manufacturing facilities in the U. S. related to wind energy, located in all 50 states.  A thorough summary of job economics related to renewable energy is presented in this post.

 

Renewable energy sources have the very important feature of not emitting greenhouse gases into the atmosphere.  Global warming due to manmade greenhouse gases is already a very serious problem and is destined to get worse as humanity's demand for more energy grows. New fossil fuel-based energy- facilities put into service now, such as oil and gas pipelines, electric generating plants, oil refineries, and the like, will continue operating for a useful lifetime of, say, 40-50 years.  These new facilities will continue spewing greenhouse gases into the atmosphere throughout their service lifetime, adding to those already accumulated and worsening global warming.  In contrast, renewable energy facilities, once placed in service, have close to zero lifetime emissions of greenhouse gases, yet have the potential capacity to provide a significant portion of America’s energy demand.

The American Taxpayer Relief Act of 2012 laudably includes a one-year extension of tax credits for wind energy and other forms of renewable energy.  It is lamented that the extension is for only one year.  This prevents entrepreneurs and businesses from making plans for further development of renewable energy with the certainty of having a long-term policy in place.  The expanding renewable energy industry provides jobs for American workers, contributes to freedom from reliance on foreign sources of energy, and relieves the burden of accumulating greenhouse gas emissions in proportion to its installed generating capacity.  All efforts should be undertaken to implement a long-term energy policy in the U. S. that includes appropriate support for the expansion of renewable energy.



 

© 2012 Henry Auer