IEEJ: February 2017 © IEEJ2017

Meeting Saudi Arabia’s
Carbon Mitigation Goals:
Some Preliminary Findings
David WoganIEEJ: February 2017 © IEEJ2017

The Strategic Policy Challenge• Paris Accord took a decentralised approach to drive global collective action• But the sum of nationally determined contributions to date is insufficient tomeet currently agreed global goals• A more practical policy approach is needed to help close the gap
2

IEEJ: February 2017 © IEEJ2017

Practical Climate Change Policies
Research Project KAPSARC and IEEJ are undertaking a joint research project to examine morepractical approaches to climate change policy Key elements of the project include:• Developing efficient global pathways that incorporate mitigation andadaptation• Examining nationally optimal approaches that reflect local starting points
and how they might be influenced by stakeholder interests

3

IEEJ: February 2017 © IEEJ2017

Project Methodology
Step 1• Calculate efficient global pathways for meeting agreed
global emission outcomes/targets

Step 2• Establish “emissions envelopes” at the country (or regional)
level

Step 3• Identify and evaluate potential country-specific policies andassess impacts

Step 4• Explore how stakeholder interests may influence the choiceof polices and their implementation at a country-level

4

IEEJ: February 2017 © IEEJ2017

KAPSARC’s Saudi Arabian Carbon Mitigation
Research Project Objective• To identify economically optimal policies and pathways to meet Saudi

Arabia’s NDC and assess their impacts; and• Explore how internal stakeholder interests may influence the choice ofpolicies and their implementation

 Study methodology• Quantitatively assess least cost pathways for Saudi Arabia to achieve its
NDC under the Paris Accord

 Policy options• Carbon pricing• Capital subsidies• Industrial input fuel price deregulation
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IEEJ: February 2017 © IEEJ2017

Analytical Framework Analysis uses the KAPSARC Energy
Model of Saudi Arabia (KEM) Partial-equilibrium model for six
integrated industrial sectors
 KEM seeks to minimizes costs
associated with meeting demand
from these sectors
 Analysis focuses on the power andwater sectors (includinginteraction of other sectors)

KEM sectors
PowerWater

Upstream

Petrochemicals

RefiningCement

GHG Emissions6IEEJ: February 2017 © IEEJ2017

Saudi Arabian Energy Sector Overview
 Primary energy supply: 213.51 Mtoe
 Oil production: 552.9 Mtoe
 Petroleum exports: 429.65 Mtoe
 Final energy consumption: 141.69 Mtoe
• Electricity: 290.66 TWh• Electricity sector operation anddevelopment is greatly influenced
by the water sector (desalination)
 Population: ~ 31 million (2015)
 Carbon emissions: 506.59 MT CO2eSource: IEA 2016

7

IEEJ: February 2017 © IEEJ2017

Saudi Arabia Drives Regional Energy &Carbon Emissions GrowthSources: IEA and Enerdata8IEEJ: February 2017 © IEEJ2017

Saudi Arabia’s Carbon Mitigation Goals
 Nationally Determined Contribution targetof 130 million metric tons of CO2 equivalentby 2030

 Greenhouse gas reductions viewed asCarbon Emissions by Sector (2015)
100%

Waste

90%

Agriculture
Other

80%

Transport

co-benefits of economic diversification
activities

70% Mitigation measures include:• energy efficiency• renewable energy• carbon capture & utilization/storage• increased use of natural gas• methane recovery

50%

60%

Manufacturing
Industry

40%
30%Power & Water

20%
10%
0%9IEEJ: February 2017 © IEEJ2017

Carbon Pricing: Carbon Emissions
CO2 emissions (million tons per annum)

450
400
350
300
250
200
1501005002016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Reference

NDC$5/ton$25/ton$35/ton$50/ton10

IEEJ: February 2017 © IEEJ2017

Carbon Pricing: Electricity Production
2030

800

Electricity production (TWh)7006002020

500400

2015

300
200
1000

Steam turbine

Gas turbine

CCGT

PVCSP

Onshore wind

Desalination
11

IEEJ: February 2017 © IEEJ2017

Carbon Pricing: Capital Investment

Cumulative investment (billion USD)

250

200

150

100500
Reference
Steam turbine$5/tonGas turbine

CCGT$25/tonGas turbine retrofit$35/ton
PVCSP$50/tonOnshore wind
12

IEEJ: February 2017 © IEEJ2017

Carbon Pricing: Fuel Mix
7

Fuel consumption (quad BTU)

2030
6542015

2020

3210

HFO

DieselMethane

Crude oil
13

IEEJ: February 2017 © IEEJ2017

Capital Subsidies: Carbon Emissions
CO2 emissions (million tons per annum)

450
400
350
300
250
200
150
1005002016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Reference

NDC5%15%25%
14IEEJ: February 2017 © IEEJ2017

Capital Subsidies: Electricity Production
900

2030

Electricity production (TWh)

800
700
600
500400

2020
2015

300
2001000Reference Reference
Steam5%

Gas turbine

15%
CCGT

PV

25%Reference

CSP

Onshore wind

5%

15%

25%

Cogeneration
15

IEEJ: February 2017 © IEEJ2017

Capital Subsidies: Capital Investment

Cumulative investment (billion USD)

400
350
300
250
200
150
100500Reference
Steam turbine

Gas turbine

5%
CCGT

15%
Gas turbine retrofit

25%
PVCSP

Onshore wind
16

IEEJ: February 2017 © IEEJ2017

Capital Subsidies: Fuel Mix
72030

Fuel consumption (trillion BTU)

65420202015

3210
Reference Reference

5%
HFO

15%25%

DieselMethane

Reference

5%15%25%

Crude oil17

IEEJ: February 2017 © IEEJ2017

Industrial Input Fuel Price Reform:
Carbon Emissions
CO2 emissions (million tons per annum)

450
400
350
300
250
200
150
100

500
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Reference

NDC

Immediate

5 year

8 year
18

IEEJ: February 2017 © IEEJ2017

Industrial Input Fuel Price Reform:
Electricity Production
8002030

Electricity production (TWh)7006002020

5004002015300
200
1000
Reference Reference Immediate
Steam turbine

Gas turbine

5 yearCCGT

8 yearPVReference Immediate
CSP

Wind

5 year

8 yearDesalination
19

IEEJ: February 2017 © IEEJ2017

Industrial Input Fuel Price Reform:
Capital Investment
Cumulative investment (billion USD)

400
350
300
250
200
150
100500
Reference
Steam turbine

Gas turbine

Immediate
CCGT

5 year

Gas turbine retrofit

8 year
PVCSP

Onshore wind
20

IEEJ: February 2017 © IEEJ2017

Industrial Input Fuel Price Reform:
Fuel Mix
72030

Fuel consumption (quad BTU)

65420202015

3210Reference Reference Immediate

5 year

8 year

HFO

DieselMethane

Reference Immediate

5 year

8 yearCrude oil21

IEEJ: February 2017 © IEEJ2017

Some Preliminary Comparative Results
CO2 emissions (million tons per annum)

450
400
350
300
250
200
150
100
500
2016

2018

2020

2022

2024

2026

Reference

NDC$35/ton8-year Reform

2028

2030

5% Subsidy
22

IEEJ: February 2017 © IEEJ2017

Some Preliminary Comparative Results

Cumulative investment (billion USD)

400
350
300
250
200
150
100500
Reference
Steam turbine

Gas turbine$35/tonCCGT

8-year Reform
Gas turbine retrofit

PV

5% Subsidy
CSP

Onshore wind
23

IEEJ: February 2017 © IEEJ2017

Summary of Preliminary Analysis
 A country-specific approach accounts for the characteristics of Saudi Arabia’s

industrial sectors and its role as a major energy producer and consumer

 Direct and indirect CO2 mitigation policies can drive significant emissions

reductions

 The effectiveness of each policy can be measured by many metrics

 CO2 emissions
 Transition periods
 Investment costs
 Broader economic goals
 Unintended consequences

24

IEEJ: February 2017 © IEEJ2017

Anticipated 2017 Milestones
Research: Incorporate bargaining &macroeconomic analysis
 Expand study framework to examine
China, India and the Gulf
Cooperation Council states
Publications: Potential practical carbon policy
options & pathways for Saudi Arabia
 Potential practical carbon policy
options & pathways for Japan Optimal global emission pathways
including mitigation & adaptation

25

IEEJ: February 2017 © IEEJ2017

Meeting Saudi Arabia’s
Carbon Mitigation Goals:
Some Preliminary Findings
David WoganIEEJ: February 2017 © IEEJ2017

Supporting MaterialDavid WoganIEEJ: February 2017 © IEEJ2017

Carbon price ($35/ton): relative cost of fuel6

Relative value (USD/mmBTU)

5

4$2.61/mmBTU

32$1.86/mmBTU

102016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Methane (USD/mmBTU)

Methane + $35/ton

Crude (USD/mmBTU)

Crude + $35/ton
28

IEEJ: February 2017 © IEEJ2017

Carbon price ($35/ton): fuel consumption

Fuel consumption (Trillion BTU)

3210
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
HFOdieselmethane

Arablight29IEEJ: February 2017 © IEEJ2017

Carbon price ($35/ton): electricity supply
400

Electricity productoin (TWh)350300250200150100500
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
SteamGas turbine

Combined cycle turbine

PVCSP

WindCogeneration
30

IEEJ: February 2017 © IEEJ2017

Carbon price ($35/ton): capacity
90
80
70

CSP available
First PV installed

Capacity (GW)

60
50

Planned builds:
Steam & CCGT

4030201002016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
SteamGTCCGT

PVCSP
31

IEEJ: February 2017 © IEEJ2017

Carbon price ($50/ton): relative cost of fuel6

Relative value (USD/mmBTU)

5$3.72/mmBTU
43$2.65/mmBTU
2102016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Methane (USD/mmBTU)

Methane + $50/ton

Crude (USD/mmBTU)

Crude + $50/ton

32

IEEJ: February 2017 © IEEJ2017

Carbon price ($50/ton): fuel consumption
3

Fuel consumption (trillion BTU)

2.5

2

1.5

10.502016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
HFO

methaneArablight33

IEEJ: February 2017 © IEEJ2017

Carbon price ($50/ton): electricity supply

Electricity production (TWh)250

2001501005002016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Steam turbine

Gas turbine

CCGTPV

CSP

Desal
34

IEEJ: February 2017 © IEEJ2017

Carbon price ($50/ton): capacity
90

Cumulative capacity (GW)8070

CSP available
First PV installed

60
50

Planned builds:
Steam & CCGT

4030201002016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
STGTCCGT

PVCSP

Cogen35IEEJ: February 2017 © IEEJ2017

Capital subsidies (5%): relative cost of fuel8

Marginal value (USD/mmBTU)

765432102016

2018

202020222024

Methane

Crude

2026

20282030

36

IEEJ: February 2017 © IEEJ2017

Capital subsidies (5%): fuel consumption
3.5

Fuel consumption (trillion BTU)

3
2.5
2
1.5
10.50
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
HFO

MethaneArablight
37

IEEJ: February 2017 © IEEJ2017

Capital subsidies (5%): electricity supply

Electricity production (TWh)250200150

1005002016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Steam turbine

Gas turbine

CCGTPVCSPWindDesal38

IEEJ: February 2017 © IEEJ2017

Capital subsidies (5%): capacity
90

Cumulative capacity (GW)8070

CSP available
First PV installed

60
50

Planned builds:
Steam & CCGT

40
30
20
100
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
SteamGT

CCGT

PVCSP
39

IEEJ: February 2017 © IEEJ2017

Capital subsidies (25%): relative cost of fuel8

Marginal value (USD/mmBTU)

765432102016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
MethaneCrude40IEEJ: February 2017 © IEEJ2017

Capital subsidies (25%): fuel consumption
3.5

Fuel consumption (trillion BTU)

32.5
2
1.5
10.5
0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
HFO

MethaneArablight
41

IEEJ: February 2017 © IEEJ2017

Capital subsidies (25%): electricity supply
300

Cumulative capacity (GW)

250

200

150

100

500
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Steam turbine

Gas turbineCCGTPVCSP

Desal42IEEJ: February 2017 © IEEJ2017

Capital subsidies (25%): capacity
90

Cumulative capacity (GW)8070

CSP available
First PV installed

60
50

Planned builds:
Steam & CCGT

4030201002016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
SteamGT

CCGT

PVCSP
43

IEEJ: February 2017 © IEEJ2017

Immediate reform: relative cost of fuel12International price of crude oil
Marginal value (USD/mmBTU)

108

Marginal value of methane

64202016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
MethaneCrude44IEEJ: February 2017 © IEEJ2017

Immediate reform: fuel consumption
3.5

Fuel consumption (trillion BTU)

32.5
2
1.5
10.50
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
HFO

dieselmethaneArablight
45

IEEJ: February 2017 © IEEJ2017

Immediate reform: electricity supply

Electricity production (TWh)

250

200

150

1005002016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Steam turbine

Gas turbine

CCGT

PVCSP

Desal46

IEEJ: February 2017 © IEEJ2017

Immediate reform: capacity
90

Cumulative capacity (GW)807060504030201002016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
STGTCCGTPVCSPCogen47

IEEJ: February 2017 © IEEJ2017

8-year reform: relative cost of fuelRelative cost of fuels (USD/mmBTU)

1210International price of crude oil

8Marginal value of methane6420
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
MethaneCrude
48

IEEJ: February 2017 © IEEJ2017

8-year reform: fuel consumption
3.5

Fuel consumption (trillion BTU)

32.521.5
10.502016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
HFOMethane

Crude oil49

IEEJ: February 2017 © IEEJ2017

8-year reform: electricity supply

Electricity production (TWh)

250

200

150

1005002016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Steam turbine

Gas turbine

CCGTPVCSP

Wind

Desal
50

IEEJ: February 2017 © IEEJ2017

8-year reform: capacity
90

Cumulative capacity (GW)

807060504030201002016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030ST

GT

CCGT

PVCSP

Cogen
Contact: report@tky.ieej.or.jp

51