Guangdong ETS - Impact Assessment andpolicy recommendations

ZHAO Daiqing · WANG Peng · DAI Hancheng
Energy Strategy Research Center
Guangzhou Institute of Energy Conversion, CAS
20th AIM International Workshop – Tsukuba, Japan, January 23-24, 2015

Main Contents

1

Introduction of Guangdong ETS– the market building processes2

Macroeconomic Impact Analysis of GD ETSCarbon Trading Mechanism has Become an Important Tool forGovernments to Reduce Carbon Emission

加拿大魁北克省(WCI)哈萨克斯坦ETS俄罗斯ETS瑞士ETS乌克兰ETS欧盟
EU ETS
北京ETS

加拿大不列颠哥伦比亚省 (WCI)

加拿大安大略省(WCI)美国加州ETS

美国区域温室气体减排计划（RGGI)加拿大马尼托巴ETS(链接WCI)墨西哥ETS

巴西ETS
智利ETS

天津ETS
南韩ETS

中国全国范围ETS重庆ETS
土耳其ETS

湖北ETS

日本全国范围ETS
日本东京ETS

上海ETS
深圳ETS
广东ETS
泰国ETS

澳大利亚ETS
新西兰ETS

operatin
gdesigning

Chinese Government Carbon Trading Pilot
Deployment and Process
In October 29, 2011, the national development and Reform Commission issued a document<notice about carrying out the carbon emissions trading pilot work>, which approved sevencities as pilots regions to carry out the carbon emissions trading system, including: Beijing,Tianjin, Shanghai, Chongqing, Hubei, Guangdong, Shenzhen.

Seven China’s
pilot ETS launchShenzhen Shanghai Beijing Guangdong Tianjin

2013.6.18

11.26

11.26

12.19

12.26

HubeiChongqing

2014.4.2

6.19

The step of National carbon market
Nov, 12,APEC ， publish the Sino-US
joint statement on climate change ，announce the action after 2020.
US promise to reduce 25% before2025
China promise to peak at 2030 and non
fossil to 20%.

NDRC：National ETS market is considered as the key reform, it will
be launched from 13th Five-Year-Plan (2016-2020 )Basic Economic and Social Development Situation
Guangdong in 2007

Value

Share in China

Population (Million persons)

94.49

7.2%

Energy (PJ) and emissions (Million ton)
Coal

2670.1

5.0%

Petrol oil

1980.2

14.9%

Gas

178.2

6.5%

Electricity (TWh)3394.1

10.4%

CO2

414.7

7.02%

Economic indicators (billion USD)
GDP

405.3

11.6%

Per capita GDP

4289

1.61

Textile

72.2

12.3%

Paper and pulp

18.9

16.2%

Metal products

47.3

20.1%

Machinery

175.4

13.4%

Electronic equipment

207.2

37.8%

GD

Growing energy consumption
with declining energy intensity

With continued economic growthand urbanization, Guangdong’s
energy consumption will growthyear by year. Total energy
consumption of some high energyconsuming industries will growth

rapidly.
However, energy intensity will
decline year by year with theoptimization of industrial structure
and implementing of energy-savingmeasures.

The energy saving development situation of GD– comparing internationally
GD’s energy intensity is lower than theaverage level of China, and there is stilla gap between world.

China

GD

Energy Intensity– comparing with other countries

Energy Structure in 2012
- comparing with other countries

Driving Factors and Trend of Guangdong Carbon Emission
As the first major economic province，Guangdong’s GDP and carbon emissions showed an upward trend, and thespeed of GDP grow faster than that of carbon emission, emission intensity is decreasing year by year. Guangdong’scarbon emission intensity had dropped from 2.32 in 1995 to 1.19 tCO 2e/10,000 yuan in 2012, with average annual
decline of 4%. The result of carbon emission driving force factor decomposition showed that the main driving factor ofcarbon emission increment is from economic output. With the sustained economic growth of Guangdong, carbon
emissions will rise further, but the speed will slow down gradually.
800%

2.50

Gdpgrowth 和碳排放趋势 (1995年=100%)

Energy intensity
Industry emission ratio

2.00

1.50

400%
1.00

200%

0.50

0.00

Residential emission ratio
Residential energy
consumption structure
Urbanization degree
Population
Industry energy structure
Wealth level
Economic output

1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

0%

Industry structure碳排放强度 /(tCO2e/万元)

600%

年份
GDP growthGDP发展趋势Carbon emission driving power
Carbonemission trend碳排放趋势The Goal of Energy-saving and Emission Reduction During the 12th Five Year Plan

Reduction target during
the 11th five year plan

Reduction target during
the12th five year plan

NationalGuangdong

NationalGuangdong

Target of energy consumption
per unit GDP decrease

20%

16%

16%

18%

Target of carbon emission
reduction per unit GDP

19.1%

-17%

19.5%

Factors

The proportion of new andrenewable energy in primaryenergy consumption

10%

11.4%

Forest coverage percentage

20%

21.66%<planning of energy-saving and carbon emission reduction for the 12 th five years>
Form the mechanism of reversal pressure to promote the transformation of economic development mode, establish
an effective incentive and control mechanism to reduce the GHGs emission and enhance energy using efficient.
Marketing mechanism will be an sound tool.

Design and operation of Guangdong carbon emissions trading mechanism•Local regulations"Guangdong Province carbon emissions trading pilot work plan“ (September 2012)

Decree 197th , announced the "Guangdong Province trial carbon emissions management measures“(January 2014)•CAP

Guangdong’s total quotas of the cap was about 388 million ton-CO2 in 2013

•Coverage

Four energy intensive sectors: cement, electric power, steel and petrochemical have been incorporated into ETS, the average annual emission of four industries accounted for more than
50% of the total carbon emissions of Guangdong.
•Allocation

Baseline method was employed by electric power and cement industries, the rest of the industry
uses the historical method

Main Contents

1

Introduction of Guangdong ETS– the market building processes2

Macroeconomic Impact Analysis of GD ETS

二、 Evaluation Methods of ETS• Allowance allocation• Carbon cost

• Enterprise emissions• Cost-benefit-ratio• Economy development

carbonmarketliquidity• Two-region dynamic
CGE model

Industry
CompetitiveMacro

Execution

economic

efficiency ofimpactETS• DEA model• Factor Index analysis

三、 Macro economic impact analysis: model structure•This work was published in:– Wang, P., H.-c. Dai, S.-y. Ren, D.-q. Zhao and T. Masui (2015). "Achieving Copenhagen target through carbon emission trading: Economic impacts assessment in Guangdong Province of China." Energy 79(0): 212-227••

CGE model based on new classical economics general equilibrium theory
Dynamic-recursive model, including two region of Guangdong and the rest of China and 33
sectors (7 energy sector).
ScenarioEmission

Emission constraint

trading
Base

None

No carbon cap.

LCE

None

Carbon intensity reduces by 40% over 2010-20;

LCET

Yes

Annual growth rate of carbon between 2013-15:
Power sector 0.5% Oil refinery 0.8%, cement

0.5%, iron and steel 0.5%; 2016-20: Power
0.1%, other three sectors 0.2%.

Carbon emissions and intensity change
900

CO22
1.8

700

1.6Mil tion

600
500
400
300

BASE

200

LCE

100

LCET

ton-CO2/1000 USD

800

Carbon intensity

1.4
1.2
10.8
0.6
0.4

BASE

LCE
LCET

0.2

00

2007 2009 2011 2013 2015 2017 20192007 2009 2011 2013 2015 2017 2019

From 2007 to 2020 in the Base scenario: CO2 emissions will increase by more than 2times, and its share in China will increase from 7.0% to 7.4%.
Carbon caps are imposed on the four sectors in the LCE scenarios, the carbon intensity
will decrease 50% from 2005 to 2020, more than the Copenhagen commitment (40-45%)
15

Carbon abatement cost
PowerRefinery
CementIron&Steel
Trade price2007 USD/ton-CO2

200
1501005002015201620172018

20192020

 Carbon shadow prices of sectors in 2020 are: 180USD (iron and steel), 152 USD(refinery) and 26 USD (cement) and 18 USD (power) per ton-CO2
 The level of the mitigation cost is determined by many factors. One of the most important
one is reduction rate from BASE level.

Emission trade: carbon price and trade volume
20.0

Million ton

15.0

SellerPower

10.0

Refinery

5.0

Cement0.0

Iron&Steel-5.0-10.0-15.0Buyer-20.0

2013 2014 2015 2016 2017 2018 2019 2020
As the carbon abatement cost is different, emissions trading takes place among sectors
In 2020, the traded volume is 27 Mt and the equilibrium trading price is 37 USD/ton CO2,
resulting in the scale of the carbon market being 1.02 billion USD.
17

Impacts on GDP

GDP loss

0.0%

-0.5%

-1.0%

LCE
LCET

-1.5%

2007 2009 2011 2013 2015 2017 2019
• The aggregated GDP loss in 2020 is 1.38% in LCE scenario, but reduced to 1.15%
in LCET.
• The policy makers need to think seriously on how to reduce the GDP loss by more
appropriate design of climate policy based on market based instruments.
18

Analysis results: ETS on the employment
34,597

46,103-887-1,170
1,219
3,185

826
2,650
-6,307-11,7121,840-43-3,166-5,5751,409

847
31,46941,854

2,299

2,692

-9,914-13,851
3,881

2,886

-12,889-2,211-16,944-17,553-2,557-13,336
1,871
10,767-20,000

0

2,242
8,500

40,000 -20,000

SAVET vs SAV (person)

0Agriculture
MiningFood
TextilePaper
Oil refinery
Chemicals
CementIron&steel
Metal products
Machinery
Electronic
OtherManu
Electricity
Construction
Transport
Service60,000

LCET vs LCE (person)

ETS increase

45614

The quantity of employment in all sector change with andwithout ETS

Employment increase：
Agriculture、Food、
textile、
Cement、Iron、
Electronic ,service
Total increase
37,000-45,000 jobs

Estimate：ETS on the service

ETSadminstration

Enterprise

Province

reportcitycontrol

The third party

verifyCarbonassestsoftwareJobs： ~20,000 person

trader

media

Trade

associationaccountNews

financeResearchConclusions
1. In 2020, the carbon price of power sector is the lowest, followed by cementsector, whereas that of refinery and iron and steel sectors is higher.

2. During 2015-2020，controlling emissions will cause GDP loss 0.8%-1.4%. ETS
will reduce GDP loss  ETS policy is economically efficient.

3. Enlarge the sector coverage of ETS will reduce the GDP loss and decrease thecarbon price.
4. Through CGE model simulation, ETS would bring 40,000 jobs compared withcarbon constraint policy. It’s important to pay attention to the jobless ofconstruction, mechanics and paper sectors.

Future work on modelingFurther simulate the carbon auction revenue returnback style
Develop the Enduse model to link with CGE to discusspeak of Guangdong
Using model to research of air pollutant emission
control of Guangdong

Thank you very much !