October 6, 2014

Assessment of U.S. restrictions on public financing for newcoal-fired power plants overseas and proposed regulation

Systems Analysis Group
Research Institute of Innovative Technology for the Earth(RITE), Kyoto, Japan
Contact:
Miyuki Nagashima, Kohko Tokushige, Keigo Akimoto
TEL: 0774-75-2304, E-mail: sysinfo@rite.or.jp

This document is partially modified and added on the basis of thepresentation slide titled ‘Climate policy considering restrictions on publicfinancing for new coal-fired power plants’ by Nagashima, M., Homma, T.,
Sano, F., Akimoto, K., Oda, J., Wada, K. and Tomoda, T. at the 19th annual
meeting of the Society for Environmental Economics and Policy Studies(SEEPS) in Japan on September 13, 2014.

U.S. restrictions on public financing for
new coal-fired power plants overseas

3 June, 2013
U.S. President Obama presented his Climate Action Plan, and called for an end toU.S. government support of public financing for new coal plants overseas, except for• The most efficient coal technology available in the least developedcountries with no other economically feasible alternatives• Facilities deploying CCS technologies
 October, 2013
The U.S. Department of the Treasury announced the guidance for U.S. positions on
Multilateral Development Banks (MDBs) engaging with developing countries on coalfired power plants. The conditions for financing are as follows;• In IBRD and IDA-blend equivalent counties, the plants should deploy CCS
to reduce the carbon intensity to a level of 500gCO2eq./kWh.
• In IDA-only countries, the plants should employ the best available
technology that is practically feasible.

••

Under these conditions, new highly-efficient coal-fired power plants in
IBRD and IDA-blend equivalent countries will not be financed.
From the climate control perspective, the MDBs such as World Bank,and some western countries followed the President Obama’s policy.

U.S. regulations on coal-fired power plants4 September, 2013
 Under President Obama’s Climate Action Plan, the EPA issued a new proposalfor carbon pollution standard for new power plants which is based on the Clean
Air Act.
 The emission standard is 1,100 lbCO2/MWh (about 500gCO2/kWh) which
requires CCS technologies. (This implies the prohibition of new construction forcoal-fired power plants.)
 June, 2014
 The EPA proposed the Clean Power Plan to cut carbon emissions from existing
power plants which is based on the Clean Air Act.
 It proposes state-specific emission rate-based goals for CO2 emissions. This
would achieve CO2 emission reductions from the power sector of about 30% in
2030 relative to the 2005 level.

In addition to climate policy, there is a weak need to construct new
coal-fired power plants as inexpensive gas became available in the U.S.

Problem definitions and research questions
5Problem definitions
 Loophole in the restriction on public financing:
There is a possibility that some developing countries constructinexpensive low- or middle-efficiency coal plants with own fund orfinanced by other financial institutions.
 It requires time for practical use and deployment of CCS technologies.
Why not allow public financing for high-efficiency coal plants to realize
stable supply of electricity as well?
Research questions
 How much GHGs emissions and average reduction costs will bewhen a) only new coal plants with CCS are allowed, or b) new highlyefficient coal plants are also allowed ?
 To minimize the loophole, what kinds of financing conditions can beconsidered?

Objectives and Method
6Objectives
 This study explores the impact of the restrictions of new coal plants on‘Environment (emissions)’ and ‘Economy (reductions costs)’.
 Specifically, we estimate GHG emissions and average reduction costs wheni) only new coal plants with CCS are allowed, andii) new highly-efficient coal plants (ultra supercritical (USC), advanced USC (AUSC), integrated coal gasification combined cycle (IGCC), integrated coalgasification fuel cell combined cycle (IGFC)) are also allowed.
 Moreover, we estimate GHG emissions and average reduction costs in the casein which loophole appears even though considering the case in which only newcoal plants with CCS are allowed.

Method Energy System Model DNE21+ is used (see Appendix).
• Time period: 2000 – 2050
• 54 regions, and about 300 technologies are considered.
• Especially, the model considers three types of coal plants: i) low efficiency, ii)
middle efficiency iii) highly efficiency, and CCS technology• Regional-specific payback periods are incorporated.

Scenarios
7

Assumption on
new constructionof coal plants

A-0 All types allowed

A-1 All types allowed

Cancun pledges or MAC in 2020
Strengthened targets in 2030 are in parentheses
Annex I countries

Cancun low pledges
jointly achieved: MAC$39/tCO2

C-0 Onlywith

C-1 Only

Cancun low pledges
with jointly achieved: MAC$39/tCO
2ones
CCS allowed

Cancun pledge(Extension of improvement
rate in CO2 intensity from2010 to 2020)$0/tCO2($0/tCO2)

No additional climate policy: MAC$0/tCO2(MAC$0/tCO2)

Cancun low pledges
Only highly-efficientB-1 ones and CCS jointly achieved: MAC$39/tCO2
allowed
(MAC$51/tCO2)

ones
CCS allowed

Non-Annex Icountries w/opledges

No additional climate policy: MAC$0/tCO2(MAC$0/tCO2)(MAC$51/tCO2)

Only highly-efficient
B-0 ones and CCS
allowedNon-Annex I countries w/pledges

Cancun pledge(Extension of improvement
rate in CO2 intensity from2010 to 2020)$0/tCO2($0/tCO2)

No additional climate policy: MAC$0/tCO2(MAC$0/tCO2)(MAC$51/tCO2)

Cancun pledge(Extension of improvement
rate in CO2 intensity from2010 to 2020)$0/tCO2($0/tCO2)

Global GHG emissions and average reduction costs in 2030
(No additional climate policy)
Emissions(GtCO2eq./yr)
64.4
60

-3Gt

15.0

40

61.5

59.6

14.8

50

No regulation
on new coalplants

Average reduction
costs($/tCO2eq./yr)
50

-5Gt

70

14.7

1045
40
35
30

28.2

+$32 25.4

26.4

30
20

825

(relative to A-0) 20
3.1+$163.1(relative to A-0)

3.1

18.0

17.2

16.4

A-0

B-0

C-00

151050Emissions in Annex I countries (excluding FUSSR)

Emissions in Annex I countries (FUSSR)

Emissions in Non-Annex I countries (w/ pledges)

Emissions in Non-Annex I countries (w/o pledges)

With regulation on
new coal plants

Average reduction costs

 If the regulation on new coal plants functions well (C-0 scenario), the emissions will be reduced by
5Gt relative to A-0 scenario, and its average reduction costs will be +$32.
 Even when new highly-efficient coal plants are also allowed, the substantial amount of reductions(3Gt) will be achieved, which is equivalent of 2.3 times of GHG emissions in Japan in 2012. The
average reduction costs will be +$16.
 In the case of the same amount of regional reductions (global reductions of 3Gt or 5Gt) areachieved without regulation on new coal plants (Optimal solution), average reduction costs will be+$6 and +$22, respectively. This implies that the costs under the regulation will be higher than
optimal ones.

World energy mix in 2030
(No additional climate policy)

93500030000

TWh/yr

25000
20000

Highly-efficient
coal plants

15000

Gas

Low-and middle- 10000
efficiency coal plants

Highly-efficient coalplants + CCS

50000A-0
Coal (low efficiency)
Coal (high efficiency + CCS)
Gas
Nuclear power

B-0
Coal (middle efficiency)
IGCC+CCS
Biomass
Wind power

C-0
Coal (high efficiency)
OilHydro & Geothermal Under the regulation on new coal plants (B-0, C-0), power generations by lowand middle-efficiency coal plants will be halved relative to those under noregulation (A-0).
 Instead, to meet power demand, power generation by highly-efficient coal plants(B-0) and gas plants (C-0) will increase substantially. The power generation byhighly-efficient coal plants with CCS is slightly introduced (C-0).

Global GHGs emissions and average reduction costs in 2030
(With Cancun Pledges in 2020 and strengthened targets in 2030)
GHG emissions(GtCO2eq./yr)
70
60

Average reduction costs($/tCO2eq./yr)
20

64.4
15.0

-11Gt 53.0

-12Gt
52.4

+$19 18-12.5Gt (relative to A-0)
51.9

50
14.7
40

28.2

30
2010

3.1
18.0

16
1414.6+$1314.5+$10(relative24.0
24.4to A-0) 23.5
(relativeto A-0)
3.1

3.1

3.1

10.8

10.8

10.8

A-1

B-1

C-10

No regulation on
coal plants

1012
108
64
20

A-0

Emissions in Non-Annex I countries (w/o pledges)

Emissions in Non-Annex I countries (w/ pledges)

Emissions in Annex I countries (FUSSR)

Emissions in Annex I countries (excluding FUSSR)

With regulation on
coal plants

Average reduction costs

 In this study, regulation on emissions enables more effective reductions than regulation on
new coal plants.
 If the regulation on new coal plants functions well（C-1）, the reduction will be 12.5Gt relative
to A-0 scenario. Average reduction costs will be +$19. Deviation from the costs in A-0
scenario under regulation on emissions will be smaller than that under no additional climate
policy.
 In the case of the same amount of regional reductions (global reductions of 11Gt-12.5Gt) areachieved without regulation on new coal plants (Optimal solution), average reduction costs
will be +$10, and the deviation from the optimal costs will be $3-$9 under regulation on coalplants.World energy mix in 2030
(With Cancun Pledges in 2020 and strengthened targets in 2030)

1135000

Wind power

30000

Nuclear power

TWｈ/yr

25000
20000
15000

Highly-efficient
Coal plants

10000

Gas
Highly-efficient
coal plants + CCS

5000
0
A-0

A-1

B-1

C-1

Coal (low efficiency)

Coal (middle efficiency)

Coal (high efficiency)

Coal (high efficiency + CCS)

IGCC+CCS

OilGasBiomass

Hydro & Geothermal

Nuclear power

Wind power With reduction targets, power generation by nuclear and wind powers will
increase relative to those under no reduction targets (A-0).
 In substitution for low-and middle-efficiency coal plants, power generations
by highly-efficient coal plants (B-1) and gas plants (C-1) will increase. Powergeneration by highly-efficient coal plants with CCS will be slightly introduced(C-1).

Loophole Scenario

12 Currently, 1,199 construction of new coal plants have been planned in the world. About 76%of them will be constructed in China and India (Yang and Cui 2012). As these countries canconstruct the plants with its own fund or financed by other financial institutions, therestrictions on public financing for coal plants will not function if inexpensive low-and middleefficiency plants are constructed.
 According to Indian government officials, the restriction on financing will not lead to thetermination of coal project as support by the World Bank for the project around the world isoriginally very small. (From interview in ‘Down to Earth’) In July, 2014, the leaders of BRICS countries (India, China, Brazil, South Africa and Russia)
signed the agreement of establishment of New Development Bank (BRICS Bank) .
Financing for new coal plants in developing countries will increase (Pedersen 2014).
 To express the loophole, we develop the following scenario (D-0 scenario). It shows thesituation in which the world is prone to the D-0 scenario in reality, even though C-0
scenario is expected after the restrictions on financing.
Regions

Assumption on new construction ofcoal-fired power plants

High income countries (HIC)

Only plants with CCS allowed

Upper middle income countries (UMIC) andLower middle income countries (LMIC)

All types allowed (with own fund or
financed by other financial institutions)

Low income countries (LIC)

All types allowed (exemption of financing
restrictions for poor countries)

Global GHGs emissions and average reduction costs in 2030
(No additional climate policy)
Emissions(GtCO2eq./yr)
70
60

3.5
10.1

50
40

Average reduction costs($/tCO2eq./yr)
35

Loophole situation
64.4

27.3

62.7

61.5

3.5

3.4

10.1

9.6

59.6

3.4
9.5

30
25
20

27.3

25.7

30

UMIC&
LMIC

24.8

20
10

1315
10

23.5

21.8

22.7

A-0

D-0

B-0HIC

21.9

050C-0High income countries (HIC)

Upper middle income countries (UMIC)

Lower middle income countries (LMIC)

Low income countries (LIC)

Average reduction costs

 The D-0 scenario represents loophole situation. In D-0, emissions in High income countries(HIC) will decrease, however, those in Upper middle income countries (UMIC) and Lower
middle income countries (LMIC) will increase when compared with those in B-0 in whichhighly-efficient coal plants are allowed.
 Allowing new highly-efficient coal plants (B-0) is desirable in the context of GHG emissions
and average reduction costs when compared with the loophole situation (D-0).

Discussions
14

 When assuming stringent condition of emission reductions by all regions including

developing countries, there are low incentives to construct low- and middleefficiency coal plants. In this case, a certain amount of emission reductions will beachieved even without regulation on new coal plants. ← Small loophole
Our results show that when Cancun pledges are realized in 2020 and reduction
targets are strengthened in 2030, low-and middle-efficiency coal plants will be lesslikely to be selected even without regulation on new coal plants.
When only coal plants with CCS are allowed, average reduction costs will be +$19
relative to base case, therefore, the loophole will not be large.
 In reality, however, it is challenging to set stringent reduction targets for all

countries. Coal will remain a major source of energy in the future, and if other thancoal plants with CCS cannot be financed, low-and middle-efficiency coal plants
will continue to be used under loose restriction on emissions. ← Large loophole
Our results show that when there is no additional climate policy, strict regulation
which requires CCS will result in the loophole. If so, minimizing the loophole byallowing new highly-efficient coal plants will be important. Allowing public financing
for highly-efficient coal plants will lead to effective reductions and low reduction
costs when compared with the loophole situation.

Appendix

Comparison of energy efficiency of coal-fired power plants(LHV, gross thermal efficiency)

16

43
China (3345 TWh)41
US (1921 TWh)39

Efficiency (%, LHV)

India (664 TWh)
37
Japan (281 TWh)35
Germany (268 TWh)33Korea (218 TWh)
31
Russia (164 TWh)29
EU (27) (854 TWh)
27
World (8657 TWh)
25
1990

1995

2000

2005

2010

Source：RITE (2014) http://www.rite.or.jp/Japanese/labo/sysken/about-global-warming/ouyou/energyefficiency.html;
Oda et al. (2012). Numbers in parentheses represent average power generation by coal plants from 2009 to 2011.

 Regional differences are driven by differences in such as steam conditions, fueltypes used, and operation & maintenance.
 Not only in developing countries but also in some developed countries (Russiaand Australia etc.), low- and middle-efficient coal plants are used.
There are large potentials of improvement in energy efficiency through transfer ofhighly-efficient coal technologies.

Global Energy and CO2 Assessment Model
DNE21+ (Dynamic New Earth 21+)♦

The model can make a cost assessment of global energy system and CO2 reduction
technologies.

♦

Linear programming model (minimizing world energy system cost)♦Evaluation time period: 2000-2050♦

World divided into 54 regions: U.S. and China are further divided, and the world is divided into 77
regional categories.

♦

Interregional trade: coal, crude oil, natural gas, electricity, ethanol, hydrogen, CO2 (CO2 trade is
not allowed in base case), and CO2 credit♦

Bottom-up modeling for technologies in energy supply (power sector etc.) and CCS technologies♦

Bottom-up modeling for technologies in demand sides, such as iron & steel, cement, paper &pulp, chemicals, aluminum, transport and residential & commercial sectors♦

300 specific technologies are modeled.

♦Top-down modeling for other sectors (energy saving impacts are assessed with long-term priceelasticity)-We provided many long-term scenario analyses in IPCC AR5.
Analyses and assessments with this model are utilized in many policy review processes by theJapanese government (such as in the mid-term target committee and new low carbon technologyplan).

17【Example of the peer-reviewed papers】- K. Akimoto et al., Assessment of the emission reduction target of halving CO2 emissions by 2050: macro-factors analysis
and model analysis under newly developed socio-economic scenarios, Energy Strategy Reviews, 2, 3-4 (2014);- F. Sano et al., Assessment of GHG emission reduction scenarios of different levels and different short-term pledges
through macro and sectoral decomposition analyses, Technological Forecasting & Social Change (2014)