ALPS International Symposium
Otemachi Sankei-Plaza
February 27, 2015

Assessment of restrictions on public financing for new coalfired power plants overseas and proposed regulation

Miyuki Nagashima
Senior Researcher, Systems Analysis Group
Research Institute of Innovative Technology for the Earth (RITE)

Restrictions on public financing for
new coal-fired power plants overseas

2 June, 2013
U.S. President Obama presented his Climate Action Plan, and called for an end to U.S.
government support of public financing for new coal plants overseas, except for• The most efficient coal technology available in the least developed countries
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 coal-fired
power plants. The conditions for financing are as follows;• In IBRD and IDA-blend equivalent counties, the plants should deploy CCS toreduce the carbon intensity to a level of 500gCO2eq./kWh.
• In IDA-only countries, the plants should employ the best available technologythat is practically feasible.

•••

The objective of restricting financing is to promote the investment in clean energy
by regulating coal-fired power plants that emit more CO2 than other energy .
The finance policy precludes the United States financing new high-efficiency coalfired power plants in IBRD and IDA-blend countries.
Other governments and MDBs expressed support for the U.S. lending policy.

International public financing for coal-fired power
plants worldwide

3

 Rich (2009) Examination period: 1994- January 2009
 About $37 billion have been spent on 88 new coal plants and on expansions
to and life extensions of the existing plants
 Top three financers: MDBs, Japan, the United States, Top three countries receiving funds: Indonesia, the Philippines, China
 Schmidt (2013)
 Examination period: 2007- January 2013
 Top three financers: Japan, the United States, MDBs
 Ueno et al. (2014)
 Pointing out that estimations by Rich (2009) and (Schmidt 2013) did not fully
account for the public financing from the Chinese institutions
 Indicating that China was the major public financer
 A carbon emissions performance standard has been proposed to the OECD Export
Credit Group (by the U.S. and the U.K.), which will limit export credits for coal power
plants (currently under discussion.)

Problem definitions and research questions
4

Problem 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 or
financed 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) newhighly-efficient coal plants are also allowed ?
 To minimize the loophole, what financing conditions areconsidered?

Objectives and Method
5Objectives
 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 case inwhich loophole appears even though considering the case in which only new coalplants with CCS are allowed.
 We estimate the amount of financing required to promote the introduction ofhigh-efficiency coal plants in developing countries.

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) high efficiency, and CCS technology• Regional-specific payback periods are incorporated.

Scenarios
6Assumption onnewconstruction ofcoal plants
A-0

All types allowedA-1

All types allowed

B-0

Only highefficiency plants
and CCS allowed

B-1

Only highefficiency plants
and CCS allowed

C-0

Only plants with
CCS allowed

C-1

Only plants with
CCS allowed

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

Non-Annex I countries
with pledges

No additional climate policy: MAC$0/tCO2(MAC$0/tCO2)
MAC$51/tCO2
Extension of rate pf(Cancun low pledges
improvement in CO2
jointly achieved:
intensity from 2010 to
MAC$39/tCO2)
2020 (Cancun pledges)

Non-Annex I
countries w/opledges$0/tCO2($0/tCO2)

No additional climate policy: MAC$0/tCO2(MAC$0/tCO2)
MAC$51/tCO2
Extension of rate pf(Cancun low pledges
improvement in CO2
jointly achieved:
intensity from 2010 to
MAC$39/tCO2)
2020 (Cancun pledges)
No additional climate policy: MAC$0/tCO2(MAC$0/tCO2)
MAC$51/tCO2
Extension of rate pf
improvement in CO2(Cancun low pledges
jointly achieved:
intensity from 2010 to
MAC$39/tCO )2020 (Cancun pledges)$0/tCO2($0/tCO2)$0/tCO2($0/tCO2)

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

Average reductioncosts($/tCO2eq./yr)
50

-5Gt

70
64.4
60-3Gt15.0

No regulation
on new coalplants

40

61.5

45

59.6

14.8

50

14.7

+$32104035(relative to A-0)
30

28.2

25.4

26.4

30
20

725
20

3.1

+$16

3.1

(relative to A-0)

3.1

18.0

17.2

16.4

A-0

B-0

C-0

0

15
1050

Emissions 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 coalplants

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 timesof GHG emissions in Japan in 2012. The average reduction costs will be $16.

Composition of electricity generation in 2030
(No additional climate policy)

83500030000

TWh/yr

25000
20000

High-efficiency
coal plants

15000

Low-and middle efficiency
10000
coal plants

Gas
High-efficiency coalplants + CCS

5000
0A-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)
Oil
Hydro & Geothermal Under the regulation on new coal plants (B-0, C-0), power generations by low-andmiddle efficiency coal plants will be halved relative to those under no regulation(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

-12.5Gt +$19 18-12Gt
-11Gt

53.0

52.4

51.9

50
14.7
40

28.2

30
20

3.1

1018.0No regulation on0
coal plants

14.6+$10+$13(relativeto A-0)
161414.5(relativeto A-0)

121024.4(relative 24.0to A-0)

3.1

3.1

3.1

10.8

10.8

10.823.5

8With6 regulationon coalplants
420

A-0

A-1

B-1

C-1

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)

Average reduction costs

 If the regulation on new coal plants functions well（C-1）, the reduction will be
12.5Gt. Average reduction costs will be $19. Deviation from the costs in basecase under regulation on emissions will be smaller than that under noadditional climate policy.

9Composition of electricity generation in 2030
(With Cancun Pledges in 2020 and strengthened targets in 2030)
35000

Wind power

30000

Nuclear power

25000

TWｈ/yr

1020000

Gas

High-efficiency
Coal plants

15000
10000

High-efficientcy coalplants + 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

Oil

Gas

Biomass

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 byhighly-efficient coal plants (B-1) and gas plants (C-1) will increase. Power generation
by highly-efficient coal plants with CCS will be slightly introduced (C-1).

Loophole Scenario

11 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).
 In July, 2014, the leaders of BRICS countries (India, China, Brazil, South Africa andRussia) signed the agreement of establishment of New Development Bank (BRICSBank) . Financing for new coal plants in developing countries will increase(Pedersen 2014).
 To illustrate the loophole, the D-0 scenario is developed. It shows a situation inwhich the world is in reality inclined toward the D-0 scenario, even though the C0 scenario is expected after the financing restrictions imposed.
Regions

Assumption on the construction ofnew coal-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 offinancing restrictions for the least
developed 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

30

UMIC& 25.7
LMIC

24.8

20
1012151023.5

21.8

A-0

D-0HIC

22.7

21.9

B-0

C-0050High 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.
 As to the GHG emissions and the average reduction costs, allowing new high-efficiency coalplants (B-0) is preferable to the loophole situation (D-0 scenario).

Amount of financing for new high-efficiency coal plants
13

Required expense for each region of developing countries（$/yr）=「Increase in the installed capacity (stock) of the high-efficiency
coal plants in the B-0 scenario (Relative to Scenario A-0) (MW)」×「Capital costs of the high-efficiency coal plants（$MW）」×「Difference in the annual expense (discount rate) between eachregion and representative developed country」―fuel cost saving

 The amount of financing for new high-efficiency coal plants in 2030 (to bebuilt after 2015) would be about $36 billion for UMICs, $2 billion for LMICs
and $1.4 billion for LICs. When the saving on fuel cost is excluded, theamount of financing would be about $57 billion for UMICs, $6 billion forLMICs and $2 billion for LICs.

Discussions (1)14 When assuming that stringent conditions on emission reductions are applicable to all

regions including the developing countries, the incentives to construct low- and middleefficiency coal plants are low. With restrictions on public financing for coal plants,
emissions will be further reduced by CCS technologies. In this case, such restrictions will
be justified. ← Small loophole

Our results show that when the Cancun pledges are realized in 2020 and reduction
targets are intensified in 2030, it is less likely that the option of low-and middleefficiency coal plant will be selected, even without regulation on new coal plants.
The difference between average reduction cost when only coal plants with CCS are
allowed and the one when no financing restriction exists will be relatively small,therefore, the loophole will not be that 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 coal plants without 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 financing
restriction which allows only coal plants with CCS will result in the loophole scenario
and conceivably increase CO2 emissions globally. If so, minimizing the loophole byallowing new high-efficiency coal plants would lead to an effective reduction inemissions with low reduction costs when compared with the loophole situation.

Discussions (2) Estimated composition of power generation was determined by considering

cost efficiency, which implies that not all the low-or middle-efficiency coalfired power plants would be replaced by high-efficiency plants, but fuelchanges, such as switching from coal to gas were fully incorporated.

 Therefore, our analysis could be used as one of the measures for an ‘ex-anteappraisal’ to discern whether there was an economically viable alternative tocoal, which is in accordance with the U.S. financing stipulation for low-income
countries.

 As the restrictions on public financing would only result in the loopholesituation, other measures, such as identifying the barriers to low-carbon
technologies by region and taking measures to remove those barriers throughpublic financing, could eventually bring about a low-carbon society indeveloping countries.

15Appendix

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

1743
China (3345 TWh)41
US (1921 TWh)39

Efficiency (%, LHV)

India (664 TWh)
37
Japan (281 TWh)35
Germany (268 TWh)
33
Korea (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).

18【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)

Technologies assumed in power sector in DNE21+
19

Level of efficiency
Low efficiency (e.g., sub-critical)

Coal power

Oil power

Gas power

Biomass power

Middle efficiency (e.g., critical in thepresent; super-critical (SC) in the future)
High efficiency (e.g., ultra SC in the present;
IGCC and IGFC are included in the future)

Low efficiency (e.g., diesel)
Middle efficiency (sub-critical)
High efficiency (critical)
Combined heat and power (CHP)
Low efficiency (steam turbine)
Middle efficiency (combined cycle)
High efficiency (combined cycle withhigh temperature)
Combined heat and power (CHP)
Low efficiency (steam turbine)High efficiency (combined cycle)

Nuclear power
IGCC/IGFC with CO2 capture
Natural gas oxy-fuel power
Hydrogen power (FC/GT)Electricity storage (e.g., pumping-up)

Conventional
Advanced

Capitalcost($/kW )
1,250
1,875

Generating
efficiency(LHV %)
22.0–27.0
36.0–45.0

2,125

42.0–55.0

313
813
1,375
875
375
813
1,375

22.0–27.0
37.0–45.0
50.0–60.0
37.0–47.0*
26.0–32.0
38.0–47.0
52.0–62.0875
1,500–
1,125
2,750–
2,000
3,000
2,625
3,500–
2,625
2,375–
1,750
1,375
1,250

38.0–48.0*
18.0–28.0
36.0–46.0––
33.0–51.0
40.7–50.752.0–64.5–