<mark>54.</mark> **<mark>Looking forward, the IEA (2003) estimates that power generation capacity in China will have to more than triple between 2002 and 2030 to keep up with demand</mark>** <mark>. There is thus a priori a possibility for China to at least partly grow out of its current high-emissions power generation system, since some half to two-thirds of the emissions of the power sector in 2030 depend on the</mark> _<mark>additional</mark>_ <mark>power generation capacity that will be installed between now and then. How this additional capacity is balanced between coal, gas, nuclear, hydro and other renewables will be a prime factor in determining</mark> those emissions. But the choice of technology within each primary fuel will also make a difference.

<mark>55. China is rapidly becoming a major player in non fossil-fuel energy.</mark><sup>42</sup> <mark>Yet because coal resources are extremely abundant, and because the country is essentially devoid of natural gas, coal has so far remained the cornerstone of the new power generation and is likely to continue playing an important part in future capacity as well.</mark><sup>43</sup> <mark>The choice of technology for coal-fired power generation will thus play an important role. China is installing some of the most sophisticated clean coal technology (supercritical, ultra supercritical, integrated gasification combined cycle, etc.). However, since energy demand is so large, many traditional dirty coal plants are also being built. Overall, until recently, the average emissions per unit of electricity generation of the</mark> _<mark>new</mark>_ <mark>coal-fired power plants were higher in</mark> China than in the U.S.<sup>44</sup> <mark>56.</mark> **<mark>Recent modeling of the evolution of China’s power sector (Wang and Nakata, 2009) provides some economic insights on how the fuel mix, and resulting emissions, might evolve in the coming decades</mark>** <mark>. In their business-as-usual scenario, without any policy to internalize carbon or local pollution externalities, the share of coal in power generation remains as high in 2030 as it is today, and coal generation efficiency improves relatively little—thus resulting in a tripling of the CO</mark> 2 <mark>emissions of the power sector in 2030 relative to 2005. In an alternative scenario, introducing a carbon tax of $120/tCO</mark> 2 <mark>(about 6 times the current price on the carbon market) reduces electricity generation in 2030 by about 15% relative to the business-as-usual scenario; it reduces the share of coal in the power generation mix from about 75% to about 50%; and it facilitates the penetration of advanced clean coal technologies. In this scenario, CO</mark> 2 <mark>emissions in 2030 will be about one third lower than in the business-as-usual case.</mark> **<mark>According to Wang and Nakata’s analysis, there is real potential to reduce China’s emissions from the power sector by 2030 despite the cheapness and abundance of coal</mark>** <mark>—one-third of business-as-usual emissions in 2030, i.e., as much as today’s (2005) emissions.</mark> The question is how easy it will be to shift course <mark>57.</mark> **<mark>This study does not take into account the cumulative mechanisms that may make it more difficult to reduce the share of coal and/or increase the share of advanced clean coal within total coal-fired power generation</mark>** <mark>. Besides the sheer lifespan of coal-fired power plants,</mark> **_<mark>cumulative mechanisms</mark>_** <mark>such as</mark> _<mark>increasing returns to scale</mark>_ <mark>(e.g., in the development of sector specific transportation networks),</mark> _<mark>induced technological change</mark>_ <mark>(that may make future coal technologies cheaper rather than cleaner),</mark> _<mark>learning by doing</mark>_ <mark>(e.g., on training of a specialized workforce), or</mark> _<mark>agglomeration economies</mark>_ <mark>(encouraging clustering and dependency on cheapest source of fuel) can</mark> generate an **undesirable lock-in** to inefficient energy paths.

<mark>58.</mark> **<mark>In addition, investment in renewables and clean coal face important barriers</mark>** <mark>. Wang and Nakata include one of these barriers, namely the fact that local air pollution is not internalized. But taking into</mark>

> 42 For example, China is already the largest producer of hydropower in the World (IEA, 2007), it is the second largest market for new wind capacity behind the U.S. (World Wind Energy Association, 2009), and it has embarked on a large-scale nuclear power generation program to increase generation capacity from 10 GW to about 70 GW in 2020 (Machenaud, 2009).

> 43 In fact, the share of coal in total power generation capacity has remained very stable over the past two decades, which means that the _additional_ capacity over the period has relied as much as coal as the initial capital stock.

> 44 Estimated by comparing the ratios between the additional emissions from the combustion of coal in the electricity & heat sector between 1998 and 2003 (IEA, 2005) and the additional electricity production between 1998 and 2003 (IEA, 2006a, b) in the U.S. and in China. We do not have data for additional capacity installed post-2003.

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