50. **Second** , as a result of the **globalization** of the world's economy, many developing countries are under pressure to engage in international trade more actively, and to become more competitive. This is putting a premium on investing in category 3 type long-lived capital in the form of infrastructure (transportation, power, and telecom) networks, whether provided publicly or privately.

51. **China’s transportation sector provides an example of investment in long-lived capital stock induced primarily by concerns about competitiveness and trade** . As of 2004, China had about 34,000 km of expressways, out of a total of 1.87 million km of roads. The first segments were opened in 1988, and the bulk of the 2004 network (90%) was opened in the previous nine years (1996-2004).<sup>40</sup> In 2004, the country approved the National Expressway Network Plan to connect all capitals of provinces and autonomous regions with Beijing and with each other, linking major cities and important counties. The new expressway network is explicitly designed to reduce transportation costs from the interior to the coast, and thus to foster domestic trade and economic development inland. The network is expected to add an additional 85,000 km to the current expressway network. The project is expected to be undertaken over a 30 year period, with the bulk of the investment made in the first two decades. This is another potentially important demand-side lock-in, akin to the example of the U.S. interstate highway system discussed earlier, which is likely to generate additional indirect (cf., box 4, Figure 2) and induced emissions (box 4, Figure 3).

52. The two examples above are both demand-side examples, but **major lumpy investments in supply-side long-lived capital stock are also expected** . In fact, the IEA (2003) estimates that 6 trillion U.S. dollars investment in energy supply is required in developing countries until 2030, two thirds of which would be for power generation alone. Box No.6 provides one example of major lumpy investments on the supply side that may generate lock-ins.

**Box 6. A potential supply-side lock-in: The case of coal-fired power plants in China**

<mark>53.</mark> **<mark>With rapid economic growth, electricity demand in China has skyrocketed over the past two decades.</mark>** <mark>New power plants are being built at rapid pace to keep up. Total power generation capacity in 2006 was 623 GW. This is twice the capacity of year 2000 and more than four times the capacity of year 1990. As coal is plentiful and cheap in China, it accounts for about 75% of power generation capacity. Because coal-fired power generation has higher GHG emissions per KWh than other power generation technologies and because</mark> _<mark>average</mark>_ <mark>efficiency of coal-fired power plants in China (33%) is lower than in the U.S. (37%), Western Europe (39%) or Japan (42%) (Zhao and Gallagher, 2007), CO</mark> 2 <mark>emissions per KWh in China are about one third higher than in the U.S.,</mark><sup>41</sup> <mark>and about twice as high as in Europe. With 1.8 GtCO</mark> 2 <mark>(2003)—of which coal accounts for 97%—</mark> **<mark>the power & heat generation sector represents about half of China’s total CO</mark> 2** **<mark>emissions</mark>** <mark>, and as much as the CO</mark> 2 <mark>emissions of Africa and the Middle East combined. Coal-fired power generation also has severe consequences for local air pollution.</mark>

> 40 Source: China Statistics 2005, available at

> http://www.allcountries.org/china_statistics/16_4_length_of_transportation_routes.html.

> 41 China’s current higher emissions per KWh must, nonetheless, be viewed in the context of its overall declining energy intensity over time. As a result of using more efficient technologies, combined with its faster GDP growth, energy intensity in China declined by an extraordinary 4.8 percent per annum in the 23 year period from 1980 to 2003—more than double the 2 percent per annum decline in the US. As a result, China's energy intensity dropped by half relative to the U.S. This significant pattern of change over more than two decades is the same whether one uses GDP at market prices or purchasing power parity prices (Shalizi, 2006).

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