Estimating the Marginal Abatement Cost Curve of CO2 Emissions in China: Provincial Panel Data Analysis

This paper estimates the Marginal Abatement Cost Curve (MACC) of CO₂ emissions in China based on a provincial panel for the period of 2001–2010. The provincial marginal abatement cost (MAC) of CO₂ emissions is estimated using a parameterized directional output distance function. Four types of model specifications are applied to fit the MAC-carbon intensity pairs. The optimal specification controlling for various covariates is identified econometrically. A scenario simulation of China's 40–45% carbon intensity reduction based on our MACC is illustrated. Our simulation results show that China would incur a 559–623 Yuan/t (roughly 51–57%) increase in marginal abatement cost to achieve a corresponding 40–45% reduction in carbon intensity compared to its 2005 level.     

A critical review of distance function based economic research on China’s marginal abatement cost of carbon dioxide emissions

The last few years have witnessed a rapidly emerging literature estimating the marginal abatement cost, or the shadow price of carbon dioxide (CO₂) emissions in China using parametric or non-parametric distance function approaches. This is largely driven by the fact that China has become the world’s largest carbon emitter and thus faced mounting domestic and international pressure to mitigate emissions. There is an urgent policy need to model and predict the cost burdens of various mitigation scenarios. Consistent information about the marginal abatement cost of CO₂ emissions plays a crucial role in addressing this need. However, the existing literature has suffered from various issues that have severely weakened the scientific support that these studies could potentially provide for sound policy making. This paper provides a thorough and critical review of this rapidly emerging literature and identifies important research directions that need the most attention from scholars.     

Marginal CO2 abatement costs: Findings from alternative shadow price estimates for Shanghai industrial sectors

Shanghai, one of the most developed cities in China, is implementing a pilot regional carbon emission trading scheme. Estimating the marginal abatement costs of CO₂ emissions for the industrial sectors covered in Shanghai's emission trading scheme provides the government and participating firms useful information for devising compliance policies. This paper employs multiple distance function approaches to estimating the shadow prices of CO₂ emissions for Shanghai industrial sectors. Our empirical results show that the overall weighted average of shadow price estimates by different approaches ranges between 394.5 and 1906.1 Yuan/ton, which indicates that model choice truly has a significant effect on the shadow price estimation. We have also identified a negative relationship between the shadow price of CO₂ emissions and carbon intensity, and the heavy industries with higher carbon intensities tend to have lower shadow prices. It has been suggested that Shanghai municipal government take various measures to improve its carbon market, e.g. using the marginal abatement costs of participating sectors/firms as a criterion in the initial allocation of carbon emission allowances.     

Cost of energy and environmental policy in Portuguese CO2 abatement—scenario analysis to 2020

This paper quantifies the contribution of Portuguese energy policies for total and marginal abatement costs (MAC) for CO₂ emissions for 2020. The TIMES_PT optimisation model was used to derive MAC curves from a set of policy scenarios including one or more of the following policies: ban on nuclear power; ban on new coal power plants without carbon sequestration and storage; incentives to natural gas power plants; and a cap on biomass use. The different MAC shows the policies’ effects in the potential for CO₂ abatement. In 2020, in the most encompassing policy scenario, with all current and planned policies, is possible to abate only up to +35% of 1990 emissions at a cost below 23 € t/CO₂. In the more flexible policy scenarios, it is possible to abate up to −10% of 1990 emissions below the same cost. The total energy system costs are 10–13% higher if all policies are implemented—76 to 101 B€—roughly the equivalent to 2.01–2.65% of the 2005 GDP. Thus, from a CO₂ emission mitigation perspective, the existing policies introduce significant inefficiencies, possibly related to other policy goals. The ban on nuclear power is the instrument that has the most significant effect in MAC.     

Impacts of booming economic growth and urbanization on carbon dioxide emissions in Chinese megalopolises over 1985–2010: an index decomposition analysis

Given the booming economic growth and urbanization in China, cities have become crucial to sustaining this development and curbing national emissions. Understanding the key drivers underlying the rapid emissions growth is critical to providing local solutions for national climate targets. By using index decomposition analysis, we explore the factors contributing to the carbon dioxide (CO₂) emissions in Chinese megalopolises from 1985 to 2010. An additional decomposition analysis of the industry sector is performed because of its dominant contribution to the total emissions. The booming economy and expanding urban areas are the major drivers to the increasing CO₂ emissions in Chinese megalopolises over the examined period. The significant improvement in energy intensity is the primary factor for reducing CO₂ emissions, the declining trend of which, however, has been suspended or reversed since 2000. The decoupling effect of the adjustments in the economic structure only occurred in three megalopolises, namely, the Yangtze River Delta (YRD), the Beijing-Tianjin-Heibei Megalopolis (BTJ), and the Pearl River Delta (PRD). In comparison, the impacts of urban density and carbon intensity are relatively marginal. The further disaggregated decomposition analysis in the industry sector shows that energy intensity improvements were widely achieved in 36 sub-industries in the PRD. The results also indicate the concentrations of energy-intensive industries in the PRD, posing a major challenge to local governments for a low-carbon economy. As economic growth and urbanization continue, reductions in energy intensity and clean energy therefore warrant much more policy attentions due to their crucial roles in reducing carbon emissions and satisfying the energy demand.     

Unintended consequences of cap-and-trade? Evidence from the Regional Greenhouse Gas Initiative

Cap-and-trade programs are designed to minimize the overall cost of pollution control by effectively allowing firms with low abatement costs to reduce emissions on behalf of those with higher abatement costs. However, these trades redistribute where emissions are generated, which has important implications for welfare because many pollutants have differential environmental and health impacts depending on where they are emitted. This paper compiles and analyzes a national data set of power plant emissions in order to assess how the Regional Greenhouse Gas Initiative (RGGI), a carbon dioxide (CO₂) cap-and-trade program involving nine states in the United States, impacts the emissions and damages from copollutants. Our results suggest that, in addition to achieving its goal of reducing CO₂, the program has lowered the quantity of sulfur dioxide (SO₂) emissions as well as associated damages in the policy region. However, two factors diminish the overall benefits from the program. First, within the RGGI region, trading shifts electricity generation to locations with higher marginal damages for SO₂. Second, there is leakage of electricity generation and emissions to nearby states, although this latter effect is more modest than ex ante analyses predicted.     

Scenario analysis on CO2 emissions reduction potential in China's iron and steel industry

The international climate community has begun to assess a range of possible options for strengthening the international climate change effort after 2012. Analysis of the potential for sector-based emissions reduction and relevant mitigation options will provide the necessary background information for the debate. In order to assess the CO₂ abatement potential of China's steel industry, a model was developed using LEAP software to generate 3 different CO₂ emission scenarios for the industry from 2000 to 2030. The abatement potentials of different scenarios were compared, and their respective feasibilities were assessed according to the cost information. High priority abatement measures were then identified. The results show that the average CO₂ abatement per year in the Recent Policy scenario and in the New Policy scenario, compared with the reference scenario, are 51 and 107 million tons, respectively. The corresponding total incremental costs are 9.34 and 80.95 billion dollars. It is concluded that there is great potential for CO₂ abatement in China's steel industry. Adjusting the structure of the industry and technological advancement will play an important role in emissions reduction. Successful implementation of current sustainable development policies and measures will result in CO₂ abatement at a low cost. However, to achieve higher levels of abatement, the cost will increase dramatically. In the near future, specific energy conservation technologies such as dry coke quenching, exhaust gas and heat recovery equipment will be of great significance. However, taking a long term perspective, emissions reduction will rely more on the adjustment of production processes and the application of more modern large scale plants. Advanced blast furnace technology will inevitably play an important role.     

Long-term CO2 emissions reduction target and scenarios of power sector in Taiwan

This study analyses a series of carbon dioxide (CO₂) emissions abatement scenarios of the power sector in Taiwan according to the Sustainable Energy Policy Guidelines, which was released by Executive Yuan in June 2008. The MARKAL-MACRO energy model was adopted to evaluate economic impacts and optimal energy deployment for CO₂ emissions reduction scenarios. This study includes analyses of life extension of nuclear power plant, the construction of new nuclear power units, commercialized timing of fossil fuel power plants with CO₂ capture and storage (CCS) technology and two alternative flexible trajectories of CO₂ emissions constraints. The CO₂ emissions reduction target in reference reduction scenario is back to 70% of 2000 levels in 2050. The two alternative flexible scenarios, Rt4 and Rt5, are back to 70% of 2005 and 80% of 2005 levels in 2050. The results show that nuclear power plants and CCS technology will further lower the marginal cost of CO₂ emissions reduction. Gross domestic product (GDP) loss rate in reference reduction scenario is 16.9% in 2050, but 8.9% and 6.4% in Rt4 and Rt5, respectively. This study shows the economic impacts in achieving Taiwan's CO₂ emissions mitigation targets and reveals feasible CO₂ emissions reduction strategies for the power sector.     

Urban energy use and carbon emissions from cities in China and policy implications

Urban areas contain 40% of the population and contribute 75% of the Chinese national economy. Thus, a better understanding of urban energy uses is necessary for Chinese decision-makers at various levels to address energy security, climate change mitigation, and local pollution abatement. Therefore, this paper addresses three key questions: What is the urban contribution to China's energy usage and CO₂ emissions? What is the contribution of large cities, and what alternate energy–economy pathways are they following? How have energy uses and CO₂ emissions transformed in the last two decades in key Chinese cities? This three-tier analysis illustrates the changes in urban energy uses and CO₂ emissions in China. The results show that the urban contributions make up 84% of China's commercial energy usage. The 35 largest cities in China, which contain 18% of the population, contribute 40% of China's energy uses and CO₂ emissions. In four provincial cities, the per capita energy usage and CO₂ emissions have increased several-fold. Rapid progress was made in reducing the carbon intensity of economic activities in cities throughout the 1990s, but alarmingly, such progress has either slowed down or been reversed in the last few years. These results have important policy implications.     

Quantifying CO2 abatement costs in the power sector

CO₂ cap-and-trade mechanisms and CO₂ emission taxes are becoming increasingly widespread. To assess the impact of a CO₂ price, marginal abatement cost curves (MACCs) are a commonly used tool by policy makers, providing a direct graphical link between a CO₂ price and the expected abatement. However, such MACCs can suffer from issues related to robustness and granularity. This paper focuses on the relation between a CO₂ emission cost and CO₂ emission reductions in the power sector. The authors present a new methodology that improves the understanding of the relation between a CO₂ cost and CO₂ abatement. The methodology is based on the insight that CO₂ emissions in the power sector are driven by the composition of the conventional power portfolio, the residual load and the generation costs of the conventional units. The methodology addresses both the robustness issue and the granularity issue related to MACCs. The methodology is based on a bottom-up approach, starting from engineering knowledge of the power sector. It offers policy makers a new tool to assess CO₂ abatement options. The methodology is applied to the Central Western European power system and illustrates possible interaction effects between, e.g., fuel switching and renewables deployment.     

Carbon pricing and the diffusion of renewable power generation in Eastern Europe: A linear programming approach

The purpose of this paper is to analyze the costs for reducing CO₂ emissions in the power-generating sectors in Croatia, the European part of Russia, Macedonia, Serbia and the Ukraine in 2020 by using a linear programming model. The model takes into account the impact of technology learning and is based on the underlying assumptions of the so-called RAINS model frequently used to assess the potential and the costs for reducing air pollution in Europe. The results based on an exogenously given 15 percent reduction target for CO₂ emissions show that the marginal cost for switching from a carbon-intense fuel to either a low-carbon or to a renewable energy source differs significantly among the countries. The marginal costs range from 4 to 90€ per ton CO₂, and are mainly due to country differences in the availability of renewables, existing technologies and costs. The results also indicate that although it is clear that the Eastern European countries are not homogeneous in terms of CO₂ abatement potential and costs, no general conclusions can be made of the region. This may have important implications for future JI/CDM activities. For instance, risk factors such as policy uncertainty and institutional obstacles may become crucial in determining the future allocation of JI/CDM projects across the region.     

Using performance indicators to reduce cost uncertainty of China's CO2 mitigation goals

Goals on absolute emissions and intensity play key roles in CO₂ mitigation. However, like cap-and-trade policies with price uncertainty, they suffer from significant uncertainty in abatement costs. This article examines whether an indicator could be established to complement CO₂ mitigation goals and help reduce cost uncertainty with a particular focus on China. Performance indicators on CO₂ emissions per unit of energy consumption could satisfy three criteria: compared with the mitigation goals, (i) they are more closely associated with active mitigation efforts and (ii) their baselines have more stable projections from historical trajectories. (iii) Their abatement costs are generally higher than other mitigation methods, particularly energy efficiency and conservation. Performance indicators could be used in the following way: if a CO₂ goal on absolute emissions or intensity is attained, the performance indicator should still reach a lower threshold as a cost floor. If the goal cannot be attained, an upper performance threshold should be achieved as a cost ceiling. The narrower cost uncertainty may encourage wider and greater mitigation efforts.     

Provincial carbon intensity abatement potential estimation in China: A PSO–GA-optimized multi-factor environmental learning curve method

This study aims to estimate carbon intensity abatement potential in China at the regional level by proposing a particle swarm optimization–genetic algorithm (PSO–GA) multivariate environmental learning curve estimation method. The model uses two independent variables, namely, per capita gross domestic product (GDP) and the proportion of the tertiary industry in GDP, to construct carbon intensity learning curves (CILCs), i.e., CO₂ emissions per unit of GDP, of 30 provinces in China. Instead of the traditional ordinary least squares (OLS) method, a PSO–GA intelligent optimization algorithm is used to optimize the coefficients of a learning curve. The carbon intensity abatement potentials of the 30 Chinese provinces are estimated via PSO–GA under the business-as-usual scenario. The estimation reveals the following results. (1) For most provinces, the abatement potentials from improving a unit of the proportion of the tertiary industry in GDP are higher than the potentials from raising a unit of per capita GDP. (2) The average potential of the 30 provinces in 2020 will be 37.6% based on the emission's level of 2005. The potentials of Jiangsu, Tianjin, Shandong, Beijing, and Heilongjiang are over 60%. Ningxia is the only province without intensity abatement potential. (3) The total carbon intensity in China weighted by the GDP shares of the 30 provinces will decline by 39.4% in 2020 compared with that in 2005. This intensity cannot achieve the 40%–45% carbon intensity reduction target set by the Chinese government. Additional mitigation policies should be developed to uncover the potentials of Ningxia and Inner Mongolia. In addition, the simulation accuracy of the CILCs optimized by PSO–GA is higher than that of the CILCs optimized by the traditional OLS method.     

Estimation of the marginal abatement costs of airborne pollutants in Korea’s power generation sector

Using an output distance function and its duality to the revenue function, we estimated the marginal abatement costs of airborne pollutants of bunker-C and coal fired power plants in Korea. The average marginal abatement costs are 310.6 thousand won per ton for SO_x, 146.7 thousand won per ton for NO_x, 15 482.3 thousand won per ton for TSP, and 3.8 thousand won per ton for CO₂ for the period of 1990–1995. These estimates are well within the range of the results by the previous studies in the US. The wide variations in the marginal abatement costs by the types of plant imply that Korea’s regulatory policy on pollution has not achieved the cost-efficiency in reducing emissions.     

Regional differences in China's CO2 abatement cost

Under a framework of output distance function with multiple outputs, the study discusses the carbon abatement cost at provincial and regional levels in China, using the shadow price analysis. The findings show that the abatement cost, reflecting the marginal opportunity cost of carbon reduction, varies greatly among the provinces. On average, the abatement cost of the eastern region was much higher than that of the mid-western region during the observed period. The findings provide evidence that the carbon prices in the current ETS pilots have been much lower than desired levels, implying inefficiency of the markets. The wide range of the abatement cost estimates supports that the equi-marginal principle does not hold for the regulations on carbon pollution at regional levels. The regional cost differences indicate the huge potential for China to minimize the total abatement cost with policy instruments that may motive the emissions moving from areas of low abatement cost to where the abatement cost is higher. For a few undeveloped provinces that are environmentally fragile and have high abatement cost, supplementary measures will be needed to reduce the negative impact of carbon cutbacks on the poor to the minimum.     

China’s regional CO2 emissions: Characteristics,inter-regional transfer and emission reduction policies

This paper analyzes the characteristics of China’s regional CO₂ emissions and effects of economic growth and energy intensity using panel data from 1997 to 2009. The results show that there are remarkable regional disparities among eastern, central and western areas, regional elasticities of per capita GDP and energy intensity on CO₂ emissions, which reflect the regional differences in economic development, economy structure and restraining function of energy intensity decrease on the emission. Energy intensity reducing is more effective to emission abatement for provinces with higher elasticity of energy intensity, but may not be significant for provinces with lower elasticity. The inverse distribution of energy production and consumption, regional unfairness caused by institutional factors like energy price and tax system result in inter-regional CO₂ emission transfer embodied in the power transmission. The calculation indicates that the embodied emission transfer was gradually significant after 2003, from eastern area to the central and western areas, especially energy production provinces in central area, which leads to distortion on the emission and emission intensity. The regional emission reduction targets and supporting policies should be customized and consistent with the actual situations rather than setting the same target for all the provinces.     

Potential for reduction of CO2 emissions and a low-carbon scenario for the Brazilian industrial sector

This study discusses the potential for reducing carbon dioxide (CO₂) emissions from energy use by the Brazilian industrial sector in a low-carbon scenario over a horizon until 2030. It evaluates the main mitigation measures, the quantities of this gas avoided and the respective abatement costs. In relation to a benchmark scenario projected for 2030, the reduction of CO₂ emissions estimated here can reach 43%, by adopting energy-efficiency measures, materials recycling and cogeneration, shifting from fossil fuels to renewables or less polluting energy sources and eliminating the use of biomass from deforestation. The set of measures studied here would bring emissions reductions of nearly 1.5 billion tCO₂ over a period of 20 years (2010–2030). This would require huge investments, but the majority of them would have significant economic return and negative abatement costs. However, in many cases there would be low economic attractiveness and higher abatement costs, thus requiring more effective incentives. Brazil is already carrying out various actions toward the mitigation measures proposed here, but there are still substantial barriers to realize this potential. Therefore, a collective effort from both the public and private sectors is needed for the country to achieve this low-carbon scenario.     

Non-nuclear,low-carbon,or both? The case of Taiwan

The Fukushima nuclear accident in Japan has renewed debates on the safety of nuclear power, possibly hurting the role of nuclear power in efforts to limit CO₂ emissions. I develop a dynamic economy-wide model of Taiwan with a detailed set of technology options in the power sector to examine the implications of adopting different carbon and nuclear power policies on CO₂ emissions and the economy. Without a carbon mitigation policy, limiting nuclear power has a small economic cost for Taiwan, but CO₂ emissions may increase by around 4.5% by 2050 when nuclear is replaced by fossil-based generation. With a low-carbon target of a 50% reduction from year 2000 levels by 2050, the costs of cutting CO₂ emissions are greatly reduced if both carbon sequestration and nuclear expansion were viable. This study finds that converting Taiwan's industrial structure into a less energy-intensive one is crucial to carry out the non-nuclear and low-carbon environment.     

Towards a low carbon growth in Mexico: Is a double dividend possible? A dynamic general equilibrium assessment

This paper simulates the medium- and long-term impact of proposed and expected energy policy on the environment and on the Mexican economy. The analysis has been conducted with a Multi-sector Macroeconomic Model for the Evaluation of Environmental and Energy policy (Three-ME). This model is well suited for policy assessment purposes in the context of developing economies as it indicates the transitional effects of policy intervention. Three-ME estimates the carbon tax required to meet emissions reduction targets within the Mexican “Climate Change Law”, and assesses alternative policy scenarios, each reflecting a different strategy for the recycling of tax revenues. With no compensation, the taxation policy would reduce CO₂ emissions by more than 75% by 2050 with respect to Business as Usual (BAU), but at high economic costs. Under full redistribution of carbon tax revenues, a double dividend arises: the policy appears beneficial both in terms of GDP and CO₂ emissions reduction.     

Optimal greenhouse gas emissions in NGCC plants integrating life cycle assessment

The optimal design of an energy-intensive process involves a compromise between costs and greenhouse gas emissions, complicated by the interaction between optimal process emissions and supply chain emissions. We propose a method that combines generic abatement cost estimates and the results of existing (LCA) life cycle assessment studies, so that supply chain emissions are properly handled during optimization. This method is illustrated for a (NGCC) natural gas combined cycle power plant model with the following design and procurement options: procurement of natural gas from low-emissions producers, fuel substitution with (SNG) synthetic natural gas from wood, and variable-rate CO₂ capture and sequestration from both the NGCC and SNG plants. Using multi-objective optimization, we show two Pareto-optimal sets with and without the proposed LCA method. The latter can then be shown to misestimate CO₂ abatement costs by a few percent, penalizing alternate fuels and energy-efficient process configurations and leading to sub-optimal design decisions with potential net losses of the order of $1/MWh. Thus, the proposed LCA method can enhance the economic analysis of emissions abatement technologies and emissions legislation in general.