A CGE Analysis of Japan‐China Technology Transfer for the Coal‐Fired Electricity
Generation.
Shiro Takeda (Kanto Gakuen University)
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Motivation
• CO2 emissions from the developing countries.– The developed countries generating the large amount of CO2
emissions are required to take strong measures to tackle the global warming.
– But recently much attention has been focused on the issue of how to restrict emissions from the developing countries.
– It is because emissions from the developing countries, in particular BRICs, are rapidly increasing.
• How to restrain CO2 emissions from the developing countries?– CO2 regulations → negative impacts on economic growth.– We cannot expect the developing countries voluntarily to
reduce a large amount of emissions.– The developed countries need to support the developing
countries. • Technology transfer
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Technology change in CGE analysis.
• CGE analysis– The most frequently used approach is to consider technology change by change in parameters in production function.
• For example, AEEI (autonomous energy efficiency improvement).
– However, technology change by parameter change cannot represent some kinds of technology change observed in the real world.
• technology transfer between countries with significantly different production structures.
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The purpose of the paper
• We examine effects of technology transfer– Coal‐fired electricity generation
– From Japan to China.
• The reason why we take up this technology transfer is that it is likely to reduce the large amount of CO2 emissions in China.
• Two types of technology transfer:– Technology transfer by parameter change.
– Technology transfer by structural change.
• CGE approach.
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Model
• A recursive dynamic CGE model– 25 periods from 2001 to 2025.
• Regions– Japan (JPN), China (CHN), the rest of the world (ROW).
• The model within a period– GTAP standard model.
– GTAP‐EG model by Rutherford & Paltsev.
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Sector classification
• Nine sectors
• Five energy sectors– Crude oil
– Gas
– Coal
– petroleum products
– Electricity
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Sector
coa Coal
oil Crude oil
gas Gas
p_c Petroleum and coal products
ely Electricity
agr Agriculture
eis Energy‐intensive sectors
oth Other manufacturing sectors
srv Services
Production structure.
• Perfect competition.
• CRTS technology.
• Three types of production structure:– Primary energy sectors
• crude oil, gas, coal
– Electricity sector
– Other non‐energy sectors
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Primary energy sectors.
• Primary energy sector– crude oil, coal, gas.
– Resource for primary energy • The specific factor.
• Production function– Multi‐stage CES.
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Non‐energy sectors
• Multi‐stage CES– KLE vs Other inputs
• Substitution possibility among various energy inputs.
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Electricity sector
• Electricity sector in ROW– For simplicity, we assume that production function is the same as non‐energy sectors.
• Electricity sector in Japan and China– Divided according to four electricity sources
• Petroleum products (P_C)
• Coal (COA)
• Gas (GAS)
• Other sources (hydro and nuclear power) (MIS)
– We analyze technology transfer in coal‐fired electricity generation.
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Production structure of electricity
• Aggregation of electricity from four sources.
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• Electricity production by individual sources.
Model (continued)
• Dynamics– Recursive dynamic model.– 25 periods from 2001 to 2025.– Growth is driven by
• Capital accumulation• Change in labor force• AEEI.
– Change in labor force and AEEI are determined so that GDP and CO2 emissions in 2025 are equal to projection by EIA.
– Putty‐clay approach.• Only newly installed capital can move across sectors.• Old capital → specific factor.
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Model (continued)
• Household– Utility is derived from consumption and saving.
– Constant saving rate.
– Utility function• Multi‐stage CES
– Primary factors• Constant endowment
within a period
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Benchmark data
• Value data:– GTAP ver 6.
– The benchmark year = 2001
• CO2 emissions– GTAP ver 6.
• Electricity data for Japan and China– EDMC Handbook of energy & economic statistics in Japan.
– Electricity sector in GTAP6 data is disaggregated into four types of electricity according to EDMC data.
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Technology transfer
• Technology transfer– Technology transfer from Japan to China
– Coal‐fired electricity generation.
• Two types of technology transfer– TTPC: technology transfer by parameter change.
– TTSC: technology transfer by structural change.
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Electricity data in Japan and China.Share of individual energies in electricity production (%).
Source jpn chn
coa 26.6 80.1
gas 21.7 3.0
p_c 12.1 8.6
mis 39.6 8.3
• The share of coal‐fired electricity – Very high in China.
• Carbon intensity– Carbon intensity in coal‐fired
electricity is China is much higher than Japan.
• Technology transfer from Japan to China is likely to reduce a large amount of CO2 emissions.
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jpn chn
0.627 1.145
Carbon intensity in coal‐fired elec. (MtCO2/TWh)
Technology transfer by parameter change
• Technology improvement by parameter change– Production function of coal‐fired electricity
Q=f(αE,M)Q: output, E: energy (coal) input, M: other inputs
α : technology parameter.
– Rise in α→ Improvement in energy efficiency.
– The frequently used approach for incorporating technology change in CGE analysis.
• TTPC– The level α of coal‐fired electricity generation in China rises so that its energy efficiency becomes equal to that of Japan.
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Technology transfer by structural change.
• TTSC– Production function of coal‐fired electricity generation in Japan becomes available in China.
• China can use two technologies for coal‐fired electricity– The existing technology.– The technology transferred from Japan.
• The adoption of the transferred technology– Assumption: technology is adopted only when it is profitable.
– It means that China does not necessarily adopt the new technology.
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The adoption of the transferred technology
• China– Relatively energy‐intensive
• Japan– Relatively capital‐intensive.
• If rental price in China is sufficiently high, Japan’s technology is not profitable in China.
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Japan’s technology
China’s technology
Capital
Energy Iso-quant curve
Scenarios
• Carbon regulation– Carbon regulation is imposed on Japan.
– No carbon regulation in China and ROW.
• Carbon regulation in Japan– Imposed from 2011.
– Carbon emissions are restricted to 1990 level.
• We compare scenarios with and without technology transfer.– BAU usually assumes no carbon regulation.
– BAU in this analysis assumes carbon regulation in Japan.
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ScenariosBrief explanation
BAU
Equilibrium with carbon regulations.Without technology transfer.Carbon emissions in Japan are restricted at 1990 level from 2011.
TP BAU+TTPC
TS BAU+TTSC
TSK1TS + capital transfer: 1Bil US$ annual capital transfer.
TSK2TS + capital transfer:5Bil US$ annual capital transfer.
TSK3TS + capital transfer: 10Bil US$ annual capital transfer.
TSK4TSK2 + capital revenue rebate:Rental revenue rebate to Japan.
TSK5 TSK1 + CDM
TSK6 TSK2 + CDM
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• BAU
– CO2 restriction on Japan
– No technology transfer.
• TP
– BAU+TTPC
– TTPS occurs at 2010.
• TS
– BAU+TTSC
– TTSC occurs from 2010.
• TSK1‐TSK3
– Capital transfer from Japan to China.
– Free capital transfer.
• TSK4
– Japan receives rental revenue from capital transferred to China.
– TSK5 & TSK6
– the amount of reduction in emissions in China generated by technology transfer is given to Japan as credits for emissions.
GDP at BAU equilibrium.
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• China– 200% increase from 2010 to 2025.
• Japan– With carbon restriction.
– 30% increase from 2010 to 2025.
China
Japan
CO2 emissions at BAU
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• Japan– CO2 emissions are restricted to 1990 level.
• China– Increase by 90% due to the high economic growth.
China
Japan: 1990 level.
Results of technology transfer.
TP TS TSK1 TSK2 TSK3
2010 0 0 0 0 0
2011 691 0 6 30 60
2015 810 0 27 132 263
2020 972 0 44 220 438
2025 1,032 0 52 258 517
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Reduction in CO2 emissions from coal‐fired electricity in China from BAU value (MtCO2)
Scenario TP
• TTPC decreases CO2 emissions in China considerably – the decrease of 1,032MtCO2 in 2025.
• The decrease in CO2 emissions starts right after technology transfer occurs.
• It shows that if technology transfer is modeled as TTPC, it surely and immediately leads to efficiency improvement and to the decrease in CO2 emissions.
• This is the characteristic of TTPC which is implemented as the improvement of efficiency parameters in production function.
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Scenario TS
• Technology transfer by structural change.
• No emission reduction.
• It is because the new technology transferred from Japan to China is not used although it is available from 2011.
• Why the transferred technology is not adopted in China– Japan’s technology is relatively capital‐intensive.
– Relatively high rental price in China.
– Relatively low price in electricity in China.
→ Japan’s technology is not profitable in China.
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Scenario TSK1‐TSK3
• In Scenario TS, transferred technology is not adopted in China.
• One reason is relatively high rental price in China.– Capital transfer to China is likely to promote the adoption of
transferred technology because it lowers rental price.
• Capital transfer is introduced after 2011.• Constant amount of capital is transferred to China every
year.• Three scenarios differ in the amount of capital transfer.
– TSK1: 1 billions of US$– TSK2: 5 billions of US$– TSK3: 10 billions of US$
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Results of TSK1‐TSK3
• The new technology is adopted and CO2 emissions from coal‐fired electricity generation in China decrease.
• TSK1– Modest decrease in CO2
• TSK3– CO2 emissions decrease by 517MtCO2 in 2025 (7.3% decrease from BAU).
• These results indicate that capital transfer actually promotes the adoption of new technology and contributes to the reduction in CO2 emissions.
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Impacts on GDP of China.
TP TS TSK1 TSK2 TSK3
2011 0.32 0 0.01 0.07 0.15
2012 0.36 0 0.03 0.14 0.28
2013 0.40 0 0.04 0.20 0.39
2014 0.45 0 0.05 0.25 0.50
2015 0.50 0 0.06 0.29 0.58
2016 0.55 0 0.07 0.33 0.66
2017 0.60 0 0.07 0.37 0.73
2018 0.66 0 0.08 0.40 0.80
2019 0.72 0 0.09 0.43 0.85
2020 0.79 0 0.09 0.45 0.90
2021 0.86 0 0.10 0.48 0.95
2022 0.94 0 0.10 0.50 1.00
2023 1.03 0 0.11 0.52 1.04
2024 1.13 0 0.11 0.55 1.08
2025 1.23 0 0.11 0.57 1.12
• In all cases except TS, GDP of China increases.– Technology transfer
– Capital transfer (TSK1‐TSK3).
• Scenario TS– No adoption of the transferred technology.
– No change in GDP
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% change in GDP of China from BAU
Impacts on GDP of Japan.
TP TS TSK1 TSK2 TSK3
2011 0.00 0 ‐0.02 ‐0.10 ‐0.20
2012 0.00 0 ‐0.04 ‐0.19 ‐0.39
2013 0.00 0 ‐0.06 ‐0.28 ‐0.56
2014 0.00 0 ‐0.07 ‐0.36 ‐0.73
2015 0.00 0 ‐0.09 ‐0.44 ‐0.88
2016 0.00 0 ‐0.10 ‐0.51 ‐1.02
2017 0.00 0 ‐0.11 ‐0.57 ‐1.16
2018 0.00 0 ‐0.13 ‐0.64 ‐1.28
2019 0.01 0 ‐0.14 ‐0.69 ‐1.39
2020 0.01 0 ‐0.15 ‐0.74 ‐1.50
2021 0.01 0 ‐0.16 ‐0.79 ‐1.60
2022 0.01 0 ‐0.17 ‐0.84 ‐1.69
2023 0.01 0 ‐0.17 ‐0.88 ‐1.77
2024 0.01 0 ‐0.18 ‐0.91 ‐1.85
2025 0.01 0 ‐0.19 ‐0.95 ‐1.92
• TP– Slight increase in GDP.
– Spillover effect.
• TSK1‐TSK3– Decrease in GDP.
– It is because capital transfer to China decreases production in Japan.
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% change in GDP of Japan from BAU
Scenario TSK4
• TSK4– Rental revenue from capital transferred to China accrues to Japan.
– It may lead to the positive impact of technology transfer on GDP of Japan.
• Impacts of technology transfer on GDP of Japan are still negative.– Why?
– Low price of electricity in China → low rental price for capital transferred from Japan.
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TSK4
2011 ‐0.10
2012 ‐0.19
2013 ‐0.27
2014 ‐0.35
2015 ‐0.42
2016 ‐0.48
2017 ‐0.54
2018 ‐0.60
2019 ‐0.64
2020 ‐0.69
2021 ‐0.73
2022 ‐0.76
2023 ‐0.79
2024 ‐0.82
2025 ‐0.84
% change in GDP of Japan from BAU
Results of TSK5 & TSK6
• TSK5 & TSK6– The amount of reduction in emissions in China generated by technology transfer is given to Japan as credits for emissions.
– It can alleviate the burden of Japan.
• Results– GDP loss gets smaller.
– TSK5: almost zero.
– TSK6: still negative impacts on GDP.
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TSK5 TSK6
2011 0.00 ‐0.01
2012 0.00 ‐0.03
2013 ‐0.01 ‐0.05
2014 ‐0.01 ‐0.07
2015 0.00 ‐0.09
2016 0.00 ‐0.11
2017 0.00 ‐0.12
2018 0.00 ‐0.14
2019 0.00 ‐0.16
2020 0.00 ‐0.21
2021 0.00 ‐0.25
2022 0.00 ‐0.30
2023 0.00 ‐0.34
2024 0.00 ‐0.38
2025 0.00 ‐0.42
% change in GDP of Japanfrom BAU
Conclusions• Technology transfer by parameter change.
– It always leads to improvement of energy efficiency and decrease in CO2 emissions.
• Technology transfer by structural change.– Technology transfer by itself does not lead to the effective decrease in CO2
emissions.– It is because Japan’s technology is not profitable in China.
• Capital transfer combined with technology transfer facilitates the adoption of new technology and thus leads to the reduction of CO2 emissions.
• However, capital transfer magnifies the burden of Japan because it decreases production in Japan.
• Rebating rental revenue and CDM can alleviate the burden of Japan. • CGE analysis
– Technology transfer (change) is usually modeled by parameter change.– Such approach can lead to misunderstanding of the role of technology change
because many technology changes in the real world take the form of structural change.
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Limitations of this paper
• The assumption on capital transfer– Exogenous movement.
– Our model only partially captures capital movement in the real world.
• Insufficient data for electricity generation.
• CDM– Our analysis leads to the result that technology transfer does not generate positive impacts on Japan even with CDM.
– However, many firms and industries actually try to use CDM.
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