ESRI Collaboration Project on Environmental Issues€¦ · ESRI Collaboration Project on...

2005/5/12 ESRI Collaboration Project 1

Kyoto University Global Environment Forum

ESRI Collaboration Projecton Environmental Issues

Final Report @Tokyo3&4 March 2005

By Kyoto University



Win-win Strategies forChina and Japan in

Climate Change policyKazuhiro UETA: Kyoto Univ.Yoshihisa INADA: Konan Univ.Kiyoshi FUJIKAWA: Konan Univ.Akihisa MORI: Kyoto Univ.Sungin NA: Hiroshima-Shudo Univ.Tadashi HAYASHI: Takasaki City Univ. of Econ.Mitsuru Simoda: Tezukayama Univ.



ContentsCh1 IntroductionCh2 Site Location of CDM Projects: I-O AnalysisCh3 A Multi-Sectoral Econometric Model of ChinaCh4 An Option of Financing CDM Projects in ChinaCh5 Concluding Remarks



Our Concerns on Ch-Jp CDM

Win-win strategy for Ch & Jp

China: low priority in CDM high priority in SD

Japan:CDM is a crucial option for KP target



Basic Idea and ViewpointsEnvironment vs. Economy(FY2002-2004)Global vs. local (in environmental problems) (FY2002-2004)China, Japan and global economic impacts (FY2002-2003)Impacts on regional economy in China(FY2004)Coordination of CDM with domestic policy and financing tools (FY2002-2004)



1.Urban and rural development2.Economic and social development3.Mitigation of regional imbalance4.Local pollution control 5.Domestic economic development

How to Encourage Ch-Jp CDM

CDM should contribute to SD in ChinaSD Strategy in China



Ch2 Cite Location of CDM

Key conceptsAcquisition rate of value-added (ARVA)Spillover ratio of innovation (SRI)Evaluation criteriaEffects of construction phaseEffects of operating phaseNet environmental effects of CDM Per capita output by regions



Evaluation in terms of ARVA 1

North municipalities,Central coast, South coast Less than 70%

Northeast, North coast , Northwest70% and over

Central region, Southwest80% and over

RegionsOwn share

Case1; Total industry



Evaluation in terms of ARVA 2

78.2%Southwest60.8%Central coast

69.9%Northwest75.9%North coast

77.5%Central region56.5%North

municipalities

53.4%South coast73.2%Northeast

Own ShareRegionOwn ShareRegion

Case2; Manufacturing sector



Evaluation in terms of SRI 1

Northeast, North coast, Central coast, Central region

Less than 0.6

South coast, Southwestless than 0.7

North municipalities,0.6 and over

Northwest 0.7 and over

Region

Spillover rate in Manufacturing



Evaluation in terms of SRI 2

0.8559Elect., gas, & waterSouth Coast870.9184Elect., gas, & waterCentral region400.9411Elect., gas, & waterSouth west340.9461Elect., gas, & waterCentral Coast300.9492Elect., gas, & waterNorth East270.9537Elect., gas, & waterNorth West260.9600Elect., gas, & waterMunicipalities210.9645Elect., gas, & waterNorth Coast18

Spillover rate of Elect., gas, & water in 17*8



Per-capita Output:2000Per capita

output RMB Output

Billion RMBPopulation

Million

15,83219,984.41,262.3Total8,4412,024.4239.8South west9,7201,122.5115.5North west9,9523,497.8351.5Central

23,0672,975.7129.0South coast33,5444,625.4137.9Central coast18,0092,849.5158.2North coast39,528941.923.8Municipalities18,2761,947.3106.6Northeast



Simulation Analysis

Coal-fired power plants of 3,000MW Investment : 3,735 million RMB (2000) Crediting period : 2001-2010Improve of efficiency : 25%

Simulation analysis by using “Multi-regional Input-Output Table 2000”



Effects of Construction Phase

27.10.46 9,755.1 Southwest25.0 0.62 9,475.7 Northwest33.4 0.94 10,418.0 Central

9.8 0.30 6,297.7 South coast16.5 0.47 9,368.2 Central coast18.9 0.50 10,264.8North coast13.2 0.47 6,364.8 Municipalities14.6 0.6310,140.1 Northeast

SO2thousand ton

CO2Mt-c

OutputMillion RMB



Effects of Operating Phase

-122.2 -1.61 -15,956.3 Southwest-59.3 -1.35 -12,433.0 Northwest

-181.1 -4.88 -32,600.2 Central -177.5 -4.83 -48,587.6 South coast-158.1 -3.92 -42,953.1 Central coast

-89.0 -2.13 -24,728.1 North coast-96.3 -3.03 -20,344.2 Municipalities-69.3 -2.72 -22,969.5 Northeast

SO2thousand ton

CO2Mt-c

OutputMillion RMB



Net Effects

-95.1 -1.14 -6,201.2 Southwest-34.3 -0.73 -2,957.3 Northwest

-147.7 -3.94 -22,182.2 Central -167.7 -4.53 -42,289.9 South coast-141.6 -3.46 -33,584.9 Central coast

-70.0 -1.63 -14,463.3 North coast-83.2 -2.56 -13,979.4 Municipalities-54.7 -2.09 -12,829.4 Northeast

SO2thousand ton

CO2Mt-c

OutputMillion RMB



Effects of CO2 Reduction

-1.19 -0.42 Southwest-0.98 -0.37 Northwest-3.94 -0.94 Central -3.75 -1.08 South coast-3.13 -0.79 Central coast-1.80 -0.33 North coast-2.24 -0.79 Municipalities-2.00 -0.72 Northeast

IndirectDirect



Summary Table

B>D>E>A>C>F>G>HOutput of per capita E>F>D>H>B>C>A>GDecrease amount of SO2E>F>D>B>A>C>H>GDecrease amount of CO2

Net effects of CDMF>E>D>H>C>B>A>GDecrease amount of SO2F>E>D>C>B>A>H>GDecrease amount of CO2

Total effects of operating of CDMF>H>G>C>D>A>B>EIncrease amount of SO2F>A>G>C>D>B>H>EIncrease amount of CO2F>C>A>H>G>D>B>EIncrease amount of output

Total effects of construction of CDMG>E>B>H>F>C>A>DSpillover in manufacturing sectorH>F>C>A>G>D>B>EValue added division of labor



Rank of the site location in CDM

256Southwest734Northwest350Central 165South coast446Central coast639North coast545Municipalities833Northeast

RankTotal point



Ch3 A Multi-sectoral Econometric Model of China

Industrial Classification:15 industriesEnergy Sector includes (1)coal, (2)oil, (3)natural gas, and (4)electricityDynamic model using time-series dataSimulation results should be compared with those in the previous chapter



Baseline Forecast 2003-2020

Real GDP Growth2003-10: 6.87% 2010-20: 5.23%

Energy Growth2003-10: 5.10% 2010-20: 3.95%

Elasticity2003-10: 0.74 2010-20: 0.76



Comparison of Primary Energy Supply

178292

PrimaryEnergyMillionTon-Oil

Equivalent

TotalCoalOilN.GasOthers

Electricity100 million Kwh

GDP 100 million Yuan

Year201015171047289

51130

AverageGrowth(%)

03-10 10-20

Our ModelYear2010

AverageGrowth(%)

02-10 10-20

IEA Outlook 2004

25749

5.104.686.255.715.80

5.61

6.87

3.953.544.974.864.41

4.47

5.23 -

162290437559

286

26530

3.393.015.366.371.80

5.92

6.40

2.482.162.986.131.83

4.24

4.90



Scenario Analysis

Nationwide baseInvestment construction phase

9,000 MW coal thermal power plant Total investment: 11.203 billion RMB

Efficiency improvement by CDM projectPlant base : 25% pointsNation base: 0.21% points



Outline of the ModelFinal

DemandIOStructure

Production

Energy SectorConsumption

Environmental Burden

Value Added

Labor Demand

IOStructure

Production

Cost

Domestic Price

Productivity

Import

World Commodity Price

IOStructure

GDP

CO2, SO2

CDM



Industry Production Household Consumption

Electricity Demand,·Industry ·Household

Power Generation

Hydraulic PG

Thermal PGEnergy Conversion Demand

Demand for Fossil Fuels·Industry·Household

Production ofFossil Fuels

Macro-IO Sector

Demand for Fossil Fuels·Industry·Household

Production ofFossil Fuels

CO2

SO2

Emission Efficiency in CoalPower Generation

Outline of the Energy Sector



Net Impact of CDM #1

0.000.000.000.000.000.000.12

Dev. Rate(%)

0.0-2.0-2.0-3.0-3.01.0

124.0Deviation

GDP(100 Million Yuan)

2007

20132008

2006200520042003

Table 3-19 Effect of CDM projects on GDP



Net Impact of CDM #2

-0.07-0.07-0.07-0.07-0.070.01

Dev. Rate(%)

-1078-135

-99-93-87-80

8Deviation

CO2 Emission (10000 Ton-C)

-0.10-3.42007

-37.1Sum-0.11-4.72013

-0.10-3.22006-0.09-3.02005-0.09-2.720040.010.32003

Dev. Rate(%)DeviationSO2 Emission (10000 Ton)

Table 3-19 Effect of CDM projects on CO2 and SO2 Emission



Ch4 Issues on Financing CDM

Risk InsuranceKyoto Protocol riskGeneral project riskCountry / regulatory risk

Secure Financial PackageSelf-financeCorporate debt financeProject finance

Kyoto Protocol came into effect

PCF, CERUPT+JGRF



Domestic Financing~1998: Ministry of Electric Power

Government budget / subsidized loanState-owned banksSelf-finance, including “three simultaneous”

1998~ Corporatization and Asset SplitSelf-financeState-owned banks (Bad loans & low capacity) No bond finance



FDI and Foreign Financing (1)

Features: Management of high regulatory risks

Joint venture with local power bureauFavorable contract terms but little legal recourseIn case of contract breachRate of return regulation



FDI and Foreign Financing (2)

Foreign lenders perceive excessive credit risks among Chinese counterparts

Foreign investors can finance projects eitherby private loans at less favorable terms, orby export credits of investors’ country government



ODA Involvement (1)

IssueAdditionalityODA diversion

DAC Recommendation:CER be deducted from ODA



ODA Involvement (2)

Direct v.s. Indirect involvementIndirect involvement: Canada, IDA: through environmental/ electrification fundsDirect involvement: Danida, ADB: as a catalyst of financing CDM projectsco-benefit of reducing poverty and local pollution



ODA for China’s CDM Fund?

Experience of ODA for China’s Env FundWorld Bank supported the environmental fund to overcome credit-market constraints for local pollution controlLoan disbursement did not increaseNon-performing loans increased

Unsustainable fundmanagement



Direct ODA InvolvementJP Government wants to buy CERs by ODA

0

20000

40000

60000

80000

100000

2.5 5 7.5 10 12.5

Value bedeductedNet of ODADisbursement

US$ per ton ofCO2 equivalent

US$

Amount of ODA that is spentfor CER purchase increase

Far away from achievingMDGs and UN-0.7% target

(eg.)Zafarana wind power in Egypt



A Possible Option?

ODA involvement in projects that promote poverty alleviation and local environmental improvement

JGRF purchases CERs generated from the above ODA-financed projects

(eg.) rural electrification/fuel supply by methane recovery

Promotion of SD in China

financial additionality

Reduction of deforestationPoverty alleviationGHG mitigation



Conclusion of Ch 2

Net effects of CDM: Regional I-O analysis

Various criteria to promote SD in China

South coast, Southwest, and Central region are promising candidate for encouraging CDM.



Conclusion of Ch 3

Multi sectoral national modelThe effectiveness of CDM is also confirmed.9,000 MW coal power-plant as CDM⇒ 10.78 million ton-c CO2 reduction

371 thousand ton SO2 reductionConsistent result with Ch.2.



Conclusion of Ch 4ODA involvement as a catalyst of CDM

in the transitional period with serious in the transitional period with serious institutional constraintsinstitutional constraints

JGRF purchase of CERs of ODA-financed poverty alleviation projects

one high potential option, for it can promote SD in China and ensure financial additionality



FS of CDM

212497115781275CER $10

1812

789

747

NMunic

308415251191Co-benefit

1062486637CER $5

747747747Investment

CCNCNE

66842523672731CER $10

3217

1183

747Central

20727473653Co-benefit

3342121366CER $5

747747747InvestmentSWNWSC

Project Size: 600MW(2001-2010, Million RMB)



Remaining Issues

Japan’s environmental and economic benefits through China-Japan CDM should be analyzed.Development of private financing for CDM projects should be examined.

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