China’s climate mitigation challenges and tools: essays on rebalancing, coal-use efficiency and emissions trading

Abstract

The contribution of this thesis lies in its original application of Computable General Equilibrium (CGE) modelling to some of the most important climate change mitigation challenges China faces, and some of the tools it could use to overcome them. The original findings of the thesis are summarized below. Overall, they underline the need for China to implement new methods, carefully designed, to reduce emissions. Chapter 2 focuses on the challenge of China’s economic structure, and the tool of restructuring. A two-stage estimation process is implemented within CHINAGEM, a dynamic general equilibrium model of the Chinese economy, to study the potential contribution of successful economic rebalancing – from investment to consumption, and from industry to services – to reducing the country’s carbon dioxide emissions. The results show that economic rebalancing alone may lead to 17 per cent reduction in the emissions intensity of GDP between 2012 and 2030. This estimate is higher than existing partial equilibrium estimates in the literature, and points to the importance of economic rebalancing from an environmental perspective. Chapter 3 focuses on the challenge of China’s heavy level of coal dependency, and the tool of improving the efficiency of the use of coal in power generation. The analysis, again based on CHINAGEM, suggests that this will be a less important contributor to mitigation in the future than in the past. The pace and importance of improvements in coal-fired power generation efficiency is projected to halve mainly because, after the progress already made, China’s current coal-fired power generation efficiency is already close to the world’s best practice, but also because slower growth in electricity demand reduces the scope for expanding the generation fleet with new world-class plant. The chapter also shows that, going forward, switching to renewable energy and structural rebalancing will be more important for achieving China’s emissions targets than improving coal-fired power generation efficiency. However, fully achieving China’s 2020 emissions intensity reduction target will require a combination of all three. Chapter 4 focuses on the challenge of China’s enormous regional diversity, and the tool of emissions trading. This chapter uses a multi-provincial static CGE model of the Chinese economy, SinoTERM-CO2, to simulate the linking of two provinces through a single emissions trading scheme. The simulations show that the richer regions (typified by Guangdong) may benefit from linking but the poorer regions (typified by Hubei) may lose. This is because poorer provinces in China tend to be more emissions intensive and therefore likely to face a carbon price rise upon linking, the economy-wide costs of which may be only partially offset by trading, if indeed trading is permitted. The economic logic behind this is explained by improving on the stylized model suggested by Adams and Parmenter (2013). China has not yet decided whether provincial caps will be retained when a national emissions trading scheme is introduced. This analysis suggests that they should be retained, and made more generous for poorer regions in order to ensure that linking is both welfare enhancing and politically acceptable. Show more