Low Carbon Growth in China – Review of Watson & Wang

31Jul09

An excellent study, by Dr. Tao Wang and Dr. Jim Watson of the Tyndall Research Centre, looks at the development paths necessary to substantially reduce China’s greenhouse gas emissions over the long-term. The study is a culmination of three years of research and it is probably the most thoughtful and comprehensive study of its kind to date. However, as the authors themselves remark, it is one thing to model alternative low carbon development paths and quite another to demonstrate their viability. In this piece I look at the results of this study and consider whether Watson and Wang’s development paths are achievable in practice.


Watson & Wang Explore Four Low Carbon Development Scenarios

The study explores four scenarios, whereby China might reduce its greenhouse gas emissions over the long-term. For the purpose of this study, China’s target emissions are set at between about 1.7Gt-CO2 and 4.4Gt-CO2 by 2050; these targets representing emissions caps that are consistent with different international burden sharing arrangements and equivalent to per capita emissions of between 1.15 and 2.96t-CO2.

Low Carbon Development ScenariosThe Low Carbon Development Scenarios Presented by Watson & Wang

The Results are Insightful: Difficult, but Achievable

The results of the study are insightful. According to Watson and Wang, it is possible to achieve the ambitious targets that the study cites; however, to do so will require that China’s greenhouse gas emissions peak between 2020 and 2030, no later. The most critical factor is the nature and speed of change in China’s economic and industrial structure. In the study, Watson and Wang envisage that China will undergo a relatively rapid transition to a service and technology economy. This, they say, will be ‘key’ to China’s low carbon development. Of the four scenarios that are presented in the study, all require a massive expansion in renewable energy capacity. The scenarios posit that 40 percent of China’s total energy demand will be generated from renewable sources by 2050; representing more than 60 percent of the country’s power generation. Under these scenarios, renewables would surpass fossil fuels as the largest energy source in China. Three of the four scenarios also require massive investment in carbon capture and storage (CCS). According to the study, China would have to begin deploying CCS technology no later than 2030 and would have to deploy this technology on 80 to 90 percent of its fossil fuel-fired portfolio by 2050 – between 600 and 1200GW depending upon the scenario – if the country is to meet its targets. All four scenarios also envisage a role for nuclear power, but this role is not as important as that of renewables or of CCS. Under the most optimistic nuclear scenario, the study envisages no more than 12 percent of China’s total energy demand coming from nuclear, or about 30 percent of its power requirements (about 400GW). The study also highlights the importance of significant improvements in energy efficiency, the electrification of the transport sector and complimentary social and economic policies. The study does not address the potential for biological sequestration.

Primary energy structure 2050Primary Energy Structure in 2050, under Four Low Carbon Development Sceenarios

Let’s take three of the key points in turn – the transformation to a service and technology economy; the massive deployment of new renewable energy capacity; and the large-scale roll-out of CCS technology– and consider how practical these might be.

Transformation to a Service & Technology Economy

Watson and Wang argue that for China to successfully meet its emission targets the country will need to rapidly transform from a predominantly agricultural and industrial economy to a service and high technology economy. Indeed they say that this is ‘key’ to China achieving its targets. Thus, according to their scenarios, by 2050 more than 80 percent of China’s Gross Value Added (GVA, which is an equivalent measure of GDP) will be generated from the service and technology sector. Over the same period, the contribution from agriculture will fall from 15 percent to 5 percent, and the contribution from industry (excluding technology) will fall from 30 percent to less than 15 percent. The Chinese economy would still depend upon a greater contribution from agriculture and industry than is the case presently in most European countries.

This scale of transformation has occurred before. In Japan for example, the agricultural sector’s contribution to national economic output fell from 35 percent in 1911 to 8 percent in 1969. But it is one thing to talk of such a transformation in a country with a population of 100 million people, as Japan had in 1969, and quite another to talk of such a transformation in a country as populous as China. No country with a population of over one billion people has ever experienced such a transformation. Perhaps the closest example would be the former Soviet Union, and that does not inspire confidence. At the very least, the economic, social and political ramifications of such a transformation will be staggering; more likely it will be revolutionary and few revolutions are without victims and unintended consequences/orderly.

If we accept that such a transformation is possible, it simply begs the question: if China will no longer be producing ‘widgets’ for the world, then who will be? Who will be feeding, clothing and supplying China in 2050? The transformation that Watson and Wang envisage may reduce China’s emissions, but it will simply move the problem elsewhere; it will not solve it. It seems to me that the key to low carbon development is not a transformation to a service and technology economy reliant upon imports of emissions intensive goods, but rather a transformation to an economy that balances the agricultural, industrial, service and technology sectors – but that is a subject for another post.

Massive Deployment of Renewable Energy Sources & Technologies

Watson and Wang argue that in order to meet the ambitious emission targets, China will need to rapidly increase renewable energy capacity, from current levels of 76GW to between 1,200 and 2,000GW depending  upon the scenario. This is an extremely ambitious programme of expansion; twice the size of the development required to meet the EC’s Renewable Energy Directive and four times the size of the US programme presented in the American Economic Recovery Act and the Waxman-Markey bill. It would require a total investment of US$85 billion per year over 40 years. New wind power capacity would need to be added at a rate of 16GW per year and new solar capacity would need to be added at a rate of about 20GW per year – these figures are five times higher than the current installation of new wind power and over one hundred times higher than the current rate of installation of new solar. Biomass would also play an important role, though as the authors note, first-generation biofuels would be unsustainable on such a scale. Thus, China would need to rely upon second- and most probably third-generation biofuels for as much as 15 percent of its total primary energy demand under some scenarios.

The scale of renewable energy deployment that Watson and Wang envisage is ambitious, but it is not outside the realms of possibility. The approximately US$85 billion per year of investment that would be required is in the order of 1 to 2 percent of China’s current GDP, which is large, but not excessive given the magnitude of the problem that renewable would address. Chinese government policy has also highlighted renewable and particularly wind and solar technologies as nationally important economic sectors, and recent developments in China’s nascent renewable industry also augur well. In 2008 China led the world in new installed wind capacity, installing 6GW of new wind power and doubling its existing capacity. China also leads the world in solar thermal water heaters and Chinese companies are amongst the world’s largest manufacturers of renewable energy technologies and components. There are obvious opportunities for China to develop a dominant position in the renewable sector on the back of a massive domestic market.

Nevertheless, we cannot look at China in isolation. The combined renewable energy programmes of Europe, the US and China would require the development of more than 3.5TW of new renewable capacity between now and 2050: this is equal to four-fiths of the world’s current installed electricity capacity. The renewable energy sector is already stretched meeting current demands. There is pressure on land and resources, skilled renewable engineers are in short supply, capital is not as easy to come by as it once was, infrastructure is lagging behind, and planning approvals and permits are taking longer to come through. To deliver such an ambitious programme will require a lot more than just technology; it will require engineers, infrastructure, capital and institutions.

Large-scale Roll-out of CCS Technology

Watson and Wang also envisage an important role for CCS. Indeed there is a lot riding on CCS; it is important in three out of the four scenarios. Indeed, without CCS it is difficult to see how China would achieve the targets cited in the study. According to Watson and Wang, China would need between 600 and 1,200GW of installed CCS by 2050 – covering 80 to 90 percent of all fossil-fuelled power stations. By my reckoning, this would equate to about 7Gt-CO2 each year that would need to be sequestered in a suitable geological structure. Given that China has an estimated capacity to store over 3,000Gt-CO2 in oil, gas, coal and deep saline structures, this figure would appear to be achievable. Nevertheless, the programme is again extremely ambitious. For example, it is several times greater than the 160GW of CCS that the EPA and EIA forecast will be needed in the US to meet the emission reduction targets under the Waxman-Markey bill.

Despite the fact that CO2 storage is used in the oil and gas industry on a small-scale, CCS technology for use in alongside a coal-fired power station is not yet technically or commercially viable. There is no commercially operating coal-fired power plant anywhere in the world that has installed CCS technology. The development of CCS will therefore require a multi-national research effort. In China, domestic research into CCS is limited at present, and plans to have a pilot CCS plant operational by 2012 are still at a very early stage. Nevertheless, a number of joint Sino-European and Sino-American research programmes have recently been launched and much hope has been placed in these initiatives. In Europe, the EC has set an objective of mounting 10 to 12 demonstration-scale CCS projects by 2015, with a view to having the technology commercialised by 2020. There is more than €7 billion of potential funding earmarked for such projects as part of the European Economic Recovery Plan and the New Entrant Reserve provisions under the third phase of the EU ETS. If these objectives are met, a roll-out of the technology in China starting in 2030 might be considered feasible. But it’s a big if. The EU does not have an impressive track record in developing and commercialising large-scale energy technologies. Consider the European Pressurised Reactor (EPR) Programme. The new reactor has been under development for more than twenty years. The first commercial-scale version is only now being built in Finland and it is already €1.5 billion over budget and 3 years behind schedule; the technology is not even licenced for deployment in the United States and the United Kingdom. The United State’s track record in developing large-scale energy technologies may be marginally better, but development of such type and scale take decades, not years.

Aside from the many technical and economic elements which must be resolved if CCS is to be considered a workable solution, there are also several legal and financial issues that will need to be addressed if CCS is to be adopted by commercial entities. CCS requires the storage of CO2 in a geological structure in perpetuity. Who will take on the legal and financial liabilities of such storage? These are not secondary issues; no commercial enterprise that I know of would be willing to commit to a commercial-scale project without clear limits on their financial and legal liabilities; it would be tantamount to signing a blank cheque. The expense of building a new coal-fired CCS power plant exceeds most companies’ balance sheets, so if utilities cannot find a way to transfer these project risks to other parties, then credit-rating agencies will cut their ratings, undermining the company’s market value and adding even further to their costs. Here too however, there are a number of positive initiatives underway. In Europe, the EC has begun developing a Directive for CCS projects that will articulate the legal and financial framework for such projects. Likewise, under the CCS provisions of the Waxman-Markey bill in the US, clear guidelines are provided for the assignment of financial and legal responsibility for the stored CO2.

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