Abatement Cost Curves for Japan, PRC, ROK and Mongolia

Mizuho Information & Research Institute Inc. Yuko Motoki and Kazuya Fujiwara 18 October 2011, Tokyo, Japan
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Objective and Scope

Objectives
This project aims to contribute to the study by providing greenhouse gas emissions projections and mitigation marginal abatement cost curves for China, Japan, Mongolia and South Korea.

Scope
Time Horizon
Base Year: 2008 Target Year: 2020, 2030

Target Gas
CO2, CH4, N2O, HFC, PFC, SF6

Target Sector
Energy enduse: Industry, Residential, Commercial, Transportation Energy transformation & supply: Power generation, Heat generation, Oil refinery, etc. Non-energy: Agriculture, Livestock, etc.

Methodology

AIM/Enduse[MAC] tool
Bottom-up modeling tool
Detail technology selection framework

Static analysis
Mitigation options under a certain carbon price are selected

What can be analyzed in AIM/Enduse[MAC] ?

Technological change Energy consumption GHG emissions/mitigation potential Cost of mitigation, etc.

AIM/Enduse[MAC] tool
Calculation Flow

Energy Service Demand Future Scenario Steel production Cement production Passenger transportation Freight transportation Residential energy service etc.

Technology Technology Selection Energy type Energy price Energy constrains Emission factors etc. Energy Database

Final Energy Demand

Technology cost Energy consumption Service supply Lifetime etc. Technology Database

AIM/Enduse[MAC] tool
Activity amounts (= Energy service demands)
Service demand in each sector or sub-sector is estimated by demand models in AIM activity. For this project, activity amounts are collected from various kinds of international and national projection, research papers and documents.
Industrial sector: Production, GDP, etc. Residential, Commercial sector: Number of household, Population, etc. Transportation sector: Traffic volume, GDP, etc. Others: Cultivated area, Number of livestock, etc.

AIM/Enduse[MAC] tool
Mitigation options (= Technology)
200 or more options, based on realistic and currently existing technologies in the mid-term, and some of future innovative technologies expected in 2020/2030 are taken into account. Effects of mitigation measures such as additional policies promoting modal shift, public-enlightment actions are not considered in the model. These effects are taken into account as changes of activity amounts exogenously.

Simulation Cases
Baseline case: set as a technology frozen case, i.e. when the future share and energy efficiency of standard technologies are fixed at the same level as in the base year. Countermeasure case: set as combination of following conditions.
Carbon price: 50, 100, 200 USD/tCO2 Payback period: Short case, Long case Others: the lock-in effect is analyzed

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Simulation Case
Discount rate setting under two payback period case
Sector Lifetime Discount rate High DR 10% 33% 33% 10% 33% 10% 10% Low DR 5% 5% 5% 5% 5% 5% 5% Payback period Short Payback Long Payback Period Period 9 yrs. 3 yrs. 3 yrs. 9 yrs. 3 yrs. 9 yrs. 9 yrs. 15 yrs. 12 yrs. 7-10 yrs. 15 yrs. 6- 9 yrs. 12 yrs. 15yrs.

Steel, Cement Industrial Others Residential & Commercial Appliance Building Insulation Vehicle
Transportation

30 30 10-15 30 8-12 20 30

Train, Ship, Aircraft

Power plant 11

Results

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Japan Service Demand Setting

Base year Sector Industry Iron & Steel Production Cement Others Residential Commercial Transportation Passenger Freight Agriculture Livestock Crops 13 Livestock Cultivation Area 1000 heads 1000 ha 4,420 4,270 4,280 4,950 4,280 4,950 Traffic Volume Change in Traffic Volume Billion p-kms 2008 = 100 1,292 100 1,307 114 1,304 114 Production Industrial Production Index No. of Households Floor Space Million ton Million ton 2008 = 100 Million HHs Million m2 106 66 100 52 1,817 120 67 100 54 1,932 120 66 101 52 1,920 Indicator Unit 2008 Target year 2020 2030

Japan GHG Emission/Mitigation Potential

1,500 1,000 500 0
1,291 1,439 1,245 1,240 1,146 194 198 293 1,416 1,132 1,062 284 353 916 499

Base

RF HDR HDR HDR 50 100 200

RF HDR HDR HDR 50 100 200

2008

2020 2020 HDR HDR HDR 50 100 200 0 100 200 300 400 500 600

2030 2030 HDR HDR HDR 50 100 200

Ruduction vs RF Non energy Others Energy Transportation Commercial Residential Industrial

Non energy Others Energy Transportation Commercial Residential Industrial

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Japan Primary Energy Consumption

1,200 1,000 800 600 400 200 0
1,007 1,053 1,076 1,076 1,015 1,034 1,049 1,049 1,098

Base

RF

HDR HDR HDR 50 100 200 2020

RF

HDR HDR HDR 50 100 200 2030

2008

Others Hydro Biomass Nuclear Gas Oil Coal

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Japan Abatement Cost Curve

Abatement Cost (US$/tCO2)
100 80 60 40 20
Short Payback Period (high discount rate)
Energy Agriculture Industrial Residential/Commercial Trasnport Others

-20 -40
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Reduction (MtCO2)

40

80

120

160

200

Japan Abatement Cost Curve

Abatement Cost (US$/tCO2)
100 80 60 40 20
Short Payback Period (high discount rate)

0 -20 -40
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80

160

240

320

400

Reduction (MtCO2)
Long Payback Period (Low discount rate)

Korea Service Demand Setting

Base year Sector Industry Iron & Steel Production Cement Others Residential Commercial Transportation Passenger Freight Agriculture Livestock Crops 18 Number of Livestock Cultivation Area 1000 heads 1000 ha 614,992 1,210 593,444 1,248 595,238 1,267 Change in Traffic Volume Change in Traffic Volume 2008 = 100 2008 = 100 100 100 119 249 134 373 Production Change in GDP Population Change in GDP Million tons Million tons 2008 = 100 2008 = 100 2008 = 100 56 53 100 48 100 74 70 131 50 131 87 83 155 50 155 Indicator Unit 2008 Target year 2020 2030

Korea GHG Emission/Mitigation Potential

1,000 800 600 400 200 0
908 743 546 617 126 607 136 581 162 681 227 670 238 651 257

Base

RF HDR HDR HDR 50 100 200 2020 2020 HDR HDR HDR 50 100 200 0 50 100 150 200 250 300

RF HDR HDR HDR 50 100 200 2030 2030 HDR HDR HDR 50 100 200

2008

Ruduction vs RF Non energy Others Energy Transportation Commercial Residential Industrial

Non energy Others Energy Transportation Commercial Residential Industrial

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Korea Primary Energy Consumption

800 600 400 200 0
547 430 545 555 555 628 608 633 633

Base

RF

HDR HDR HDR 50 100 200 2020

RF

HDR HDR HDR 50 100 200 2030

2008

Others Hydro Biomass Nuclear Gas Oil Coal

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Korea Abatement Cost Curve

Abatement Cost (US$/tCO2)
100 80 60 40 20
Short Payback Period (high discount rate)
Energy Agriculture Industrial Residential/Commercial Trasnport Others

-20 -40
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Reduction (MtCO2)

30

60

90

120

150

Korea Abatement Cost Curve

Abatement Cost (US$/tCO2)
100 80 60 40 20
Short Payback Period (high discount rate)

0 -20 -40
22

40

80

120

160

200

Reduction (MtCO2)
Long Payback Period (Low discount rate)

China Service Demand Setting

Base year Sector Industry Iron & Steel Production Cement Others Residential Commercial Transportation Passenger Freight Agriculture Livestock Crops 23 Change in Primary Industry GDP Change in Primary Industry GDP 2008 = 100 2008 = 100 100 100 122 122 138 138 Change in Traffic volume Change in Traffic volume 2008 = 100 2008 = 100 100 100 194 192 312 290 Production Million tons Million tons 406 1,168 100 1,335 610 1,600 228 1,396 570 1,600 405 1,402 Indicator Unit 2008 Target year 2020 2030

Change in Secondary Industry 2008 = 100 GDP Population AIM service growth rate Million ps 2008 = 100

China GHG Emission/Mitigation Potential

20,000 15,000 10,000 5,000 0
7,880 13,851 11,331 10,534 10,381 2,520 3,317 3,470

Work in progress
RF HDR HDR HDR 50 100 200 2030
2030 HDR HDR HDR 50 100 200

Base

RF HDR HDR HDR 50 100 200 2020

2020 HDR HDR HDR 50 100 200 0 1,000 2,000 3,000 4,000

2008

Ruduction vs RF Non energy Others Energy Transportation Commercial Residential Industrial

Non energy Others Energy Transportation Commercial Residential Industrial

Work in progress

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China Primary Energy Consumption

8,000 6,000 4,000 2,000 0
6,917 3,554 6,950 6,947 6,907

Work in progress
RF HDR HDR HDR 50 100 200 2020 RF HDR HDR HDR 50 100 200 2030

Base

2008

Others Hydro Biomass Nuclear Gas Oil Coal

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China Abatement Cost Curve

Abatement Cost (US$/tCO2)
100 80 60 40 20

Short Payback Period (high discount rate)

Energy Agriculture Industrial Residential/Commercial Trasnport Others

-20 -40
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Reduction (MtCO2)

700

1,400

2,100

2,800

3,500

China Abatement Cost Curve

Abatement Cost (US$/tCO2)
100 80 60 40 20

Short Payback Period (high discount rate)

0 -20 -40
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700

1,400

2,100

2,800

3,500

Reduction (MtCO2) Long Payback Period (Low discount rate)

Mongolia Service Demand Setting

Base year Sector Industry Iron & Steel Production Cement Others Residential Commercial Transportation Passenger Freight Agriculture Livestock Crops 28 Number of Livestock Cultivation Area 1000 heads 1000 ha 43,774 178 36,865 181 36,865 182 Traffic Volume Traffic Volume Million p-kms Million t-kms 3,607 9,051 6,800 23,010 8,700 46,515 Production 1000 tons 1000 tons 157 169 100 100 100 2,100 1,250 166 112 119 2,100 1,250 240 125 133 Indicator Unit 2008 Target year 2020 2030

Change in Secondary Industry 2008 = 100 GDP Change in No. of Household 2008 = 100 Change in No. of Employee 2008 = 100

Mongolia GHG Emission/Mitigation Potential

40 30 20 10 0
32 19 24 8 22 10 21 11 37 21 16 20 17 20 18

Base

RF

HDR HDR HDR 50 100 200 2020 2020 HDR HDR HDR 50 100 200

RF

HDR HDR HDR 50 100 200 2030 2030 HDR HDR HDR 50 100 200

2008

Ruduction vs RF Non energy Others Energy Transportation Commercial Residential Industrial

Non energy Others Energy Transportation Commercial Residential Industrial

0 5 10 15 20
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Mongolia Primary Energy Consumption

20 15 10 5 0
17 13 8 11 11 11 14 14 14

Base

RF

HDR HDR HDR 50 100 200 2020

RF

HDR HDR HDR 50 100 200 2030

2008

Others Hydro Biomass Nuclear Gas Oil Coal

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Mongolia Abatement Cost Curve

Abatement Cost (US$/tCO2)
100 80 60 40 20

Short Payback Period (high discount rate)

Energy Agriculture Industrial Residential/Commercial Trasnport Others

-20 -40
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Reduction (MtCO2)

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Mongolia Primary Energy Consumption

Abatement Cost (US$/tCO2)
100 80 60 40 20
Short Payback Period (high discount rate)

0 -20 -40
32

10

Reduction (MtCO2)
Long Payback Period (Low discount rate)

Policy Implication

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Study Points
(1) Carbon Price (2) Payback Period (3) Energy Consumption Structure (4) Lock-in Effect Analysis

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(1) Carbon Price

Technologies with very HIGH initial cost : Support for R&D, commercialization, etc.

100 $/tCO2
Technologies with MIDDLE initial cost : extend techs competitiveness by carbon pricing

Reduction
Technologies with NEGATIVE initial cost : Regulation such as building code, efficiency standard :Visualization of advantage of replacement
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(1) Carbon Price

Japan/Korea High
100 $/tCO2
[ENE] Biomass Power Plants [RSD/COM] Insulation [RSD/COM] Eff. Equipments [TRT] Bio-fuel [IND] Eff. Boiler, Machinery, [ENE] Eff. Gas Power Plants [ENE] Wind Power [ENE] Solar PV

China/Mongolia
[ENE] Wind Power [ENE] Solar PV [RSD/COM] Insulation [RSD/COM] Eff. Equipments

Middle

[TRT] Bio-fuel [IND] Eff. Boiler, Machinery,

Low
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[TRT] Eff. Trucks [TRT] Eff. Passenger Vehicles [RSD/COM] Eff. Lamp (LED/CFL) [IND] Eff. Boiler, Machinery,

[TRT] Eff. Trucks [TRT] Eff. Passenger Vehicles [RSD/COM] Eff. Lamp (LED/CFL) [IND] Eff. Boiler, Machinery,

(2) Payback Period

Abatement Cost (US$/tCO2)
100 80 60 40 20
Short Payback Period (high discount rate)

0 -20 -40
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80

160

240

320

400

Reduction (MtCO2)
Long Payback Period (Low discount rate)

(2) Payback Period

Abatement Cost (US$/tCO2)
100 80 60 40 20
Short Payback Period (high discount rate)
Energy Agriculture Industrial Residential/Commercial Trasnport Others

To make reduction larger, Policy for extending payback period are needed.

0 -20 -40
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80

160

240

320

400

Reduction (MtCO2)
Long Payback Period (Low discount rate)

(2) Payback Period

Abatement Cost (US$/tCO2)
100 80 60 40 20
Long Payback Period (Low discount rate) Short Payback Period (high discount rate)

0 -20 -40
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700

1,400

2,100

2,800

3,500

Reduction (MtCO2)

(2) Payback Period

Abatement Cost (US$/tCO2)
100 80 60 40 20
Short Payback Period (high discount rate)
Energy Agriculture Industrial Residential/Commercial Trasnport Others

Long Payback Period (Low discount rate)

0 -20 -40
40

700

1,400

2,100

2,800

3,500

Reduction (MtCO2)
Policy for extending payback period are not crucial in China.

(3) Energy Consumption Structure

100% 80% 60% 40% 20% 0%
18% 18% 23% 6% 23% 20% 23% 21%

68%

68%

60%

Others
46% 45%

Gas Oil Coal

Base

RF

HDR HDR HDR 50 100 200 2020

3,200 722 207 1,911 3,185 722 631 1,472 3,184 720 678

5,000 4,000 3,000 2,000 1,000 0

2008
1,987 354

3,685 649

2,503 1,345

Others
1,427

Gas

Base

RF

HDR HDR HDR 50 100 200 2020

Oil Coal

2008
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(4) Lock-in Effect

ca. 10 % mitigation loss

5,000 4,000
5,268

322

417

416

3,000
2,807

4,317

4,639

4,189

4,605

4,182

4,598

Reduction Emission

2,000
Base RF Optimal Lock-in Optimal Lock-in Optimal Lock-in HDR 50 2008 HDR 100 2020 HDR 200

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Conclusion

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Conclusion
Emission Projection, MAC curve
Emission in 2020/2030 Mitigation Potential in 2020/2030 MAC curve

Policy Implication
Summarize mitigation options and policies which are needed in three categories classified according to abatement cost. Policy for extending payback period is crucial for Japan, but not so important for other regions. Countermeasures for global warming can realize stable energy consumption structure for China. Lock-in effect will lead to a decrease in the reduction potential.

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Thank you for your attention

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