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The Pricing of Carbon Emissions from the Business Perspective in Northeast Asia
May 27, 2013Presenter: Xianbing LIU
Senior Policy ResearcherKansai Research Centre/IGES, Japan
May 27, 2013 Shanghai Forum 2013 2
Background: The Project on MBIs (Market-based Instruments)
Basic thinking: a) Advantages of MBIs; b) Importance of clear and stable policy signals; c) Successful MBIs
practices in Europe; d) Laggard policy progress in Asia; e) Core competence of IGES; f) Research field of KRC
Overall objective:
To support the related policy
discussions from the business
viewpoints in this region
C2: Current status of firm’ s energy saving practices and analyses of the determinants for identifying policy gaps and directions
C4: Firm’ s awareness and acceptability to carbon emission related tax tools
C6: Development and evaluation of firm’ s preferable policy alternatives with individual tool or combined approaches
Lessons learned Lessons learned
Synthesis summary and integrative policy recommendations
Gap analysis
Literature review and expert hearing
C1: Overview of policies related to industrial energy efficiency and carbon mitigation in the three target countries
Web accessible data
Onsite interviews and hearings
Questionnaire survey
C5: Firm’ s awareness and acceptability to carbon emission trading scheme
Questionnaire surveyQuestionnaire survey
Gap analysis
FY2010
FY2011
FY2012
C3: Analysis of the effectiveness of financial subsidies to firm’ s efforts in carbon mitigation, e.g., subsidies to energy saving investments.
Onsite hearings
Geographical focus: Japan,
China and the Republic of Korea
Policy focus: Financial
subsidies, carbon taxes and GHG
emissions trading schemes
Discussed inthis presentation
May 27, 2013 Shanghai Forum 2013 3
Climate Policies in the Three Countries
Japan China Korea
Target To reduce its 1990 emissions by 6% from 2008-2012 To reduce emissions by 25% from 1990 levels by 2020 (based on the premise with the participation of all major emitting countries) To reduce emissions by 80% from 1990 levels by 2050 Improving energy efficiency at least by 30% by 2030
To reduce national energy intensity by 20% by 2010 and to increase renewable energy in the national mix to 15% by 2020 To cut CO2 emissions per unit of GDP by 40-45% by 2020 compared with 2005 levels※These are voluntary targets on its own country conditions
To reduce by 30% by 2020 compared with BAU levels (It is said this equals to a reduction of 4% compared with 2005 level)※It is a voluntary target on its own country conditions
Counter-measures(mainly for the industry)
Keidanren Voluntary Action Plan on Environment Energy saving-related law GHG emissions Calculation, Reporting and Disclosure System Energy-related taxes Carbon offset scheme, carbon financing scheme (voluntary) ETS is under trial, carbon tax introduced since Oct. 1, 2012
(Energy supply side) All new coal-fired power plants to be state-of-the-art commercially available with better technologies (Energy demand side) Imposes a significant portion of overall 20% energy intensity improvement by directly targeting around 1,000 largest state-owned enterprises Resource-related taxes Pilot of GHG ETS, discussions of ETR
Adoption of a legal and regulatory framework, GHG and Energy Target Management System, carbon emission trading, the creation of a national GHG inventory reporting system by 2010 Energy-related taxes Start GHG ETS since 2015, Discussions in carbon tax
May 27, 2013 Shanghai Forum 2013 4
Objectives of the Surveys in FY2011
1) Monitor the company’s awareness and overall acceptability of energy
saving and climate policies, particularly the economic instruments;
2) Estimate the company’s affordable carbon prices using the model of
willingness-to-pay (WTP) and MBDC format;
3) Understand the barriers for the company’s energy saving investments
and responses to the emerging carbon pricing policies.
The surveys in China and Korea were conducted in FY2011. The surveyin Japan was arranged in FY2012 as a complementary one under the MBIs project of KRC/IGES in the 5th phase (FY2010-2012).
May 27, 2013 Shanghai Forum 2013 5
MBDC Card for Model Estimations & Survey Items
Question: The energy prices would be increased due to the introduction and implementation of market-based climate polices, such as imposing energy taxes or carbon taxes in the sector of energy production and transition. Accordingly, the industrial company’s energy consumption cost would be increased. We would like to understand the viewpoint of your company to the energy cost increases due to the climate policy interventions. Please circle one letter to each increase ratio to indicate the affordability degree of your company.
Your company’s choice Energy
cost
increase
ratio (%)
Very low;
Easily
acceptable
Not high;
Acceptable
Moderate;
Barely
acceptable
High;
Rejection
Very high;
Strong
rejection
0.1 ○A B C D E
0.3 ○A B C D E
0.5 A ○B C D E
0.7 A ○B C D E
1.0 A ○B C D E
3.0 A B ○C D E
5.0 A B ○C D E
7.0 A B ○C D E
10.0 A B ○C D E
15.0 A B C ○D E
20.0 A B C ○D E
30.0 A B C ○D E
50.0 A B C D ○E
70.0 A B C D ○E
100.0 A B C D ○E
15 increaseoptions inEnergycosts
Fivelevels of acceptance
Main Items: Basic information of the ◈
firms;
Firm’s energy use status;◈ MBDC format on the left;◈ Factors affecting firm’s cost ◈
affordability and policy
awareness;
Awareness of policies and ◈energy saving technologies;
Factors affecting firm’s ◈decisions in energy saving
investments;
Firm’s reactions to possible ◈policy interventions;
Pay back time for energy ◈saving investments;
Etc.◈
May 27, 2013 Shanghai Forum 2013 6
Estimation Models for Individual Companies
iiiV
)(1)Pr( ijijiij rFrVP
iijij rFP )(1
ii
iijij
rP
1
Affordable energy cost increase ratio, with a CDF F(r)
Mean value of Vi
Possibility for accept an increase threshold, rij
An error term with a mean of zero
Assumed a normal accumulative distribution with a mean of μi and a standard variance of σi
ii 0
A vector of determinant factors
May 27, 2013 Shanghai Forum 2013 7
The Survey Areas in China
Shandong Province: 57
Shanxi Province: 79
34 samples from other areas
May 27, 2013 Shanghai Forum 2013 8
Distribution of Respondents in China
Number of samplesNumber in
total(Percentage)Small Medium Large Unclear
Iron & steel 14 27 10 1 52 (30.6)
Cement 24 7 1 1 33 (19.4)
Chemical 12 21 4 1 38 (22.4)
Paper 1 8 6 0 15 (8.8)
Others 19 12 1 0 32 (18.8)
Number in total (Percentage)
70 (41.2)75
(44.1)22
(12.9)3 (1.8) 170 (100.0)
3 energy-intensivesectors mainly targeted
in this survey
May 27, 2013 Shanghai Forum 2013 9
Company’scharacteristics
Number of samplesNumber in total
(%)Small Medium
Large Medium
Large
Sector
Cement 2 6 2 1 11 (17.7)
Steel - 8 5 3 16 (25.8)
Petro-chemical - 13 13 9 35 (56.5)
Number in total (%) 2 (3.2) 27 (43.5) 20 (32.2) 13 (21.0) 62 (100.0)
TMSTMS 2 26 17 13 58 (93.5)
Non-TMS - 1 3 - 4 (6.5)
Number in total (%) 2 (3.2) 27 (43.5) 20 (32.2) 13 (21.0) 62 (100.0)
Distribution of Samples in Korea
May 27, 2013 Shanghai Forum 2013 10
The Survey Area in Japan
► Posted to all the 465 manufacturing companies with annual energy use over 1,500kl TOE;► 117 are members of Hyogo Environmental Protection Association;► 348 are posted with the letter of Hyogo government;► 72 association members responded;► 158 collected with the letter of Hyogo government;► A total of 230 valid samples gathered.
May 27, 2013 Shanghai Forum 2013 11
Distribution of Respondents in Hyogo, Japan
Sector
Number of samplesNumber in
total(Percentage)Small Medium Large
Food processing 0 32 10 42 (18.3)
Chemical 0 24 6 30 (13.0)
Iron & steel 0 12 8 20 (8.7)
Electronics 0 12 13 25 (10.9)
Others 4 84 25 113 (49.1)
Number in total (Percentage)
4(1.7)
164 (71.3)
62(27.0)
230(100.0)
May 27, 2013 Shanghai Forum 2013 12
Company’s Energy Use Structure in China
0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0
In overall (N=104)
Steel (N=29)
Cement (N=19)
Chemical (N=26)
Percentage
Electricity Coal Oil Natural gas Steam Others
62%
62%
32%
May 27, 2013 Shanghai Forum 2013 13
Energy Cost Ratios in Total Sales of Chinese Samples
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
In overall (N=156) Steel (N=47) Cement (N=30) Chemical (N=35)
Sector
Per
cen
tage
Below 5% 5-10% 10-20% 20-50% Above 50%
For large and medium firms: 20-30% of energy cost in production cost.
May 27, 2013 Shanghai Forum 2013 14
Energy Use Structure of the Samples in Japan
0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0
All samples(N=218)
Food processiong(N=42)
Chemical(N=30)
Iron & steel(N=16)
Electronics(N=25)
Percentage
Electricity Coal Oil Natural gas Heavy oil City gas
Heat LPG Gasoline Diesel Kerosene Cokes
49.7% 26%
73.9% 11.3%
33.8%43.2%
May 27, 2013 Shanghai Forum 2013 15
Affordability of the Samples in China (N=111)
02
04
06
08
01
00
Pe
rce
nta
ge o
f th
e sa
mpl
es
0 20 40 60 80 100Energy cost increase ratio (%)
Observed data of easily acceptable & acceptable Observed data of barely acceptable and over
Regression curve of easily acceptable & acceptable Regression curve of barely acceptable and over
50% of the samples corresponds to the ratios of 2.8% and 9.3% on the two curves.
Two curves were simulated: One is the sum of easily acceptable + acceptable. The other is the sum of easily acceptable + acceptable + barely acceptable.
The real affordable ratio shall be between these two curves.
May 27, 2013 Shanghai Forum 2013 16
Affordability of Steel Companies in China (N=34)
02
04
06
08
01
00
Pe
rce
nta
ge o
f th
e sa
mpl
es
0 20 40 60 80 100Energy cost increase ratio (%)
Observed data of easily acceptable & acceptable Observed data of barely acceptable and over
Regression curve of easily acceptable & acceptable Regression curve of barely acceptable and over
50% of the samples corresponds to the ratios of 2.6% and 9.3% on the two curves.
May 27, 2013 Shanghai Forum 2013 17
Affordability of All the Samples in Japan (N=153)
02
04
06
08
01
00
Pe
rce
nta
ge o
f th
e sa
mpl
es
0 2 4 6 8 10Energy cost increase ratio (%)
Observed data of easily acceptable and acceptable Observed data of barely acceptable and over
Regression curve of easily acceptable and acceptable Regression curve of barely acceptable and over
50% of the samples corresponds to the ratios of 0.6% and 3.2% on the two curves.
May 27, 2013 Shanghai Forum 2013 18
Affordability of All the Samples in Korea (N=36)
02
04
06
08
01
00
Pe
rce
nta
ge o
f th
e sa
mpl
es
0 10 20 30 40 50Energy cost increase ratio (%)
Regression curve of easily acceptable & acceptable Regression curve of barely acceptable and over
Observed data of easily acceptable & acceptable Observed data of barely acceptable and over
The R squared for regressions of the two sets of data is 0.9565 and 0.9721.
Affordability on the part of 50% of the samples corresponds to energy cost increase ratios of 0.6% and 2.3%.
May 27, 2013 Shanghai Forum 2013 19
Distribution of Cost Affordability in ChinaVariable Percentile Centile (%) 95% Conf. Interval (%)
Panel A: All the samples (N=111)
Mean of μ: 8.8%
The std. dev. of μ: 9.0%
10 0.72 0.54 1.94
30 3.95 2.57 5.08
50 6.59 5.20 6.97
70 10.23 7.08 12.86
90 18.50 13.83 28.91
Panel B: Samples from iron & steel sector (N=34)
Mean of μ: 8.8%
The std. dev. of μ: 9.9%
10 0.61 0.32 1.73*
30 3.37 0.99 6.72
50 6.74 4.36 10.35
70 11.20 6.75 16.03
90 17.94 13.14 52.6*
Panel C: Samples from cement sector (N=17)
Mean of μ: 7.7%
The std. dev. of μ: 4.4%
10 2.19 1.94 5.08*
30 5.17 2.25 6.81
50 6.75 5.08 10.15
70 9.79 6.47 13.12
90 14.31 10.15 19.05*
Panel D: Samples from chemical sector (N=27)
Mean of μ: 9.9%
The std. dev. of μ: 11.2%
10 0.84 0.50 3.19*
30 3.65 1.58 5.20
50 5.20 3.61 9.13
70 8.31 5.20 25.71
90 29.58 11.13 44.08*
*: Lower (upper) confidence limit held at minimum (maximum) of sample.
◈ Significantly and negatively associated with competition level;
◈ The large companies have higher affordability.
May 27, 2013 Shanghai Forum 2013 20
Calculations of Affordable Carbon Prices in China
Energy typeEnergy use ratios (%)
Current energy price a Emission factor b
Iron & steel Cement Chemical
Electricity 27.85 31.19 18.62 0.618 Yuan/KWh 0.8592 t-CO2/MWh
Coal 61.82 61.67 32.10 746 Yuan/t 1.9383 t-CO2/t
Fuel oil 0.64 2.35 34.86 4450 Yuan/t 3.0358 t-CO2/t
Natural gas 1.03 0.00 2.04 2.78 Yuan/m3 2.1731 t-CO2/1,000 m3
Steam 0.66 0.00 6.51 230 Yuan/t 0.3231 t-CO2/t
MEANAFFORD 8.8% 7.7% 9.9%Data source: a www.askci.com;
www.cngold.org;b (Su et al., 2009); (NDRC, 2010).
Affordable carbonprice (Yuan/t-CO2)
42.7 38.6 83.7
iii
iii
iii
iii
ratioEnergypriceEnergy
pricecarbonAffordableratioEnergyfactorEmission
amountUsepriceEnergy
pricecarbonAffordableamountUsefactorEmissionMEANAFFORD
May 27, 2013 Shanghai Forum 2013 21
Distribution of Cost Affordability in Japan
Variable Percentile Centile (%) 95% Conf. Interval (%)
Panel A: All the samples (N=153)
Mean of μ: 2.3%Mean of std.dev. of μ: 3.7%
10 0.4 0.4 0.5
30 0.6 0.5 0.9
50 1.9 1.2 2.3
70 2.9 2.7 3.5
90 5.3 4.7 5.5
Panel B: Samples from food processing industry (N=29)
Mean of μ: 2.0%Mean of std.dev. of μ: 3.7%
10 0.5 0.4 0.8a
30 0.9 0.6 1.6
50 1.7 1.1 2.3
70 2.5 1.8 3.8
90 4.3 2.8 5.3a
Panel C: Samples from chemical industry (N=26)
Mean of μ: 3.1%Mean of std.dev. of μ: 4.2%
10 0.5 0.4 0.5a
30 0.5 0.5 2.5
50 2.6 0.6 4.3
70 4.8 2.8 5.7
90 7.4 5.0 12.0a
a Lower (upper) confidence limit held at minimum (maximum) of sample
In addition:Iron & steel sector (N=11):Mean of μ: 1.5%
Mean of std. dev. of
μ: 3.1%.
Electronics sector (N=12):Mean of μ: 2.6%Mean of std. dev. of μ: 3.7%.
May 27, 2013 Shanghai Forum 2013 22
Carbon Prices Affordable for Companies in Hyogo
Energy use ratios (%)Energy price
(Yen/GJ)
Emission factor
(t-CO2/GJ) All samples(N=218)
Food processing(N=42)
Chemical(N=30)
Iron & steel(N=16)
Electronics(N=25)
Electricity 49.72 43.19 48.87 56.31 73.88 1433 0.0467
Coal 1.80 0.00 1.03 3.94 0.00 407.8 0.0907
Oil 1.71 0.86 3.33 3.38 4.80 1188.5 0.0686
Natural gas 4.91 9.43 8.43 0.00 0.00 781.9 0.0495
Heavy oil 6.64 6.50 8.93 1.81 3.76 2110 0.0693
City gas 26.03 33.83 18.50 27.63 11.28 1834.3 0.0496
Heat 2.47 4.02 6.43 0.00 0.00 5649.0 0.060
LPG 2.83 1.59 1.33 3.00 0.28 1298.6 0.0589
Gasoline 0.05 0.02 0.00 0.00 0.00 3927.7 0.0671
Diesel 0.79 0.02 0.03 0.13 0.00 2859.4 0.0684
Kerosene 2.72 0.45 3.10 0.06 6.00 2356.9 0.0678
Cokes 0.28 0.00 0.00 3.69 0.00 1475.2 0.1078
MEANAFFORD 2.3% 2.0% 3.1% 1.5% 2.6%
Affordable carbonprice (JPY/t-CO2)
739 683 1062 426 801
Big gap with the carbon price needed for realizing Copenhagen pledge of Japan (30-50$/t-CO2)
5-13$/t-CO2
May 27, 2013 Shanghai Forum 2013 23
Distribution of Cost Affordability in Korea
Panel A:All the samples (N=36)
PercentileCentile
(%)95% Conf. Interval
(%)Panel C: Cement sector (N=5)
PercentileCentile
(%)95% Conf. Interval
(%)
Mean of μ: 2.6%
The std. dev. of μ: 3.9%
10 0.38 0..11 0.5
Mean of μ: 2.8% The std. dev. of μ: 4.3%
10 0.11 0.11 1.53
30 0.7 0.48 1.42 30 4.06 0.11 3.88
50 1.59 0.86 2.26 50 1.84 0.11 8.81
70 2.62 1.72 3.62 70 3.86 4.05 8.81
90 9.22 2.75 13.2 90 8.81 20.2 8.81
Panel B: Iron & steel sector (N=11)
PercentileCentile
(%)95% Conf. Interval
(%)Panel D: Chemical sector (N=20)
PercentileCentile
(%)95% Conf. Interval
(%)
Mean of μ: 2.5%
The std. dev. of μ: 3.8%
10 0.48 0.48 0.95
Mean of μ: 2.6% The std. dev. of μ:3.8 %
10 0.27 0.11 0.6
30 0.87 0.48 1.59 30 0.66 0.37 1.64
50 1.59 0.64 2.37 50 1.57 0.65 2.71
70 1.77 1.43 12.7 70 2.69 1.5 6.7
90 11.4 1.74 13.3 90 9.63 2.72 11.3
*: Lower (upper) confidence limit held at minimum (maximum) of sample.
May 27, 2013 Shanghai Forum 2013 24
Carbon Prices Affordable for Korean Companies
Energy type
Energy use ratios (%)
Current energy price*1 Emission factor *3Iron & steel
Cement Chemical
Electricity 63.94 29.25 51.33 73.69 KRW/KWh 1.428 t-CO2/toe*4
Coal 3.63 36.88 0.47 113,138 KRW/t 1.059 t-CO2/toe
Fuel oil 5.22 1.62 10.00 612,352 KRW/t 0.875 t-CO2/toe
Gas 24.78 8.18 15.54 552 KRW /m3 0.637 t-CO2/toe
Steam 0.19 0 15.68 30,000 KRW/t *2 0.3231 t-CO2/t
MEANAFFORD 2.52 2.77 2.55
Data source: *1 IEA, 2010 *2 International Journal
*3 IPCC *4 Kim, 2009Affordable carbon
price (KRW/t-CO2)3,772 2,602 3,953
Kwon and Heo (2010): 36,545KRW/t-CO2 (about 31$/t-CO2) for achieving the national mid-term target of Korea. KIFP (Korea Institute of Public Finance) (2008): 25 EURO/t-CO2 and equivalent to 31,328KRW/ t-CO
2 KIFP (2010): Suggested a carbon tax rate at the level of 1/8 of above in the first proposal.
May 27, 2013 Shanghai Forum 2013 25
A Brief Summary
◆ This presentation summarizes the estimation results of carbon prices affordable for the companies in China, Japan and Korea;
◆ The MBDC format and WTP model, traditionally used for the individuals, were innovatively applied;
◆ The sampled Chinese companies show relatively higher affordability to energy cost increases than the companies of Japan and Korea;
◆ The carbon prices affordable for the companies in China and Japan are similar at a range of 5-13$/t-CO2, which is around 2-3 times of Korean companies;
◆ The estimated affordable carbon prices are meaningful for the ongoing discussions of carbon pricing policies in this region;
◆ Besides carbon prices, the viewpoints of businesses on the other policy attributes shall be measured for the design of appropriate carbon pricing tools;
◆ The policy gap for the realization of national carbon mitigation targets in medium and long term shall be further identified and bridged;
◆ The possibility for policy integration and coordination at regional level is an essential topic for discussions.
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