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Outline 1. Introduction: What should China and India do? 2. Current State of India 3. Current State of China 4. What is Carbon taxation? 5. Why Carbon Taxation and not Cap and Trade? 6. What we aim to do and why 7. Results 8. Conclusions
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Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Dec 18, 2015

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Page 1: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Outline

1. Introduction: What should China and India do?

2. Current State of India

3. Current State of China

4. What is Carbon taxation?

5. Why Carbon Taxation and not Cap and Trade?

6. What we aim to do and why

7. Results

8. Conclusions

Page 2: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

The Chinese Economy

GDP growth (annual %)

0

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4

6

8

10

12

14

16

1990

1991

1992

1993

1994

1995

1996

1997

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2003

2004

2005

2006

year

%

GDP, PPP (current international $)

0

1

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3

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5

6

7

year

$ t

rill

ion

s

Environmental degradation growing problem

Adjust economic structure in favor of less resource-intensive economic activities

Page 3: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Demographics of ChinaLargest population in the world: 1.31 billion people (2005)

– Population density higher in coastal region than inland

Page 4: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Current Energy MixCoal is backbone of

energy system– Meets about 60% of

primary energy needs– Importance growing in

recent years due to increasing demand for electricity

• Electricity almost 80% coal-based

– Most of the coal concentrated in a few inland provinces, while largest centers of demand in coastal provinces

Page 5: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.
Page 6: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Current Energy Consumption Total energy consumption

increased by 9.3% over 2005.– Coal consumption increased by

9.6%– Crude oil consumption by 7.1%– Natural gas consumption by

19.9%– In first six months of 2007, net

importer of coal– Imported natural gas in liquefied

form from 2006– Net oil exporter until early

1990s• Now third-largest importer

behind United States and Japan

CO2 emissions– Air pollution estimated to cost

China 3%-7% of GDP each year

– Contains 20 of the world’s 30 most polluted cities

Electric Power Consumption in China

0

200

400

600

800

1000

1200

1400

1600

1800

2000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

year

kW

h p

er

ca

pit

a

Carbon Dioxide Emmisions (kt)

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1000000

2000000

3000000

4000000

5000000

6000000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

year

kt

of

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rbo

n D

iox

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Page 7: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Electricity Sources (China)

0%

20%

40%

60%

80%

100%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

year

% o

f to

tal

Electricity production from coal sources (% of total) Electricity production from hydroelectric sources (% of total)

Electricity production from natural gas sources (% of total) Electricity production from nuclear sources (% of total)

Electricity production from oil sources (% of total)

Page 8: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Renewable Options• Hydropower

– World’s largest hydropower potential

• National Hydropower Resources Survey (2003) estimate technologically exploitable capacity of China's water resources is 540 GW

– Rivers that will likely be dammed

• Hongshui River, Yangtze River, Yellow River, Lancanjiang River, Wujiang River

• Solar– 2/3rds of China's territory

enjoys annual sunshine of over 2,200 hours and annual solar radiation of over 5,000 MJ/m2

– Tibetan Plateau has the richest solar energy resources

• Nuclear– If all nuclear power stations that

have been planned to date are completed, total installed capacity will exceed 10GW in 2010, and total approximately 32GW in 2020

Page 9: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Wind • Estimated that utilizable wind

energy resources– inland area about 300 GW– combined with utilizable wind

energy sources in near-shore areas, could reach about 1000 GW in total

• China produces more wind turbines than any country in the world– 40 manufacturers of small-

scale wind turbines

• Wind power most successful in Inner Mongolia Autonomous Region (IMAR)– 1/3 of rural, remote herdsmen

use wind electric generators

Page 10: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Goals for the Future11th Five-Year Plan (2006-2010)• Growth of 7.5% per year

between 2006-2010 planned to prevent overheating of economy

• Cut energy use per unit of GDP by 20% and pollution by 10% by 2010 compared to 2005

• Target shares of each major fuel in primary energy mix in 2010– 66.1% coal– 20.5% oil– 5.3% natural gas– 0.9% nuclear power– 6.8% hydropower– 0.4% other renewables

2020 plans (NDRC)• Nuclear

– Target: 40GW by 2020

• Hydro– Target: 300 GW by 2020

• Solar and Wind– Target: over 60GW by 2020

Page 11: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

India’s Economy• With 1.50 trillion in current $, it is twelfth in the world•Third largest world economy in terms if PPP• Starting 2005 India allows 100% foreign investments for most industry fields• FDI inflows into India reached a record US$ 19.5 billion in fiscal year 2006/07 (April-March) double that of USA

Page 12: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Demographics of India

• Population 1.07 billion (second in the world)

• Labour force by occupation agriculture: 60%, industry: 12%, services: 28% (2003)

• Unemployment 7.8% (2006 est.)• India still has the world’s largest

number of poor people in a single country. Of its nearly 1 billion inhabitants, an estimated 350-400 million are below the poverty line,

• 75 per cent of the poor in the rural areas.

• Main industries textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, software, services

Page 13: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Power Consumption and CO2 Per Capita

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 20010.0

0.2

0.4

0.6

0.8

1.0

CO

2 E

mis

sion

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cap

ita (

t)

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Page 14: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Current Energy Mix (mtoe)

Page 15: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Various Ministries

Prospect to Grow

92232Natural Gas (BCM)

PotentialCurrent

10<1Wind (MW)

1200 /Solar (Mtoe/year)

30<1Bio-fuels (Mtoe/year)

620140Bio-mass (Mtoe/year)

15031Hydro (GW)

2089Nuclear (GW)

74034Oil (MMT)

38114148Coal (Mtoe)

Page 16: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Future Goals• Five Year Plan 78,577 MW capacity addition (123,668 MW as of 2005-06) during

the 11th Plan of 14,000 MW through renewables and another 12,000 MW from captive route.

• 2030Massive Investment Requirements: To deliver sustained GDP growth of 8.0% till 2031-322, the

requirements are:- Growth in primary energy supply by 3-4 times over current consumption- Electricity Installed Capacity should increase by 6-7 times- Annual coal requirement: Nearly 3 times over current demand

TERI, 2006

India’s 2030 energy projections remain bellow world’s 2004 average

Page 17: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Environmental Concerns

• A one-meter rise in sea level could displace millions of people in India, a country with a coast line of several thousand miles.  

• The ocean sequestration capacity is leveling off• Deforestation is another serious problem (large percent of

energy comes form biomass)• According to research carried out at Oxford University, the total

number of flood zone refugees in India alone could reach anywhere between 20 and 60 million. Sea level rises could also prompt an influx of millions of refugees from Bangladesh.

• The Gangotri glacier, the source of the River Ganges, is retreating at a speed of about 30 meters a year, with warming temperatures likely to increase the rate of melting.

• Kyoto will not be reinforced

Page 18: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Advances:•‘Energy for All’ by 2012•The power sector is 60 % centralized and peak shortages that were common in ’90 reduced•Numerous ministries, university institutes and to deal with R&D, modeling, energy distribution and policy issues•Admission of private and foreign investment to energy, mining and related sectors (except for nuclear)

Concerns:•Policy application in practice•Corrected for PP, Indians pay one of the highest energy prices in the world•Power sector loses ~ $6 billion per annum•Not everyone pays the electricity they use… (30%-40% network losses)•High pollution fuels adversely affect primarily the poor

Energy Policy

Page 19: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Integrated Energy Policy for India (August 2007)

Eleven scenarios based on source availabilities and technological development but not incentives

Page 20: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

CO2 Emissions By Different Scenarios

Page 21: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.
Page 22: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

What is a Carbon Tax? • A carbon tax is a tax on

emissions of carbon dioxide and other greenhouse gases.

• It helps compensate for the negative externalities of pollution caused by these emissions

• The alternative to carbon taxation is cap and trade reforms which are when governments set a limit or cap on the amount of a pollutant that can be emitted

Page 23: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Why not “Cap and Trade?”

• Environmental NGOs and movements argue that trading does little to solve pollution problems overall– Groups that do not pollute sell their

conservation to the highest bidder – Overall reductions would need to come from a

sufficient and challenging reduction of allowances available in the system

Page 24: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

“Cap and Trade” Criticisms (cont’d)

• Other Criticisms– Many attribute accounting failures to the complexity

of system– Cap and trade systems are seen to generate more

corruption than a tax system – The administration and legal costs of cap and trade

systems are higher than with a tax

• Lack of credibility in the first phase of the EU Emissions Trading– In the first year, the number of permits topped the

amount of pollution – The price of carbon fell to almost nothing

Page 25: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Taxes are Economically More Efficient

• Finally, carbon taxes appear to be more efficient than caps because the revenue can be used by the government

• We would like to propose that the revenue be directed towards research and development of alternative energy sources

• Yes, Steve Goldberg criticized this notion in regards to the US, however the governments that rule China and India are structured very differently-

Page 26: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

We Want a Diversification of Energy Sources

• Carbon atoms are present in every fossil fuel — coal, oil and gas

• In contrast, non-combustion energy sources — wind, sunlight, hydropower, and nuclear — do not convert carbon to carbon dioxide.

• Our goal it to investigate the cost associated with diversifying the power supply of China and India and a tax rate which would make this feasible

Page 27: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Representative Trajectory sampling various energy mixes.

Normalized Cost and CO2 output are the Cost and CO2 of a particularmix divided by the Cost or CO2 of the initial Distribution

Initial Distribution based on IEA Alternative Reference Scneario

Simulation is observed to converge to a distribution with a stable minimain the cost and in CO2 Emissions

Page 28: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Table 3

Generation cost (dollar/kWh) for different energy sources with used tax rates for both countries

  China India

  Initial Low Tax

Medium

Tax

High Tax

Initial Low Tax

Medium

Tax

High Tax

Coal 0.0355 0.0495 0.076 0.1134 0.0344 0.04842 0.0751 0.1123

Clean Coal

0.065 0.0664 0.069 0.072 0.065 0.0664 0.069 0.072

Gas 0.062 0.069 0.0823 0.101 0.0328 0.03981 0.0531 0.0718

Biomass N/A N/A N/A N/A 0.0772 0.0782 0.08 0.0827

Hydro 0.048 0.0483 0.04881 0.04956 0.055 0.0553 0.0558 0.0565

Nuclear 0.044 0.0441 0.0442 0.0444 0.0463 0.0464 0.0464 0.0467

Wind 0.045 0.0451 0.0451 0.0454 0.0772 0.0773 0.0774 0.0772

Solar 0.7187 0.7195 0.7211 0.7231 0.3861 0.3869 0.3884 0.3861

Source: IEA, WEO 2007; World Nuclear Association; IEA, Renewable; CEA, 2004; Government of India Planning Commission, 2007; Authors' calculations

Page 29: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Scenario 1Table 4

Scenario 1: China with Traditional Coal Technology    

Low Tax ($14.02/t CO2)

Medium Tax ($40.65/t CO2)

High Tax ($77.92/t CO2)

Initial cost $397 billion $530 billion $716 billion

Initial CO2 emissions 4969 Tt 4969 Tt 4969 Tt

Final cost $400 billion $513 billion $673 billion

Final CO2 emissions 4265 Tt 4258 Tt 4247 Tt

Change in cost $3 billion -$16 billion -$42 billion

Change in CO2 emissions -704 Tt -711 Tt -722 Tt

Percent change in cost 0.76% -3.10% -5.86%

Percent change in CO2

emissions -14.16% -14.31% -14.53%

Page 30: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

Coal 63.70% 59.20% 59.09% 58.93%

Gas 5.74% 0.00% 0.00% 0.00%

Hydro 17.08% 27.62% 27.71% 27.84%

Nuclear 6.17% 8.38% 8.37% 8.38%

Wind 2.78% 3.70% 3.74% 3.74%

Solar 0.79% 1.10% 1.09% 1.12%

IEA, Alternative Policy Scenario Projections

Low Tax ($14.02/kWh)Medium Tax ($40.65/kWh)

High Tax ($77.92/kWh)

Page 31: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Scenario 2Table 5

Scenario 2: China with the Introduction of Clean Coal Technologies  

Low Tax ($14.02/t CO2)

Medium Tax ($40.65/t CO2)

High Tax ($77.92/t CO2)

Initial cost $480 billion $499 billion $526 billion

Initial CO2 emissions 706 Tt 706 Tt 706 Tt

Final cost $474 billion $487 billion $504 billion

Final CO2 emissions 454 Tt 454 Tt 452 Tt

Change in cost $6 billion -$12 billion -$22 billion

Change in CO2 emissions -253 Tt -253 Tt -255 Tt

Percent change in cost -1.26% -2.32% -4.10%

Percent change in CO2

emissions -35.80% -35.79% -36.08%

Page 32: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

Coal 63.70% 59.39% 59.40% 59.08%

Gas 5.74% 0.00% 0.00% 0.00%

Hydro 17.08% 27.51% 27.46% 27.73%

Nuclear 6.17% 8.25% 8.27% 8.36%

Wind 2.78% 3.76% 3.76% 3.72%

Solar 0.79% 1.09% 1.11% 1.10%

IEA, Alternative Policy Scenario Projections

Low Tax ($14.02/kWh)Medium Tax ($40.65/kWh)

High Tax ($77.92/kWh)

Page 33: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Scenario 3Table 6

Scenario 3: India with Traditional Coal Technology    

Low Tax ($14.02/t CO2)

Medium Tax ($40.65/t CO2)

High Tax ($77.92/t CO2)

Initial cost $121 billion $159 billion $198 billion

Initial CO2 emissions 1399 Tt 1399 Tt 1399 Tt

Final cost $158 billion $183 billion $166 billion

Final CO2 emissions 949 Tt 934 Tt 940 Tt

Change in cost $37 billion $24 billion -$32 billion

Change in CO2 emissions -450 Tt -465 Tt -459 Tt

Percent change in cost 30.66% 15.37% -15.99%

Percent change in CO2

emissions -32.20% -33.24% -32.82%

Page 34: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

Coal 54.71% 40.28% 39.64% 39.90%

Gas 10.67% 0.00% 0.00% 0.00%

Biomass 3.43% 7.68% 7.69% 7.57%

Hydro 15.97% 25.98% 26.28% 26.34%

Nuclear 7.90% 13.13% 13.41% 13.24%

Wind 5.38% 8.50% 8.64% 8.65%

Solar 0.65% 4.41% 4.34% 4.31%

IEA, Alternative Policy Scenario Projections

Low Tax ($14.02/kWh)Medium Tax ($40.65/kWh)

High Tax ($77.92/kWh)

Page 35: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Scenario 4Table 7

Scenario 4: India with the Introduction of Clean Coal Technologies  

Low Tax ($14.02/t CO2)

Medium Tax ($40.65/t CO2)

High Tax ($77.92/t CO2)

Initial cost $144 billion $151 billion $161 billion

Initial CO2 emissions 264 Tt 264 Tt 264 Tt

Final cost $174 billion $176 billion $182 billion

Final CO2 emissions 123 Tt 123 Tt 124 Tt

Change in cost $30 billion $25 billion $22 billion

Change in CO2 emissions -141 Tt -142 Tt -140 Tt

Percent change in cost 20.87% 16.80% 13.48%

Percent change in CO2

emissions -53.29% -53.66% -53.02%

Page 36: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

Clean Coal 54.71% 40.61% 39.78% 40.53%

Gas 10.67% 0.00% 0.00% 0.00%

Biomass 3.43% 7.67% 7.55% 7.56%

Hydro 15.97% 25.66% 26.37% 25.87%

Nuclear 7.90% 13.19% 13.41% 13.26%

Wind 5.38% 8.52% 8.70% 8.41%

Solar 0.65% 4.34% 4.19% 4.38%

IEA, Alternative Policy Scenario Projections

Low Tax ($14.02/kWh)Medium Tax ($40.65/kWh)

High Tax ($77.92/kWh)

Page 37: Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation.

Conclusions

Reset OriginalDistribution

Both countries are capable of meeting their Energy Demand in ways that significantly reduce negative environmental impact and externalities

These changes in Infrastructure can be made financially appealing if the social cost of CO2 Emissions is internalized through a modest Carbon Tax in China, particularly if Clean Coal is developed as an option

Due to current limitations in domestic resources and technology, it seemsthat changing Infrastructures in India is more costly, and a larger Carbon Tax maybe necessary to effectively internalize the social costs and provide incentives to change; however, their potential to grow seems promising and perhaps renewableoptions will become less costly with time

Nuclear is the most cost competitive energy source and the most promising source to mitigate carbon emissions in the near future in both countries