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INTERNATIONAL

DEVELOPING COUNTRY ANALYSIS AND DIALOGUE

Analysis of International Climate Policies:


Implications for Brazil, China and India

The Center for Clean Air Policy

CENTER FOR CLEAN AIR POLICY

November 2009
Acknowledgements:

This report was prepared by Matthew Ogonowski, Haibing Ma, and Thomas Polzin of the
Center for Clean Air Policy.

The authors would like to thank Jos Wheatley, Sarah Love and Aditi Maheshwari (formerly)
of the UK Department for International Development (DFID) for their generous financial
support for the project.

For avoidance of any doubt and for the purpose of clarity, the authors would like to state
that this report is based on an independent study, and the contents of the report reflect
their views and not necessarily the views of the governments of UK, Brazil, China and
India.

Center for Clean Air Policy


TABLE OF CONTENTS

I. PROPOSED INTERNATIONAL POLICIES EXAMINED ........................................................... 2


II. REPORT METHODOLOGY .......................................................................................................... 4
BAU EMISSIONS, EMISSIONS BUDGETS AND REDUCTIONS ...................................................................4
TECHNOLOGIES/MEASURES NEEDED TO MEET EMISSIONS BUDGETS AND ASSOCIATED COSTS ............4
III. INTERNATIONAL POLICY ANALYSIS ..................................................................................... 6
III. A CONTRACTION AND CONVERGENCE ........................................................................................6
III.B COMMON BUT DIFFERENTIATED CONVERGENCE ....................................................................8
III.C MULTISTAGE ...........................................................................................................................9
III.D GLOBAL TRIPTYCH ............................................................................................................... 10
III.E SECTORAL (THREE SECTORS) ................................................................................................ 11
III.F SECTORAL (SIX SECTORS) .................................................................................................... 12
III.G INTENSITY TARGETS (PER UNIT OF GDP) ............................................................................... 13
IV. SUMMARY: CONTRIBUTION OF EACH COUNTRY TO GLOBAL EMISSIONS AND
REDUCTIONS ..................................................................................................................................... 13
APPENDIX I: ANALYSIS OF THE IMPLICATIONS OF PROPOSED INTERNATIONAL
CLIMATE POLICIES FOR CHINA.................................................................................................. 15
I. PROPOSED INTERNATIONAL POLICIES EXAMINED FOR CHINA .......................................................... 15
II. INTRODUCTION TO GTAP-E MODEL ............................................................................................... 17
III. INPUT INTO THE GTAP-E MODEL .................................................................................................. 17
IV. MODELING RESULTS ...................................................................................................................... 19
V. CONCLUSIONS ................................................................................................................................. 22

Center for Clean Air Policy 1


This paper presents the results of the CCAP analysis of the emissions reductions expected to
be achieved under various international climate policy frameworks, conducted for the CCAP
project Assisting Developing Country Climate Negotiators through Analysis and Dialogue.
In this memo, we describe each global framework and the greenhouse gas (GHG) emission
levels and reductions from business-as-usual emissions for China, India and Brazil under
them. We also assess the implications of these policies for each country: the likely sectors
where reductions would occur, the specific measures that could be employed, and the
associated costs and required technologies, as appropriate. We also discuss the overall level
of reductions from all three countries combined.

I. Proposed International Policies Examined


The potential global climate policy frameworks we examine are: Contraction and
Convergence, Common but Differentiated Convergence, Multistage, Triptych, Sectoral, and
Intensity Targets. CCAP reviewed different analyses of these frameworks for this study.
The global and national reductions required in 2020 and 2050 to stabilize climate emissions
under all these approaches at 450 and 550 ppm were analyzed in detail in the Ecofys report,
Factors Underpinning Future Action. 1 The results presented in this memo are based
primarily on this report. The use of this report allows for direct comparison across policies
and countries, since the same models and assumptions are used in each case. The following
is a brief summary of the global frameworks:

In Contraction and Convergence, both developed and developing countries would arrive at
the same per capita emissions level during a specified time frame. As a prerequisite, all
countries agree upon a stabilization level (for example, 550 ppm) and an emissions pathway
to reach this target. However, because the goal is equal per capita emissions, some countries
with low per capita emissions rates such as India could gain excess allowances, or “hot air.”
These could be sold in a future carbon market, but the framework does not specifically
include emissions trading.

Common but Differentiated Convergence is also based on eventually achieving an equal per
capita emission allowance, but countries would have different time periods within which to
reach this goal. Annex I emissions would converge by, most likely, 2050, and would have a
commitment to reach the convergence level. Non-Annex I countries would be required to
begin their emissions convergence once their per capita emissions reach a certain percentage
of the global average (this global average would continually decline due to Annex I
commitments). Non-Annex I countries that do not exceed the percentage threshold are not
required to achieve an emissions target.

The Multistage approach suggests four stages of progressively more intense mitigation
actions. Countries pass through the stages, ultimately arriving at an absolute reduction
target. The first stage is “no commitments,” appropriate for less developed countries. The
second stage, “enhanced sustainable development,” consists of improved environmental
policies such as new standards of energy efficiency and other climate-friendly policies and
measures. In the third stage, countries commit to a “moderate absolute target” below a
reference scenario. This leads to the fourth stage of the “absolute reduction target” where
countries reduce their emissions and achieve a per capita target. Time scales for these stages
would vary by country.

The Global Triptych approach specifies a set of indicators used to determine countries’
national emissions allowances. It calculates sectoral emission allowances and adds them to
1
Höhne, Niklas, D. Phylipsen, and S. Moltmann, Factors Underpinning Future Action, October 2006.
Ecofys: Cologne, Germany. Available at
http://www.fiacc.net/data/Factors_underpinning_future_action.pdf.

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obtain the overall national target. It does not specify which countries should participate, but
if applied globally would require major developed country reductions while allowing some
increases for developing countries.

The Sectoral Approach generally calculates emissions per sector, and proposes adherence to a
benchmark or “no lose” emissions intensity target in specific sectors. Sectors could include
iron and steel, cement, electricity, pulp and paper, transport, refineries, and forestry.

Intensity Targets have also been proposed, with targets usually set as emissions per unit of
GDP (economy-wide) or per unit of industry output (in individual sectors). In this analysis,
intensity targets were specified as a reduction in emissions per unit of GDP, with the
improvement occurring at the same rate for all countries.

The table below presents the projected emission reductions under each international policy
scenario. The results were developed assuming a goal of stabilizing atmospheric
concentration of GHG emissions at 550 ppm CO2e. The emissions pathway adopted to meet
this stabilization level achieves global emissions 30% above 1990 levels in 2020 and 10%
below 1990 levels in 2050. In all cases, these data represent the median values of the six
SRES2 scenarios. Stabilization would require that global emissions in 2020 decline to
below 40,000 million metric tons carbon dioxide-equivalent (MMTCO2e), with proportional
reductions around 22-23% below business-as-usual (BAU). (Note that the results shown
here do not account for potential international trading of emission allowances; final emissions
after trading could therefore differ in some cases.)

Global Emissions and Reductions in 2020 under each International Policy


Sectoral GHG
Policy C&C CDC Multistage Triptych (6 sectors) Intensity
Emissions 39,445 39,703 39,218 39,020 39,518 39,477
Reduction (MMT) 11,233 10,975 11,460 11,658 11,160 11,201
Reduction (%) 22.2% 21.7% 22.6% 23.0% 22.0% 22.1%
Global business-as-usual emissions are projected at 50,678 MMTCO2e in 2020.

2
The Intergovernmental Panel on Climate Change (IPCC) developed long-term emission scenarios in
1990 and 1992. In 1995, the IPCC 1992 scenarios were evaluated. The evaluation recommended that
significant changes (since 1992) in the understanding of driving forces of emissions and methodologies
should be addressed. Thus the Special Report on Emissions Scenarios (SRES) was developed to
represent the range of driving forces and emissions in the scenario literature so as to reflect current
understanding and knowledge about underlying uncertainties. The scenarios cover a wide range of the
main demographic, economic, and technological driving forces of GHG and sulphur emissions.
(Source: IPCC)

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II. Report Methodology
BAU Emissions, Emissions Budgets and Reductions
In the sections below, we evaluate the implications of each of the six international policies for
China, India and Brazil in the year 2020. We begin the discussion of each policy by
presenting the economy-wide GHG emission levels for each country: the BAU emissions in
2020, the emissions budget under the specific policy, and the reductions needed to achieve
this level. These are evaluated and then compared between countries and policies.

The original report data is very appropriate for this analysis, and is one of the key sources that
provide economy-wide emission projections for all GHGs for specific countries in future
years. It does have several limitations, however. One is that the country baselines include
only some of the future impacts of existing energy efficiency and emission reduction options
already implemented in these countries (referred to as “recent policies”). As highlighted in
CCAP’s 2006 report,3 these actions can contribute significantly to reducing BAU emissions,
thereby making future reduction goals easier to meet. It should also be noted that the
country data does not include emissions from deforestation, a significant limitation in Brazil
where such emissions account for the majority of national GHG emissions. The potential
impact of this factor has been evaluated in the policy discussion sections, where appropriate.

In the Ecofys report, future BAU emissions were developed from projections of emissions,
while the national emissions budgets under each policy were developed from bottom-up
estimates (i.e. emissions per capita, emissions per sector or emissions per unit of GDP). The
emissions budgets are therefore likely to be more realistic than the BAU emissions. The
BAU emissions and the reductions below BAU for each policy are presented for the three
countries, but they should be understood as conservative (i.e. high) estimates for China and
India, but very low estimates for Brazil due to the exclusion of deforestation. The future
BAU emissions and the actual reductions that would be required are thus likely to be lower
than presented here in many cases.

Technologies/Measures Needed to Meet Emissions Budgets and Associated Costs


For each policy, the discussion of the BAU emissions and emissions budgets is followed by
an analysis of the overall feasibility and cost of meeting the budgets for each country, and the
potential paths (measures and sectors) each country could take to achieve this goal. To
capture the impact of recent policies, this analysis was conducted by developing a bottom-up
estimate of potential GHG levels in 2020, taken from three key sources. We begin with
estimates of the 2020 CO2 emissions from the 2006 CCAP report, which includes the impact
of government policies and programs adopted between 2000 and 2005 -- the “Recent Policy
Scenario.”

These estimates include five sectors: electricity, cement, iron and steel, pulp and paper, and
transportation, and account for CO2 emissions only. Combined CO2 emission estimates for
three additional sectors (residential, service/commercial, and agriculture) were available from
the World Energy Outlook 2006.4 The US Environmental Protection Agency (EPA) has
developed detailed BAU emissions estimates and mitigation potentials for the five non-CO2
gases in these countries.5 By combining these estimates we can then calculate a combined
GHG emission estimate that covers the CO2 emissions from eight major sectors and the

3
Center for Clean Air Policy. Greenhouse Gas Mitigation in Brazil, China and India: Scenarios and
Opportunities through 2025 (Conclusion and Recommendations). November 2006. Available at
http://www.ccap.org/international/Conclusions-Developing%20Country.pdf
4
OECD/IEA. World Energy Outlook 2006.
5
Emissions data from Global Anthropogenic Non-CO2 Greenhouse Gas Emissions: 1990 – 2020.
June 2006 Revised. Mitigation data provided to CCAP from US EPA, from Global Mitigation of
Non-CO2 Greenhouse Gases. June 2006.

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economy-wide emissions of non-CO2 gases.

CCAP estimates that the five-sector CO2 emissions alone in 2000 accounted for over 70% of
economy-wide CO2 emissions (not including land-use change and forestry) in China, India,
and Brazil. With CO2 emissions from three other sectors and the non-CO2 numbers added in,
the final total emissions will capture most of each country’s total GHG emissions, excluding
LUCF emissions. However, there remains a share of CO2 emissions from sectors such as
chemicals, oil refining and aluminum production that are not captured in this framework; in
this paper we refer to these emissions as the Residual GHG (RG) emissions. CCAP
attempted but was unable to develop estimates for these emissions due to a lack of
comparable data. We therefore developed an alternative methodology.

The CCAP report and the US EPA data also provide estimates for the GHG emission
reductions that could be obtained from implementation of mitigation measures in 2020. We
used this data to assemble the total GHG emissions at each mitigation cost level, and compare
them to the emissions budgets under each policy. In most cases, at some cost level the total
emissions after mitigation (without the RG emissions) will fall below the emissions budget.
At this cost and those above it, we can conclude that the country could achieve the emissions
budget under the international policy by a) implementing all mitigation measures at and
below that cost level, and b) holding the RG emissions to a level at or lower than the gap
between the emissions budget minus the total emissions after mitigation.

The CCAP report presents CO2 emissions for mitigation measures in four cost categories:
options less than $0/tonne of CO2, less than $5/tonne, less than $10/tonne, and all options at
all cost levels. The non-CO2 reductions were taken from the US EPA data, which breaks
them out into five cost categories: less than $0, $15, $30, $45 and $60 per tonne
CO2-equivalent. In this analysis, we do not show the less than $5/tonne option since the
difference between $5 and $10 option in most cases is not large enough to affect the result
significantly. The emissions were combined to present emission estimates after mitigation
of CO2 and non-CO2 gases at two cost levels (<$0/tonne and <$15/tonne), and
implementation of all CO2 options combined with non-CO2 options at <$15/tonne, $30/tonne,
$45/tonne and $60/tonne.

The table below shows the results of this analysis for each country, with the emission levels
used in the analysis of each international policy. Since the CCAP report does not have a $15
cost level, the < $15 emissions estimates use the <$10/tonne for CO2 and the <$15 for
non-CO2 gases. In the case of China, total emissions after mitigation (without the RG
emissions) begin at 7,624 MMTCO2e from implementation of only the <$0 CO2 reduction
measures in the five original sectors in the CCAP report. These would decline to 7,537
MMTCO2e by combining these measures with the <$0 non-CO2 gas mitigation measures.
The analysis indicates that China’s GHG emissions from all sectors except the RC sectors
could be reduced to nearly 6,100 MMTCO2e in 2020 if all CO2 measures in the CCAP report
were implemented in the five sectors along with all non-CO2 measures identified by US EPA
(up to <$60 per tonne). India’s 2020 emissions (with the RC sectors) after mitigation range
from 3,128 MMTCO2e with only CO2 measures <$0/tonne to less than 2,600 MMTCO2e at
$30/tonne or greater, while Brazil’s range from 1,342 MMTCO2e to just over 1,100
MMTCO2e for these same levels and measures.

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Table 1: 2020 GHG emissions after implementation of mitigation measures (MMTCO2e)
Emissions with Emissions with Emissions Emissions with higher
GHG redux < $0 GHG redux < $15 with all CO2 cost non-CO2 redux
redux (all
Country with with CO2 with with CO2 cost levels)
only and CO2 and and
non-CO2 $30 $45 $60
CO2 non-CO2 redux non-CO2
redux redux <$15* redux redux <$15

China 7624 7537 7368 6969 6574 6157 6153 6131

India 3128 3109 3063 2955 2675 2561 2557 2541

Brazil 1342 1323 1323 1284 1178 1132 1131 1118


Note: Includes CO2 emissions from electricity, cement, iron & steel, pulp & paper, transport,
residential, service, and agriculture, and economy-wide emissions of non-CO2 gases.
Emissions at all cost levels include impact of recent policies undertaken from 2000-2005, as
presented in the CCAP report.
* Includes CO2 plus all non-CO2 gases reductions costing less than $0 per tonne.
The emission estimates in Table 1 are used to explore whether each country could achieve the
emissions budgets envisioned, and the level of effort that might be required, under each of the
international climate policy options. In the next section, we explore the country-specific
results for China, India and Brazil for each policy in the year 2020.

III. International Policy Analysis


III. A Contraction and Convergence

BAU Emissions Emissions Budget Reduction (MMT) Reduction (%)


Country
China 8,807 6,744 1,860 22%
India 3,619 3,424 195 5%
Brazil 1,603 1,148 455 28%

Under Contraction and Convergence, all countries would reach the same eventual per capita
emissions level. For a stabilization goal of 550 ppm CO2 equivalent, convergence at about 3
MMTCO2e per capita in 2050 is required. This would yield a 2020 goal of approximately 5
MMTCO2e per person.

Of the three countries examined, India currently has the lowest GHG emissions per capita
(1.9 tons CO2e in 2000), less than one-half that in China and Brazil (3.9 and 4.9, respectively).
These patterns are expected to continue through 2020. As a result, the reductions India
would undertake under this policy would be relatively small (less than 200 MMTCO2e), only
5% of its BAU emissions. The total effort required in China and Brazil would be
significantly greater. China’s emissions budget would be almost one-quarter lower than its
projected BAU emissions, or 6,744 MMTCO2e – an amount only about 10% greater than its
total 2004 annual GHG emissions. Total reductions in Brazil would be about 2.5 times those
undertaken in India, or about 450 MMTCO2e, for a large proportional reduction in 2020 BAU
emissions of 28%. If current trends in population and GHG emissions continue, the
reduction effort required in Brazil and China under Contraction and Convergence would thus
be very large, with India needing a much smaller reduction to meet the goal.

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With respect to Brazil, it should be noted that the original analysis does not include emissions
from deforestation. This parameter is difficult to model, given the significant uncertainties
regarding future trends in land use and forestry activities. If these emissions were included,
Brazil’s per capita emissions in 2000 would more than double (to nearly 13 tons). In
addition, if it were assumed that Brazil could hold total economy-wide emissions constant at
2000 levels through 2020, the total reductions required would still be over 1,000 MMTCO2e –
a reduction from below BAU of almost one-half. The level of effort that would be required
for Brazil to meet its goal is thus likely to be very large if this framework was adopted.

To evaluate whether and how each country could achieve its emissions goal under each policy,
we conduct an analysis to determine the gap between the value of the emissions in Table 1
minus the emissions budget. To simplify, we only show three gap values and their
corresponding cost levels: the gap at the mitigation cost level just before the emissions
achieve the goal; the gap at the next cost step after the emissions are achieved (after the
meeting point), and the final gap after all evaluated measures are applied at all cost levels.

The table below shows the total gaps between the emissions budget under the Contraction and
Convergence framework and the estimated total emissions (eight-sector CO2 plus all non-CO2
gas emissions, in MMTCO2e) after mitigation at a specific cost level, for each country in year
2020. From left to right, we first present the 2020 emissions budget for the specific policy
(e.g., Contraction and Convergence). Next are the highest mitigation costs levels for CO2
and non-CO2 gases at which the total eight-sector CO2 plus non-CO2 gas emissions remain
larger than the budget (“Gap before meeting point”). At this point an increase in either the
CO2 or the non-CO2 reductions (at a higher cost) can achieve the emissions goal, as shown in
the next group of data. The gap therefore changes from positive to negative. With a
negative gap, if the country could hold its Residual GHG (RG) emissions from chemicals, oil
refining, aluminum production etc. to a level smaller than the gap, mitigation of GHGs at the
associated cost levels could achieve the emissions goal. If the RG emissions are larger than
the “gap after meeting point,” however, the country would have to apply more expensive
mitigation options. The “Maximum Gap” and its corresponding cost level shows the
maximum limit of each country’s RG emissions. At this cost level, the emission goal under
the policy could be achieved by implementing all measures at all cost levels if RG emissions
are no larger than the maximum gap. But if RG emissions in 2020 were larger than the
maximum gap emissions, we would conclude that the country would find it very difficult and
costly to achieve the goal envisioned under the policy framework.

Reduction Cost level Gap before Reduction Cost level Gap after Reduction Cost level Maximum
Country Target
CO2 cost non-CO2 cost meeting point CO2 cost non-CO2 cost meeting point CO2 cost non-CO2 cost Gap
China 6744 <$10 <$15 225 All <$15 -170 All <$60 -613
India* 3424 N/A N/A N/A 0 0 -242 All <$60 -883
Brazil 1148 All <$15 30 All <$30 -16 All <$60 -30
*Achieves goal with only recent policies already enacted

For the Contraction and Convergence framework, the results indicate that if China could hold
its RG emissions to less than the 170 MMTCO2e benchmark, China could achieve the
emissions goal. It would need to utilize all evaluated CO2 reduction measures at all cost
levels, combined with the non-CO2 mitigation options that cost less than $15 per ton of CO2e.
If the RG emissions exceed 170 MMTCO2e, China would then have to apply higher cost
non-CO2 measures. Implementing all non-CO2 reduction measures costing up to $60 per
tonne CO2e, China could have emissions (eight-sector CO2 plus non-CO2 gases) about 613
MMTCO2e (almost 10%) below the emissions goal. This may be a more realistic limit for
the country’s RG emissions, and we can thus conclude that achievement of the emissions
levels under Contraction and Convergence would likely be expensive for China.

The data indicates that India would find it much easier to meet the emission goals envisioned.

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If all of the country’s recent policies were fully implemented and RG emissions did not
exceed 242 MMTCO2 in 2020, no additional mitigation would be needed to achieve the
contraction and convergence goal. Even if the RG emissions were as high at 883 MMTCO2e,
however, India could still achieve this goal by implementing all available CO2 reduction
measures and non-CO2 reduction measures costing no more than $60 per tonne. In the case
of Brazil, implementation of the most expensive CO2 and non-CO2 mitigation measures
would still leave only 30 MMTCO2e to cover both the RC and deforestation emissions.
Achievement of the emissions budget under Contraction and Convergence thus appears
highly unlikely by 2020.

Under the contraction and convergence framework, in China almost half (45%) of the likely
CO2 reductions are in the electricity sector, with over one-fifth available in cement and
transportation. China could achieve potential reductions of 137 MMTCO2eq in 2020 by
expediting the development of nuclear power at a cost of $19 per tonne. Hydro power
would make the largest single contribution to China’s GHG reductions (about 170
MMTCO2eq) at a higher cost of $30 per ton CO2eq. China’s National Climate Change Plan
has in fact placed great emphasis on development of these two measures. Among China’s
non-CO2 options, livestock and agriculture soil management, landfills, HCFC-22 production
and coal management can contribute to the GHG reduction at a lower cost (most of these
measures are less than $15 per tonne).

In India, emissions are below the policy emissions budget even without applying additional
mitigation measures. If measures at higher costs were needed, reductions would come
primarily from the electricity and transportation sectors. Developing nuclear power plants
would be a major contributor (a reduction potential of nearly 150 MMTCO2e), with vehicle
efficiency improvements in transportation sector at a net cost savings providing another 120
MMTCO2e. If needed, reductions from non-CO2 gases in India would be obtained through
measures similar to those discussed for China. Brazil would need to utilize all CO2
mitigation measures at all cost levels. Transportation and electricity would be two key
sectors likely targeted for reductions. Specifically, expansion of flex fuel vehicles, using
sugar-cane bagasse and building more wind generators are top priorities for technology
development and expansion. These measures together would reduce emissions by about 60
MMTCO2e, but at a relatively high cost (>$30/tonne). But the results make it clear that even
undertaking very expensive measures might not allow Brazil to meet the emissions budget.

III.B Common but Differentiated Convergence

BAU Emissions Emissions Reduction Reduction (%)


Country Budget (MMT)
China 8,807 6,658 2,149 24%
India 3,619 3,619 - 0%
Brazil 1,603 1,112 491 31%

In the Common but Differentiated Convergence policy framework, developing country


emissions would also converge to the same per capita level, but they would do so under
different schedules than with Contraction and Convergence, and would be required to begin
reductions only after their per capita emissions reach a specified proportion of the global
average. Like Contraction and Convergence, the convergence year in this scenario is set at
approximately 2050. The per capita convergence level would be 2 MMTCO2e in 2020 and 2.6
MMTCO2e in 2050. The threshold would be 10% below the world average in 2020 and 5%
below in 2050.

As shown in the above table, the results for the three countries are similar to those obtained
for contraction and convergence. India’s per capita emissions in 2020 would be low enough

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to achieve the required levels, so no reductions would be required. The reductions in China
and Brazil would be sizeable, however. In China, the country would implement reductions
earlier than under a contraction and convergence approach to meet the lower per capita goal,
so the total reduction (24%) would be slightly higher. In Brazil the situation would be
similar compared to the previous approach. The country would implement reductions in
2020 totaling almost 500 MMTCO2e, reducing BAU emissions by more than 30%. (Again
it should be emphasized that this analysis excludes deforestation emissions, which would
change the results for Brazil significantly.)

Reduction Cost level Gap before Reduction Cost level Gap after Reduction Cost level Maximum
Country Target
CO2 cost non-CO2 cost meeting point CO2 cost non-CO2 cost meeting point CO2 cost non-CO2 cost Gap
China 6658 <$10 <$15 311 All <$15 -84 All <$60 -527
India* 3619 N/A N/A N/A 0 0 -437 All <$60 -1078
Brazil 1112 N/A N/A N/A N/A N/A N/A All <$60 6
*Achieves goal with only recent policies already enacted

The results of the cost analysis are not significantly different from those under Contraction
and Convergence. China and India could achieve the emissions goal, while Brazil would
find it difficult if not impossible to do so. Even when Brazil exhausted all evaluated
mitigation measures, it would still not achieve the goal, despite the fact that the RC and
deforestation emissions are not included.

China would need to apply all evaluated CO2 mitigation options to reach the goal. Nuclear
and hydro power would thus still be the key areas of mitigation. For the non-CO2
measurements, China could focus on options costing less than $15 per tonne, including
livestock management, agriculture soil management, landfills and other measures. India
could achieve its emissions goal merely by implementing all the recent policies. In Brazil,
in addition to livestock and agriculture soil management, increasing the use of natural gas
using would be another effective option.

III.C Multistage

BAU Emissions Emissions Reduction Reduction (%)


Country Budget (MMT)
China 8,807 7,296 1,511 17%
India 3,619 3,619 - 0%
Brazil 1,603 1,253 350 22%

Under the Multistage policy framework examined in this analysis, for stabilization at 550
ppm the second stage (i.e. the enhanced sustainable development stage) would require a
15%-20% reduction below BAU. Stage 3 would require reductions of 25-30% below
reference, with national emissions declining by three to six percent annually through 2050 in
the final stage. The threshold to enter Stage 2 would be 5 MMTCO2e per capita in 2020 and
3 MMTCO2e in 2050, while the threshold for no additional reductions in Stage 4 would be 2.0
and 1.5 MMTCO2e in those years, respectively.

The analysis indicates that the level of effort in 2020 by India under this policy would be
minimal (no reductions), while China and Brazil would need to make significant reductions in
their 2020 BAU emissions (17% and 22%, respectively). This result largely reflects
differences in the level of development: with the largest per capita GDP of the three Brazil
would be expected to undertake the largest proportional effort, while India (with the lowest)
would not make any reductions in the short-term. In addition, while each country would be
expected to achieve a per capita emissions goal, unlike both the Contraction and Convergence
and Common but Differentiated Convergence frameworks efforts to meet a given level could
be implemented over a longer period. (Multistage requires that countries meet the same per

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capita levels to move to the next stage, but not all at the same time). The reductions in 2020
in China and India are therefore lower under the Multistage framework.

Reduction Cost level Gap before Reduction Cost level Gap after Reduction Cost level Maximum
Country Target
CO2 cost non-CO2 cost meeting point CO2 cost non-CO2 cost meeting point CO2 cost non-CO2 cost Gap
China 7296 <$0 <$0 241 <$10 <$15 -327 All <$60 -1165
India* 3619 N/A N/A N/A 0 0 -437 All <$60 -1078
Brazil 1253 <$10 <$15 30 All <$15 -75 All <$60 -135
*Achieves goal with only recent policies already enacted

As we can see from the table, in contrast to the earlier approaches Brazil could potentially
achieve the goals envisioned under the Multistage approach. It could do so by limiting its
RG emissions to 75 MMTCO2 in 2020, and applying all evaluated CO2 mitigation measures
and those non-CO2 measures that cost less than $15 per tonne. With RG emissions were
greater than 75 MMTCO2e, Brazil would need to utilize higher-cost non-CO2 options. If all of
these options under $60 per ton were implemented, Brazil could still have RG emissions up to
135 MMTCO2e, which may be a more realistic goal.

Although the non-CO2 cost level remains the same, China could meet the Multistage goal by
applying less expensive CO2 measures (less than $10 per ton) than under the previous
framework, if the RG emissions could be limited to no more than 327 MMTCO2e. Among
all CO2 mitigation measures with costs less than $10 per ton, applying more advanced engine
technologies in transportation, reconstructing conventional thermal power units and building
supercritical/ultra supercritical plants in the electricity sector are good choices. The largest
contribution could come from the cement sector, using measures like conversion to
multi-stage pre-heater kilns, combustion system improvement, and high-efficiency powder
classifiers. For the non-CO2 gases, China could continue to focus on options costing less
than $15 per tonne such as livestock management, agriculture soil management, and landfills.

Since India’s BAU emissions are below the emissions budget, implementation of the available
recent policies would allow India to meet the emissions budget without any additional
mitigation. In the case of Brazil, in addition to livestock and agriculture soil management,
reforming the aluminum sector and increasing the level of natural gas using would also be
effective options.

III.D Global Triptych


BAU Emissions Emissions Reduction Reduction (%)
Country Budget (MMT)
China 8,807 6,827 1,980 22%
India 3,619 2,854 765 21%
Brazil 1,603 1,264 339 21%

The Triptych approach determines sectoral allowances based on a set of indicators, and then
adds them to form an aggregate national goal. In this analysis the sectors included are
industry, electricity, domestic, fossil fuel production, agriculture, and waste. The national
goal is binding, but the sectoral levels are not. In contrast to the above three programs,
Triptych allocates allowances based on different criteria in each sector, and only some sectors
consider per capita emissions. As a result, India would make significant reductions along
with China and Brazil. Each country’s proportional reduction in 2020 would be almost the
same, more than one-fifth of BAU emissions. China’s absolute reductions would total
almost 2,000 MMTCO2e, with reductions in India and Brazil falling by more than 750 and
330 MMTCO2e, respectively. The proportional reduction undertaken by China would also
be slightly greater than in Brazil, unlike the previous approaches examined.

Center for Clean Air Policy 10


Reduction Cost level Gap before Reduction Cost level Gap after Reduction Cost level Maximum
Country Target
CO2 cost non-CO2 cost meeting point CO2 cost non-CO2 cost meeting point CO2 cost non-CO2 cost Gap
China 6827 <$10 <$15 142 All <$15 -253 All <$60 -696
India 2854 <$10 <$15 101 All <$15 -179 All <$60 -313
Brazil 1264 <$10 <$15 20 All <$15 -86 All <$60 -146

Under the Global Triptych framework, compared to the first two approaches the emissions
budgets are somewhat higher for China and Brazil but much lower for India. By applying
all possible CO2 mitigation measures and non-CO2 measures with costs up to less than $15
per ton, China, India and Brazil could have emission gaps as large as 253, 179, and 86
MMTCO2e, respectively. Holding RG emissions to below these levels would then achieve
each country’s emissions goal. Brazil would find this approach the easiest to achieve
compared to previous frameworks, while the effort required in India would be greater.

All three countries would still need to implement all CO2 mitigation options evaluated in the
CCAP study. For China, hydro and nuclear power would remain the focus area, with some
relatively lower cost measures in the transportation and electricity sectors also contribute.
With respect to the non-CO2 measures, in addition to the relatively inexpensive options like
livestock management (less than $10 per tonne), China might need to apply other more
expensive measures like fully utilizing coal production measures such as methane reduction
(potentially $50 per tonne or higher) to achieve a more robust reduction goal. For India,
nuclear power would also be a central strategy; replacing diesel by bio-diesel would also
contribute significantly, but at a higher cost. India would also need to implement some
non-CO2 measures in areas such as agriculture soil management, landfills, and HCFC-22
production. In Brazil, the reduction measures utilized would be nearly the same as under the
Multistage approach.

III.E Sectoral (Three Sectors)

Emissions Reduction
Country BAU Emissions Budget (MMT) Reduction (%)
China 7,870 5,746 2,124 27%
India 3,934 2,978 956 24%
Brazil 1,514 1,492 22 1%

The Sectoral approach examined here would focus on the achievement of “no lose” intensity
benchmarks in key sectors. Ecofys conducted an analysis for CCAP of the application of the
Sectoral approach in the electricity, cement, and iron and steel sectors in the year 2020. This
study was conducted earlier than the other analyses, so different BAU projections were used.
The results therefore are not directly comparable, but do offer some insights into an
application of the sectoral approach.

As shown above, China and India would make significant reductions in their emissions.
With their heavy use of coal for electric power generation and industrial production, both
China and India would reduce their emissions by about one-quarter in 2020. The results for
Brazil are very different under this policy, however: unlike all the other approaches examined,
Brazil’s reductions would be minimal (only about 22 MMTCO2e, 1% of BAU emissions).
Brazil’s electricity sector is very low emitting: hydropower provides the overwhelming
majority of Brazil’s electricity, and its domestic supply of coal is minimal and generally low
quality. The emissions intensity of its iron and steel industry is also relatively low. The
additional emission reduction potential that could be achieved in Brazil through a Sectoral
approach is thus limited in these sectors.

Due to the difference in baselines used, a full mitigation and cost analysis of the sectoral
approach was conducted only for the six-sector analysis, presented below.

Center for Clean Air Policy 11


III.F Sectoral (Six Sectors)

BAU Emissions Emissions Reduction Reduction (%)


Country Budget (MMT)
China 8,807 6,996 1,811 21%
India 3,619 2,898 721 20%
Brazil 1,603 1,542 61 4%

A more recent Sectoral approach analysis was conducted for the study, using the same
baseline as in the analyses of Contraction and Convergence and other approaches. This
analysis (also for 2020) includes more sectors than the previous one: electricity, iron and steel,
and cement as before, but also oil refineries, transportation, and pulp and paper. With their
heavy use of coal China and India would reduce their emissions by about one-fifth in 2020,
their reductions being only slightly below those obtained for both countries in the Global
Triptych policy analysis. The results for Brazil mirror those in the earlier sectoral analysis:
Brazil’s reductions would be only about 60 MMTCO2e, or 4% of BAU emissions. As noted
above, emission intensities in electricity and industry are relatively low. In addition, the
transportation sector is also low emitting due to its ethanol fuels program.

The earlier sectoral analysis uses different baselines and assumptions, which contributes to
the significant differences in the results. With respect to China, both absolute and
proportional reductions decrease despite the addition of three sectors and the larger (by 12%)
baseline. This is in part due to the inclusion of the other sectors, which under the
assumptions used for the analysis reduces the reduction activities required in the electricity
sector and leads to a relatively higher use of coal compared to the first sectoral analysis.
Lower reductions are also observed in India, due mostly to the lower emissions baseline
assumed. In Brazil the results are as expected: both absolute and proportional reductions are
increased by including the three additional sectors.

Reduction Cost level Gap before Reduction Cost level Gap after Reduction Cost level Maximum
Country Target
CO2 cost non-CO2 cost meeting point CO2 cost non-CO2 cost meeting point CO2 cost non-CO2 cost Gap
China 6996 <$0 <$0 541 <$10 <$15 -27 All <$60 -865
India 2898 <$0 <$0 57 <$10 <$15 -223 All <$60 -357
Brazil* 1542 N/A N/A N/A 0 0 -251 All <$60 -424
*Achieves goal with only recent policies already enacted

The most prominent change under the six sector approach is that Brazil would have a good
chance to achieve the emissions goal, if its RG emissions could be limited to no more than
251 MMTCO2e. This appears feasible considering the high ratio of RG emissions relative to
the goal (about 16%). To reach that point, Brazil needs only to fully implement all available
recent policies in the CO2 report; no additional CO2 or non-CO2 gas measures would be
required.

In contrast, China and India require a significantly greater effort. India might achieve the
mitigation goal at a cost <$15 per tonne if its RG emissions could be held below 223
MMTCO2e, while China would find this more difficult with RG emissions limited to just 27
MMTCO2e for this cost level. When all available CO2 mitigation options and non-CO2
measures up to $60 per ton are implemented, China could have RG emissions as high as 865
MMTCO2e. The country would thus most likely need to utilize many options with cost
higher than $15 per tonne to achieve the emissions goal. For India, lower cost CO2
mitigation measures < $10 per tonne such as wind and nuclear power (net cost saving
measures) would be key options. For the non-CO2 gases, India could apply some of the
measures discussed in the Triptych approach.

Center for Clean Air Policy 12


III.G Intensity Targets (per unit of GDP)

BAU Emissions Emissions Reduction Reduction (%)


Country Budget (MMT)
China 8,807 7,264 1,543 18%
India 3,619 2,764 855 24%
Brazil 1,603 1,191 412 26%

The Intensity Target framework assumes an equal effort (achievement of either an absolute
final goal or an annual proportional reduction) of reduction in GHG emissions per unit of
GDP for all countries. This analysis assumed a 4% annual reduction of GHG intensity for
all countries through 2020, with stabilization in 2050. Under such a scenario China’s GHG
reduction in 2020 would be 1,500 MMTCO2e, or 18% below BAU, lower than in all of the
other scenarios except for the Multistage policy. In contrast, India’s 24% reduction would
be its largest compared to all the other policies. Brazil would also make a large reduction
(26%), comparable to its largest reduction under Contraction and Convergence. The
relatively lower scale of China’s reductions may reflect differences in the rate of GDP growth
relative to population or production in some cases.

Reduction Cost level Gap before Reduction Cost level Gap after Reduction Cost level Maximum
Country Target
CO2 cost non-CO2 cost meeting point CO2 cost non-CO2 cost meeting point CO2 cost non-CO2 cost Gap
China 7264 <$0 <$0 273 <$10 <$15 -295 All <$60 -1133
India 2764 <$0 <$0 191 <$10 <$15 -89 All <$60 -223
Brazil 1191 <$10 <$15 93 All <$15 -13 All <$60 -73

Under the intensity framework, China would likely find it easier to achieve the emission goal
compared to many of the other policy frameworks. It might even be able to accomplish this
at a cost of less than $15 per tonne, provided the country’s RG emissions did not exceed 295
MMTCO2e. In contrast, both India and Brazil would find this policy more difficult. Even
all possible measures were used, India and Brazil would still have only a relatively small
range (less than 10% of the target) within which their RG emissions would need to be held to
achieve their intensity targets.

IV. Summary: Contribution of each Country to Global Emissions


and Reductions
The following illustrates the contribution made by the three countries to reducing global
emissions in 2020 under each policy framework. The combined total emissions budgets and
reductions are given for China, India and Brazil, along with the total reduction below the
projected global BAU emissions in 2020.

Three-Country Contribution to Global Emission Reductions in 2020

Sectoral GHG
Policy C&C CDC Multistage Triptych (6 sectors) Intensity
Emissions Budget 11,316 11,389 12,168 10,945 11,436 11,219
Reduction (MMT) 2,713 2,640 1,861 3,084 2,593 2,810
Reduction (%) 5.4% 5.2% 3.7% 6.1% 5.1% 5.5%
Share of global reductions 24% 24% 16% 26% 23% 25%

The results indicate that in these scenarios, reductions in these three countries combined
would reduce global emissions by a maximum of 6%. Under the two primarily per capita

Center for Clean Air Policy 13


emissions frameworks (Contraction and Convergence and Common but Differentiated
Convergence), China, India and Brazil reduce their emissions by about 2,700 MMTCO2e.
This would decrease global emissions by more than 5%, accounting for one-fourth of the total
world reductions in 2020. The results are similar for the approaches based on emissions
intensity (sectoral and per unit of GDP). The Triptych approach takes into account the
specific national circumstances of each country and assumes that emissions are addressed in
all major sectors. It thus produces the largest reductions of all (over 3,000 MMTCO2e),
reducing global emissions by 6.1%.

The lowest level of reductions is achieved in these three countries under the Multistage
approach. Under this policy China, India and Brazil would achieve only about 1,900
MMTCO2e, a 3.7% reduction in global emissions, much lower than in the other scenarios.
This policy would allow for considerable flexibility in the time frames required for countries
to implement emission reductions, contributing to the lower level of reductions achieved
compared to the other policies.

The results of this study indicate that significant reductions would be achieved by each
country under many of the frameworks examined. China would implement significant
reductions under each scenario, from 17-27% below BAU levels in 2020. India would
achieve low or zero levels of emission reductions under Contraction and Convergence,
Common but Differentiated Convergence, and Multistage scenarios due to its relatively low
level of emissions per capita, but would reduce emissions by 20-25% under the other policies
evaluated. Brazil’s reductions would be high (about 20-30%) in most scenarios, but would
be low under a Sectoral approach as its economy is less carbon-intensive in many sectors.
The results further indicate that many of the policies may require implementation of policies
costing at least $15/tonne in each country. The costs for China would likely be higher in
some cases (e.g., Common but Differentiated Convergence), while in India the per
capita-based approaches would be the least and the Triptych and Intensity Target approaches
the most expensive. Brazil would likely find it very expensive to meet the goals envisioned
under all but the Sectoral policy, although the inclusion of deforestation could change the
relative reductions and costs required significantly.

Center for Clean Air Policy 14


Appendix I: Analysis of the Implications of Proposed International
Climate Policies for China
This section presents the results of an analysis of the macroeconomic implications of
proposed international climate policies for China, based on CCAP’s analysis of emissions
reductions expected to be achieved under various international climate policy frameworks in
this report. This work was conducted by the Research Center for International
Environmental Policy at the Department of Environmental Science and Engineering,
Tsinghua University, China. We employed the GTAP-E model for this simulation.

I. Proposed International Policies Examined for China


The potential global climate policy frameworks we examine are: Contraction and
Convergence, Common but Differentiated Convergence, Multistage, Triptych, Sectoral, and
Intensity Targets.

Detailed illustration on principles and assumptions in each framework can be found in


CCAP’s analysis. Here we list out the emissions and reductions in China in 2020 under each
international policy, based on that analysis, as shown in Table A-1. In the table, those
underlined options are considered to be a more realistic and more likely way to achieve the
emission goal. Therefore, they are the options which we will model for each framework.

Center for Clean Air Policy 15


Table A-1. Emission budget, mitigation measures and associated costs for China under each proposed international policy

Option 1 for emitting under budget Option 2 for emitting under budget

Hold its Hold its


Utilize Utilize
BAU Emissions Utilize residual Utilize residual
evaluated evaluated
Emissions Budget in Reduction Reduction non-CO2 GHG (RG) non-CO2 GHG (RG)
CO2 CO2
in 2020 2020 (MMT) (%) mitigation emissions mitigation emissions
reduction reduction
(MMT) (MMT) options less less than the options less less than the
measures measures
than the following than the following
less than the less than the
following level following level
following following
cost levels (MMTCO2e cost levels (MMTCO2e
cost levels cost levels
) )

A) Contraction All cost $15 per ton All cost $60 per ton
8807 6744 1860 22% 170 613
and Convergence levels of CO2e levels of CO2e
B) Common but
All cost $15 per ton All cost $60 per ton
Differentiated 8807 6658 2149 24% 84 527
levels of CO2e levels of CO2e
Convergence
$10 per ton $15 per ton All cost $60 per ton
C) Multistage 8807 7296 1511 17% 327 1165
of CO2 of CO2e levels of CO2e
D) Global All cost $15 per ton All cost $60 per ton
8807 6827 1980 22% 253 696
Triptych levels of CO2e levels of CO2e
$10 per ton $15 per ton All cost $60 per ton
F) Sectoral 8807 6996 1811 21% 27 865
of CO2 of CO2e levels of CO2e
G) Intensity $10 per ton $15 per ton All cost $60 per ton
8807 7264 1543 18% 295 1133
Targets of CO2 of CO2e levels of CO2e

Center for Clean Air Policy 16


II. Introduction to GTAP-E model
The model used in this paper is an extended version of Global Trade Analysis Project (GTAP) – GTAP-E.
GTAP-E is based on the version 6.2 of the GTAP model, which is administered by the Center for Global
Trade Analysis, Purdue University. It is a comparative static multi-regional CGE model which captures
world economic analysis in 57 sectors of 87 regions. Borckmeier (1996) and Truong (1999) elaborate the
structure and principles of GTAP and GTAP-E. Here we simply display the graphical representations of
production structure and capital-energy nest of GTAP-E in figure 1 and 2. Based on the original GTAP-E
model, we adjusted the model structure in regional and sectoral disaggregation to fit our research targets.
The world had been re-divided into 6 regions: EU, USA, Other developed countries, China, India, and
Other developing countries. And fourteen sectors are studied in our model: Agriculture, iron and steel,
chemical, non-metallic minerals, transportation, pulp and paper, power generation, non-ferrous metal,
service, other manufacturing, petroleum and coking, coal mining, oil, and natural gas exploitation. The
year of all base data is 2001.

Fig. 2. GTAP-E structure of the


Fig. 1. GTAP-E Production Structure
Capital-Energy Composite Structure

III. Input into the GTAP-E model


Policies such as mitigation measures or carbon taxes implemented at the micro level will in turn produce
impacts at the macro level of the economy. The first step of the analysis is to determine whether there
would be differences in the types of micro-level changes to be imposed among the 6 policy frameworks
and what are they (if there will be). It is worthy to note that frameworks A) B) C) and G) are either based
on emissions per capita or emission per unit of GDP. However, the emission reductions will still need to
be achieved through the utilization of mitigation measures in five CO2-emitting sectors from CCAP
Phase I (electricity, iron and steel, cement, pulp and paper, and transportation), three additional CO2
emitting sectors from IEA (residential, service/commercial, and agriculture) and other places that emit
non-CO2 gases. The order of utilization of mitigation measures will be based on their cost effectiveness.
Therefore, we can assume that there is no difference in changes at the micro level among these four types
of policy framework. For the other two frameworks D) and F), they give sectors different emission
allowances. D) Global Triptych includes “industry, electricity, domestic, fossil fuel production, agriculture,
and waste” in the analysis; and F) Sectoral includes “electricity, iron and steel, and cement, oil refineries,
transportation and pulp and paper”. Actually the sectors chosen by D) and F) nearly cover all big CO2 and
non-CO2 emitting sectors, and in table 1, both frameworks could reach the emission target under the
premise of using all CO2 mitigation measures and <$60 non-CO2 mitigation measures. Therefore, we
assume that the types of micro-level changes to GTAP-E from D) and F) are the same.

Second step is to find the way of how to model the mitigation of CO2 and non-CO2 gases, although

Center for Clean Air Policy 17


GTAP-E is not good at modeling non-CO2 gases mitigation. Figure 3 from report Factors Underpinning
Future Action by Ecofys tells us that in China in 2004, the CO2 (excluding LUCF) accounted for the
majority part (72%) of the total GHG emissions, and they are mostly from electricity and heat, iron and
steel, cement, transport and other important sectors in the whole economy. The remaining sectors that
emit non-CO2 gases are industries that are less fundamental to the economy. So we can foresee that
mitigation in those non-CO2-gases emitting sectors will not have an obvious impact on the
macro-economy. Considering the characteristics that GTAP-E is not good at modeling non-CO2 gases,
here we decide to model only the mitigation actions in CO2 emitting sectors, to represent the
macro-economic impacts of different policy frameworks (although they may have some mitigation from
non-CO2-emitting-sectors).

Fig. 3. GHG emissions in China

Reviewing the micro-level changes in A) B) C) and G) as well as those in D) and F), technically, the
changes in the GTAP-E model should be different (in the sectors they affect); however, due to the fact that
all CO2-mitigation actions need to be done, there will be no big differences between the sectors and the
scale of mitigation actions they used. Therefore, finally, we judge that the implications of the proposed 6
types of international climate policies will fall into two categories:

Table A-2. Two kinds of micro-level changes in modeling


Suitable for the following types of international climate
policies
A) Contraction and Convergence
B) Common but Differentiated Convergence
1 All cost levels*
D) Global Triptych
F) Sectoral
C) Multistage
2 Envy $10**
G) Intensity Targets
*Note: All cost levels doesn’t mean envying an infinite carbon tax. According to the emission reduction
level corresponding to utilizing all mitigation measures, we simulate a $15 carbon tax to represent the “all
cost levels”.
** Envying $10 in the model will influence the behaviors of stakeholders in the GTAP-E model. It
corresponds to the implementation of all measures costing less than $10/metric ton of CO2 reduction.

Center for Clean Air Policy 18


IV. Modeling results

Although GTAP-E is a global CGE model, here we only impose a carbon tax and present the results as follows.

(1) Effects on GDP


International climate policies
Effects on GDP International climate policies
A) B) D) F) (levying $15 carbon
(%-change) C) G) (levying $10 carbon tax)
tax)
EU 0.008 0.012
USA 0.001 0.001
Other Annex-I Countries 0.006 0.009
China -0.128 -0.205
INDIA 0.011 0.015
Rest of the World 0.004 0.005

China will experience a GDP loss due to the levying of carbon tax. In the context of levying $10 carbon
tax, 0.128% of GDP (equal to 14 billion Yuan6 in the year 2001 price) will be lost. In addition to the $15
carbon tax, 0.205% of GDP will be lost, equal to 22.5 billion Yuan (price in 2001). GDP in India will be
benefited most (increase by 0.011%), followed by EU and other Annex-I countries.

(2) Effects on industrial production


Effects on industrial production International climate policies International climate policies A)
(%-change) C) G) B) D) F)
Agriculture -0.2 -0.3
Iron and steel -1.1 -1.6
Chemical -1.3 -1.9
Non-metallic minerals -0.5 -0.8
Transportation -0.3 -0.4
Pulp and paper -0.3 -0.4
Power Generation -2.1 -3.0
Non-ferrous metal -1.5 -2.1
Service -0.1 -0.1
Other manufacturing -0.3 -0.4
Petroleum and coking -4.2 -6.2
Coal mining -5.8 -8.2
Oil extraction -0.6 -0.9
Natural gas exploitation -25.4 -33.3

Due to the constraints of carbon emissions and the levying of carbon tax, all the sectoral productions in
China will be decreased in these international climate policies. The largest micro-level changes will be
given to natural gas exploitation sector, followed by coal mining, petroleum and coking, as well as power
generation. These are all power supply and power transformation sectors. In contrary, those less
emission-intensive sectors such as service and agriculture will be affected to the least extent.

6
GDP in 2001 in China was 10965.5 billion Yuan (price in 2001).

Center for Clean Air Policy 19


(3) Effects on market price
Effects on market price (%-change) International climate policies C) G) International climate policies A) B) D) F)
Agriculture -0.16 -0.24
Iron and steel 0.92 1.34
Chemical 0.58 0.85
Non-metallic minerals 0.34 0.49
Transportation 0.05 0.09
Pulp and paper 0.04 0.05
Power Generation 4.71 6.89
Non-ferrous metal 0.55 0.79
Service -0.29 -0.42
Other manufacturing -0.04 -0.06
Petroleum and coking 1.89 2.87
Coal mining -6.73 -8.65
Oil extraction -0.43 -0.64
Natural gas exploitation 4.93 7.73

Various effects are shown in sectoral products’ market prices. First, coal mining, the sector that produces
the most carbon-intensive product – coal, will have the biggest fall in product’s market price, because
carbon tax reduces the demand for coal. The oil extraction sector will have the same effect, but not that
severe as the coal mining sector. Second, we witness big price increases of natural gas and electricity.
Stringent policy on carbon emission will increase the demand for less carbon-intensive energy – natural
gas, which turns out to be a good alternative in terms of the lower price compared to the new energy and
the lower emissions compared to coal and oil. The power generation sector, the top emitting sector in
China, will be largely constrained by the carbon tax policy, so it will change its generation fleet into a
cleaner direction, which also increases the generation costs and finally raises the electricity price. For the
normal manufacturing sectors, the carbon tax will also influence production techniques and increase the
costs for production.

(4) Effects on employment


Effects on demand for aggregate labor
International climate policies C) G) International climate policies A) B) D) F
(%-change)
Agriculture -0.13 -0.20
Iron and steel 2.23 3.27
Chemical 0.85 1.25
Non-metallic minerals 1.00 1.45
Transportation 0.64 0.97
Pulp and paper 0.34 0.48
Power Generation 6.60 9.67
Non-ferrous metal 1.43 2.07
Service -0.22 -0.33
Other manufacturing -0.32 -0.47
Petroleum and coking -1.08 -1.52
Coal mining -7.94 -10.86
Oil extraction -0.59 -0.90
Natural gas exploitation -22.70 -29.53

Center for Clean Air Policy 20


The carbon tax will most negatively affect employment demand in the gas exploitation sector, followed
by the coal mining sector. This is consistent with the biggest fall that happens in these sectors’ industrial
output. Most of the other power supply sectors will experience similar but smaller effects. The power
generation sector, will have a slight fall in industrial output, but meanwhile has the biggest increase in
labor demand. This could be explained by the larger demand of labor in new energy power plants.

(5) Effects on exports and imports


Effects on trade balance (%-change) International climate policies C) G) International climate policies A) B) D) F)
EU -0.0002 -0.0003
USA -0.0001 -0.0001
Other Annex I Countries -0.0003 -0.0004
China 0.0033 0.0049
INDIA -0.0002 -0.0003
Rest of the World -0.0002 -0.0002

Due to the levying of carbon tax, China will have more net exports, increased by 0.0033% in multistage
and intensity target frameworks, and by more – 0. 0049% in other frameworks.

(6) Effects on trade balance


Effects on trade balance ($US million) International climate policies C) G) International climate policies A) B) D) F)
Overall 4586 6618
Agriculture 382 563
Iron and steel -479 -696
Chemical -1363 -1993
Non-metallic minerals -163 -232
Transportation 16 20
Pulp and paper 23 38
Power Generation -52 -75
Non-ferrous metal -296 -418
Service 1013 1488
Other manufacturing 3382 5027
Petroleum and coking -202 -307
Coal mining 1101 1430
Oil extraction 1249 1821
Natural gas exploitation -27 -46

Where does this growth in net exports come from? We can tell from the table above that other
manufacturing, oil extraction, coal mining and service sectors are the main contributors to the net export
growth, because their prices are falling more rapidly than in other countries. Chemical, iron and steel and
non-ferrous metal sectors will suffer major losses in export goods, because the prices increase.

Center for Clean Air Policy 21


V. Conclusions
Due to the fact that the micro-level changes from different climate policy frameworks to the model are the
same, these frameworks share similar type of macroeconomic impacts to China. These impacts are
characterized by: (1) GDP loss; (2) industrial output decrease in all sectors; (3) net export increase,
mainly contributed by other manufacturing, oil extraction, coal mining sectors; chemical as well as iron
and steel sectors will suffer from less exports; (4) general increase in sector products’ market prices, but
not in those sectors that produces the most carbon-intensive products – coal and oil; 5) less demand for
labor in energy supply sector (such as natural gas exploitation and coal mining) but larger demand in
power generation sector.

In all, multistage and intensity targets framework will achieve the emission budget with less GDP loss
(about 0.128%); whereas, the other three frameworks – contraction and convergence, common but
differentiated convergence, and sectoral will result in more GDP loss (about 0.205%).

The limitations of this macroeconomic analysis should be noted. In theory, modeling the real impacts of
these frameworks will need information on reduction levels in all countries in the world; however, here
we are only informed by the needed emission reductions in China, India and Brazil. Frankly speaking,
modeling the emission reductions only in China is unrealistic; yet modeling the emission reductions in
these three developing countries at the same time would be even more unrealistic. Therefore, in terms of
the condition that we don’t have extra information on the mitigation level of major developed countries in
these policy frameworks, we’d rather choose to model the emission reductions only in China, to clearly
inform about policies’ effects’ to different elements in China’s macro-economy, which will provide a good
base for the further simulation of mitigation in more countries.

References for GTAP-E model:


Borckmeier, M., 1996. A graphical exposition of the GTAP model, Center for Global Trade Analysis,
West Lafayette, Purdue University.
Truong, T.P., 1999. GTAP-E. Incorporating Energy Substitution into GTAP Model. Purdue: Center for
Global Trade Analysis, Purdue University.

Center for Clean Air Policy 22


Center for Clean Air Policy 23
Since 1985, CCAP has been a recognized world leader in climate and air quality policy and is the only independent,
non-profit think-tank working exclusively on those issues at the local, national and international levels.
Headquartered in Washington, D.C. CCAP helps policymakers around the world to develop, promote and implement
innovative, market-based solutions to major climate, air quality and energy problems that balance both environmental
and economic interests. For information about CCAP please visit www.ccap.org.

Center for Clean Air Policy


750 First Street, NE • Suite 940
Washington, DC 20002

Tel: 202.408.9260 • Fax: 202.408.8896

Center for Clean Air Policy 24

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