Cooperation to promote low-Cooperation to promote low-carbon economic developmentcarbon economic development

Path and visionPath and vision

26 26thth November 2010 November 2010

PRIVATE AND CONFIDENTIAL – FOR DISCUSSION PURPOSES ONLYPRIVATE AND CONFIDENTIAL – FOR DISCUSSION PURPOSES ONLY

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Global Low-carbon Movement and China's Global Low-carbon Movement and China's GrowthGrowth Is Climate Change risky for the World and China?

 

Is there a New Industrial Revolution and Transition to low-carbon growth path?

What will be the magnitude of the change and implication?

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Current status of greenhouse gas emission in Current status of greenhouse gas emission in the world and Chinathe world and China

Greenhouse gas concentrations or stocks have increased from around 285ppm in the 1800s to over 430ppm CO2e today.

We are adding at a rate of over 2.5ppm per year (likely to accelerate with little or weak action). Business as usual likely to take us over 750ppm by the end of the century.

This level of concentration would result in a large probability, perhaps 50%, of an eventual temperature increase of more than 5°C compared with the pre-industrial era. This would be enormously destructive.

Physical and human geography would be transformed. Deserts, coastlines, rivers, rainfall patterns, the reasons we live where we do, would be redrawn. The planet has not seen such temperatures for 30 million years. Potential cause of migration of hundreds of millions, perhaps billions, of people around the world.

China is especially vulnerable with its large fraction of the population near the coast, its pressures on water supply, its dependence on the Himalayan region as a water source, and many populous countries on its borders.

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Current intention in China Current intention in China

Impossible to ignore the arithmetic. For a 2°C target: global emissions need to be around 44 billion tonnes CO2e in 2020; under 35 billion tonnes in 2030; and under 20 billion tonnes in 2050.

China’s emission in 2010 approximately 6 billion tonnes CO2e (or 22.3% of world total). China overtakes US as world’s biggest CO2 emitter.

For the world to stay on a 2°C path, China will need to reduce its emissions to around 9 billion tonnes by 2030 (or 29% of world total). The compound annual growth rate is 2.05% (2010-2030).

China has indicated voluntary action to decrease carbon dioxide emission per unit of GDP by 40-45% between 2005 and 2020. Has also indicated targets for non-fossil fuels and for forestry.

This target of 2020 is a major contribution to the global effort in tackling Climate Change.

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China 11th 5-year plan achievement

20% emission reduction targets have been achieved ahead of schedule during China 11th five-year plan. The total emission reductions are estimated around 500 million tons CO2 in last five years.

But high energy consumption and high emission industries, still support economic growth in some areas of China; low-carbon and low-emission models are still not in the central station of the economic arena.

Wind power develops rapidly through 11th 5-year plan.

Energy type Installed capacity in 2008

Percentage of the total installed

capacity

Installed capacity in 2010

Percentage of the total installed

capacity

Coal-fired power 602.61 million kw 76.05% 700 million kw 73.68%

Hydro power 173 million kw 21.79% 210 million kw 22.11%

Biomass power 3 million kw 0.38% 5.5 million kw 0.58%

Wind power 12.15 million kw 1.53% 23.8million kw 2.51%

Solar power 0.14 million kw 0.02% 1 million kw 0.11%

Nuclear power 9.1 million kw 1.15% 9.7 million kw 1.02%

Total Capacity in China

794 million kw 100% 950 million kw 100%

Source: State Energy Bureau of China, NDRC

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China 12th-13th 5-year plan highlights

The emission reduction target of 12th 5-year plan is set around 16%. In order to complete the objectives, policies on the incentives needed to protect their

policies to protect their sustainability, equity, and operability. The target of 12th 5-year plan is combined with the international carbon emission targets

and worked out, and will also have a significant impact on the existing power structure in China.

Nuclear power and solar photovoltaic have been concerned in the medium-term and long-term plans of new energy with the big perspective of demand.

Energy type Installed capacity in 2010

The proposed 2015 target

(12th 5-year plan)

The proposed 2020 target

(13th 5-year plan)

Compound annual growth rate (10 years)

Coal-fired power 700 million kw 951 million kw 1205 million kw 5.58%

Hydro power 210 million kw 270 million kw 330 million kw 4.62%

Biomass power 5.5 million kw 15 million kw 30 million kw 18.49%

Wind power 23.8million kw 70 million kw 120 million kw 17.56%

Solar power 1million kw 5 million kw 20 million kw 34.93%

Nuclear power 9.7 million kw 39 million kw 85 million kw 24.24%

Total Capacity in China 950 million kw 1350 million kw 1790 million kw /

Source: State Energy Bureau of China, NDRC, and Goldman Sachs

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China 12th-13th 5-year plan highlights

Under the control of the China macroeconomic policy, production model will be led to a transition from the high energy consumption and high emissions to the low-carbon, and low energy consumption.

Interest in establishing carbon trading schemes is also growing. The NDRC has recently announced that China may adopt domestic carbon trading schemes during the 12th 5-year plan. Leading Chinese power companies have already piloted GHG emission measurement and reporting in preparation for future schemes. Market mechanisms may be able to achieve intensity targets and emissions reductions more effectively, efficiently and equitably than command-and-control type policies.

Low-carbon growth in China is vital for China’s own future. The urgency, the scale of the required changes and the magnitude of the opportunities in the new economy, mean that green policies should be at the heart of the 12 th and 13th 5-year plans.

Source: State Energy Bureau of China, NDRC

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Clean energy development Clean energy development

Million KW

Source: State Energy Bureau of China, NDRC

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Business opportunitiesBusiness opportunities

Carbon trading mechanisms can promote low carbon economic development role.

International emission trading market

Trading mechanisms under the Kyoto Protocol framework

- Clean Development Mechanism (CDM)

(Expected average annual CERs from registered projects of the world total is 397,027,673tCO2e, including 61.61% of total in China;

Issued CERs of the world total is 455,310,253 tCO2e, including 50.99% of total in China.)

- Emission Trading (ET)

- Joint Implementation (JI)

Low-carbon market in China

- The rise of voluntary emission reduction markets.

(Growing interest in China’s cities to pilot market-based emissions trading schemes. Shanghai, Beijing and Tianjin have established voluntary environmental exchanges.)

Investment in new energy in China equity market

Source: UNFCCC, 22nd Nov. 2010

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China’s new low-carbon policiesChina’s new low-carbon policies

China has promulgated a series of low-carbon policies. Under the promotion of new low-carbon policies, it will change the business or individual consciousness and behavior in the energy ideas.

Many companies have taken "low-carbon economy" and "carbon footprint" as one of important indicators to measure corporations’ social responsibilities.

Individuals have reduced the influences from and made compensation to the carbon footprint produced to a certain extent through the tree planting in the form "carbon compensation" and "carbon offset".

State Council approved in principle (8 September 2010) a decision on speeding up the cultivation and development of emerging strategic industries, the “Magic 7”. Includes: energy saving and environmental protection; next generation information technology; bio-tech; high-end manufacturing; new energy; new materials; and clean energy vehicles.

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Impact of low-carbon economy on China’s Impact of low-carbon economy on China’s energy structure energy structure

The impact of low-carbon economy on China’s energy structure can be seen from its power structure in the 12th 5-year plan.

China’s 12th 5-year plan has made it clear to develop new energy, among which nuclear energy grows the fastest. Particularly its installed capacity, which has been raised constantly in the nuclear power plan, from the current 9.77 million kilo watts to 85 million kilo watts in 2020, increasing by 8.8 times. It is estimated that RMB 990 billion of construction funds will be required for investment. The market capacity accounting for nearly 50% nuclear power equipment will be as high as RMB 500 billion, which will be an enormous market.

The most potential of the new energy is nuclear energy. It has many advantages in terms of sustainability and cost performance. With the strong points such as stable return of investment and good benefits, nuclear power is a kind of currently feasible energy which can replace coal.

Horizontal comparison was made among nuclear power, the power generation from solar energy, and wind power. The nuclear energy enjoys the largest investment amount and the most obvious benefits to the industrial chain.

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Promulgated renewable energy development Promulgated renewable energy development policies in Chinapolicies in China “Renewable Energy Law” 2006.1.1 NPC

“Renewable Energy Law on the Revision ” 2010.04.01 NPC

“Management regulations for electricity generation from renewable energy” 2006.2.6 NDRC

“Tentative management measures for price and sharing of expenses for electricity generation from renewable energy” 2006.2.10 NDRC

“Special funds for renewable energy development management practices” 2006.5.30 NDRC/MoF/CSC/MLR

“Mid-Long term Development Plan for Renewable Energy ” 2007.9.4 NDRC

“The Eleventh Five-Year Plan for renewable energy development management practices” 2008.3.8 NDRC

Uncertainty: Stability of China’s clean energy policies and continuity in the process of implementation.

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Conclusion Conclusion

Equity investment on clean energy sector

Emission permits of carbon trade under low-carbon economy

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