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Double Impact: Why China Needs Coordinated Air Quality and Climate Strategies

Written by Valerie Karplus, an Assistant Professor in the Global Economics and Management Group at the MIT Sloan School of Management and the Director of the MIT-Tsinghua China Energy and Climate Project, this paper examines China’s current approach to tackling air pollution and carbon mitigation nationally and argues that more incentives are needed if China hopes to meet its “peak carbon” goal by 2030.

The urgency with which Beijing is tackling air pollution is certainly positive, and such actions will lead to concomitant benefits in curtailing carbon dioxide (CO₂) emissions, to a certain extent. But Karplus argues that it would be a mistake to view the current initiatives on air pollution, which are primarily aimed at scrubbing coal-related pollutants or reducing coal use, as perfectly aligned with carbon reduction.

This is not the case, according to Karplus. Air pollution reduction is only partly aligned with CO₂ reduction, and vice versa. In addition to air pollution efforts, effective co-control requires a more significant step: a meaningful price on carbon. This is especially so if Beijing is to realize its 2030 pledge. Put another way, air pollution control efforts, while essential, will only take China part of the way toward its stated carbon reduction goals.

One major reason is because while low-cost solutions for air pollution and carbon reduction can overlap, the reality is that co-benefits run out after low-cost opportunities to reduce or displace the fuels responsible for both carbon and air pollution emissions—mostly coal in China’s case—are exhausted. In other words, co-benefits diminish over time as greater reductions are needed, according to Karplus.

This paper originally appeared as part of the Paulson Papers on Energy and Environment series.

Electricity generation costs of concentrated solar power technologies in China based on operational plants

Recent years witnessed a sharp increase of CSP (concentrated solar power) plants around the world. CSP is currently at its early stage in China, with several demonstration and utility-scale plants underway. China's rising electricity demand, the severe environmental pollution from coal-fired power plants, and favorable renewable energy policies are expected to result in a large-scale CSP deployment in the next years. Detailed CSP studies for China are however hardly available. To fill this knowledge gap, this study collects plant-specific data in a national CSP database in collaboration with local CSP experts. On this basis, this study analyzes and benchmarks the costs of parabolic trough CSP, tower CSP, and dish CSP technologies in China by applying an LCOE (levelized cost of electricity) model. The current LCOE for the different CSP plants falls in a range of 1.2–2.7 RMB/kWh (0.19–0.43 US$/kWh). Among the three CSP technology variants discussed, our sensitivity analysis indicates that the tower CSP variant might have the greatest potential in China. We expect a future cost reduction potential of more than 50% in 2020 and a high share of local content manufacturing for tower CSP.

Electricity Investments under Technology Cost Uncertainty and Stochastic Technological Learning

Given that electricity generation investments are expected to operate for 40 or more years, the decisions we make today can have long-term impacts on the electricity system and the ability and cost of meeting long-term environmental goals. This research investigates socially optimal near-term electricity investment decisions under uncertainty in future technology costs and policy by formulating a computable general equilibrium (CGE) model of the U.S. as a two-stage stochastic dynamic program. The unique feature of the study is a stochastic formulation of technological learning. Most studies that include technological learning utilize deterministic learning curves in which a given amount of investment, production or capacity leads to a given cost reduction. In a stochastic framework, investment in a technology in the current period depends on uncertain learning that will result and lower future costs of the technology. Results under stochastic technological learning suggest that additional near-term investment relative to what is optimal under no learning can be justified at technological learning rates as low as 10–15%, and at the 20–25% rates commonly found in literature for advanced non-carbon technologies, significant additional near-term investment can be justified. We also find it can be socially optimal to invest more in non-carbon technology when the rate of learning is uncertain compared to the case where the learning rate is certain. Increasing marginal costs produce an asymmetric loss function that under uncertainty leads to more near-term non-carbon investment in attempt to avoid the situation of high non-carbon costs and an external economic environment that creates high demand for non-carbon technology.

Emulating maize yields from global gridded crop models using statistical estimates

This study estimates statistical models emulating maize yield responses to changes in temperature and precipitation simulated by global gridded crop models. We use the unique and newly-released Inter Sectoral Impact Model Intercomparison Project Fast Track ensemble of global gridded crop model simulations to build a panel of annual maize yields simulations from five crop models and corresponding monthly weather variables for over a century. This dataset is then used to estimate statistical relationships between yields and weather variables for each crop model. The statistical models are able to closely replicate both in- and out-of-sample maize yields projected by the crop models. This study therefore provides simple tools to predict gridded changes in maize yields due to climate change at the global level. By emulating crop yields for several models, the tools will be useful for climate change impact assessments and facilitate evaluation of crop model uncertainty.

Enhanced marine sulphur emissions offset global warming and impact rainfall

Artificial fertilisation of the ocean has been proposed as a possible geoengineering method for removing carbon dioxide from the atmosphere. The associated increase in marine primary productivity may lead to an increase in emissions of dimethyl sulphide (DMS), the primary source of sulphate aerosol over remote ocean regions, potentially causing direct and cloud-related indirect aerosol effects on climate. This pathway from ocean fertilisation to aerosol induced cooling of the climate may provide a basis for solar radiation management (SRM) geoengineering. In this study, we investigate the transient climate impacts of two emissions scenarios: an RCP4.5 (Representative Concentration Pathway 4.5) control; and an idealised scenario, based on RCP4.5, in which DMS emissions are substantially enhanced over ocean areas. We use mini-ensembles of a coupled atmosphere-ocean configuration of CESM1(CAM5) (Community Earth System Model version 1, with the Community Atmosphere Model version 5). We find that the cooling effect associated with enhanced DMS emissions beneficially offsets greenhouse gas induced warming across most of the world. However, the rainfall response may adversely affect water resources, potentially impacting human livelihoods. These results demonstrate that changes in marine phytoplankton activity may lead to a mixture of positive and negative impacts on the climate.

Equity and emissions trading in China

China has embarked on an ambitious pathway for establishing a national carbon market in the next 5–10 years. In this study, we analyze the distributional aspects of a Chinese emissions-trading scheme from ethical, economic, and stated-preference perspectives. We focus on the role of emissions permit allocation and first show how specific equity principles can be incorporated into the design of potential allocation schemes. We then assess the economic and distributional impacts of those allocation schemes using a computable general equilibrium model with regional detail for the Chinese economy. Finally, we conduct a survey among Chinese climate-policy experts on the basis of the simulated model impacts. The survey participants indicate a relative preference for allocation schemes that put less emissions-reduction burden on the western provinces, a medium burden on the central provinces, and a high burden on the eastern provinces. Most participants show strong support for allocating emissions permits based on consumption-based emissions responsibilities.

Estimating the Rate of Technical Change in the Oil and Gas Industry using Data from Private and National Companies

Modelling the long term prices for crude oil and natural gas has been a critical undertaking of many governments, companies, and analysts. The most important goal of this exercise is to effectively project the price of crude oil and natural gas to inform and shape today’s decisions. Most long-run energy models in use today are unable to quantify properly a factor for supply growth due to technical change – a component that has played a significant role in the provision of access to newer streams of crude oil and natural gas - because the measurement of productivity and technical change at the oil and gas industry aggregate level are limited to a small set of studies for few countries.

This thesis attempts to measure the rate of change in technical change for the oil and gas industry using data from private and national major companies. Publicly available financial data are aggregated from eight major producers over a time period of at least fifteen years for the national oil companies and forty five years for the private oil companies. The time period chosen effectively covers three distinct periods of different crude oil price behavior.

Three productivity measurement methods are applied - the growth accounting, index number theory, and regression method – to measure for the rate of change in productivity and technical change for the private and national oil companies, and for the aggregate that allows to infer the rates for the entire industry. The thesis concludes that the rate of technical change for the industry can be assessed and it proposes a reasonably estimated range (1.4-1.7 per cent per year) that can be incorporated into long-run energy models. The thesis also presents insights to the drivers that influence the rate of growth. Finally, the thesis provides a dataset containing the information about output and labor and capital inputs for major oil and gas companies that can be used by researchers to enhance studies on the rate of technical change in the oil and gas industry.

Future changes in terrestrial carbon fluxes over Northern Eurasia under uncertainty in 21st century climate change

Long-term response of the climate system to anthropogenic forcing was investigated with the MIT Earth System Model of intermediate complexity version 2.2 (MESM2.2). The MESM2.2 consists of a 2D (zonally averaged) atmospheric model coupled to an anomaly diffusing ocean model. Climate sensitivity of the MESM can be varied using a cloud adjustment technique and rate of oceanic heat uptake can be varied by changing effective diffusion coefficient. An ensemble of four hundred simulations was carried out for the period 1860-2005 using historical forcing. Values of climate sensitivity, rate of ocean heat uptake, and the strength of the aerosol forcing were drawn from the Libardoni and Forest (2013) distribution presented in the IPCC AR5. A 400-member ensemble was carried out for each of four different RCP scenarios from the year 2006 to the year 2500. By the end of the 21st century (2081-2100), the ensemble mean of surface air temperature increases, relative to 1986-2005 period, by 1.2, 1.8, 2.2 and 3.3oC for RCP26, RCP4.5, RCP6.0 and RCP8.5, respectively. Corresponding numbers for the ensemble of the CMPI5 models are 1.0, 1.8, 2.2 and 3.7oC. In spite of the forcing being fixed beyond year 2150 for RCP4.5 and RCP6.0 and beyond 2250 for RCP8.5, surface air temperature keeps rising until the end of 25th century under these scenarios. The upper bound of the 90% probability interval increases significantly more than the mean. For the RCP4.5 scenario, the mean value of possible SAT change increases by 1.6oC from the end of the 21st century to the end of the 25th century, while the value of the 95th percentile increases by 3.2oC. Corresponding numbers for RCP6.0 and RCP8.5 are 3.6 and 10.2oC for the medians and 7.0 and 14.5oC for the 95th percentiles, respectively. Such changes in the shape of probability distributions with time indicate an increase in the probability that surface warming will exceed a given value. For example, the probability of exceeding 3oC warming under the RCP4.5 scenario increases from 2.5% at the end of 21st century to 32% and 50% at the end of 23rd and 25th centuries, respectively. For the RCP2.6 scenario, in which radiative forcing peaks in the year 2070 before decreasing back to the 1990s level by the year 2300, the ensemble mean surface air temperature is still about 0.5oC above present at the end of the simulation. Obtained results show that in spite of large differences in radiative forcing between different RCP scenarios, uncertainties in the climate system characteristics defining climate system response make a significant contribution into overall uncertainty in possible climate change during the next few centuries. Comparison with simulations carried under SRES scenarios also will be presented

General Equilibrium Impacts of New Energy Technologies on Sectoral Energy Usage

The dissertation examines conditions under which gas-to-liquids (GTL) technology penetration shifts the crude oil-natural gas price ratio. Empirical research finds long-run relationships between crude oil and natural gas prices. Some studies include time trends that steadily evolve the pricing relationship, while others show a long-run relationship that occasionally shifts significantly. A common hypothesis is that technologies that increase substitutability or complementarity between fuels are the source of the price linkage. However, empirically measuring the effects of a gradually-penetrating technology across narrow time frames is not possible due to intervening economic shocks. This thesis examines the effects of an energy conversion technology penetration on the crude oil-natural gas price ratio through its influence on sectoral energy use in the U.S. GTL must be less expensive and more efficient, and natural gas prices must be lower, than currently forecast for an effect to be measured. In the absence of a technology that explicitly allows for substitution between natural gas and petroleum-based fuels, different rates of demand growth result in a steadily-rising oil-gas price ratio. If a viable GTL technology successfully competes against petroleum-derived refined fuels, it dampens crude oil price increases and brings the oil-gas price ratio below the levels found in cases without a viable GTL technology.

Global and regional emissions estimates of 1,1-difluoroethane (HFC-152a, CH3CHF2) from in situ and air archive observations

High frequency, in situ observations from 11 globally distributed sites for the period 1994–2014 and archived air measurements dating from 1978 onward have been used to determine the global growth rate of 1,1-difluoroethane (HFC-152a, CH₃CHF₂). These observations have been combined with a range of atmospheric transport models to derive global emission estimates in a top-down approach. HFC-152a is a greenhouse gas with a short atmospheric lifetime of about 1.5 years. Since it does not contain chlorine or bromine, HFC-152a makes no direct contribution to the destruction of stratospheric ozone and is therefore used as a substitute for the ozone depleting chlorofluorocarbons (CFCs) and hydrochlorofluorocarbons (HCFCs). The concentration of HFC-152a has grown substantially since the first direct measurements in 1994, reaching a maximum annual global growth rate of 0.84"¯±"¯0.05"¯ppt"¯yr⁻¹ in 2006, implying a substantial increase in emissions up to 2006. However, since 2007, the annual rate of growth has slowed to 0.38"¯±"¯0.04"¯ppt"¯yr⁻¹ in 2010 with a further decline to an annual average rate of growth in 2013–2014 of −0.06"¯±"¯0.05"¯ppt"¯yr⁻¹. The annual average Northern Hemisphere (NH) mole fraction in 1994 was 1.2"¯ppt rising to an annual average mole fraction of 10.1"¯ppt in 2014. Average annual mole fractions in the Southern Hemisphere (SH) in 1998 and 2014 were 0.84 and 4.5"¯ppt, respectively. We estimate global emissions of HFC-152a have risen from 7.3"¯±"¯5.6"¯Gg"¯yr⁻¹ in 1994 to a maximum of 54.4"¯±"¯17.1"¯Gg"¯yr⁻¹ in 2011, declining to 52.5"¯±"¯20.1"¯Gg"¯yr⁻¹ in 2014 or 7.2"¯±"¯2.8"¯Tg-CO₂"¯eq"¯yr⁻¹. Analysis of mole fraction enhancements above regional background atmospheric levels suggests substantial emissions from North America, Asia, and Europe. Global HFC emissions (so called “bottom up” emissions) reported by the United Nations Framework Convention on Climate Change (UNFCCC) are based on cumulative national emission data reported to the UNFCCC, which in turn are based on national consumption data. There appears to be a significant underestimate ( > "¯20"¯Gg) of “bottom-up” reported emissions of HFC-152a, possibly arising from largely underestimated USA emissions and undeclared Asian emissions.

MIT Global Change

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