CHINA: WAYS TO REDUCE CARBON EMISSIONS

• Document Type: FOIA
• Collection: FOIA Collection
• Document Number (FOIA) /ESDN (CREST): 0005304579
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 22
• Document Creation Date: June 23, 2015
• Document Release Date: September 10, 2009
• Case Number: F-2008-01057
• Publication Date: November 3, 2000

Intelligence Report
Office of Transnational Issues
China: Ways To Reduce Carbon Emissions
Participation in the Protocol's Clean Development Mechanism (CDM) program would
lead to increased foreign direct investment but would not significantly lower carbon
output.
effective way for China to lower future carbon emissions,
Participation in the Kyoto Protocol's carbon permit trading program would be the most
? Compared to a business-as-usual case, participation in Kyoto's carbon
permit trading system could cut China's carbon emissions by 15 - 23
percent in 2010 and generate $4 - $12 billion in annual revenues from
carbon permit sales.
? Participation in CDM could cut carbon emissions by 1 - 2 percent in 2010
and generate additional annual capital inflows of $1 - 2.5 billion.
If Beijing rules out participation in Kyoto Protocol mechanisms, an aggressive import
program of clean energy technologies could achieve greater carbon emission
reductions than CDM but is unlikely to match reductions from carbon permit trading,
according to CIA estimates.
? Japanese and European companies are aggressively marketing renewables
and environmental energy equipment, and US companies would have to
offer similar incentives to be competitive.
Existing economic models provide a good indication of some but not all of the
economic impacts from implementing the Kyoto mechanism. Imposing a carbon tax to
reach targeted emission levels under trading would cost China tens of billions of
dollars annually in foreign direct investment and slow economic growth. Alternatively,
CDM and an aggressive clean technology import policy would provide small economic
gains and boost Beijing's technology transfer goals.
? Aside from the use of a carbon tax, China could achieve the emission
reductions necessary for trading by reducing energy use, enforcing tough
emissions regulations, providing incentives for conservation, restructuring
industry, or slowing growth.
(b)(1)
(b)(3)
APPROVED FOR
RELEASE DATE:
04-Sep-2009
 Scope Note: A Study On Ways China Could Reduce Carbon Emissions
This study was undertaken by the CIA to assess the environmental and economic impact
on China of several proposals to reduce China's emissions of carbon dioxide. The
assessment includes analysis of the Kyoto Protocol's mechanisms-carbon permit trading
and the Clean Development Mechanism (CDM)-and an aggressive import program for
clean energy technologies.'
1 For the purposes of this report only, clean energy technologies are defined as clean coal and non-
coal fueled technologies, including nuclear, hydropower, and renewables
2 See Appendix A - Trading Assumptions
s Comprehensive assessments of the Kyoto Protocol's mechanisms' impact on China's economy
have suffered from the inability of any single model to simulate the complex interaction between
China and its major trading partners and provide a forecast for China's domestic economy, carbon
emission levels and energy mix. Previous forecasts from economic models suffered from old data
and are difficult to compare because of different assumptions.
 What Is the Kyoto Protocol?
The Kyoto Protocol to the UN Framework Convention on Climate Change calls for
most industrialized countries and some Central European countries (defined as
Annex B countries) to make legally binding reductions in greenhouse gas emissions.
Most Annex B countries must reduce their emissions between the years 2008-2012
by an average of 5 percent to 8 percent below 1990 emission levels. China, like
most developing countries, is under no obligation to reduce its emissions.
The Kyoto Protocol was adopted in December 1997 at the third Conference of
the Parties (COP3) following the Earth Summit in Rio de Janeiro in June 1992
where the US and 153 other countries agreed to reduce greenhouse gases
The Kyoto Protocol creates three mechanisms for reducing carbon emissions-
carbon permit trading, the Clean Development Mechanism (CDM), and joint
implementation.4 A trading system for carbon credits (permits) would be created for
countries accepting binding carbon emission targets. Carbon emission reductions
below targeted levels could be converted into carbon permits and sold to other
countries to help them meet their targeted levels. The Kyoto Protocol would
improve global carbon emission reporting systems and create `expert review teams'
to assess how nations are living up to their commitments.
A committee would also be created to administer CDM. Although what would
qualify as a CDM project is still under discussion, potentially anything aiding in the
abatement of carbon emissions-from planting forests (creating a carbon sink) to
converting homes or power plants using coal to gas-would count. A host country
would not have to have a carbon emission target to participate in CDM, rather the
project developer would receive carbon credits-called certified emission reduction
units (CERs)-for the project's incremental carbon emissions reduction from a
baseline figure. It has not been decided whether CERs would be tradable.
A builder of a new power plant would be awarded CERs only for the amount of
carbon emissions below the baseline emissions figure for power plants agreed
upon for that region of the country.
The Kyoto Protocol becomes international law 90 days after ratification by 55
countries making up at least 55 percent of 1990 Annex B countries' carbon dioxide
emissions.
4 Joint Implementation is a project-based emission reduction mechanism that is available only to
Annex I members, which currently excludes China because it has not agreed to an emissions target.
 China and Carbon Emissions: An Overview
China is the second largest emitter of carbon dioxide and may overtake the United States
to become the largest emitter of carbon by 2023.5 Efforts to reduce carbon emissions
worldwide will have limited success without China's participation. The Kyoto Protocol
provides several mechanism to reduce global carbon emissions.
? Climate change issues in China suffer from a lack of attention from senior
level officials, leading to a "just say no" attitude in negotiations.
officials are waiting for the completion of
studies by Chinese researchers before adopting a stand on carbon
emissions.
Projected US And China Carbon Emissions
Million tons carbon
2500 1
01 i i m m
2000 2005 2010 2015 2020 2025
 China Emissions Forecasts
1800
Business As CDM $50/ton Aggressive Clean
The Business-As-Usual (BAU) forecast for emissions is the baseline to assess emission
reductions by the Kyoto Protocol mechanisms and the aggressive clean energy import
program. BAU is based upon agreed assumptions for GDP growth rates for the period,
energy development-such as gas and hydroelectric, carbon emissions (see Table 1). Key
variables for the BAU case include an assumption of 7.5 percent annual GDP growth
until 2010 declining to 6.8 percent by 2020, and a middle range of Chinese official
forecasts for primary energy mix over the period.
Officially stated mid-range gas development plans are ambitious, rising from 25 bcm in
2000 to 120 bcm by 2010. Development of nuclear and hydroelectric power capacity
increases by 2010 from 2 GW to, 19 GW and 70 GW to 125 GW, respectively.6 F-
5 Our model forecasts China's carbon emissions exceeding US emissions in the year 2023,
assuming an economic growth rate of 7.5 percent between 2000 and 2010, slowing to 6.75 percent
by 2020 and a robust development of non-coal energy sources.
6 Gigawatts (GW); billion cubic meters (bcm)F----]
 Carbon Permit Trading Offers Greatest Emission Reductions
The study indicates that China would abate the greatest amount of carbon emissions and
realize significant revenue flows under the Kyoto Protocol's permit trading system. The
study looked at two international permit prices for carbon $25 and $50/ton-to gauge
the impact of different carbon pricing. At $25/ton China could achieve carbon emissions
reductions of 15 percent and generate 160 million permits which would result in $4
billion in revenues in 2010 if all were sold. At $50/ton China could achieve carbon
emissions reductions of 23 percent and generate 245 million permits which would result
in $12.2 billion in revenues in 2010, if all were sold.'
? Five other studies by western economists generated similar estimates for
China's carbon emission reductions of 14 - 24 percent, and permit sales
revenues of $4 billion - $10 billion with carbon prices of $22/ton -
$29/ton,
Carbon emission reductions under a system of trading permits occur as individuals, firms,
and governments seek ways to reduce carbon usage and generate revenues from permit
sales. In most trading models emission reductions closely track with reductions in energy
consumption, indicating that reductions are driven more by improving energy efficiency
in the economy rather than through fuel-switching. Indeed, revenues generated from
permit sales are sufficient to fund only a fraction of new investments in the energy sector
that could abate the forecast emission reductions, according to our analysis.
For example, $4 billion in permit revenues would fund only about three
1,000 MW nuclear reactors with a combined annual emission abatement of
only 4.5 million tons per year.
7 For every carbon permit sold, one ton of carbon must be abated. See Box: How Does Carbon
Permit Trading Work?
R The Economics of Green ouse as Emissions Abatement In China, A Preliminary Analysis, US
Council of Economic Advisors, September 1999, p. 17.
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