Carbon Pricing to Accelerate the Diffusion of Low Carbon Technologies: Analyses from the Business Perspective

Event: The International Symposium on Regional Green Development
Date: October 27-29, 2017, Zhaoqing,Guangdong, China

Funded by the Government of Hyogo Prefecture, Japan, the Institute for Global Environmental Strategies (IGES) has been conducting empirical studies on carbon pricing in Northeast Asia. The related policy progress is generally laggard in this region compared with that in Europe. One of the main barriers may be attributed to the high resistance from the industry. The companies, especially those in energy intensive sectors, are very sensitive to the increase of energy costs and could only accept lower carbon prices.

Under this background, this presentation outlines the research results regarding the effect of carbon pricing to accelerate the diffusion of low carbon technology based on the data gathered from the most energy intensive sectors, such as iron & steel and cement industries in China. The sampled companies are confirmed familiar with energy saving and low carbon technologies in their sectors and have made great efforts in energy saving, but are slow in terms of internal carbon management. The adoptions of survey target technologies are at different stages. Some have been largely deployed, while some others are recently introduced and still at the initial stage of diffusion. Many low carbon technologies are profitable but require some initial investment. The companies strongly prefer a short payback time for these investments. Nevertheless, levying a moderate carbon price, i.e., 60 Yuan/t-CO2, could bring about much earlier diffusion of certain technologies.

Aiming to estimate the effect of carbon pricing for CO2 mitigation at the sectoral level, cement industry of China was analyzed in details as a case study. A full list of low carbon technologies with mitigation potential was covered. The statistics and prediction of the industrial association indicate that cement production of China has been increased dramatically in the past, and would experience a plateau period in the next few years. Through the elimination of outdated and small scale facilities, around 80% of the cement would be made by the kilns with a capacity of 4,000 to 8,000 t-clinker/d by 2030. The energy saving and carbon mitigation technologies normally require 10 to 20 years for a full diffusion. The remained technology mitigation potential is about 10%. Nevertheless, giving carbon prices would have a limited effect for promoting the mitigation of CO2 emissions of this sector. In addition, around 70% of the mitigation could be at a marginal cost of 50 Yuan/t-CO2 by 2020. The marginal cost for nearly 90% of the carbon pricing policy oriented mitigation would be below 100 Yuan/t-CO2 by 2030.

The above analysis implies that the administrative and regulative policies have been effective for the application of energy saving and carbon mitigation technologies in Chinese industry. In spite of the limited effect, the pricing of carbon emissions is still useful for promoting the diffusion of certain technologies in faster paces. The earlier the carbon price was imposed, more significant mitigations could be realized by these market-based instruments. This convinces the introduction of carbon pricing as early as possible, with a condition that the carbon price is modest and acceptable for the business.