Toward a Low-Carbon-Emission Growth:

A Study on China

Chen, Pin-Chu

Hsu, Chia-Yang

Lee, Jia-Jui

Lin, Yu-Chia

Sun, Juei-Hung

National Chengchi University

July 2012

1

Abstract

Climate change has become one of the greatest challenges that humans have to face.

Unquestionably, it not only imposes serious setbacks on global health, but also hinders the

economic development of various regions.

As one of the major economies of the world, China’s economy is booming in a

highly-consuming and highly-polluted way. Considering this issue, China has signed and ratified the

Kyoto Protocol. In addition, the Chinese government has established several policies aiming at

improving the situation. For example, the《Eleventh Five-Year Plan》and《Twelfth Five-Year Plan》

both stated that China need to reduce carbon emissions, raise the efficiency of the usage of energy,

and develop sustainable energies.

In 2009, Wen Jiabao, the Premier of the State Council of the People's Republic of China,

announced the carbon emissions reduction goal－the carbon intensity in 2020 will be 40% to 45%

less than that in 2005.

In this paper, we tried to find solutions to lower China’s carbon intensity and simultaneously

increase its economic growth. At the same time, how much CO2 emission could China reduce

through these dimensions－adjustments of industry structure, developments of renewable energy,

and improvements in the efficiency of thermal electricity generation was also discussed.

2

I. Introduction

1.1 Background

Climate change has become one of the greatest challenges that humans have to face

today. In the past few years, due to the global warming, people have turned their eyes on

the rocketing temperature caused by greenhouse gas emissions. Countries around the world

recognized that some actions should be taken to decelerate the speed of the global warming

and to keep any temperature increase no more than 2°C. Hence, after the 2009 Copenhagen

Summit, 138 countries have either formally signed on to agreement or signaled

announcements to declare their willing to reduce carbon dioxide (CO2) emissions.

1.2 Problem Statement

China’s economy is booming in a highly-consuming and highly-polluted way. According

to the data, China has surpassed the United States as the world's largest emitter of CO2 in

2011. The development with serious pollution brought huge burden on the environment. As

one of the major economies of the world, China promised that in 2020, it will lower its

carbon intensity by 40% to 45%, based on its carbon intensity in 2005. The Chinese

government must figure out some ways to achieve the goal.

1.3 Research Objectives

1. Find solutions to lower the carbon intensity and increase economic growth at the same

time.

2. Determine how much CO2 emissions can be reduced through following three dimensions

－ adjustments of industry structure, developments of renewable energy, and

improvements in the efficiency of thermal electricity generation.

3

II. Literature review

2.1 A Low Carbon Development

The climate change, unquestionably, imposes serious setbacks on global health and will

hinder the economic development of various regions. This problem caused impacts to

worldwide countries on more than just the basic environmental scale. As in the case of

China, we will see the effects on both economic and environmental level.

Considering this issue, China has not only signed and ratified the Kyoto Protocol, but

also established several economic policies to improve the situation. The《Eleventh Five-Year

Plan》and《Twelfth Five-Year Plan》, launched by the Chinese government, both stated that

China need to reduce carbon emissions, raise the efficiency of the usage of energy, and

develop sustainable energies.

In 2009, Wen Jiabao, the Premier of the State Council of the People's Republic of China,

announced the carbon emissions reduction goal－the carbon intensity in 2020 will be 40%

to 45% less than that in 2005.

All these actions showed China’s determination to become a low-carbon-emissions

economy.

2.2 Dimensions for Adjustments

China’s carbon intensity reduction target cannot be easily reached if the Chinese

government only develops low carbon energy. Besides executing the existing policies, China

should take more comprehensive measures in an effort to achieve its goal.

2.2.1 Adjustments of industry structure

China is in the process of industrialization. “Study on China’s Low Carbon

Development in An Economy–Energy–Electricity–Environment Framework,” “Study of The

Potential of Low Carbon Energy Development and Its Contribution to Realize The

Reduction Target of Carbon Intensity in China,” and “低碳经济约束下的中国潜在经济增

长” mentioned that China need to reshape and optimize its industry structure. They also

advised the Chinese government to make proper policies to speed up the industrial

upgrading process.

4

2.2.2 Improvements in the efficiency of thermal electricity generation

In the “Electric Generation Efficiency,” power plant efficiencies which commonly

called heat rate were defined. Additionally, the literature talked about efficiency

improvements. The improvements in the efficiency of thermal electricity generation could

have broader impacts than simply monetary gains. As we all know, it will surely lower the

carbon emissions.

2.2.3 Developments of renewable energy

Finally, the “Renewable Energy Consumption and Growth in Eurasia” pointed out two

reasons for using renewable energy. The one was reducing CO2 emissions and the other

was for the sustainability purpose.

5

III. Strategies for lowering carbon emissions

3.1 Three CO2 emissions

First of all, we would like to define three CO2 emissions values.

A. The first CO2 emissions:

Based on the《Twelfth Five-Year Plan》, China claimed that its carbon intensity in

2020 will be 40% to 45% less than the number in 2005. So we found out its carbon

intensity in 2005, and used it to calculate China’s CO2 emissions target in 2020－

14855.9188482 million Metric Tons.

B. The second CO2 emissions:

We used regression model to estimate China’s carbon intensity and GDP in 2020.

Further, we calculated China’s 2020 CO2 emissions－18444.8765 million Metric Tons.

C. The third CO2 emissions:

Holding other factors constant, we had some adjustments in the following

dimensions-industry structure, efficiency of thermal electricity generation, and

development of renewable energy. We wondered whether these adjustments affect

CO2 emissions. Also, we wanted to know what China’s CO2 emissions will be in 2020.

After acquiring these three values, we would have some comparisons and finally

reach to our conclusion.

3.2 Adjustments of industry structure

In the beginning, we proved that the tertiary industry is more efficient than the

secondary industry. Then we collected the data from Germany and tried to derive an

equation to analyze the relationship between carbon emissions and industry structure. In

the end, we used the outcome derived from the equation to show how many adjustments

we made to estimate the reduction of carbon emissions.

We used the data obtained from World Bank and compared tertiary industry in terms

of share of electricity output and GDP with secondary industry from 2007 to 2011.

6

Share of total

electricity output (%) Share of GDP (%)

Primary industry 2.5 10.6

Secondary industry 75 47.12

Tertiary industry 10 42.24 TableⅠ

(Data Source: World Bank)

See TableⅠ. The share of GDP of the secondary industry is 47.12% and that of the

tertiary industry is 42.24%. We can tell that there is only 5% difference between secondary

and tertiary industry. However, the share of total electricity output of the secondary industry

is 75% whereas the share of total electricity output of the tertiary industry is only 10%.

There are huge differences in terms of electricity output.

Given the same electricity output, tertiary industry could yield more GDP. Therefore, we

concluded that developing tertiary industry is more beneficial to economy than secondary

industry.

After examining which industry is more efficient, we kept studying how industry

structure of China varied in the past 40 years. At the same time, we would like to know

which country in the past might have the similar developing process to China.

FigureⅠ Industry Structure of China from 1970 to 2008

(Data Source: World Bank)

From FigureⅠ, we clearly saw that the share of secondary industry remains between

40% and 50% in the past 40 years and the share of tertiary industry increases as the share of

7

primary industry decreases. (We understood that the increase of tertiary industry is due to

the decrease of primary industry, since total share of primary, secondary and tertiary

industries is 100 %.)

According to the literature, the Chinese government encouraged the development of

the tertiary industry in recent years. Hence, we anticipated the share of tertiary industry will

go beyond secondary industries in 10 years and the share of secondary industry will

decrease when the share of primary industry is pretty low.

Next, we wanted to know how adjustments to industry structure could influence the

carbon emissions in 10 years. For this reason, we would find a country which ever had the

similar process of the adjustment.

FigureⅡ Industry Structure of Germany from 1970 to 2010

(Data Source: World Bank)

FigureⅡ shows that the share of tertiary industry of Germany constantly increased

and the vibrational trend of industry structure met our requirement. Besides, China’s current

developing pattern of industry structure followed Germany’s three decades ago. Accordingly,

we choose the Germany as our estimate.

Finally, we collected the data of carbon emissions and share of industry structure of

Germany and derived a multiple regression equation as follows:

8

Y = 2249 + 83.2 X1 - 10.3 X2 - 17.1 X3 + ℇ s.t X1 + X2 + X3 =100% X1：Share of Primary Industry

X2：Share of Secondary Industry

X3：Share of Tertiary Industry

Y： Carbon Emissions (Million Metric Tons)

R-Square = 0.705

R-square is 0.705 which means the right side of equation can explain about 70% of

response variable. Then we used this multiple regression model to estimate the change of

response variable, carbon emissions, by adjusting independent variables. The result from

this equation was when we shift one unit averagely from primary and secondary industry to

the tertiary industry; we found out that it will lead to the reduction of carbon emissions by

0.91%.

Based on this result, we will set up three different scenarios in our last part.

2008

Shift 5%

Shift 6%

Shift 7%

Primary & Secondary Industry

58.10% 53.10% 52.10% 51.10%

Tertiary Industry 41.90% 46.90% 47.90% 48.90%

TableⅡ Share of Industry Structure of China after Adjustment

(Data Source: World Bank)

In 2008, the share of tertiary industry is 41.9% and the others are 58.1%. When we

shifted 5%, 6% and 7% from primary and secondary industry to tertiary industry, we can get

46.9%, 47.9% and 48.95% of tertiary industry respectively.

Based on these scenarios, we can estimate the reduction volume of carbon emissions

for three different adjustments.

9

Without adjustment

Shift 5%

Shift 6%

Shift 7%

Reduction rate of CO2

0% 4.55% 5.46% 6.37%

Reduction volume

0 839.24 1007.09 1174.94

Estimation by 2020

18444.88 17605.64 17437.79 17269.94

TableⅢ CO2 Estimation of China by 2020 after Adjustment

(Data Source: World Bank)

In TableⅢ, we saw that CO2 estimation by 2020 is 18444.88 million metric tons if there

was no adjustment. So if we shifted 5% to tertiary industry, it would lead to the reduction of

carbon emissions by 839.21 million metric tons. If we shifted 6% and 7% to tertiary industry,

it would respectively lead to the reduction of carbon emissions by 1007.09 and 1174.94

million metric tons. As a result, CO2 estimation by 2020 will be 17605.64, 17437.79 and

17269.94 million metric tons.

FigureⅢ CO2 Estimation of China by 2020 after Adjustment

(Data Source: World Bank)

10

3.3 Improvements in the efficiency of thermal electricity generation

In China, although trying hard to find alternatives, thermal energy accounted for 79 %.

Among thermal energy, coal took the largest proportion, about 67%, followed by gasoline

and gas. In 2011, China has surpassed the United States and become the country emitted

most CO2. At the same time, the amount of carbon emissions is growing at a high speed.

FigureⅣ Total Thermal Generation

(Source: U.S. Energy Information Administration)

To measure thermal electricity’s power plant efficiency, heat rate is a common

measurement. Heat rate (Btu/kWh) is calculated out of the amount of heat content in (Btu)

per the amount of electric energy out (kWh). Highly efficient units will require less fuel to

generate each kWh, meaning that lower heat rate, higher efficiency.

According to U.S. Environmental Protection Agency Research Triangle Park, North

Carolina (2010), based on assumptions, the reference power plant has an overall efficiency

of 32% and a net heat rate of 10,600 Btu/kWh. As a result, a reported 100 Btu/kWh

decrease in net heat rate would be converted to a 0.30% point increase in overall efficiency1.

Overall power plant efficiency in China grew 15% in two decades. With the strain of

cost and technology to develop renewable energy, lowering the heat rate of thermal energy

became more crucial, for it may reduce the carbon dioxide emissions and increase the

output of electricity at the same time. When taking further look on China’s heat rate,

compared to other developed countries, its rate was still high. Germany and Japan have

established coal plants with heat rates of less than 9,000 Btu/kWh, while the United States

1 Available and Emerging Technologies for Reducing Greenhouse Gas Emissions from Coal-Fired Electric Generating

Units, U.S. Environmental Protection Agency Research Triangle Park, North Carolina, 2010 October

11

was about 10,400 Btu/kWh. To improve efficiency, introducing new power plants was

considered a good way; therefore developing countries were the right places to build up

new plants at the beginning.

FigureⅤ Historical Efficiency Improvement

China could either replace its old plants or establish new ones. The key to cut down

carbon emissions is the technology. TableⅣ shows that different technology has great

impact on its performance. China, from 2008, has invested a large amount in IGCC, also shut

down plants which could generate 70 m kilowatt capacity per year. New plants with higher

capacity and efficiency were kept being installed. Nathaniel Aden, David Fridley, Nina Zheng

(2009) predicted that in optimal situation, from 2007 to 2025, China would gain 14%

efficiency in thermal electricity plants.

12

TableⅣ Historical Efficiency Improvement

IEA and EIA both made prediction on heat rate improvements in its report. It is

expected to gain 18% to 30% of efficiency over 22 years. Likewise, it is a 17.1% decrease in

the average heat rate from 11,530 Btu/kWh in 2003 to 9,560 Btu/kWh in 2030. Improving in

efficiency could help China generated and utilize its energy in a more clean way.

FigureⅥ Expected Total Heat Rate Improvements

13

3.4 Developments of renewable energy

FigureⅦ The Relationship between The Output Value of Renewable Energy and GDP

(Data Source: World Bank / U.S. Energy Information Administration)

After calculating, we had the result showed in FigureⅦ. It states that the output value

of renewable energy is positively related to GDP. And we can tell that the impact of

renewable energy in China will increase GDP.

Next, we wondered whether using the renewable energy is better than using the

traditional energy. Therefore, we devised a method called technology efficiency of electricity

generation to compare these two kinds of energies.

Technology efficiency=Carbon emission ÷ Total electricity

Technology Efficiency of Electricity Generation

Traditional Energy 2.534 (million Metric Tons/kWh)

Renewable Energy 0.429 (million Metric Tons/kWh)

TableⅤ Historical Efficiency Improvement

(Data Source: World Bank / U.S. Energy Information Administration)

TableⅤ is the outcome. It shows that the technology efficiency of electricity

generation in renewable energy is six times better than that in traditional energy.

Third, we need to know what effect will influence the carbon emission if China tries its

best to develop renewable energy in the future. So, we used the carbon emission data and

shifted some proportion from traditional energy to renewable energy. The result is showed

14

in FigureⅧ. If we shift 1% from traditional energy to renewable energy, carbon emission will

decrease 1% of total emission.

FigureⅧ Carbon Reduction Volume by Shifting 6%, 8%, and 10% TE to RE

(Data Source: World Bank / U.S. Energy Information Administration in 2008)

Apparently, we conclude that the development of renewable energy can not only

increase GDP, but also decrease carbon emission and it really worked well. However, before

estimating China’s carbon emission in 2020, we need to make some assumptions.

1. We assume the technology efficiency of electricity generation is fixed from 2008 to 2020.

2. We estimate the carbon emission of China in 2020 fits in linear regression model from

2005 to 2008.

3. We adjust the proportion from traditional energy to renewable energy in 12 years.

In the beginning, we classified all China’s data (electricity generation of TE&RE, carbon

emission of TE&RE, technology efficiency of TE&RE, total carbon emission) in 2008. Also, we

had the carbon emission estimation in 2020.

According to the data from 2005-2008, we could assume that in 2020, China’s

renewable energy will growth 6%-10%. Thus, in TableⅥ & TableⅦ, we use the technology

efficiency to calculate the carbon reduction volume after shifting from TE to RE 6%, 8%, 10%,

then we found out the relationship between the proportion shift and carbon reduction rate

was geometric positive to grow. (1% growth in renewable energy will lead to 1% increase in

406.92

542.55

678.19

Carbon reduction volume(million metric tons)

15

carbon reduction.)

Therefore, we reached to the conclusion- if China devotes to developing renewable

energy from 2008 to 2020, it can not only increase the GDP and job opportunities in such

environmentally developing industry, but also decrease almost 2000 million metric tons

carbon emission. (See FigureⅨ.)

2008 6% shift (2020) 8% shift (2020) 10% shift(2020)

Traditional Electricity

83.28% 77.28% 75.28% 73.28%

Renewable Electricity

16.72% 22.72% 24.72% 26.72%

TableⅥ The Electricity Generated by TE & RE after Shifting 6%, 8%, and 10%

(Data Source: World Bank / U.S. Energy Information Administration)

2008

Estimation by 2020

6% shift 8% shift 10% shift

Carbon Reduction Rate

5.79% 7.72% 9.64%

Carbon Reduction Volume

1067 1423 1779

Total Carbon Emission 7031 18444 17377 17021 16666

TableⅦ Carbon Reduction after Shifting 6%, 8%, and 10% TE to RE

(Data Source: World Bank / U.S. Energy Information Administration)

FigureⅨ Total CO2 Emission after Shifting 6%, 8%, and 10% TE to RE

(Data Source: World Bank / U.S. Energy Information Administration)

16

IV. Conclusion As we mentioned before, we proposed three dimensions focusing on carbon emission

reduction － adjustments of industry structure, developments of renewable energy, and

improvements in the efficiency of thermal electricity generation.

By calculating the collected data, we required three CO2 emissions values.

1. The first CO2 emissions≒14855.92 million Metric Tons (China’s goal)

2. The second CO2 emissions≒18445 million Metric Tons (Our expectation)

3. The third CO2 emissions≒14791 million Metric Tons (Forecast after adjustments)

Obviously, if China takes steps and uses these three measures, it can reduce 3654 million

metric tons carbon emission in 2020. Moreover, the total carbon reduction will surpass the goal

which China set after Copenhagen Summit and in its《Twelfth Five-Year Plan》.

17

V. References

1. Chen, F. N., Li, H. Q., Shen, L., and Wang, L. M. 2012. “Study of the potential of low

carbon energy development and its contribution to realize the reduction target of carbon

intensity in China.” Energy Policy 41: 393-401.

2. Hu, Z., Hu, Z. G., and Yuan, J. H. 2011. “Study on China’s low carbon development in an

Economy–Energy–Electricity–Environment framework.” Energy Policy 39: 2596-2605.

3. Apergis, Nicholas, and Payne, James E. 2010. “Renewable Energy Consumption and

Growth in Eurasia.” Energy Economics 32: 1392-1397.

4. Sector Policies and Programs Division, Office of Air Quality Planning and Standards, U.S.

Environmental Protection Agency. “Available and Emerging Technologies for Reducing

Greenhouse Gas Emissions from Coal-Fired Electric Generating Units.” 2010.

5. Aden, Nathaniel, Fridley, David, and Zheng, Nina. 2009. “China’s Coal: Demand,

Constraints, and Externalities.” Ernest Orlando Lawrence Berkeley National Laboratory.

6. Bellman, David K., Blankenship, Brett D., Imhoff, Carl H., DiPietro, Joseph Philip,

Rederstorff, Barry, and Zheng, Xuejin. 2007. “Electric Generation Efficiency” Working

Document of the National Petroleum Council Global Oil & Gas Study.

7. 袁富华 (2010)。低碳经济约束下的中国潜在经济增长。经济研究, 8, 79-89。

8. 楊之遠 (2009)。中國特色之低碳政策。中國文化大學土資系。

9. U.S. Energy Information Administration.

http://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=1&pid=1&aid=8&cid=CH,&syi

d=1980&eyid=2010&unit=MMTCD

10. International Energy Agency.

http://www.iea.org/

11. International Monetary Fund.

http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/weorept.aspx?pr.x=48&pr.y

=14&sy=2005&ey=2017&scsm=1&ssd=1&sort=country&ds=.&br=1&c=924&s=PPPGDP&g

rp=0&a=#download

12. World Bank.

http://data.worldbank.org/indicator/EN.ATM.CO2E.KT