An Estimation of the Effect of Carbon Pricing for CO2 Mitigation in China’s Cement Industry Presenter: Xianbing Liu Senior Policy Researcher Kansai Research Centre, IGES, Japan

Structure of the presentation Overall frame of the LCT policy research at KRC/IGES Background and research needs in China Estimation of the changes in LCT deployment in response to carbon pricing policies Estimation of the mitigation effect of carbon pricing for cement industry of China Summary 22-23 October, 2016 GCET17

Overall structure of LCT policy studies at KRC/IGES Geographical focus: Japan, China and the Republic of Korea Policy focus: Carbon pricing tools, i.e., carbon taxes and GHG emissions trading scheme Discussed in this presentation Overall objective: To clarify the linkage between policy and the change in technology deployment 22-23 October, 2016 GCET17

Background and research needs in China Large efforts of China in energy saving during the 11th and 12th FYP period; Strict becoming pressure for GHG emissions mitigation; China-US joint statement: Peak in around 2030 and intend to peak earlier; INDC of China: e.g., 60-65% reduction in carbon intensity by 2030 from 2005; Tradition in relying on command & control regulations but laggard in practicing market-based instruments (MBIs); Lack of studies to identify the viewpoints of businesses as major policy practitioners; Lack of technology and policy solutions for achieving the mitigation target at sector level. 22-23 October, 2016 GCET17

Analysis procedures of LCT diffusion Measurement of possibility for companies to invest in technologies Calculation of technology diffusion changes Simulation of diffusion of target technologies in BAU case 22-23 October, 2016 GCET17

Survey to China’s cement companies and the samples Questionnaire format: a) Company basic information; b) Energy saving management and adoption of target technologies; c) Factors determining LCT investment; d) Policies promoting technology diffusion Implemented during November, 2014 to February, 2015 Coordinated by China Cement Association (CCA) Sent to a total of 270 cement companies with 78 valid respondents collected Number of employees Ownership Category Number Percentage Below 100 1 1.3 State-owned 53 67.9 100-300 25 32.1 Domestically private 9 11.5 300-1,000 43 55.1 Joint-venture 13 16.7 Above 1,000 Fully foreign-funded In total 78 100.0 Others 2 2.6 22-23 October, 2016 GCET17

Observed and simulated technology diffusions Note: Oxygen-enriched combustion was omitted due to insufficient data collected for the analysis. 22-23 October, 2016 GCET17

Investment possibility in various technology payback times Result: Payback time on 50% of the samples corresponds to 2.5 and 3.9 years on the two curves 22-23 October, 2016 GCET17

EMOS diffusion paths with various carbon prices Findings: Carbon pricing indicates effectiveness in promoting EMOS diffusion. 2.6%, 6.3% and 9.2% increase in diffusion rate at 20, 60 and 100 Yuan/t-CO2 From BAU in 2015. Moderate price at 60 Yuan/t-CO2 may have a similar effect with the high price of 100 Yuan/t-CO2. The pricing policy may realize the full diffusion of EMOS five years earlier than BAU. 22-23 October, 2016 GCET17

Process for estimating the mitigation at sector level 22-23 October, 2016 GCET17

LCT of cement industry covered in this analysis No. Technology lever Process Name of technology Code 1 Energy efficiency improvement Raw material and fuel preparation Vertical mill for raw materials preparation T01 2 Roller press grinding system for raw materials preparation T02 3 Vertical mill for coal preparation T03 4 Clinker making Efficient pre-heating and pre-calcination system T04 5 Efficient pulverised coal burner T05 6 Enriched oxygen combustion technology T06 7 Fourth generation clinker grate cooler T07 8 Efficient insulation materials technology T08 9 Waste heat recovery power generation (WHR) T09 10 Cement grinding Ball mill and roller press grinding for cement grinding T10 11 Vertical mill for cement grinding T11 12 Cement grinding aids T12 13 Whole process Motor system frequency control retrofit T13 14 Energy saving management and optimization system (EMOS) T14 15 Alternative fuels and raw materials Alternative fuels T15 16 Alternative raw materials (carbide slag) T16 22-23 October, 2016 GCET17

Statistics and prediction of cement production in China Prediction result of clinker/cement production in China (by CCA) Historical change of cement demand in Japan 22-23 October, 2016 GCET17

Distribution of NSP kilns by the scale 27.0% 39.2% 33.8% 2.1% 57.6% 34.0% 6.3% 3.5% 63.4% 32.5% 0.5% 10.0% 80.0% 22-23 October, 2016 GCET17

Simulated technology diffusion curves at BAU (examples) Electricity saving technologies: T01 to T03 Coal saving technologies: T04 to T08 22-23 October, 2016 GCET17

Calculation results of emissions in various scenarios 2020: 6.2% TFS: Technology frozen scenario; BAU: Business-as-usual; S01: 60 Yuan/t-CO2; S02: 100 Yuan/t-CO2 2025: 8.8% 2030: 10.2% 22-23 October, 2016 GCET17

Technology abatement costs under S01 Technology MACs under S01 in 2020 Technology MACs under S01 in 2030 22-23 October, 2016 GCET17

Summary This study estimates the effects of carbon pricing for carbon mitigation in China’s cement industry; Cement production in China experienced fast growth and is now to plateau over next few years; The energy saving low carbon technologies covered in the analysis are at different diffusion stages; Full diffusion of energy saving technologies usually takes 10-20 years after initial commercialization; There remains certain technology mitigation potential in China’s cement sector; A moderate carbon price would generate very limited effect in CO2 mitigation; Most of the technology mitigations can be achieved at the low abatement costs. 22-23 October, 2016 GCET17

Thank you for your attention! Contacts: Xianbing LIU KRC/IGES Tel: +81-78-262-6634 Fax: +81-78-262-6635 E-mal: liu@iges.or.jp URL: http://www.iges.or.jp 22-23 October, 2016 GCET17