The Cost of Taiwan’s Energy Transition Target: A Global Dynamic Model Analysis USAEE/IAEE Sept 24th 2018 Cheng-Da Yuan1 Wei-Hong Hong1 Hui-Chih Chai1 Y.-H. Henry Chen2 The Energy Economy and Strategy Research Center, Institute of Nuclear Energy Research, INER Joint Program on the Science and Policy of Global Change, Massachusetts Institute of Technology, Cambridge, MA, United States 2018/9/24 2018 USAEE, Washington DC.

Outline Background Taiwan’s Energy policy Research questions Model Scenarios Simulation results Economic implications 2018/9/24 2018 USAEE, Washington DC.

Background According to Guidelines on Energy Development, the core values of Taiwan’s energy policy are energy security, green economy, environmental sustainability, and social equity (BOE, 2017). To effectively achieve these goals and take the global mitigation responsibility in climate change, Taiwan’s authorities have approved a series of important Acts in recent years Renewable Energy Development Act (2009) Greenhouse Gas Reduction and Management Act (2016) Electricity Act (2017) White Paper on Energy Transition (BOE, 2018) specifically describe the energy transition target in which suggests that the generation mix is expected to be composed of 20% renewables 30% coal-fired 50% gas-fired The reduction path is slow at the beginning and fast later, and the greenhouse gas reduction obligation is commonly shared by all sectors including energy, manufacturing, transportation agriculture, service sector, and household. For example, to fill the gap of non-nuclear policy and to achieve 20% renewable development target, BOE aims to increase the installed capacity for solar and wind power to accelerate the renewable penetration in the power grid. In order to cut the greenhouse gas emissions and harmful air pollution PM2.5 from the coal-fired power sector, the government plan to extensively use liquefied natural gas (LNG) by building the 3rd receive terminal —to increase the gas-fired power in generation mix from 34% to 50%. Moreover, to reduce CO2 emissions and fine particulate matter such as PM2.5 in the atmosphere, BOE plan to build supercritical pulverized coal (SCPC) coal-fired power plant in Keelung Shenao and decrease the share of coal-fired power in generation mix from currently 47% to 30%. 2018/9/24 2018 USAEE, Washington DC.

2017 Electricity demand Electricity demand 261.4 TWh 說明哪個部門用最多電 目前發電結構 近年趨勢，核能下降，燃煤、燃氣增加 270,278 (百萬度，MWh)=270.3 (TWh) Electricity supply 270.3 (TWh) Source: https://www.moeaboe.gov.tw/ECW/populace/web_book/WebReports.aspx?book=M_CH&menu_id=142 2018/9/24 2018 USAEE, Washington DC.

GHG Emissions trend (kton) 2008年之前維持緩步上升的趨勢 2008年 financial crisis, economic recession in Taiwan 2010年後，整體排放大約維持在250 Mton Source: 2017 Taiwan Greenhouse Gas Inventory Report Summary 2018/9/24 2018 USAEE, Washington DC.

Greenhouse Gas Reduction and Management Act based on 2005 emissions level (2005-based) 2005 emissions is 266 Mton CO2-eq Based on 2005 emissions level, Taiwan’s mitigation targets are expected to be… 2020 target to 260 Mton (2% reduction based on 2005 level ) 2025 target to 239 Mton (10% reduction based on 2005 level ) 2030 target to 213 Mton (20% reduction based on 2005 level ) 2050 target to 133 Mton (50% reduction based on 2005 level ) 2018/9/24 2018 USAEE, Washington DC. Source: 第一期溫室氣體階段管制目標

Taiwan’s energy policies 2025 Non-nuclear homeland policy (BAU) Nuke 4 is terminated Nuke 1-3 phase out on schedule Reduction target (POLICY) Reduction based on 2005 emission level (Greenhouse Gas Reduction and Management Act) Energy transition policy (POLICY) 20% renewables 30% coal-fired 50% gas-fired Renewable development target from 5% to 20% in 2025 For example, to achieve 20% renewable development target, the BOE aims to increase the installed capacity for solar (e.g., Roof PV and Ground-mounted PV Systems accounts for 3 GW and 17 GW, individually) and wind power (e.g., off/on-shore winds are 3 GW and 1.2 GW, respectively) to accelerate the renewable penetration. the BOE plan to decrease the share of coal-fired power in generation mix from currently 47% to 30%. The BOE’s environmental assessment has approved, however under huge ecological and socio-cultural pressures, to build an advanced supercritical pulverized coal (SCPC) power plant with 2 units (each unit with 600 MW capacity) in Keelung Shenao. to increase the gas-fired power in generation mix from currently 34% to 50% in the future. The Chinese Petroleum Corporation (CPC) plans to build the 3rd LNG receive terminal with a capacity of 600 Mt/yr in Taoyuan Kwun-Tong (BOE, 2017). 2018/9/24 2018 USAEE, Washington DC.

Research questions What is the abatement cost for Taiwan by adapting Greenhouse Gas Reduction and Management Act (2005-based) ? GDP loss, generation mix emissions carbon price Sectoral analysis regards to latest energy policies under the framework of global climate commitment What is the economic implication for Taiwan by carrying out energy transition policy? These new policies brings some questions We are interest in the following questions, these questions remain un-answered 2018/9/24 2018 USAEE, Washington DC.

EPPA-Taiwan: Regions and Sectors In the EPPA6 model Taiwan’s data is aggregated with Malaysia, Philippines, Thailand, and Singapore as one region named Dynamic Asian (ASI). As shown in Table 1, The original GTAP 140 regions are aggregated into 19 regions , 57 sectors are grouped into 14, and 8 primary factors are grouped into 4 primary factors The electricity sector is aggregated by fossil fuel and renewables

Scenarios No. Scenarios Policy description 1 BAU 2025 nuclear-free homeland policy 2 NDC_2005 based same as BAU, Taiwan meets reduction target according to the Greenhouse Gas Reduction and Management Act 3 NDC_2005 based and transit same as Scenario 2, and Taiwan applies energy transition policy BAU non-nuclear policy Taiwan’s NDC by 2005 based and by BAU Renewable target 20% Energy transition target 20 renewable/30 coal-fired/50gas-fired Can energy transition target achieve NDC ? If not, where should we move in next step ? 2018/9/24 2018 USAEE, Washington DC.

GDP loss (%) 2030年GDP loss 0.9-1.2, 2050達到3.5% 2030前減BAU的經濟衝擊大，2030後減2005 based的經濟衝擊大 (減碳目標+能源轉型)的政策，並非完全透過價格機制來減碳，因為要透過permit system來限定發電比例， 由化石能源補貼再生能源造成扭曲，經濟衝擊反而更大 Do nothing is better due to carbon leakage Why economic shock is modified compare with static version 4.comparison b/w Chai et al. and current dynamic result and compare two version's of Taiwan's NDC target (reduction based on BAU) The reasons could be… 1. Backstop technologies 2. only CO2 policy vs GHG 3. static vs dynamic 4. New nesting for power sector The economic loss is not as large as expected and is a little lower than static model (1.5%) For 2030, the GDP loss is about 0.6-0.9% for different reduction scenarios Carrying out the Energy transition policy has negative impact on economics The GDP loss increased sharply, especially after 2040, which implies the greater mitigation pressure for Taiwan in the future 2018/9/24 2018 USAEE, Washington DC.

Electricity output With the constraint, there are more electricity output The most cost-effective way to meet reduction target 1. 最完美的是直接走NDC且能源轉型的線，避免浪費投資 2. 橘色跟綠色的差距，蓋了但不需發電，因為要滿足NDC，因為有NDC，產生碳價，降低用電需求，所以蓋了但是用不到 3. 橘色紅色(橘綠?)差距，橘色已納入深澳電廠，第三接收站(energy transition target), 如再加入溫管法目標，則不須這麼多的發電量(看橘跟綠)， 如要維持比較多的發電量(因為蓋了，不減發電部門)，則必須由其他部門少用電(減排)，來達到溫管法目標，則進一步造成扭曲，更多的經濟損失 4. 綠色跟紅色的政策不同，都達到NDC的排碳目標(排放量相同)，但是綠色是有考慮能源轉型 (permit system)，相當於化石能源補貼給再生能源，因 此多一層扭曲，所以綠線政策(能源轉型加溫管法)的經濟損失相對於紅線政策(只考慮溫管法目標，市場機制，純粹由碳價來滿足)的CASE來得較大 5. 紅線經濟衝擊小(市場機制，純粹由碳價來滿足)，所以是比較好的NDC手段 To achieve reduction target, the green line (2005-based and transit) suggests that Taiwan can use more electricity due to the energy transition policy with more expensive renewables, and causes greater economic loss while the red line (2005-based) needs to reduce more electricity by market mechanism (carbon price), and is the most cost-effective way to the economics Nonetheless, these scenarios both meet Taiwan’s reduction target, the mechanism and impact are different for the economics

Carbon price The carbon prices are around 90-110 USD/ton 減BAU先陡後緩 減量 先緩後陡 再生能源多，不需多付碳價，所以能轉型有助於降低碳價 符合先緩後快?? Energy transition policy lower the carbon price since this policy impose more renewables than BAU If we want to reduce the abatement cost after 2030, more industrial policy and low-carbon technologies are needed The carbon prices are around 90-110 USD/ton Energy transition policy helps to lower the carbon price The slope is flatter before 2030 while its getting steeper after 2030-2050 The higher marginal price implies that the cost is sharply increased and the abatement pressure is greater after 2030 2018/9/24 2018 USAEE, Washington DC.

Sectoral Emission difference (%) by 2030 The sectoral emissions analysis shows that the great mitigation responsibility and pressure puts on the power sector, in particular, coal-fired power plant. Other: include Parts and Components Manufacturing, Semi-conductors Manufacturing 2018/9/24 2018 USAEE, Washington DC.

Economic implications The GDP loss reaches to 0.6-0.9% by 2030 and 3.5% by 2050, however it is not as much as expected and is a little lower than static model (1.5%) The energy transition policy can be considered as a policy shock to power sector, and carries out this policy with reduction target together will increase the GDP loss The energy transition can be seen as power sector’s policy and the emissions gap will be mitigated by other policies. This implies that the reduction responsibility shift from power sector to other sectors and will cause in-efficiency and increase the GDP loss To meet Taiwan’s reduction target, more policies and low-carbon technologies are needed 根據評估結果，產業減碳責任最重的是燃煤電廠，降低發電占比37%到30%，但是又要新蓋深澳燃煤電廠，將抵消造成減碳的壓力。 2018/9/24 2018 USAEE, Washington DC.

Thank you for your attention! Questions and comments. Q & A Thank you for your attention! Questions and comments. Contact me: Cheng-Da Yuan chengda@mit.edu http://globalchange.mit.edu/ 2018/9/24 2018 USAEE, Washington DC.