CDM potential in the power-generation and energy-intensive industries of China

Abstract

China is one of the most promising countries for CDM (clean development mechanism) projects. Whilst this is true in terms of physical potential, of greater significance is the economic potential of CDM projects. In this article, I develop methodologies for estimating both the physical and economic potential of CDM activities in China and apply them to power generation and other energy-intensive sectors. This study adopts a thorough application of a bottom-up approach based on actual data collected from Tsinghua University and several power plants in China, and data from feasibility studies of Japanese companies sponsored by NEDO (New Energy and Industrial Technology Development Organization, Japan). The article also provides useful tools for estimating CDM economic potentials by sectors/technologies, which are applicable not only at the current CER (certified emission reduction) price, but also for any other possible CER prices. Section 2 illustrates a methodology for exploring physical reduction potentials and applies this methodology to different energy-intensive sectors. The results show a physical (annual) reduction potential of 127 Mt-CO 2 in total. Section 3 presents a methodology for calculating the CO 2 abatement cost. Section 4 calculates transaction cost, yielding an estimate of approximately $350,000 per project. Section 5 examines the economic potential of CDM projects in China, taking into account current CER market price. The economic (annual) reduction potentials obtained are 15 Mt-CO 2 (far smaller than the physical potential). Section 6 explores other promising areas for CDM. The economic potential of CDM in China is shown to increase when CDM activities in ‘greenfield’ and landfill gas recovery are taken into account. Finally, I present various policy recommendations.