1. Outline 1.Introduction: What should China and India do? 2.Current State of India 3.Current State of China 4.What is Carbon taxation? 5.Why Carbon Taxation and not Cap and Trade? 6.What we aim to do and why 7.Results 8.Conclusions

2. The Chinese Economy Environmental degradation growing problem Adjust economic structure in favor of less resource-intensive economic activities

3. Demographics of China Largest population in the world: 1.31 billion people (2005)‏ –Population density higher in coastal region than inland

4. Current Energy Mix Coal is backbone of energy system –Meets about 60% of primary energy needs –Importance growing in recent years due to increasing demand for electricity Electricity almost 80% coal-based –Most of the coal concentrated in a few inland provinces, while largest centers of demand in coastal provinces

6. Current Energy Consumption Total energy consumption increased by 9.3% over 2005. –Coal consumption increased by 9.6% –Crude oil consumption by 7.1% –Natural gas consumption by 19.9% –In first six months of 2007, net importer of coal –Imported natural gas in liquefied form from 2006 –Net oil exporter until early 1990s Now third-largest importer behind United States and Japan CO 2 emissions –Air pollution estimated to cost China 3%-7% of GDP each year –Contains 20 of the world’s 30 most polluted cities

8. Renewable Options Hydropower –World’s largest hydropower potential National Hydropower Resources Survey (2003) estimate technologically exploitable capacity of China's water resources is 540 GW –Rivers that will likely be dammed Hongshui River, Yangtze River, Yellow River, Lancanjiang River, Wujiang River Solar –2/3rds of China's territory enjoys annual sunshine of over 2,200 hours and annual solar radiation of over 5,000 MJ/m 2 –Tibetan Plateau has the richest solar energy resources Nuclear –If all nuclear power stations that have been planned to date are completed, total installed capacity will exceed 10GW in 2010, and total approximately 32GW in 2020

9. Wind Estimated that utilizable wind energy resources –inland area about 300 GW –combined with utilizable wind energy sources in near-shore areas, could reach about 1000 GW in total China produces more wind turbines than any country in the world –40 manufacturers of small- scale wind turbines Wind power most successful in Inner Mongolia Autonomous Region (IMAR)‏ –1/3 of rural, remote herdsmen use wind electric generators

10. Goals for the Future 11 th Five-Year Plan (2006-2010)‏ Growth of 7.5% per year between 2006-2010 planned to prevent overheating of economy Cut energy use per unit of GDP by 20% and pollution by 10% by 2010 compared to 2005 Target shares of each major fuel in primary energy mix in 2010 –66.1% coal –20.5% oil –5.3% natural gas –0.9% nuclear power –6.8% hydropower –0.4% other renewables 2020 plans (NDRC)‏ Nuclear –Target: 40GW by 2020 Hydro –Target: 300 GW by 2020 Solar and Wind –Target: over 60GW by 2020

11. India’s Economy With 1.50 trillion in current $, it is twelfth in the world Third largest world economy in terms if PPP Starting 2005 India allows 100% foreign investments for most industry fields FDI inflows into India reached a record US$ 19.5 billion in fiscal year 2006/07 (April-March) double that of USA

12. Demographics of India Population 1.07 billion (second in the world)‏ Labour force by occupation agriculture: 60%, industry: 12%, services: 28% (2003)‏ Unemployment 7.8% (2006 est.)‏ India still has the world’s largest number of poor people in a single country. Of its nearly 1 billion inhabitants, an estimated 350-400 million are below the poverty line, 75 per cent of the poor in the rural areas. Main industries textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, software, services

13. Power Consumption and CO 2 Per Capita

14. Current Energy Mix (mtoe)‏

15. Various Ministries Prospect to Grow 92232Natural Gas (BCM)‏ PotentialCurrent 10<1Wind (MW)‏ 1200 /Solar (Mtoe/year)‏ 30<1Bio-fuels (Mtoe/year)‏ 620140Bio-mass (Mtoe/year)‏ 15031Hydro (GW)‏ 2089Nuclear (GW)‏ 74034Oil (MMT)‏ 38114148Coal (Mtoe)‏

16. Future Goals Five Year Plan 78,577 MW capacity addition (123,668 MW as of 2005-06) during the 11th Plan of 14,000 MW through renewables and another 12,000 MW from captive route. 2030 Massive Investment Requirements: To deliver sustained GDP growth of 8.0% till 2031-322, the requirements are: - Growth in primary energy supply by 3-4 times over current consumption - Electricity Installed Capacity should increase by 6-7 times - Annual coal requirement: Nearly 3 times over current demand TERI, 2006 India’s 2030 energy projections remain bellow world’s 2004 average

17. Environmental Concerns A one-meter rise in sea level could displace millions of people in India, a country with a coast line of several thousand miles. The ocean sequestration capacity is leveling off Deforestation is another serious problem (large percent of energy comes form biomass)‏ According to research carried out at Oxford University, the total number of flood zone refugees in India alone could reach anywhere between 20 and 60 million. Sea level rises could also prompt an influx of millions of refugees from Bangladesh. The Gangotri glacier, the source of the River Ganges, is retreating at a speed of about 30 meters a year, with warming temperatures likely to increase the rate of melting. Kyoto will not be reinforced

18. Advances: ‘Energy for All’ by 2012 The power sector is 60 % centralized and peak shortages that were common in ’90 reduced Numerous ministries, university institutes and to deal with R&D, modeling, energy distribution and policy issues Admission of private and foreign investment to energy, mining and related sectors (except for nuclear)‏ Concerns: Policy application in practice Corrected for PP, Indians pay one of the highest energy prices in the world Power sector loses ~ $6 billion per annum Not everyone pays the electricity they use… (30%-40% network losses)‏ High pollution fuels adversely affect primarily the poor Energy Policy

19. Integrated Energy Policy for India (August 2007)‏ Eleven scenarios based on source availabilities and technological development but not incentives

20. CO 2 Emissions By Different Scenarios

22. What is a Carbon Tax? A carbon tax is a tax on emissions of carbon dioxide and other greenhouse gases. It helps compensate for the negative externalities of pollution caused by these emissions The alternative to carbon taxation is cap and trade reforms which are when governments set a limit or cap on the amount of a pollutant that can be emitted

23. Why not “Cap and Trade?” Environmental NGOs and movements argue that trading does little to solve pollution problems overall – Groups that do not pollute sell their conservation to the highest bidder –Overall reductions would need to come from a sufficient and challenging reduction of allowances available in the system

24. “Cap and Trade” Criticisms (cont’d)‏ Other Criticisms –Many attribute accounting failures to the complexity of system –Cap and trade systems are seen to generate more corruption than a tax system –The administration and legal costs of cap and trade systems are higher than with a tax Lack of credibility in the first phase of the EU Emissions Trading –In the first year, the number of permits topped the amount of pollution –The price of carbon fell to almost nothing

25. Taxes are Economically More Efficient Finally, carbon taxes appear to be more efficient than caps because the revenue can be used by the government We would like to propose that the revenue be directed towards research and development of alternative energy sources Yes, Steve Goldberg criticized this notion in regards to the US, however the governments that rule China and India are structured very differently-

26. We Want a Diversification of Energy Sources Carbon atoms are present in every fossil fuel — coal, oil and gas In contrast, non-combustion energy sources — wind, sunlight, hydropower, and nuclear — do not convert carbon to carbon dioxide. Our goal it to investigate the cost associated with diversifying the power supply of China and India and a tax rate which would make this feasible

27. Representative Trajectory sampling various energy mixes. Normalized Cost and CO2 output are the Cost and CO2 of a particular mix divided by the Cost or CO2 of the initial Distribution Initial Distribution based on IEA Alternative Reference Scneario Simulation is observed to converge to a distribution with a stable minima in the cost and in CO2 Emissions

28. Table 3 Generation cost (dollar/kWh) for different energy sources with used tax rates for both countries ChinaIndia InitialLow Tax Mediu m Tax High Tax InitialLow Tax Mediu m Tax High Tax Coal0.03550.04950.0760.11340.03440.0484 2 0.0751 0.1123 Clean Coal 0.0650.06640.0690.0720.0650.06640.069 0.072 Gas0.0620.0690.08230.1010.03280.0398 1 0.0531 0.0718 Biomas s N/A 0.07720.07820.08 0.0827 Hydro0.0480.04830.0488 1 0.0495 6 0.0550.05530.0558 0.0565 Nuclear0.0440.04410.04420.04440.04630.0464 0.0467 Wind0.0450.0451 0.04540.07720.07730.0774 0.0772 Solar0.71870.71950.72110.72310.38610.38690.3884 0.3861 Source: IEA, WEO 2007; World Nuclear Association; IEA, Renewable; CEA, 2004; Government of India Planning Commission, 2007; Authors' calculations

29. Scenario 1 Table 4 Scenario 1: China with Traditional Coal Technology Low Tax ($14.02/t CO 2 ) Medium Tax ($40.65/t CO 2 ) High Tax ($77.92/t CO 2 ) Initial cost$397 billion$530 billion$716 billion Initial CO 2 emissions4969 Tt Final cost$400 billion$513 billion$673 billion Final CO 2 emissions4265 Tt4258 Tt4247 Tt Change in cost$3 billion-$16 billion-$42 billion Change in CO 2 emissions-704 Tt-711 Tt-722 Tt Percent change in cost0.76%-3.10%-5.86% Percent change in CO 2 emissions-14.16%-14.31%-14.53%

31. Scenario 2 Table 5 Scenario 2: China with the Introduction of Clean Coal Technologies Low Tax ($14.02/t CO 2 ) Medium Tax ($40.65/t CO 2 ) High Tax ($77.92/t CO 2 ) Initial cost$480 billion$499 billion$526 billion Initial CO 2 emissions706 Tt Final cost$474 billion$487 billion$504 billion Final CO 2 emissions454 Tt 452 Tt Change in cost$6 billion-$12 billion-$22 billion Change in CO 2 emissions-253 Tt -255 Tt Percent change in cost-1.26%-2.32%-4.10% Percent change in CO 2 emissions-35.80%-35.79%-36.08%

33. Scenario 3 Table 6 Scenario 3: India with Traditional Coal Technology Low Tax ($14.02/t CO 2 ) Medium Tax ($40.65/t CO 2 ) High Tax ($77.92/t CO 2 ) Initial cost$121 billion$159 billion$198 billion Initial CO 2 emissions1399 Tt Final cost$158 billion$183 billion$166 billion Final CO 2 emissions949 Tt934 Tt940 Tt Change in cost$37 billion$24 billion-$32 billion Change in CO 2 emissions-450 Tt-465 Tt-459 Tt Percent change in cost30.66%15.37%-15.99% Percent change in CO 2 emissions-32.20%-33.24%-32.82%

35. Scenario 4 Table 7 Scenario 4: India with the Introduction of Clean Coal Technologies Low Tax ($14.02/t CO 2 ) Medium Tax ($40.65/t CO 2 ) High Tax ($77.92/t CO 2 ) Initial cost$144 billion$151 billion$161 billion Initial CO 2 emissions264 Tt Final cost$174 billion$176 billion$182 billion Final CO 2 emissions123 Tt 124 Tt Change in cost$30 billion$25 billion$22 billion Change in CO 2 emissions-141 Tt-142 Tt-140 Tt Percent change in cost20.87%16.80%13.48% Percent change in CO 2 emissions-53.29%-53.66%-53.02%

37. Conclusions Reset Original Distribution Both countries are capable of meeting their Energy Demand in ways that significantly reduce negative environmental impact and externalities These changes in Infrastructure can be made financially appealing if the social cost of CO 2 Emissions is internalized through a modest Carbon Tax in China, particularly if Clean Coal is developed as an option Due to current limitations in domestic resources and technology, it seems that changing Infrastructures in India is more costly, and a larger Carbon Tax may be necessary to effectively internalize the social costs and provide incentives to change; however, their potential to grow seems promising and perhaps renewable options will become less costly with time Nuclear is the most cost competitive energy source and the most promising source to mitigate carbon emissions in the near future in both countries