1. China/Shandong Province Assessment of FGD Projects Dr. Ruben Deza, Clean Air Markets Division, US EPA Reynaldo Forte, Clean Air Markets Division, US EPA Dr. Zhao Jianping, World Bank Stratos Tavoulareas, Energy Consultant

2. Presentation Outline Provincial SO2 compliance plan Provincial SO2 compliance plan FGD technology readiness FGD technology readiness Environmental monitoring Environmental monitoring Introduction of emissions trading Introduction of emissions trading

3. Shandong Province/SO2 compliance plan Plan developed in response to: Plan developed in response to: GB 13223-2003 which specifies maximum emission rate for plants above 65 tons/hr; and GB 13223-2003 which specifies maximum emission rate for plants above 65 tons/hr; and China’s “Two Control Zones” policy setting SO2 emission ceilings for each Province. China’s “Two Control Zones” policy setting SO2 emission ceilings for each Province. It includes 72 desulfurization projects by 2007 It includes 72 desulfurization projects by 2007 Assessment: Assessment: Plan based on command-and-control regulation (GB 13223-2003) Plan based on command-and-control regulation (GB 13223-2003) Cost-effectiveness not taken into account Cost-effectiveness not taken into account Emission cap for 2005 has not been met Emission cap for 2005 has not been met Recommendations Recommendations Develop detail source inventory Develop detail source inventory Refine plan to reflect cost-effectiveness Refine plan to reflect cost-effectiveness In the mean time, implement desulfurization in large power plants In the mean time, implement desulfurization in large power plants

4. FGD Technology Readiness About 200 FGD suppliers in China, but less than 10 have FGDs operating from more than 2 years About 200 FGD suppliers in China, but less than 10 have FGDs operating from more than 2 years SO2 reduction efficiency: 80-95% SO2 reduction efficiency: 80-95% FGD prices: 200-250 RMB/kW (25-30 $/kW)! FGD prices: 200-250 RMB/kW (25-30 $/kW)! Factors affecting FGD prices in China: Factors affecting FGD prices in China: Design simplifications (e.g., no forced oxidation) Design simplifications (e.g., no forced oxidation) Use of carbon steel instead of stainless steel in absorber Use of carbon steel instead of stainless steel in absorber Cheaper and manually-applied absorber lining Cheaper and manually-applied absorber lining Cheap auxiliary components Cheap auxiliary components Low labor cost Low labor cost

5. FGD Technology Readiness –Cont. Issues: Issues: Questionable product quality and reliability Questionable product quality and reliability Are such prices sustainable? Are such prices sustainable? If so, what are the associated O&M costs (due to high maintenance)? If so, what are the associated O&M costs (due to high maintenance)? Recommendations Recommendations Strict pre-qualification criteria Strict pre-qualification criteria Minimum design and quality requirements (e.g., minimum thickness lining) Minimum design and quality requirements (e.g., minimum thickness lining) Thorough bid evaluation Thorough bid evaluation Performance and reliability guarantees Performance and reliability guarantees

6. Emission Monitoring Shandong has made significant progress, but more is needed Shandong has made significant progress, but more is needed 37 CEMs in operation; 92 are expected by the end of 2006 37 CEMs in operation; 92 are expected by the end of 2006 Modern Monitoring Center already in operation Modern Monitoring Center already in operation Issues: No data QA/QC and auditingNo data QA/QC and auditing Lack of expertise by Provincial Environmental Protection Bureau (SPEPB)Lack of expertise by Provincial Environmental Protection Bureau (SPEPB) 2 CEMs in some plants2 CEMs in some plants Recommendations Building the infrastructure to collect, manage and analyze the emission data.Building the infrastructure to collect, manage and analyze the emission data. Enforce CEM reporting requirementsEnforce CEM reporting requirements SPEPB to implement unannounced inspectionsSPEPB to implement unannounced inspections Allow only well-proven CEM technologyAllow only well-proven CEM technology Proper installation of CEMS (stack vs duct)Proper installation of CEMS (stack vs duct) Utilize one CEM system per unitUtilize one CEM system per unit Third parties maintaining CEMs should be truly independent and certifiedThird parties maintaining CEMs should be truly independent and certified

7. Air Quality Monitoring Shandong has 71 monitoring stations in 17 cities Shandong has 71 monitoring stations in 17 cities Primary objective: monitor urban air pollution, but it is not clear whether this can be done effectively Primary objective: monitor urban air pollution, but it is not clear whether this can be done effectively Issues: Monitoring stations only in the cities; some close to major sources; as such, it is not possible to separate the impact of urban emission sources from major sources and trans-boundary (background) air pollutionMonitoring stations only in the cities; some close to major sources; as such, it is not possible to separate the impact of urban emission sources from major sources and trans-boundary (background) air pollution Assessment of air quality improvement due to the proposed FGDs is impossible with the present systemAssessment of air quality improvement due to the proposed FGDs is impossible with the present system Recommendations Commission study to improve the design of the air quality monitoring systemCommission study to improve the design of the air quality monitoring system Improve monitoring system by relocating existing monitoring stations and adding new onesImprove monitoring system by relocating existing monitoring stations and adding new ones

8. Emission Trading Workshop: Introduction to Emissions Trading Workshop: Introduction to Emissions Trading Shandong organizations interested, but more effort needed to improve understanding and prepare for implementation of such system Shandong organizations interested, but more effort needed to improve understanding and prepare for implementation of such system Lead role by the State Environmental Protection Agency Lead role by the State Environmental Protection Agency Recommendations Recommendations First, strengthen emission and air quality monitoring system First, strengthen emission and air quality monitoring system Ensure that environmental regulation has built-in flexibility Ensure that environmental regulation has built-in flexibility Then, introduce emission trading in 1-2 Provinces on a test basis Then, introduce emission trading in 1-2 Provinces on a test basis