“Leapfrog” Emissions Trading in China?: Ten years later

Roger Raufer罗福杰

Hopkins-Nanjing CenterNanjing, China15 March 2018

中国“跳跃式发展”的排放交易？：十年之后

R. Raufer 2Leapfrog graphics:http://darinthompson.ca/2017/01/31/courts-and-the-usability-leapfrog/

跳跃式发展

A “Leapfrog” Emissions Trading Approach

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I. Public health 公共健康

II. Compliance 强制措施

III. Economic development 经济发展

IV. Greenhouse gases 温室气体

Addressing the emissions problem

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Meteorological forecasting +atmospheric dispersion modeling

Comprehensive ambient monitoringUS EPA response:• Not good enough!• Need full controls

• Limited role as ‘interim’solution (e.g., 18 monthsto build FGD)

• Labeled ‘supplementarycontrol system’ (SCS)

I. Public health: Use ICS/SCS

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Parametric modeling

• Understand what's going on inthe process;

• Apply knowledge-basedapproach:

— 1st & 2nd laws of thermodynamics;

— Numerical analysis techniques, etc.;

• Estimate emissions;

• Difficult for certain pollutants (e.g., NOx).

Adaptive modeling

• Don't try to understand process;

• Look for patterns/relationships in large quantities of data;

• Apply advanced processing techniques (e.g., neural networks);

• Need to 'train' the software.

Neural network graphics source: https://www.azom.com/article.aspx?ArticleID=12456

Predictive Emissions Monitoring Systems (PEMS)

II. Compliance: Use PEMS, not CEMS

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Source: Alphenaar, 2007; Genscape, Inc., 2010; EPA Solutions, 2008

Refinery monitoring(services in USA & Canada)

Unit start-up at W.A. Parish plant, Texas

II. Compliance (cont.): Use independent, 3rd-party, real-time monitoring

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• Real-time markets, reflecting ICS constraints

• RECs markets already movingtowards real-time

• ICS control actions triggeredby economic response -- not C/C requirement

• All emissions must eventuallyhave a price

Real-time markets

Graduated goalsDistributive market design (i.e., through ‘grandfathering’ & auctions)

III. Economic Development: Real-time markets, with other characteristics

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EUROPE USA ASIA?– Beijing– Tianjin– Shanghai– Shenzhen?– Hong Kong?

• Consistent with renewable energycertificate (RECs) markets

• Consistent with 'white tag' markets

• Consistent with power trading

• Consistent with Kyoto Protocol markets

IV. GHGs: Consistency with other environmental markets

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Interim, real-time intermittent/supplementary control systems (ICS/SCS)Predictive Emissions Monitoring (PEMs) +independent, 3rd-partyenergy & environmentalmonitoringReal-time ET + graduated constraints +distributional focus in designConsistency with Kyoto Protocol & international carbon markets

I. Public health

II. Compliance

III. Economic development

IV. GHGs

A “Leapfrog” Emissions Trading Approach for China?

R. Raufer 10Graphics: https://ideas.hallmark.com/articles/new-years-ideas/chinese-new-year/

2008 2018

Ten Years Later?

鼠年 狗年

R. Raufer 11Source: UNEP 2016, A Review of Air Pollution Control in Beijing: 1998-2013, Nairobi, Kenya

I. Public health: ICS/SCS after the Olympics? AQ forecasting in Beijing

R. Raufer 12https://qz.com/197786/six-years-of-bejing-air-pollution-summed-up-in-one-scary-chart/

Forecasting didn’t solve the AQ problem

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• Introduced four-tiered color-coded alert system in March 2015;

• Red alert triggered twice in December 2015;

• Some industrial plants shut down or production curtailed;

• Outdoor construction activities prohibited;

• Vehicles banned on roads on alternating days, depending on last digit of license plate;

• Primary & middle schoolsclosed;

• Coordinated responsein surrounding provinces& cities.

Resulting reduction: ~30% of emissions

Emergency Plan for Extreme Air Pollutionin Beijing

减排成果：~30%的排放量

R. Raufer 14http://www.thebeijinger.com/blog/2016/12/04/new-changes-beijings-emergency-air-pollution-response-system-due-dec-15

“…under the presumption that it allows the city to function normally”在保障城市正常运行的前提下

Modified alert program in 2016

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https://www.nytimes.com/2018/03/12/upshot/china-pollution-environment-longer-lives.html; https://epic.uchicago.edu/sites/default/files/UCH-EPIC-AQLI_Update_8pager_v04_Singles_Hi%20%282%29.pdf; pictures: https://www.nytimes.com/2018/02/10/world/asia/china-coal-smog-pollution.html; http://www.scmp.com/news/china/society/article/2122964/move-clean-energy-leaves-chinese-pupils-out-cold-winter

Significant change: stronger enforcement & natural gas

R. Raufer 16https://www.ge.com/reports/2016-annual-outlook/

II. Compliance: PEMS, ten years later?GE’s Predix platform: “digital twin” in the cloud

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• Better CEMS compliance, but still significant concerns (e.g., standard gases, data release, etc.)

• Many facilities use 3rd parties for CEMS & ETS reporting, but extremely limited role for independent/private sector parties:

— MRV viewed as revenue source for gov’t research institutes;

— Potential loss of control of information;— Reluctance to give over regulatory function to

market

• PEMs not significantly employed in China

https://www.popsci.com/china-smog-changing-weather-patterns; photo credit: Andreas Habich

Benxi Steel

China’s continued focus on CEMs, not PEMs

R. Raufer 18https://apx.com/corporate-news/apx-embraces-distributed-ledger-technology-for-environmental-commodities/

Smart contracts:

These contracts allow the of credible transactions without third parties (i.e., through computer programming protocols), and are trackable and irreversible

Oracles (sometimes “test oracles”):

Mechanisms for determining whether a test has passed or failed

III. Economic development: Real-time markets ten years later? RECs registries

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Blockchainbenefits:• Immutable• Secure• Verifiable• Resilient• Transparent

Graphics source: Forbes and SAP, Doing Business In-the-Moment: Transforming Transaction Processing for the Digital Economy, November 2016.

New reality: Blockchains!

区块链传统的分类帐

R. Raufer 20https://www-03.ibm.com/software/businesscasestudies/US/en/corp?synkey=F601699R07582O98; https://www.youtube.com/watch?v=9wxrs1sXguc&feature=youtu.be

China carbon trading approach: IBM & EBL

R. Raufer 21http://energymarketintel.com/blockchain-microgrids-future-energy-transactions/

Most likely application: distributed (i.e., renewable) energy

R. Raufer 22https://technode.com/2018/02/26/peoples-daily-blockchain/

Will China lead?

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But big problem: massive energy demands!

Former Moscow auto plant

R. Raufer 24https://www.nytimes.com/2018/01/21/technology/bitcoin-mining-energy-consumption.html; https://www.nytimes.com/2017/07/25/business/dealbook/bitcoin-cash-split.html

Inner Mongolia Guizhou

China’s very, very heavy carbon footprint

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China previously banned ICOs in Sept., 2017 (i.e., illegal fundraising)

China shutting down mining operations

R. Raufer 26https://www.csmonitor.com/Business/2018/0212/Iceland-sees-bitcoin-mining-boomhttp://bitcoinist.com/moonlite-io-launch-completely-renewable-cryptocurrency-mining-operation/;

Note: Their ICO closes today

So two solutions:1) Move to renewables…

R. Raufer 27https://themerkle.com/the-real-carbon-footprint-of-cryptocurrency/; https://blockgeeks.com/guides/proof-of-work-vs-proof-of-stake/;

….or 2) Change the algorithms

• Block creator chosen in deterministic way;

• “Consensus algorithm” validates block, with validators’ votes determined by their deposit (i.e., their stake);

• Validators earn a transaction fee.

• Complicated cryptographic problem defines block of data;

• Network “miners” compete to determine solution;

• First miner determining block solution posts to network, & is rewarded with cryptocurrency coins.

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Beijing Tianjin

Shanghai

Chongqing

Hubei Province

ShenzhenGuangdong Province

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IV. GHGs: Ten years later?

flag graphic: http://econews.com.au/30234/china%E2%80%99s-first-carbon-market-starts-today/

Seven carbon trading pilots: 2013 - present

National Carbon Trading Program

• Official launch: December 2017

• Begins with power sector; —1700 enterprises—3.3 billion tonnes CO2—One year infrastructure development

(i.e., data reporting, registries, capacity development, etc.)

• One year simulation trading

• ‘Deepening & expanding phase,’ starting in 2020;

—Compliance spot trading for power sector;

—Gradual expansion to seven other sectors (when ready);

—Other instruments, participants, etc. over time (e.g., futures, CCERs, etc.)

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Interim, real-time ICS/SCS

√√

PEMs + independent, 3rd-party energy & environmentalmonitoring

√

Real-time ET + graduated constraints + distributional focus in design

?

Consistency with Kyoto Protocol & international carbon markets

√√√

I. Public health

II. Compliance

III. Economic development

IV. GHG controls

“Leapfrog” ET ten years later?