The Future of Natural Gas in China: Effects of Pricing Reform and Climate Policy

Abstract

China is currently attempting to reduce greenhouse gas emissions and increase natural gas consumption as a part of broader national strategies to reduce the air pollution impacts of the nation's energy system. To assess the scenarios of natural gas development up to 2050, we employ a global energy-economic model -the MIT Economic Projection and Policy Analysis (EPPA) model. The results show that a cap-and-trade policy will enable China to achieve its climate mitigation goals, but will also reduce natural gas consumption. An integrated policy that uses a part of the carbon revenue obtained from the cap-and-trade system to subsidize natural gas use promotes natural gas consumption, resulting in a further reduction in coal use relative to the cap-and-trade policy case. The integrated policy has a very moderate welfare cost; however, it reduces air pollution and allows China to achieve both the climate objective and the natural gas promotion objective.

A Review of Air Pollution Control Policy Development and Effectiveness in China

“…Natural gas currently accounts for about 6% of China's primary energy supply, which is considerably lower than the global average of 24% [24]. In response to the severe ambient air pollution problem, the Chinese government has listed the switch from coal to gas as a key part of China's sustainable energy system transformation strategy [24]. The switch from coal to natural gas in power plants, particularly over winter as part of the efforts to cut concentrations of PM 2.5 that causes smog, was first implemented in the capital city Beijing, and quickly adopted by other provinces [11].…”

“…Coal is the primary energy source in China due to it abundance and has been the largest contributor to air pollution in China's history. Over the past three decades, coal has been accounted for approximately two-thirds of China's primary energy consumption [24]. In contrast, in the US coal accounts for less than 20% of the nation's energy production 8 .…”

“…For instance, the total consumption was 1.5 billion tons in 2000 and rose to 3.8 billion tons in 2011 9 . Natural gas consumption generates much less pollution than coal and thus it is often regarded as a cleaner energy [24]. Natural gas currently accounts for about 6% of China's primary energy supply, which is considerably lower than the global average of 24% [24].…”

“…Natural gas consumption generates much less pollution than coal and thus it is often regarded as a cleaner energy [24]. Natural gas currently accounts for about 6% of China's primary energy supply, which is considerably lower than the global average of 24% [24]. In response to the severe ambient air pollution problem, the Chinese government has listed the switch from coal to gas as a key part of China's sustainable energy system transformation strategy [24].…”

“…Due to the severity of China's air pollution issue, the nation's economic growth may have been offset by the economic loss due to adverse health impacts and environment damages attributable to air pollution. As stated in Rock "the human health costs of environmental degradation and growing spontaneous public pressure have made it increasingly difficult for all levels of Chinese government to ignore the environmental degradation attending high-speed urban-industrial growth" [24]. The government is currently confronted with an onerous challenge to better design and implement policies to clean the ambient environment.…”