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Hybrid Modeling Assessing Energy Intensity Reduction Target in China

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Hybrid Modeling Assessing Energy Intensity Reduction Target in China Powered By Docstoc
					CGE Linkage with AIM/Enduse:
Assessing Energy Intensity
Reduction Target in China
       Yan XU (NIES), Kejun JIANG(ERI) and Toshihiko MASUI (NIES)
                                            13th AIM Workshop
                                           16-18, February 2008
                                                 NIES, Tsukuba


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                     Contents
•     Background
•     Why to Link Two Models?
•     How to Link Two Models?
•     Preliminary Simulation Results
•     Further Work




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                       Background
• Energy consumption in China is
  large in volume and shows rapid
  growth in the past 20 years.
• Therefore, in 11th Five-Year Plan                                     Million tce


  (2006-2010) Chinese government                                 2500




                                      Total energy consumption
  set the target that energy                                     2000

                                                                 1500
  consumption per GDP should be                                  1000

  20% decline in 2010 from the                                   500


  level of that at the end of 2005.                                0




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• This experiment is to link Top-

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  down model with Bottom-up           Fig 1: Energy consumption from 1978 to 2005
  model and analyze the possibility
  of the above target and propose
  policy suggestions.

                                                                                      3
  AIM, NIES
             Why to Link Two Models (1)
                 Bottom-up vs. Top-down
• Two basic approaches to examine the linkages between the
  economy and energy system.
• Conventional Bottom-up (BU) models:
   – describe current and prospective competition of energy
     technologies in detail, both on the supply-side (substitution
     possibility between primary energies) and on the demand-side (end-
     use energy efficiency and fuel substitution), e.g. MARKAL
• Conventional top-down (TD) models:
   – dominated by Computable General Equilibrium (CGE) models
     since 1980’s,
   – represent real-world micro-economic responsiveness to policies,
     such as substitutability of energy for other inputs or consumption
     goods (Hourcade, 2006).

                                                                          4
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               Why to Link Two Models (2)
                           BU and TD Limitations
                                          • BU models do well in terms of
                                            technological explicitness, but less
                                            well in terms of macro-economic
                                            completeness and general micro-
                                            economic realism.
                                          • TD models do well in the latter
                                            terms, but they fail to represent
                                            detailed technology information
                                            and thus fail to represent the
                                            potential for no-regret options over
Fig. 2: Three-dimensional Assessment of     the short run and substantially
Energy-Economy Models (Hourcade, 2006)      different technological futures over
                                            the long run.

                                                                             5
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             Why to Link Two Models (3)
• In order to compensate for the limitations of one
  approach or the other, a number of researchers have
  tried to develop “hybrid” models.

• The first example was reported by Hoffman and
  Jorgensen in 1977. They linked the Brookhaven
  energy system optimization model and an
  econometric model;

• Since 1990’s, more teams are making efforts in
  building hybrid model
                                                        6
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            How to Link Two Models
            Methodology in Our Study




                                       7
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                         Common Scenario Assumption:
                         •Economic growth;
                         •Population;
                         •International Fuel prices;
                         •Environmental constraints

                                    Aggregating and
                                    Calculation
                       Service                        Sector output
AIM/Enduse             Demand;                        level; Energy
(Bottom-Up)            Fuel price                     price        AIM/CGE
                                                                   (Top-Down)



                                    Aggregating and
                                    Calculation
      Technology and
      fuel mix;                                             Annual Energy Efficiency
      Energy demand                                         Improvement;
      Cost;                                                 Additional investment
                                                                                8
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     Advantages and Disadvantages
• The advantages of this procedure are:
    – It is cost-effective to link existing well-documented and tested models
      than designing new models for the whole system or interconnection of
      systems;
    – it is more flexible, leaving the constituent model intact for independent
      runs, thus making further model development an easier work;
• Comparing to hard-linking, it has the following Shortcomings:
    – Difficulties in uncertainty analysis
    – Problem of maintaining the quality of the soft-linking when it is
      transferred to other users


• Soft-linking seems the most practical starting point for linking
  models.
                                                                                  9
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      AIM/CGE China Model Description (1)
                            Static Part
•      Production & Consumption: Nested CES function
•      International Trade:
       – Small open economy assumption
•      Environment: CO2 & SO2
•      2002 Input-Output (IO) table
       – Historical data: 2003-2005;
       – Simulation period: 2006-2010;
•      38 sectors, including 8 energy goods
       Coal, raw oil, natural gas, oil products, coke, electricity,
       heat, and coal gas
•      Software: GAMS/MPSGE

                                                                  10
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        AIM/CGE China Model Description (2)
                                   Recursive Dynamic
• Simulation is iterated year by year. The
  main driving forces of the economic
                                                                                        1
                                                                                                  
  growth are the labor force, capital                                    (1  gt  1)  K 
  accumulation, and technology change. ITOT , t  CAPt                        L   1
                                                                     (1  lt ) 
• Total investment is decided from                                 
                                                                                                 
                                                                                                               (1)
  expected GDP growth rate in the next
  period, present capital stock, and                                         PKj , t 
                                                                         (             )  Ij , t  1
  technology change                                                        PKj , t  1
                                           Ij , t  1  ITOT , t  1 
• The total investment is distributed into                                PKj , t                    
  each sectors based on logit function                                   PKj, t  1
                                                                       j 
                                                                           (            )  Ij , t  1 
                                                                                                       
  taken into account profit from capital.                                                                        (2)
• The capital stock in each sector is
  estimated from the investment.            CAPj, t  1  CAPj, t  (1   )  Ij, t
                                                                                                                 (3)



                                                                                                           11
     AIM, NIES
  AIM/CGE China Model Description (3)
                                    Scenarios
                                            Reference Case (BAU)
                    Scenario1   Scenario2      Scenario3


Annual GDP          7.5%        8.5%           9.5%
Growth Rate
Additional Policy   None        None           None
Measures
 •   Scenarios
 •   Other assumptions:
      – Labor supply;
      – Productivity change of labor;
      – Future international price;
      – Depreciation rate for capital stock: 5%
      – Change of preference in household sector
      – Energy efficiency improvement;


                                                                   12
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             AIM/Enduse China Model
• Energy end users are divided into five sectors:
    – the industrial, agricultural, services, residential and transport sectors.

• Every sector is split into several sub-sectors, or products or services mode.
  Totally, there are about 60 sub-sectors and 160 kinds of service demands.

• Different technologies related to the demand for services are collected for
  every sub-sector and product.
    – Technologies for services production
    – Technologies for energy recovery utilization
    – Technologies for energy conversion

• More than 500 technologies have been collected for the analysis, which
  cover the major technologies used in every sector.




                                                                                   13
 AIM, NIES
     Preliminary Simulation Results




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            First Run of CGE (1)
• Annual Energy Efficiency Improvement
  (AEEI): 2.5%;
• Run CGE for the first time




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                    First Run of CGE (2)
            Important Results for AIM/Enduse

                            Sector output level in 2010     AGR
                                                            MIN
              1.7                                           OIL
                                                            GLS
              1.6
                                                            NMM
              1.5
                                                            STL
              1.4
                                                            NFR
              1.3                                           ELE
              1.2                                           GAS
              1.1                                           WTR

               1                                            CNS
                     GDP grwoth   GDP grwoth   GDP grwoth   TRP
                      rate 7.5%    rate 8.5%    rate 9.5%   OSR



            Note: Sector output level in 2005 =1;



                                                                  16
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       Feedback from AIM/Enduse

                      Annual energy efficiency improvement for 9.5% scenario


              6%
              5%
              4%
              3%
              2%
              1%
              0%
                   Agr.   MiningManufactureOther Eletricity   Coke     Coal Transport Service
                                          Industry                   products




    Based on energy demand from Enduse model and output level from CGE model
     AEEIj  1  5 ED 2010, j / ED 2005, j
   ED2010, ED2005: Energy demand per unit output in the year of 2010 and 2005 respectively;
   j: sector

                                                                                                17
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            Second Run of CGE
• Update assumption on AEEI
• Run CGE for the second time




                                18
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Comparison between First Run and Second Run
            Sector Output Level
1.50
1.45
1.40
1.35                                                                             Second Run
1.30
1.25
1.20
1.15
1.10
1.05
1.00
        AGR MIN     OIL NMM STL NFR ELE GAS WTR CNS TRP OSR



                                GDP grwoth rate 7.5%


 1.50

 1.40
                                                                                 First Run
 1.30

 1.20

Note: Sector output level in 2005 =1;
 1.10

 1.00
        AGR   MIN   OIL   NMM   STL   NFR   ELE    GAS   WTR   CNS   TRP   OSR


                                                                                        19
AIM, NIES
  Comparison between First Run and Second Run
             Energy Consumption
                                                                   Unit: Mtce
            GDP        GDP                                                         GDP
          growth     growth    GDP growth           GDP growth    GDP growth     growth
             rate       rate          rate                 rate          rate       rate
            7.5%       8.5%          9.5%                 7.5%          8.5%       9.5%

                                             2005      2067.81       2067.81     2067.81
 2005    2067.81     2067.81      2067.81

                                             2006     2189.025      2205.762    2207.364
 2006   2162.014    2179.109     2182.192

 2007   2266.386    2312.941     2328.179    2007     2296.847      2334.505    2375.308

 2008   2377.507    2456.767     2488.148    2008     2406.587      2466.718    2555.811

                                             2009     2519.133      2604.326    2750.339
 2009   2496.276    2612.894     2663.778

 2010   2623.004    2781.972      2854.71    2010     2634.721      2747.584    2958.765

Second Run                                    First Run
                                                                                    20
  AIM, NIES
Comparison between First Run and Second Run
              Energy Intensity
                     Energy Intens ity (tce/10000 RBM Yuan)
                     (Under 9.5% annual GDP growth rate)


    1.1       1.09
                        1.08
                                   1.06
   1.05                                       1.03
                                                                         Second Run,
                                                        1.00
     1
                                                                 0.96
                                                                         EI reduction:
   0.95
                                                                         12.8%
    0.9

   0.85
            2005     2006       2007       2008       2009      2010



   1.1       1.09      1.09
                                   1.08
  1.08
                                              1.06
  1.06
  1.04                                                   1.03
  1.02                                                                   First Run,
     1                                                            0.99
                                                                         EI reduction:
  0.98

  0.96
                                                                         9.1%
  0.94
            2005     2006       2007        2008       2009     2010


                                                                                         21
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Feekback from Second Run of CGE to
            AIM/Enduse
                              Sector output level in 2010                  AGR
                                                                           MIN
            1.7                                                            OLI
                                                                           OIL
            1.6
                                                                           CHM
            1.5                                                            NMM
                                                                           STL
            1.4                                                            NFR
            1.3                                                            OHI
                                                                           ELE
            1.2                                                            GAS
            1.1                                                            WTR
                                                                           CNS
            1.0                                                            TRP
                  Scenario 1: GDP    Scenario 2: GDP    Scenario 3: GDP
                  growth rate 7.5%   growth rate 8.5%   growth rate 9.5%   OSR



     Note: Sector output level in 2005 =1;

                                                                                 22
AIM, NIES
            Further Iteration
• Second run AIM/Enduse
• Update assumptions in CGE and run CGE for
  the third time, and so on
• Until the differences between last run and
  present run are very small




                                               23
AIM, NIES
                     Primary Findings
                   Unit: tce/10000 RMB Yuan
                                              • Under the reference
              Energy Intensity for 9.5%
              Scenario in Reference Case
                                                case, the 20%
  2005                  1.091
                                                reduction target can’t
  2006                   1.08
                                                be achieved.
  2007                  1.058                 • It is necessary to take
  2008                  1.029                   some policies to
  2009                  0.995
                                                achieve that target.
                                                 –   Investment policies;
  2010                  0.957
                                                 –   Subsidies
  Energy
                                                 –   Energy efficiency standard
 intensity
reduction              12.28%                    –   Energy tax

                                                                             24
  AIM, NIES
                  Further Work
• Improve and complete the simulation for three
  scenarios under reference case

• Introduce policy measures into the hybrid
  model
    – Investment policies;
    – Export tax
    – Energy tax/Environmental tax

• Provide suggestions for next Five-year Plan

                                                  25
 AIM, NIES
                    Thank you!
             Your comments are welcome!

                    81-29-850-2355
                   xu.yan@nies.go.jp
            http://www-iam.nies.go.jp/aim/



                                             26
AIM, NIES
        Appendix: Nesting of the production
          structure in non-energy sector
                                                 Production sector


                                                       =0

                 Composite of intermediate                                    Composite of energy and valued
                          goods                                                           added

                         =0                                                             =0.5
        Intermediate                    Intermediate            Composite of                                    Value added
           goods 1                        goods 22              energy goods

                                                                                                                       =1
                                                                 =0.1
                                                                                                           Capital                    Labor
                                 Composite of fossil                               Non fossil fuels
                                      fuel

                                    =0.5
                                                                                       =1
                  Non-coal fossil                  Coal              Electricity                        Heat
                      fuels

                         =0.5                                                                        : Elasticity of substitution
Crude     Coke                        Oil              Natural gas        City                        between different inputs
oil                                   products                            gas

                                                                                                                                        27
   AIM, NIES
Nesting of the production structure
         in energy sector
                                           Production sector


                                                =0
                                                            Composite of
                                                            energy goods                   Value added
                    Composite of
                 intermediate goods
                                                                =0
                                                                                             =1
                         =0
                                                      Fossil fuel     Non fossil   Labor             Capital
      Intermediate                    Intermediate                      fuels
        goods 1                         goods 22


      : Elasticity of substitution
      between different inputs




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        Nesting of the consumption
                 structure
                                         Representative
                                         household

                                                   σ=0.5




                    Non-energy                             Energy final
                    final demand                           demand
                                   σ=1                                    σ=1



      Non-energy             Non-energy          Energy              Energy
      commodity 1            commodity 22        commodity 1         commodity 8




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   Relationship between domestic
   market and international market
                                                     Domestic market



                                                    Total domestic supply
                  International market

                                                               =4
                        Exports                    Domestic             Imports
                                          T=4


    Commodity 1                      Commodity i                International market
                            T=0

                                                          Activit
                      Production sector                   y
                                                                        T: Elasticity of transformation
                                                          Goods         : Elasticity of substitution


                                                          Market
                                                                                                          30
AIM, NIES

				
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