Webinar Summary: Simulating the Impacts of China’s Clean Energy Transition Abroad
On Wednesday, March 16, Ian Kieffer, Global China Fellow with the Boston University Global Development Policy (GDP) Center and Ian Sue Wing, Professor with the Department of Earth and Environment at Boston University, joined the Global China Research Colloquium to present initial results from their study on the potential impacts of a future shift in China’s overseas power projects from coal to renewable energy.
The two researchers have developed a computable general equilibrium (CGE) model to simulate a range of scenarios through 2030. Sue Wing began the talk by introducing CGE models, which are computer-based simulations of the economy commonly used to evaluate the macroeconomic impacts of policy scenarios. Based on economic structure, the model produces results on output, GDP and emissions (among other results) through 2030.
Kieffer explained how the model was adapted to evaluate the impact of replacing projected future coal capacity with solar and wind capacity. To do this, Kieffer and Sue Wing disaggregated the power sector in the model into seven individual technologies, each with their own regional endowments. Key data and assumptions for the model come from the International Energy Agency, the Global Trade Analysis Project, the World Electric Power Plants database and the Shared Socioeconomic Pathways, which are projected scenarios of global socioeconomic changes through the end of the century. Kieffer noted that the key policy shift their model is trying to capture is the prospect of swapping future coal capacity financed by China for wind and solar generating capacity instead, relative to a business-as-usual (BAU) baseline for power generation capacity growth. To identify the share of Chinese-financed coal plants in other countries, Kieffer used the GDP Center’s China’s Global Power Database, which tracks Chinese development finance and foreign direct investment for overseas power generating projects. This allowed the researchers to estimate the amount of new capacity China might enable in a BAU scenario, and how much could be swapped out for renewable energy through 2030 in a counterfactual (CF) scenario based on China shifting overseas power sector capital towards renewable energy.
Kieffer and Sue Wing shared initial results from their study, focusing on six specific countries of interest. First, they presented the difference between BAU and CF scenarios for the value of power output for coal, wind and solar plants. Countries with a large share of Chinese investment in coal power, like Sri Lanka, would see a significant drop in coal output. Smaller effects are observed for countries with smaller shares of Chinese power sector investment.
Emissions followed a similar pattern. The model showed carbon dioxide emissions won’t only drop in the power sector; other sectors may also see a decrease (or increase) in emissions due to general equilibrium effects – that is, substitution across sectors within the economy as coal capital shrinks and electricity prices increase. The overall effect of the CF scenario is small – roughly a 0.01 percent drop in global emissions each year (an amount on par with annual emissions from Puerto Rico). In addition, the CGE model represents broader effects across the simulated countries and regions: changes in the relative price of coal to other fuels, technology substitution in the power sector leading to relative electricity price changes, changing downstream prices and household demand – all of which affect GDP and welfare.
Kieffer and Sue Wing concluded by outlining additional scenarios they might consider, such as early retirement of coal plants or the conversion of all future fossil fuel-based plants receiving Chinese finance to renewable energy. Stay tuned for a working paper from Kieffer, Sue Wing and Cecilia Han Springer.
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