Building Capacity for Environmental Management and Emissions Trading in Taiyuan, China

1. Building Capacity for Environmental Management and Emissions Trading inTaiyuan, China Alan Krupnick Resources for the Future International Perspectives on Air Quality January 31 - February 1, 2005 National Institute for Public Health Sala de Seminarios Cuernavaca, Mexico

2. Overall Objectives • Establish a workable emissions trading system in Taiyuan • Extensive system design and capacity building in advance of actual trading • Trades should occur during a demonstration period

3. Background • Supported by Asian Development Bank • Technical assistance provided by RFF, CRAES, NILU, others • EPA helps provide training and software

4. Taiyuan, China

5. Background(Continued) • Heavy coal production and consumption in Taiyuan • One of the most polluted large cities in China • High SO2 concentrations: 200 ug/m3 (2000) • Significant annual SO2 emissions: 258,000 tons (2000)

6. Background(Continued) • Government goal to reduce emissions to 50% below 2000 levels in 2005 • Ambitious goal, (that will clearly not be met) • Government interested in using emissions trading to lower costs, improve management system

7. Institutional Issues Going In Too many agencies; unclear areas of authority Weak EPB and environmental mgmt system Limited emissions, public health information Weak enforcement and focus on pollutant concentrations, not mass emissions Manual (stack) monitoring vs CEMs

8. Approach Funding for local participation Many workshops and meetings plus papers to define good environmental management and steps for emissions trading program Detailed examination of environmental management system Software development Seven training sessions for government and industry managers

12. Milestones • Established scope • Established facility-specific emissions caps • Issuance of ET Regulation by Taiyuan • Development of Emissions Tracking System • Development of Allowance Tracking System • Capacity Building through workshops • Demonstration • Lanxin Chemical Co bought 47 tons SO2 from Jinxi Machinery Co. @ 1500 yuan/t for one year)

13. Further Progress • 7 ambient monitoring stations connected to central station • 19 sources installed CEMs connected to central station • EPB says, “We will implement SO2 trading in TY, and ask the new enterprises to buy allowances from the existing ones.”

14. Technical Issues Remaining • Raise cap on penalties • Allow mergers to acquire emissions permits • Allow for shutdown credits • Allow unlimited banking

15. Institutional Issues • Improve emissions measurement • Add financial assistance for SO2 control • Improve enforcement • Set realistic, firm aggregate SO2 targets • Improve intergovernmental policy coordination • Establish mediation committee • Establish advisory group • Publicize program

16. Lessons Learned • Understand what it takes to build capacity • Software, audit, meetings, trainings, leadership buy-in and participation, legal foundation • Need attention to big picture and details • Use lending/grant institutions for money and leverage • Need to fix environmental management system first • Consider other policies • Urban trading largely untested

17. STOP here

18. Conclusions • Air pollution not a huge health burden, but may be cost-effective to reduce it • Tools exist; Effective implementation needed • Incentive approaches make sense, but only when adapted to the local context • Factual basis is lacking, particularly air quality monitoring and baseline emissions • Performance in banning lead is a hopeful sign

22. Urban Air Pollution • Burden of Disease • Indoor air pollution more important, but controlling urban air pollution may be more efficient. • Primer on air pollutants • Concentrations in Urban areas by income group • Coverage is very spotty by country and over time • Poorest countries, if anything, got worse (26 ug/m3 PM10 annual average increase); others gained ground. Cities in the second poorest group did the best (20 ug/m3 PM10 decrease)

23. Policy Instruments • Tradable permits on the short list in DCs • CAC not ruled out a priori • Fees on inputs, outputs, emissions • Removing subsidies to energy • Subsidies on non-polluting substitutes to create price gaps. • Voluntary and information approaches

24. Stationary Sources • Can’t export DC instruments to LDCs • Stylized facts and implications • Priority on constraining costs favors price instruments • Low baseline control/cheap labor favors low tech, labor intensive abatement • Subsidy removal • Create capacity, economize on infrastructure

25. Mobile Sources

26. Stylized facts and implications • Lead used more in LDCs: Get it out • Buses more important in LDCs and declining: arrest decline; no big ticket investments, reduce diesel use and improve quality • Vehicles older and less well maintained: remove tax breaks, encourage scrappage and engine replacement. Can IM work?

27. CNG Buses in Delhi • Delhi in Top 20 for use of public transit • But diesel buses highly polluting • Supreme Court required conversion to CNG in 1998, ending a process started in 1985 • Phase-out complete in 2002 • Many objections and issues