Mapping Stakeholder Perceptions

The qualitative evaluation of stakeholder interviews was an important first step in the construction of a causal model of the energy system. The objective of the evaluation is to define the scope of the empirical study by delimiting the system under investigation from its environment. Awareness of the system’s boundary and the system’s content addresses the complexity dimension of openness, i.e. the lack of a clear and unambiguous definition of the problem. Stakeholders, experts and electricity users identified events related to the consumption and generation of electricity that they considered important. These areas of concern formed the basis of further analysis.

5.2.1 Defining the Scope of the Problem

The following presents the main insights gained from the consultation of experts and residential electricity users. Lessons drawn from the interviews enhanced the study in several ways. Stakeholders focused the study through prioritising the research.

Stakeholders created awareness of issues that were not discovered through desk-based research. Stakeholders made the research more relevant by highlighting areas, which were originally not considered to be within the scope of the study.

The review of literature and news reports brought to a light a wide diversity of

environmental and socio-economic problems linked the electricity sector. Diagram 5.1, despite its simplicity, depicts a system model of unmanageable scope. In order for this research to produce meaningful results within a constrained time frame, areas of study needed to be prioritised. In systems terminology the boundary issue needed to be

addressed. The consultation of stakeholders was instrumental in identifying what is critical to the outcome of a residential electricity sector reform. In addition to experts, members of the public were consulted to identify areas they considered relevant. Their input

contributed to the prioritisation of certain areas of research. Stakeholder input also identified new areas of study, which were previously not included in the scope of the

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research. By focusing on the salience of issues, the scope and the various aspects of the problem under investigation became clearer as the study evolved over time.

There was general agreement on the urgency to address environmental issues caused by the emission intensive electricity sector. However, it was not climate change impacts most members of the public and experts, academics and officials alike, were most concerned about. Climate change, in fact, was hardly ever mentioned during most interviews, unless the topic was brought up by the researcher. Local pollution, poor air quality in particular, was regarded by most interview partners as the most pressing problem. Despite its severity, the problem of localised air pollution was noted, but originally not included in the study. Initial focus of the research was on the control of carbon alone as only CO2 emissions are regulated by the national ETS. The overarching research question, which is concerned with disparities between the inland and the coastal provinces, appears to justify framing the concept of regional environmental equity around local air pollution rather than the global impacts of carbon emissions. The rationale for the shift in research focus is explained in the following.

Firstly, the scale of the problem, its impact on society and the urgency to mitigate air pollution seems to dwarf the challenge of climate change in China. Studies located on the social and economic consequence of air pollution highlight the scale of the problem. Crane and Mao (2015) estimate that the economic cost equates to 6.5 % of China’s gross

domestic product each year for the years 2000 to 2010. Public concern about poor air quality has increased considerably since January 2013, when the stretch of toxic air

enveloped Northern China. The so-called ‘airpocalypse’ resulted in a widespread outcry and officials gave green light to Chinese news media to openly report on the problem (New York Times, 2013). As China experiences more and more high-profile environmental and health related problems, worries about poor air quality became apparent during many interviews. The topic also came up in the many informal discussions with members of the public. A survey administered as part of this research confirmed that urban ‘haze’ or smog is generally regarded a more severe issue than climate change. Air pollution followed by food safety topped the list of public concerns (see Chapter 7 for an in-depth analysis of responses to the survey). The World Health Organization estimated that nearly 7 million premature deaths per year were due to air pollution (WHO, 2014), making air pollution the third largest risk factor contributing to premature deaths globally, and almost all of these deaths are directly and indirectly related to energy. A study on the main sources of air pollution leading to premature deaths in China attributed 86,500 deaths in 2013 to ambient PM2.5⁴⁰ from coal burning at power plants (GBD MAPS Working Group, 2016).

40PM2.5 is fine particulate matter can penetrate deep into the lungs. Research has strengthened the evidence that exposure to PM2.5 is implicated with a range of very serious health outcomes. Sources of particulate matter are primary (i.e. emitted directly to the atmosphere) or secondary (i.e. formed by the chemical reaction of other pollutants such as SO2 or NOx .The main source is combustion, e.g. from vehicles and power stations.

Other man made sources include quarrying and mining, industrial processes. Natural sources include wind blown sand, sea salt, pollen and soil particles. PM10, larger size fraction of particulate matter, is also known as

‘black carbon’ and a cause of climate change. It is caused by the same processes as PM2.5. (Defra, 2016).

131 Secondly, the combustion of fossil fuels for electricity generation contributes to both global climate change and local air pollution and results in two interrelated environmental policy problems. The emission of CO2 and the emission of air pollutants are driven by the same energy production and consumption patterns. During exchanges with academic experts it became apparent that there is a need for interventions which maximise the ‘co-benefits’

between air quality management and greenhouse gas mitigation. In China the analysis of

‘co-benefits’ has emerged as an important research area in academic study over recent years (Aunan et al., 2006; Jiang et al., 2013; Yang and Teng, 2016; Zeng et al., 2017). The systemic view of the synergies between carbon control and air pollution measures is useful when assessing the cost of policies. A study (Crane and Mao, 2015) based on conditions in 2012 estimated that the net annual costs to clean up China’s air would amount to

approximately $140 billion to $160 billion. According to Xie Zhenhua, special representative for climate change affairs at China's National Development and Reform Commission, it will cost China over $6.6 trillion (41 trillion RMB) to meet the greenhouse gas (GHG) reduction goals laid out in the country’s Intended Nationally Determined Contributions (INDC) (Reuter, 2016). A carbon market simultaneously addresses both air pollution and climate change. Given the high costs involved in meeting air quality targets and GHG goals, the economic evaluation of a carbon market needs to include an assessment of its potential to lower air pollutants.

Thirdly, unlike CO2, which spreads globally, the impacts of air pollution are mostly felt regionally and locally. Some air pollutants move across entire continents. The majority of air pollutants, in particular sulphur dioxide (SO2) , nitrogen oxide (NOX) and particulate matter, which are a by-product of coal combustion (Mao et al., 2014; Zhao et al., 2008), have their greatest impacts close to the location of their production. Collectively, air pollution risks are much more localised than risks associated with CO2 emissions. Policies with the objective to mitigate the effects of carbon emissions are formulated in the knowledge that the gains will be long-term and effective on a global scale. The short-term and local effects of measures aimed at controlling air pollution are therefore more closely linked to questions of regional equity than the contribution of interventions to reduce CO2

(Ramanathan and Feng, 2009).

In addition to prioritising study areas, stakeholders identified entirely new areas of study, which were not previously considered or were deliberately excluded as they were not thought to be relevant. Despite adding to the scope of the study, this input helped to focus the research and made it more pertinent to specific concerns of residential electricity users in China. Members of the public welcomed the prospect of a cleaner environment. A small number of interviewees stated the potential impact of a reform on their livelihoods as a concern. The possibility of a tariff increase opened new lines of enquiry. Consequences of a carbon market on a household’s material standard of living appeared to at least partially outweigh the positive effects of a reform on pollution levels in the minds of some of the electricity users involved in the study (Interviews 58, 59, 68, 72).

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The prospect of rising electricity prices for residential users as a reform outcome was noted at the outset of the research (in the setting of the EU ETS), but not considered as an issue which would require special attention in the context of China. As noted in the concluding remarks of the literature review, studies on emissions trading in China appears to focus on technical issues such as market compliance and MRV. Socio-economic impacts are studied to a much lesser degree. Generally, the pricing of utilities in China is another topic that has not received adequate research attention. As the study evolved during the fieldwork phase, the effect of a carbon market on people’s livelihoods gained in salience and therefore was included in the scope of the study.

The carbon market as a facilitator to promote innovation accelerating the restructuring process of the Chinese economy away from traditional industries is well documented.

However, technology is attributed a much more expansive part in the transition than originally considered. The central role of technology to resolve environmental issues was pointed out by many experts, including those who do not have any links to industry or have any financial interests in the reform. Even technologies, which are typically associated with a certain level of risk, were generally endorsed (Interviews 25b, 28, 32). The dangers of nuclear energy were widely disregarded. Carbon Capture and Sequestration technology (CCS), despite hazards such as leakage and its unknown long-term consequences on the environment, universally received support as a medium to long term measure to control carbon from coal based energy generation. The relatively uncritical appreciation of these technologies was a reappearing theme in discussions with well-informed experts in the field of energy and the environment. A survey conducted by The Energy Group at the University of Cambridge (Reiner and Liang, 2012) with representatives from the government, power companies and academia confirmed this impression. Only a small number of the respondents voiced concerns over the risks associated with CCS technology.

The interviews created the impression thatindividuals generally believe that new

technology alone can solve environmental issues, particularly those related to the energy sector. The emphasis on technological solutions is echoed by the prominent role innovation is given in the current Five Year Plan. A lively debate on changing lifestyles has been

dominating the environmental movement in most Western societies. The obliviousness of interview partners towards the role of consumption behaviour was unexpected and prompted a more in-depth exploration of behavioural attitudes through further interviews and a survey administered to the public. The analysis of the survey submissions is

presented in Chapter 7.

Professionals linked to the financial sector (Interviews 47, 49) including the ETS pilots (interviews 23a-d, 30, 31a-c, 40, 41, 45) and a carbon credit company (Interview 29) provided a different angle on the motivations of China to adopt a market approach. In addition to the environmental and economic benefits, a carbon market firstly provides prospects to experiment with financial products such as derivatives, whose trade is

currently restricted and to a large extent controlled by the state (Prasad, 2016; Seth, 2015;

Elliot and Yan, 2013). Secondly, a national ETS provides new opportunities for a growing financial sector with companies offering services such as brokerage and clearing

133 (Environomist, 2016). Thirdly, the carbon market enables the continued development and issuance of carbon off-set credits (Chinese Certified Emission Reductions (CCER)) after the de-facto collapse of the Clean Development Mechanism (CDM), one of the pillars of the Kyoto Protocol (Grubb, 2016; Lo, 2015; Lo and Cong, 2017). ⁴¹ These insights are reflected by Lo (2013)’s analysis on the factors motivating the government to establish a carbon trading scheme. He argues that the adoption of carbon trading is driven by the perceived agreement of a financial instrument with economic development rather than the prospect of a positive effect on the environment.

Finally, the engagement with stakeholders improved the cultural competency of the researcher by helping to discover the social meanings attached to norms, values and practices embedded in a culture very different from her own. Insights gained from stakeholders into the specific context of China provided context to enable the meaningful interpretation of results and allowed a glimpse into the ‘mental models’ of those who are affected by the reform.

5.2.2 Defining the Problem Itself

China’s 13th Five Year Plan has put forward a road map to steer the country towards the

‘New Normal’ focusing on inclusive growth that is also green, open and innovative. The far reaching reforms can be expected have a direct impact on people’s lives. This raises the question whether the population shares the leadership’s vision of making China a

"moderately prosperous society" by 2020.

There was general agreement amongst the households interviewed on what mattered to them. From the view of electricity users, objectives of the market-led reform should include the improvement of environmental conditions and the continued access to affordable electricity. During the field work stage pollution incidents were experienced personally.

Poor air quality in particular, was found to be a regular occurrence. Unsurprisingly,

interviewees were very concerned about poor environmental quality (Interviews 58, 62, 64, 66, 68, 71, 72). Some reported personal health problems they attributed to poor air quality (Interviews 75, 77). Others, however, were less concerned about health impacts (Interviews 57, 76), but yet thought that pollution from the generation of electricity (and heavy

industry) is a major issue, which needed to be addressed urgently (Interviews 65, 67, 69).

Rising unemployment and increasing expenditure on food, rent, utilities and other basic goods appeared to be a major concern for most people. While the price of residential

4160% of all CERs (Certified Emission Reductions) issued globally were generated in China. This is significantly more than in India (11.5%) and Brazil (5%) combined (UNFCCC, 2017).

In China, the biggest host of CDM projects, the carbon off-set sector has evolved into a key economic factor.

Firms are involved in a variety of consultancy services as well as credit development, certification and

brokerage. The decline of the sector would have a significant economic impact. Possibility to convert CEERs into CERs (Certified Emission Reductions) accepted by the national carbon market appears to be a deliberate decision to mitigate the impact of a disappearing (CDM) market for CERs.

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electricity is currently held at a low level through government subsidies, future affordability in the face of potential tariff increases was considered by many as a potential threat to their livelihoods. A number of people felt that their standard of living could be impacted as China’s economy is going through a restructuring process to end its overdependence on heavy industry (Interviews 60, 63, 72, 75, 79).

Disparity between regions appeared to be of a lesser concern to the interviewees. Only when directly asked interviewees acknowledged that differences between provinces pose a problem that could jeopardise the stability of society. However, over the course of the field work stage a number of official and unofficial (i.e. not registered with the government) grass-roots initiatives that work to alleviate poverty in some of country’s most deprived regions were encountered (Interviews 1, 2, 11).

Diagram 5.3 Critical Events Observed by Stakeholders Defining the System Boundary

Diagram 5.3 illustrates the problem, which needs to be tackled by a carbon market facilitated electricity sector reform from the perspective of most electricity users.

Deteriorating environmental quality observable as poor air quality as well as economic developments apparent in rising unemployment and higher costs of living were identified as major areas of concern. The establishment of an innovation sector was highlighted as critical for the reform of the energy sector. System components linked to these concerns define the environmental, social, economic system boundaries, the scope of the study and ultimately the criteria for the evaluation of the market-based intervention.

In sum, the individuals, who took part in the interviews, appeared to share the concerns with policy makers regarding current sustainability issues. However, the question remains whether the policy response in form of emissions trading is an adequate instrument to put

135 China onto a more sustainable development trajectory. Answering this question requires a deeper understanding of the causes underlying these issues.

As can be seen from Diagram 5.4 the research focuses on four key areas, which span the environmental, social and economic systems. The diagram illustrates the high level systems components which trigger the events observable by stakeholders. Components directly linked to environmental quality are levels of air pollutants as well CO2 emissions from the combustion of coal for power generation. Components directly linked to people’s material standard of living are opportunities of employment and consumption. Technological innovation has an impact on all three elements - pollution, employment and consumption.

Diagram 5.4 Systems Boundary within the Causal Model of an Energy System

The next step in the analysis to identify and understand the patterns underlying the events which have been manifesting themselves in stakeholder concerns of poor air quality and changing economic conditions. Patterns come into existence because of linkages between events. The presence of patterns indicates that an event is not an isolated incident or a temporary phenomenon. For an intervention to be effective in delivering desired solutions,

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it needs to disrupt and change existing patterns to produce the desired outcome. The following section firstly seeks to identify event patterns. Secondly, it attempts to develop an understanding as to how these patterns come into existence.