Carbon Emission Trading and China's Pulp and Paper Making Industry

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117605-7474 IJCEE-IJENS © October 2011 IJENS

Carbon Emission Trading and China's Pulp and Paper

Making Industry

Jing LIU

1*

, Katsuya NAGATA

1

, and Hiroshi ONODA

1

1_{Graduate School of Environment and Energy Engineering, Waseda University, Tokyo, Japan}

* liujing@akane.waseda.jp

Abstract— In 2009, China surpassed USA becoming world's

top paper producer and consumer, Marked by energy guzzling, high pollution, the rapid development of China's pulp and paper industry brings heavy burden to the environment. The growth of carbon emission trading offers hope to help the industry runs in a clean, sustainable way. In this paper, the background of carbon emission trading, the carbon markets and three mechanisms are introduced. For global carbon market, the primary way China participate is through CDM project because of developing country status. The development of CDM project in China, especially, the CDM projects owned by China's pulp and paper industry are intensively discussed. In general, CDM project of pulp and paper industry started late, develops unevenly and comparatively slowly. Three advices are given for it's further development.

Index Term— carbon emission trading, CDM, China's Pulp

and Paper Making Industry

I. CARBON EMISSION TRADING

A. The background of carbon emission trading

The effect of increasing concentration of CO2 and other greenhouse gases (GHG) on global temperature change and climate change such as glacier melting and sea level rising cannot be ignored [1]. For instance, China surpassed the United States as the country emitting the most CO2 in 2007 , and it is also a large emitter of methane and black carbon which mainly contribute to global warming [1]. As a result, the climate and ecological environment of China deteriorated drastically. Recent century, it's average regional temperature rised 0.4-0.5°C. During recent 50 years, the sea level in the coastal zones of China rises 2.5mm every year [2]. The north suffers from drought [3], while the south threatened by flood. According to the report of IPCC [4], the global temperature may rise up to 6°C in the future unless proper measures are put into practice, or it may bring negative effect on water supplies, food production and human health [5]. Therefore, mitigating GHG emissions became to be one of the greatest challenges facing the world today and no one could step aside of this arduous battle which decides the fate of the earth and all humankind [6].

Along with the Convention on Climate Change (UNFCCC)

in 1997, the Kyoto Protocol went into force on 16 February 2005 provides an international framework for reducing GHG emissions [7] [8]. The Protocol set binding targets for 37 developed countries and the European community for reducing emissions of the six main greenhouse gases by an

average of ﬁve per cent against 1990 levels by 2012 [9]. Under the Treaty, countries must meet their targets primarily through national measures. However, the Protocol offers them an additional cost-effective way of meeting their targets by carbon emission trading. Generally speaking, the mitigation costs and carbon credit vary from country to country, because the energy efficiency and mitigation costs of developing countries are far lower and cheaper than that of developed countries and developing countries have more scope to reduce their emissions, as a result, the unit costs of reducing emission are different. When the cost price differential generated, the consequent carbon trading markets would no doubt emerge spontaneously [10].

B. Carbon emission trading mechanisms and markets

To help reach the common reduction target, the Kyoto Protocol adopted three forms of flexible mechanisms:

1. Emissions trading, allows a industrialised country to sell it's own unused permitted spare-emissions units to other countries that are over their targets.

2. Joint Implementation (JI), allows a industrialised

country to accomplish GHG emission reductions through projects in other industrialised countries that

have caps under the Protocol to earn emission reduction units (ERUs) meeting it's own emission targets [11].

3. Clean Development Mechanism (CDM), allows a industrialised country to implement their obligations partly through investmenting in emission-reduction projects in developing countries which are parties to the Kyoto Protocol but do not have emission caps under it [12] [13].

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Meanwhile, companies' marketing management, social responsibility and brand image building could also benefit from it. The project-based market is developed under the mechanism of either CDM or JI. The corresponding main commodities are Certified Emission Reductions (CERs) and Emission Reduction Unit (ERUs) respectively.

Table I

Global Main Carbon Markets and Commodity Category

Main carbon market

Allowance-based market Project- based market Compulsory

market

Voluntar y market Mechanism EU-ETS CCX CD

M JI

Main commodity

EUA, AAU (options,

futures, spot )

CFI (options,

futures, spot )

CER ER U

II. THE DEVELOPMENT OF CDM PROJECT IN CHINA The coal-dominant energy consumption structure leads China's CO2 emission to be the highest in the world [15], at about one quarter of the global total, its participation is obviously crucial to the success of any global effort to significantly reduce GHG emissions. China signed the Kyoto Protocol in 1998 and later in 2009 during the Copenhagen Climate Conference, the Chinese government promised that its carbon intensity would be 40–45% lower than their 2005 levels [16]. China participates the carbon market mainly through CDM projects according to the three mechanisms referred in 1.2, because of it's developing country status. As figure 1 [17] shows, the CDM projects in China develops oppositely late, until 2005 there were only 3 CDM projects registered accounting for only 5% of total registered projects that year. From the year of 2006, the CDM projects launched in China increased sharply. In 2010, there were over 500 CDM projects got registered, growing 160 times more than the beginnning year of 2005 [18]. Nowadays, China becomes the biggest user of the CDM with over 1000 register projects covering electricity, cement and other energy-intensive industries. Besides the rising of CDM projects cases, the CERs that China transacted also grew rapidly from 2004-2007, dropped down on 2008-2009 to a large extent due to the financial crisis of 2008. However, China retained it's dominate place holding 72% of global total exchanged CERs [19].

II. THE CDM PROJECT OWNED BY CHINA'S PULP AND

PAPER MAKING INDUSTRY

The pulp and paper making industry develops very fast in China. The country’s aggregate consumption of paper and paper board increased from 36.83 million tonnes in 2001 to 85.69 million tonnes in 2009, while the domestic production of paper and paperboard expanded from 32.0 million tonnes in 2001 to 86.4 million tonnes in 2009. With these two consumption and production records of 2009, China has surpassed the United States to be the largest producer and consumer globally. However, the industry's booming growth, like many other local industries, brings some serious environmental problems such as

greenhouse effect, acid rain and water pollution [20].

_{For years, China adopted Cleaner Production (CP) as one of}

the prime tools in its ﬁght against industrial pollution [21]. As the latest 2010 year's List of Eliminate Backward Production Capacity of Industrial enterprises reported[22], there were 279 pulp and paper making companies being required to close down their outdated production lines and facilities, accounting for over 13% of 2087 companies covering 18 industries. It is the undeniable fact that the high coal and electricity consumption, low production efficiency and massive pollution hinder the further development of China's pulp and paper making industry [23]. Fortunately, the carbon emission trading offers a win-win cooperation model for the Chinese pulp and paper making enterprises and oversea companies through the CDM projects, that the oversea companies transfer the advanced energy saving technology and fund to Chinese pulp and paper making enterprises helping them develop in a sustained, clean and sound way, in turn, the Chinese pulp and paper making enterprises give the CERs to the oversea companies helping them meet the emissions target under the Kyoto Protocol. Currently, there are 15 Chinese pulp and paper making enterprises owned CDM project receiving approval from Chinese government. The details of these CDM project are presented in table II[24]. From the table, it is easy to find some key points. The first point is China's pulp and paper making industry starts carbon emission trading relatively late than other industries. It's first approved CDM project dated on 2007-11-8, when there were 928 projects being approved before that. Among those 928 projects, the first approved one dated on 2005-03-10, two years earlier than that project. Next point is China's pulp and paper making industry develops carbon emission trading far slowly than other industries. The total national approved CDM projects increased 1969 from the beginning date of 2007-11-8 to the end of 2010, while during the same period, the CDM projects owned by Pulp and Paper Making Industry only increased from 1 to 15, accounting less than 1%. The third, the location distribution of CDM projects is not even, 8 of 15 projects locate in Hu'nan and Shandong. The fourth point is the scope of those 15 CDM projects mainly focus on energy saving and efficiency improvement, following by other applications while there is only one project invested on Methane recovery & utilization. The fifth point is Switzerland is

0 100 200 300 400 500 600

2005 2006 2007 2008 2009 2010

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Table II

The approved CDM projects owned by China's Pulp and Paper Making Industry

No. Title Approval Date Location Scope Methodology

Used

Annex I Country

Estimated Ave. Annual CERs (tCO2e) 1 Black Liquid Burning and Synthetic

Utilization Project in Hunan Xueli Paper Manufacturer

2008-11-26 Hu'nan Energy saving & Efficiency improvement

AMS I.C(Ver13) AMS III.M(Ver 2)

Canada 71,704

2 Black Liquid Burning and Synthetic Utilization Project in Hunan Linyuan Paper Manufacture Co., Ltd.

2010-2-10 Hu'nan Energy saving & efficiency improvement

AMS I.C(Ver 15) AMS III. M(Ver2)

Netherlands 62,825

3 Shandong Rizhao Huatai Paper Soda Recovery Project

2009-10-14 Shandong Energy saving & efficiency improvement

AMS III.M.(Ver.2) Switzerland 44,392

4 Shandong Rizhao Huatai Paper WHR For Power Generation Project

ACM0012(Ver.3.1) Switzerland 77,578

5 Shandong Rizhao Huatai Paper Energy Efficient Improvement Project

AMS II.D.(Ver.11) Switzerland 37,438

6 Sichuan Hongyuan Energy Efficiency Improvement Project

2009-8-14 Sichuan Energy saving & efficiency improvement

AMS II.D (Ver11) Switzerland 53,821

7 Chitianhua Waste Heat Utilization Project 2008-3-26 Guizhou Energy saving & efficiency improvement

ACM0012 UK 572,203

8 Hunan Juntai Biomass Power Plant Project

2008-7-18 Hu'nan Renewable energy ACM0006 (Ver6.1) UK 345,054

9 Shandong Chenming Paper Holding Ltd Biogas Co-generation Project

2007-11-8 Shandong Renewable energy AMS I.C Switzerland

33,096

10 Hunan Huitong Ruoshui Hydropower Pro ject

2008-5-13 Hu'nan Renewable energy ACM0002 UK 59,613

11 Biogas Utilization Project in Zhejiang Jin gxing Paper Joint

Stock Co., Ltd.

2010-10-12 Zhejiang Methane recovery & utilization

AMS.III.H. AMS.I.F

Switzerland

43,637

12 Sichuan Xinjihong Soda Recovery Project

2010-12-21 Sichuan Others AMS-III.M(Ver2) Switzerland 48,663

13 Yilinpaper Caustic Soda Recovery Project in Henan Province

2009-7-14 He'nan Others AMS-III.M(Ver 2) UK 15,500

14 Sichuan Meishan Hongyuan Soda Recovery Project

2009-4-22 Sichuan Others AMS-III.M UK 26,745

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now the most favorable cooperating foreign country with 7 projects, UK is also warmly welcomed with 6 projects. The other two projects, one for Canada, the other for Netherlands. Another dramatic fact is, the capacity and passion towards carbon emission trading of China's pulp and paper making companies are different. Those 15 projects are in fact possessed by 11 companies. Shandong Rizhao Huatai Paper Co.,Ltd owns 3 projects, accounting for 20% of the total projects, following by Sichuan Meishan Hongyuan Paper Industry Co., Ltd and Guizhou Chitianhua Papaer Industry Co., Ltd. each of them has two CDM projects. One more truth that could be neglected is though the projects invested in renewable energy is less than that of energy saving and efficiency improvement, the estimated average annual CERs 3 renewable energy projects transacted is the largest possessing over 60% of total estimated average annual CERs of 15 CDM projects.

Ⅳ THE SUGGESTION ON CHINA'S PULP AND PAPER

MAKING INDUSTRY ON DEVELOPING CARBON EMISSION

TRADING

Since the date that Chinese government joined the Kyoto Protocol, the carbon emission trading in China has been promoted for 23 years. There are already 1386 CDM projects successfully getting registered in UNFCCC, however none of them are concerned to the pulp and paper making industry. In other word, from the application of CDM projects to finally got CERs Issuance, there is still a long way for pulp and paper making enterprises to go, here are some advices.

1. China's pulp and paper making industry should attached great importance to developing carbon emission trading. The carbon market of this industry is very huge. Take one pulp and paper making factory's wastewater treatment and methane recovery CDM project for example. Assuming it's average annual CERs is 50,000 tons, by the 8EUR/t, the factory earns 4 million EUR per year. The factory's investment payoff period could be largely shortened because of this great benefits [25]. The reality is most of China's pulp and paper making companies including some world famous big enterprise seem do not discover this tremendous business opportunities yet. According to 2010 year's List of Eliminate Backward Production Capacity of Industrial enterprises, among those 279 pulp and paper companies who have the greatest potential to develop carbon emission trading, there is only one enterprise indeed registered CDM project, while the others attempt and accomplish nothing. Now it is time for China's desperate backward pulp and paper making corporations wake up, now it is time to revive because now it is time to develop carbon emission trading.

2. China's pulp and paper making industry should clear the proper scopes and methodologies of CDM project. Briefly speaking, there are primary four kinds of CDM projects suitable for this industry, the boiler improvement project, the paper making factory's wastewater treatment and methane recovery project, the energy saving transformation on frequency converter project and the last project of energy saving transformation on steam system of paper making factory's assembly line. Those projects have the specific corresponding UNFCCC approved CDM methodologies to justify such as

AMS II.D is for the energy efficiency and fuel switching measures for industrial facilities, AM0057 is for the avoided emissions from biomass wastes through use as feed

stock in

pulp and paper, cardboard, fibreboard or bio-oil production and AMS III H is for the methane recovery in wastewater treatment while AMS III M is for the reduction in consumption of electricity by recovering soda from paper manufacturing process and AM0018 is for the steam optimization systems [26]. Back to the 15 approved CDM projects, the most favorable methodology use is AMS-III.M. It make sense that soda is the main by-product of pulp and paper making. But AM0057 and AM0018 are seldom used by China's pulp and paper making industry related CDM projects, demonstrating that the CDM project about the paper making factory's wastewater treatment and methane recovery and energy saving transformation on steam system of paper making factory's assembly line are few. This could be a new direction for CDM project development. 3. The carbon emission trading and China's pulp and paper making industry should develop synchronously. Now the energy saving & efficiency improvement predominate the carbon market. With the oil resource exhausting and oil price raising, the lignin biomass wood and non-wood biomass characterized as natural, renewable and pollution free material become the ideal raw stock to produce biofuel. As America published <<Forest Products Industry Technology Roadmap>> (2010) depicts, in future bioenergy production process will combine with pulp and paper manufacturing to form a completely new integrated production line. This is the right way that modern pulp and paper making industry will go. So it is easy foresee that the renewable energy and methane recovery& utilization will be the new growth point of carbon market. Now it is time for China's pulp and paper making industry developing bioenergy to welcome a new era of carbon emission trading.

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