Power Sector Development with Carbon and Energy Taxes An Assessment in Six Asian Countries Power Sector Development with Carbon and Energy Taxes An Assessment in Six Asian Countries Ram M. Shrestha With contributing authors: Anula Abeygunawardhana, Chitral Angammana, Kejun Jiang, Bundit Limmeechokchai, Charles O.P. Marpaung, Liu Qiang, Janak Shrestha, Kanchana Siriwardena, S.C. Srivastava, Pham K. Toan and Priyantha D.C. Wijayatunga www.serd.ait.ac.th/reric Published by Regional Energy Resourced Information Center (RERIC) Asian Institute of Technology P.O. Box 4, Klong Luang Pathumthani 12120 Thailand Email: [email protected] ISBN 978-974-8257-89-1 Copyright ©2016, Asian Institute of Technology No part of this book may be reproduced by any means, stored in a retrieval system, or transmitted in any form or by otherwise, without the written permission of the publisher. Printed in Thailand A part of the research underlying this book was funded by the Swedish International Development Cooperation Agency (Sida) under the Asian Regional Research Programme in Energy, Environment and Climate (ARRPEEC). Disclaimer: The authors, Sida and the Asian Institute of Technology (AIT) do not make any warranty, expressed or implied, or assume any legal liability for the accuracy or completeness of any information provided herein. The opinions expressed in this publication are those of the authors alone and do not imply the opinions on the part of Sida, AIT and the institutions the authors are associated with. Preface v Preface The power sector is a major emitter of the greenhouse gases (GHGs) and local/regional pollutants in Asia. As electricity demand is growing rapidly in most countries in Asia, it is increasingly important to develop the power sector in a climate-friendly and environmentally sustainable manner. Policies that promote the adoption of cleaner and energy- efficient technologies and resources are therefore needed towards that end. This volume presents a set of studies assessing the effects of two different types of economic instruments, i.e., carbon tax and energy tax, on the development of the power sector of selected countries in Asia. While the carbon tax is primarily focused on reduction of carbon emissions - a global climate change objective, the energy tax is mainly focused on more efficient use of energy, which is a national energy policy objective in many countries. However, each of these policy instruments can also meet global climate change and national energy policy objectives to a large extent. The present set of studies assesses the effects of the two tax policies in terms of mitigation of GHGs and local pollutant emissions as well as energy efficiency improvements. A part of the research underlying this volume was carried out under the Asian Regional Research Programme in Energy, Environment and Climate (ARRPEEC) funded by the Swedish International Development Cooperation Agency and coordinated by the Asian Institute of Technology (AIT). The ARRPEEC was launched in 1995 and executed in three phases during 1995-2005, with the aim of enhancing national capacity to identify and assess energy-related GHG mitigation options in China, India, Indonesia, the Philippines, Sri Lanka, Thailand and Vietnam. As a major component of ARRPEEC, research activities on energy, environmental and climate issues related to the power sector of six countries in Asia (China, India, Indonesia, Sri Lanka, Thailand and Vietnam) were carried out jointly by researchers of participating research institutes in the countries and AIT. The studies in this volume discuss of the effects of introducing carbon and energy taxes in the power sector of the six countries. Each country study in this volume analyzes separately the key implications of carbon and energy taxes on technology choice, energy resource mix, total costs and investment requirements in the development of the power sector from a long-term planning perspective. The studies also assess the effects of the taxes on emissions of carbon dioxide and local/regional pollutants from the power sector. The studies were mostly carried out during 2004-2005; however, their publication was delayed. It is thus expected that there will be some differences between the quantitative results reported in the studies and the actual data available since the time the studies were conducted. vi Preface Therefore, a discussion on differences between the actual data on some key elements of the power sector development and the corresponding values estimated by a country study has been included at the end of the respective chapters as a post-script. It is believed that the qualitative insights generated by the studies on the effects of carbon and energy taxes on the development of the power sector will be useful to policy makers and researchers in developing countries in general. Furthermore, since there are very few quantitative analyses in the context of developing countries of the kind presented in this volume in the existing literature, climate and energy policy makers and planners involved in the sustainable development of the power sector will find the studies to be of significant interest. Ram M. Shrestha Acknowledgements vii Acknowledgements I would like to express my gratitude to the Swedish International Development Cooperation Agency (Sida) for supporting a part of the research underlying this volume as an activity of the Asian Regional Research Programme in Energy, Environment and Climate (ARRPEEC). In particular I would like to acknowledge the support extended by Dr. Gity Behravan and Dr. M.R. Bhagavan, Senior Research Advisors of Sida during the course of the research program. I would like to thank the following partner institutions of the power sector research activities of ARRPEEC: Energy Research Institute, China; Central Electricity Board, India; Indian Institute of Technology Kanpur, India; Christian University of Indonesia, Indonesia; Sri Lankan Energy Manager’s Association, Sri Lanka; Sirindhorn International Institute of Technology, Thailand; and Institute of Energy, Vietnam. I would also like to thank the contributing authors of the country studies in this volume: Dr. Anula Abeygunawardana, Dr. Chitral Angammana, Dr. Kejun Jiang, Dr. Bundit Limmeechokchai, Dr. Charles O.P. Marpaung, Dr. Liu Qiang, Mr. Janak Shrestha, Mr. Kanchana Siriwardena, Professor S.C. Srivastava, Dr. Pham K. Toan, and Dr. Priyantha D.C.Wijayatunga. I am grateful to Professor Sivanappan Kumar and the late Professor S. C. Bhattacharya (who were Coordinators of ARRPEEC when the studies in this volume were carried out) for their continuous support and encouragement. I also appreciate the support of Mr. Praveen Gupta, Mr. Shavi Fernando and Dr. Nhan T. Nguyen in providing some useful information in the course of the studies. Finally, I appreciate the excellent editorial support provided by Ms. Anantaa Pande and Mr. Bijay B. Pradhan in finalizing the manuscript and thank Ms. Mridula Shrestha for her helpful editorial suggestions, Mr. Dishebh R. Shrestha for his help in cover design and Ms. Maria Kathrina B. Gratuito (RERIC/AIT) for her assistance in expediting the process of publishing the book. R.M.S. Abbreviations ix Abbreviations AAGR Annual Average Growth Rate AIC Average Incremental Cost AICoverall Overall Average Incremental Cost ARRPEEC Asian Regional Research Project on Energy, Environment and Climate BIGCC Biomass Integrated Gasification Combined Cycle Btu British Thermal Unit CAGR Compound Annual Growth Rate CCGT Combined Cycle Gas Turbine CCS Carbon Capture and Storage CCT Clean Coal Technology CEB Ceylon Electricity Board CEETs Clean and Energy Efficient Technologies CF Capacity Factor CO2 Carbon Dioxide CT Carbon Tax DPG Distributed Power Generation DSM Demand-side Management EETs Energy Efficient Technologies EGAT Electricity Generation Authority of Thailand EGP Electricity Generation Planning EPPO Energy Planning and Policy Office ERI Energy Research Institute ESP Electrostatic Precipitators ET Energy Tax FGD Flue Gas Desulphurization GBtu Giga-British Thermal Unit gC Gram of Carbon Gcal Gigacalorie GDP Gross Domestic Product GEP Generation Expansion Planning GHG Greenhouse Gas GW Gigawatt GWh Gigawatt hour HP High Parameter IEA International Energy Agency IGCC Integrated Gasification Combined Cycle IRPA Integrated Resource Planning and Analysis kcal Kilocalorie kWh Kilowatt hour LNG Liquefied Natural Gas x Abbreviations LP Low Parameter LRAC Long Run Average Cost LRMC Long Run Marginal Cost MBtu Million British Thermal Unit MJ Megajoule MtCO2 Million tonne of CO2 mth Month Mtoe Million tons of oil equivalent MW Megawatt NGCC Natural Gas based Combined Cycle NIDA National Institute of Development Administration NOx Nitrogen Oxides NRIs National Research Institutes O&M Operation and Maintenance Cost OCC Oil-fired Combined Cycle OECD Organization for Economic Co-operation Development PFBC Pressurized Fluidized Bed Combustion RETs Renewable Energy Technologies SARI South Asia Regional Initiative SCR Selective Catalytic NOx Removal SIDA Swedish International Development Cooperation Agency SLSEA Sri Lanka Sustainable Electricity Authority SO2 Sulfur Dioxide SPC State Power of China tC tonne of Carbon TWh Terawatt hour WACF Weighted Average Capacity Factor WATGE Weighted Average Thermal Generation Efficiency Table of Contents xi Table of Contents Preface ....................................................................................................... v Acknowledgements ..................................................................................