Heath Improvement from and Economic Analysis of Natural Gas
Attributes
Medium: Health and/or Human Capital
Country: China
Analytical Framework(s): Economic Analysis, Other
Unit(s): Benefit Transfer
Study Date: 2000
Publication Date: 2001
Major Result(s)
| Category | Resource/Environmental Good | CNY, million currency units (2000) |
|---|---|---|
| Beijing, per year | WTP valuation | 7,203.00 |
| Beijing, per year | human capital valuation | 2,510.00 |
| Beijing, per year | central value | 75,400.00 |
| Beijing, per year | human health losses | 680.00 |
| Beijing, per year | other losses | 2,268.00 |
| Beijing, per year | total | 2,948.00 |
| Chongqing, per year | WTP valuation | 3,347.00 |
| Chongqing, per year | human capital valuation | 1,166.00 |
| Chongqing, per year | central value | 21,100.00 |
| Chongqing, per year | human health losses | 524.00 |
| Chongqing, per year | other losses | 1,241.00 |
| Chongqing, per year | total | 1,765.00 |
| Natural Gas project | Beijing NPV1 | 6,876.04 |
| Natural Gas project | Beijing NPV2 | 27,297.70 |
| Natural Gas project | Chongqing NPV3 | 18,649.50 |
Study Note: This research has four goals: Firstly, it quantifies the health damage caused by air pollution, particularly coal burining, in Beijing and Chongqing. Secondly, it explores the rationale behind using natural gas for municipal (residential and commercial) energy production through two comparison studies: (a) using natural gas as clean fuel versus using it as a chemical industry raw material, and (b) using natural gas versus clean coal technology. Thirdly, it performs a cost-benefit analysis of urban natural gas substitution projects in Beijing and Chongqing. The evidence indicates that in cities with the most concentrated population and economic activity, natural gas as the municipal energy source has clear environmental benefits in reducing the concentration of non-point and low-level air pollution. Fourthly, it investigates the demand and supply of natural gas in China's still-developing market economy to reveal barriers to natural gas penetration. The discussion starts by looking at natural gas resources and city consumption of natural gas. Demand conditions are illustrated by net-back prices in the Sichuan basin and a survey carried out in Beijing. Both show that residential and commercial demand for natural gas is high. A detailed economic analysis of different municipal consumers revealed that the reason natural gas is not welcomed by some of them is the high incremental cost of substituting natural gas for coal, especially as a result of the extra governmental charge levied on natural gas consumption. From the supply point of view, our analysis of the so-called "oversupply" of the past several years has confirmed that this artificial scenario was caused by the old planning system and is not a true surplus.
Study Details
Summary: This report concludes with some policy recommendations on how to reduce existing systematic barriers to natural gas penetration in large Chinese cities. 1. When transforming its planned economy into a market economy, China should focus on creating a retailing system for natural gas production. 2. In view of China's limited natural gas resources and the natural monopoly inherent in the natural gas industry, policy interventions are recommended in three areas. a) The government's allocation plan should be appropriate for municipal usage and the surcharges levied against municipal consumers should be removed. b) Economic instruments should be used to "level the playing field" between coal and gas by levying pollution charges on dirty fuels such as coal and or subsidizing clean fuels. c) Command and control instruments could also be effective in promoting natural gas usage. In order to improve its chances of winning the bid for the 2008 Olympic Games, Beijing has greatly improved its ambient air quality over the past two years through the forcible designation of "non-coal regions". 3. The lack of a terminal distribution infrastructure is one of the key factors inhibiting municipal gas usage. Because of the shortage of capital problem in most Chinese cities, China should make efforts to attract foreign and private investment in the natural gas industry including production, transportation and development of its distribution infrastructure.
Site Characteristics: As a result of its rapid economic development and large volume of coal burning, China is faced with serious coal-smoke pollution in urban areas. In large cities such as Beijing and Chongqing, people are clearly suffering the adverse health effects of coal-smoke pollution, with PM-10 and SO2 as the main pollutants. Natural gas, although not the dominant energy source in China, is becoming one of the most attractive clean substitutes for coal. On one hand, there is widespread disagreement and doubt about the rationale for burning natural gas instead of using it as a raw material in the chemical industry. On the other hand, the economic advantages of natural gas over clean-coal technology are crucial in deciding whether to promote the use of natural gas as a fuel.
Comments: This research examines the air pollution damage in two Chinese cities, Beijing and Chongqing. The damages are estimated following the World Bank Report valuation, the Ostro model and the Rowe model. All three estimation approaches deploy the benefit transfer method.