The future of natural gas coal consumption in Beijing, Guangdong and Shanghai: An assessment utilizing MARKAL

Abstract

There are many uncertainties regarding the future level of natural gas consumption in China. In order to obtain a clear idea of what factors drive fuel consumption choices, we focus on three regions of China: Beijing, Guangdong, and Shanghai. Using an economic optimization model (MARKAL), we consider drivers including the level of sulfur dioxide emissions constraints set by the government, the cost of capital, the price and available supply of natural gas, and the rate of penetration of advanced technology on both supply and demand sides. The results from the model show that setting strict rules for SO 2 emissions will be instrumental in encouraging the use of natural gas, and may also cause some reduction in CO 2 emissions. The currently differentiated cost of capital for various sectors within the Chinese economy, on the other hand, artificially boosts the economics of capitalintensive coal relative to natural gas. This suggests that financial reform could be a lever for encouraging increased gas use.