The objective of this study are to (a) present an overview of energy policy and energy-related issues in selected econmies and (b) provide a framwork of supply-side fuel and energy mix strategy for the electricity, town-gas and transport sectors to meet Hong Kong Government's proposed new Air Quality Objectives (AQOs) for adoption in 2014 and 50-60% carbon intensity reduction by 2020 as compared with 2005.
Overview of Energy Policy
To understand how Hong Kong fares in its energy and energy-related environmental objectives/policies relative to other world economies, a brief review of these objectives/policies in seven economies, in addition to Hong Kong, was first carried out for comparison. These include Singapore, Korea, Taiwan, Japan, Australia, United Kingdom and Mainland China.
In Asia, Singapore is at the forefront of striving to balance the policy objectives of economic competiveness, energy security and environmental sustainability. The Fukushima Diachi nuclear disaster in March 2011 has forced Japan to re-evaluate its nuclear programme and to re-examine its energy mix, which paves the way for a greater adoption of renewable energy for electricity generation in Japan. The Australian Government passed legislation to introduce carbon tax starting from 1 July 2012. The United Kingdom Government also has plans in place to make a substantial cut in carbon dioxide emmissions. As part of its 12th Five-Year Plan (2011-2015), China has established the goals of cutting its carbon intensity 17% by 2015, compared with 2010 levels, and cutting energy intensity 16% during the period.
It is observed that most economies consider economic growth, environmental quality and energy security as fundamental goals of a sound and sustainable energy policy although the relative importance of the different goals can vary depending on their unique geopraphical, evonomic, social and political circumstances and their respective endowment on natural resources. Nevertheless, the growing complexity and strategic importance of energy policy demands a "supra-departmental" approach by the Hong Kong Government to come up with detailed objectives, strategies and action plans to tackle the challenges of energy security, safety, reliability, affordability, air quality and climate change to sustain economic growth and achieve social harmony, and Hong Kong's commitments as a responsible global citizen.
Supply Side Fuel & Energy Mix Strategy Framwork.
Hong Kong's electricity is supplied by two vertically-integrated power companies: the Hongkong Electric Commpany Limited (HEC) and CLP Power Hong Kong Limited (CLP). As in 2011, CLP has a total installed capacity of 8,888 MW and the maximum demand was 6,702 MW (32% reserve margin) whicle HEC has a total capacity of 3,766MW and the maximum demand was 2,498MW (50% reserve margin).
In 2011, the fuel mix for CLP consists of 49.5% coal, 20.5% gas and 30% nuclear while that for HEC is 67% coal and 33% gas. While emission caps on SO2, NOX and RSP were firstly imposed in the renewed licences of power plants in 2005, further tightening of emission caps was implemented for 2010, and will continue to be imposed in 2015 and 2017 by the Technical Memorandum under the Air Pollution Control Ordinance. However, no statutory control of CO2 emission has been put in place.
To meet the proposed new AQOs in 2014, the electricity sector is required to raise the use of natural gas in teh fuel mix for local electricity generation to 50%, which translates to about 40% of overall fuel mix. Based on the emission performance in 2011, HEC should be able to comply with the statutory 2015 emission caps without the need to increase the amount of gas in its fuel mix, but CLP has to double the amount of natural gas in 2011 to about 40%and maintain 30% nuclear power in its fuel mix, i.e. reduce coal to 30%, assuming a 1% annual increase in electricity consumption.
The Hong Kong SAR Government's Climate Actiono Agenda COnsultation Document proposed to increase nuclear power to 50% in the fuel mix to meet the target of 50-60% reduction in carbon intensity (representing 19-33% in carbon quantity) by 2020, relative to 2005. However, after the Fukushima nuclear incident, the Government stated in November 2011 that the safety aspect of nuclear power generation should firstly be ascertained before consideration is given to the future fuel mix. Given the minimum load of Hong Kong system demand is less than half of the daily peak throughout the year, the adoption of 50% nuclear power is fuel mix would reuire measures such as an increase in the capacity of existing pump storage units to deal with the system through constraint.
The Consultatin Document's proposed increase of natural gas in fuel mix from 23% to 40% means that both CLP and HEC will need to enter new gas supply contracts to secure sources of additional and/or new natural gas at substaintially higher prices, which will inevitably lead to a significant increase in electricity tariff. As the proposed two wind farms (300MW) and one IWMF (3,000t/d) together can only provide about 2% of Hong Kong's electricity generation, the feasinility of achieving the proposed 3-4% renewable energy (RE) in fuel mix is open to question.
Furthermore, the proposed substantial reduction of coal in fuel mix from 54% to less than 10% will greatly diminish the need for the electricity sector's in-service 6,608MW coal fired units, a portion of which had been retrofitted with advanced emission reduction system at a substantial cost. With 90% of natural gas and nuclear power comming from one single source, i.e. the Mainland, this proposal could raise concern in terms of supply security for electricity generation.
Against this background, this study looked at three alternative scenarios for CO2 reduction, using assumptions of increase of electricity consumption, emission factors, electricity production cost and the percentage of nuclear power available. These are summarized as follows.
Scenario 1 (Government proposal): 40% gas, 50% nuclear, 7% coal, 3% RE, electricity sector CO2 reduction 57.3%, production cost 113 ¢/kWh
Scenario 2: 40% gas, 33% nuclear, 25% coal, 2% RE, electricity sector CO2 reduction 28.4%, production cost 110 ¢/kWh
Scenario 3: 50% gas, 25% nuclear, 23% coal, 2% RE, electricity sector CO2 reduction 23.7%, production cost 119 ¢/kWh
Scenario 4: 45% gas, 25% nuclear, 28% coal, 2% RE, electricity sector CO2 reduction 19.6%, production cost 113 ¢/kWh
Each of the above four scenarios, which requires additional gas supply and imported nuclear energy aimng to meet the Government's proposed 2014 AQOs and 2020 carbon emission reduction target, has its own pros and cons in terms of level of emission reduction, increase in electricity production costs, security of fuel supply and reliability of power supply. It is imperative that the Government should firm up with the Mainland authorities the provisions of integrated cross-boundary infrastructure for supply of additional gas and imported nuclear energy to Hong Kong beyond 2020. This has to be implemented as early as possible due to the need for comprehensive planning and sonsiderable lead time for the design and construction of the required infrastructure and facilities.
As regard to which of the four scenarios, or any other scenario of fuel mix for electricity generation should be chosen, public engagement is essential as a community consensus is required to achieve a balance between green and clean electricity and the cost of electricity to be paid by consumers.
Of course, governments and utilities worldwide are also focusing on energy efficiency and the development of renewable energy and green energy alternatives. The Government should also revisit the cost-benefit of full interconnection of the two power girds for full power transfer so as to reduce the overall reserve margin, and electricity market reform and development of smart grid and smart metering system before the expiry of the current Scheme of Contral Agreements.
Town Gas Sector
The Hong Kong and China Gas Company Limited (Towngas) is one of the suppliers of gas to domestic, commercial and industrial customers in Hong Kong. It is the sole provider of town gas in Hong Kong sharing the market with LPG companies. It supplies town gas to 75% of Hong Kong households and some commercial and industrial customers. Town gas is produced at two production plants with a total production rate of 12 million m3 per day. Although naphtha with low sulphur content was used as feed stock for manufacturing town gas in the earlier days, natural gas accounted for about 57% of production fuel in 2010 while landfill gas accounted for about 2.3% and naphtha made up the balance. In the same year, the energy consumed for gas cooking and heating was only 9.3% of Hong Kong's total energy consumption, and the emission of SO2, NOx, RSP and CO2 were less than 1% of Hong Kong's emissions. It is not surprising that no improvement measures are required in the town gas sector to achieve the proposed new AQOs in 2014 as well as the carbon emission reduction target in 2020.
It is noted that while total replacement of naphtha with natural gas is technically feasible, a detailed study of the economic (network and appliance modification/replacement works and costs, fuel price, etc) and social (disruption and disturbance) costs versus environmental benefits of feedstock conversion to 100% natural gas should be carried out.
The transport sector, including road vehicles and local ferries, accounts for 18% of the GHG emissions in Hong Kong and is the main source of most roadside air pollutant emissions, such as SO2, NOx and RSP, with the highest coming from goods vehicles that uses diesel. Thus, early retirement of aged idesel vehicles and early replacement of Euro III commercial diesel goods vehicles with models meeting meeting Euro standards are efficient air quality improvement measures in Hong Kong. Moreover, wider use of hybrid and electric vehicles (EV) to replace conventional internal combustion engine type vehicles can reduce air pollutant emissions significantly, especially roadside emission.
This study also quantitatively evaluates other emission reduction measures for green transport, in terms of emission reduction potential, costs and benefits. Based on the findings, one can make a priority list of green transport recommendations for improvement of air quality. The overall emission reduction for the transport sector can be accomplished by comprehensive strategies including cleaner vehicles and transport demand management. With reference to local and overseas green transport practices and policies, specific green transport measures have been identified and more details are proivded in this report.
The adoption of new AQOs in 2014 and the setting of 2015 and 2020 emission reduction targets should help Hong Kong improve its air quality. As air quality policies should be premised on protection of public health, it is opined that the Hong Kong Government should commit to adopting WHO's Air Quality Guidelines as early as practicable and come up with concrete and workable measures.
A framework for addressing climate risks is crucial to sustainable development. The Mainland Government has set a voluntary target to reduce China's carbon intensity by 40% to 50% in 2020, using 2005 as base year. It is opined that Hong Kong, being one of the most developed economies in China and a responsible international city, should consider setting a target, more aggressive than the currently proposed 50% to 60% carbon intensity reduction, in support of the national policy and worldwide effort in tackling climate change.
Hong Kong is an open society with diverse vested interests. Setting acceptable levels of air quality and carbon emission reduction targets would lead to changes in supply-side fuel and energy mix, and most likely an increase in electricity tariff, transport fare and costs of living, all of which would inevitable invite extensive and intensive debate. This is a complex issue and riaises many questions. For the well-being of future generations, the Hong Kong Government should actively engage the public and stakeholders in the early stage of policy foumulation process, and set out clear objectives and road map for Hong Kong to make the transition to be a truly clean, low carbon, preferred city.