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The Energy Transformation will Transform International Relations

Hiroshi Takahashi, Professor, Tsuru University

19 March 2021

in Japanese

The energy landscape has undergone a fundamental shift over the past decade. As climate change worsens, a transition to new energy system has become an inevitable necessity, and countries have started competing in earnest to introduce renewable energy on a widespread scale and to promote the adoption of electric vehicles. Against this backdrop, Japan's strategic policy decisions, which also take into account international relations, are coming under question.

The Energy Transformation Continues

The voices claiming that we cannot rely on renewable energy have all but disappeared. The generation cost of renewable energy has fallen below that of fossil fuels, and countermeasures to handle fluctuations are steadily being implemented. The shift to renewable energy as main power sources is an inevitable choice for the world. In the future, sector coupling (electrification of energy consumption and power-to-X) will advance, primarily centered on renewable electricity, and reform of the power system will likely evolve into reform of the entire energy system. This will result in a complete overhaul of the energy infrastructure, as well as a dramatic change in industrial structure. Both companies that supply and consume energy will need to adapt to this shift in order to survive.

Fossil fuels, particularly coal, face a dim future. Although it is possible that carbon capture and storage (CCS) may play a certain role, cost and environmental factors must still be resolved. The same applies to nuclear power. As evident by the fact that almost no new coal-fired or nuclear power plants are being constructed in developed countries, these centralized power sources that symbolized the 20th century are no longer economically or socially viable.

What about hydrogen, a technology on which Japan has focused? It certainly has great potential, and has suddenly begun to attract attention in Europe as well. The reason for this interest is due to the fact that hydrogen is expected to play a key role in non-electrified sectors (such as industry), which will account for half of future energy demand, as well as a means of energy storage. However, at the present time, the technology has not been commercialized, and it will take some time to reduce costs and develop the required infrastructure. In addition, just like electricity, hydrogen is a secondary energy, and attention must be paid to the sources from which it is generated. In Europe, green hydrogen derived from renewable energy is considered a strong favorite. In contrast, Japan is rushing to import lignite-derived blue hydrogen from countries such as Australia and other countries, but the installation of CCS is essential to use this variety.

International Relations are Changing

The energy transformation is no longer an issue influenced solely by domestic considerations. As we approach the year 2050, developments related to this energy transformation will have a structural impact on international relations.

European countries such as Germany, Scandinavian nations and the United Kingdom are at the forefront of the energy transformation. Environmental consciousness has been high in Europe for some time, and the region has driven international negotiations on climate change. In recent years, there has been international cooperation to achieve a shift away from coal power, but the goal of this movement is not only environmental protection. Other key objectives include a fundamental improvement in the region’s energy security to reduce dependence on countries such as Russia, as well as to gain a competitive edge in next-generation industrial fields such as offshore wind power, international power transmission, and sector coupling.

China is also attempting to take a lead in the energy transformation with the objective of obtaining an advantage in the battle for hegemonic power. As the world's largest importer of fossil fuels, the country has become by far the world's foremost adopter of wind and solar power generation in an effort to establish energy independence. China has leveraged this domestic market to develop related manufacturing industries, and also boasts the world's largest market for electric vehicles. The Belt and Road Initiative is another example of China’s hegemonic strategy. The nation is becoming a game changer in strategic industries formerly dominated by Japan, the United States and Europe.

The United States, the world’s dominant power which faces this challenge from China, is the world's largest producer of crude oil and natural gas, and the previous Trump administration proved unwilling to pursue an energy transformation. However, the incoming Biden administration has announced that the United States will rejoin the Paris Agreement of the United Nations Framework Convention on Climate Change, and has declared a goal of achieving carbon neutrality by 2050. The nation has a proud culture of entrepreneurship and innovation, and has given birth to numerous cutting-edge companies such as Tesla Motors. Although the Biden administration marks a return to multilateralism, a strong sense of rivalry with China remains. If the United States makes a serious push to achieve an energy transformation, there is a high possibility that it can successfully maintain its global dominance in the 21st century, an era of an energy transition.

According to projections by the International Renewable Energy Agency (IRENA), global coal consumption will fall by 87% and oil consumption by 70% in 2050 (compared to 2016; Energy Transition Scenario). Trade in fossil fuels, which currently boasts a USD 2 trillion global export market (2019), is likely to dwindle at an accelerating rate. This will force a shift in international relations in an era where the majority of energy is renewable and domestically produced. It is for this reason that competition surrounding the energy transformation is also gaining in intensity from a diplomatic perspective, exemplified by Saudi Arabia's efforts to shift its economy away from oil.

What Will Japan Do?

So how will Japan respond? Unfortunately, until 2020 Japan had turned a blind eye to the issue of energy transformation. Rather than working towards renewable energy in earnest, it instead placed priority on maintaining coal-fired power and reviving nuclear power. However, in July 2020, Minister of Economy, Trade and Industry (METI) Hiroshi Kajiyama announced a "fade-out of inefficient coal power" policy, while in October of the same year, Prime Minister Yoshihide Suga declared that Japan would become “carbon neutral by 2050.” As of March 2021, METI continues to discuss the revision of the nation's Basic Energy Plan, and I hope that Japan will also take a lead in the energy transformation with a policy that centers on renewable energy.

What I would like to emphasize is that Japan is the country set to benefit the most from the energy transformation. Compared to the United States, China, the United Kingdom, and Germany, Japan has never had a resource foundation for fossil fuels, and the business foundation for nuclear power that it once held was severely damaged a decade ago. Conversely, Japan has an abundance of renewable energy resources and the technological foundation for their utilization. The stance of the Japanese government, which has stubbornly turned its back on the energy transformation at the same time the main developed nations were moving to abolish coal-fired power in a flurry of activity (Figure), has mystified me, particularly from an energy security perspective.
Stance of main developed countries/regions toward nuclear and coal-fired power generation
Source: Hiroshi Takahashi "The International Political Economy of the Energy Transformation.” Countries in parentheses have never had nuclear power plants. The U.S. is likely to shift to the second quadrant in the future.

The reference value for Japan's 2050 power source mix, which was presented at METI’s Strategic Policy Committee in January 2021, outlines that 50-60% of power will be supplied by renewable energy, 30-40% by nuclear power and fossil fuels (with CCUS), and 10% by hydrogen and ammonia. In comparison with Germany, which is aiming to supply 80% of power by renewable energy in 2050, Japan's expectations for renewable energy are low. Conversely, Japan anticipates nearly 50% of its generation to be supplied by nuclear power, which currently accounts for less than 10%, and zero-emission thermal power, which currently stands at virtually zero.

I do not intend to rule out the possibility that innovation may occur. Nobody knows what the world will look like in 30 year’s time, and it is commendable to invest in technologies with the potential to leapfrog the competition if successful. Having said this, if the power supply mix described above plays out as planned, neither Japan's dependence on foreign countries nor its dependence on centralized energy will fundamentally change. In any case, I find it disconcerting to see commentators who only ten years ago were criticizing the large-scale adoption of renewable energy as "unrealistic" and instead advocating a "responsible energy policy," now calling for large- scale adoption of zero-emission thermal power.

This time, it really is Japan's last chance to address the energy transformation. I hope that Japan will pay due heed to international relations and international competition and opt for a "responsible energy policy" that centers on renewable energy.

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