IEEJ：March 2019○ｃIEEJ 2019
Special Bulletin
A Japanese Perspective on the International Energy Landscape (420)March 22, 2019

Cost for Energy Transition and the issue of Affordability
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
From March 14 through 18, I had opportunities to discuss energy and climate change
issues facing Europe and the world with energy policy planners, experts and energy industry
stakeholders while touring Paris and Brussels. Among topics for the discussions in Europe were thefuture course of the European economy, prospects and challenges regarding the United Kingdom’spending secession from the European Union known as “Brexit,” the significance of coming
European Parliament elections and other European issues. Given that Europe is aggressively tacklingclimate change, our discussions focused on energy transition or how the enhancement of climatechange countermeasures under the Paris Agreement would transform global and European energy
markets over a long time.
Major European industrial countries have advocated ambitious long-term targets ofreducing greenhouse gas (GHG) emissions in 2050 by around 80-90% from 1990. If such targets are
attained, Europe would realize a “decarbonized society” rather than a “low-carbon society.”
Decarbonization would require an energy supply and demand structure to almost eliminate GHG
emissions accompanying human life and economic/industrial activities. Basically, energy
consumption efficiency would have to be increased thoroughly to attain an extremely
energy-efficient society and energy sources for consumption would have to be replaced withzero-carbon sources.
In reality in 2017, oil accounted for 38% of EU primary energy consumption, gas for 24%,coal for 14%, nuclear for 11%, renewable energy for 9% and hydro for 4%. Fossil fuels combining
oil, gas and coal commanded 76% or three quarters of the total. Unless not only coal coming underfire for its high GHG emission intensity but also the two most frequently consumed fossil fuels of oil
and gas are replaced with zero-emission energy sources, overall decarbonization would be difficult
to attain. Such replacement would represent a large-scale, full-blown energy transition.
The highest hopes might have been placed on renewable energy as an approach to suchturnaround in the world and in particular in Europe. Solar photovoltaics and wind power generation
has rapidly expanded as relevant costs have declined at a surprisingly high speed. The rapid
expansion is one of the largest surprises to energy stakeholders in the world. Given great
expectations on the fast development of and cost falls for electricity storage technologies responding
to the intermittency of renewable energy power generation, Europe has placed high hopes on
renewable energy’s great role in reducing GHG emissions.
However, a growing view is that renewable energy expansion alone would not be enoughto build a decarbonized society to cut GHG emissions by 80-90%. After the maximum electrificationof energy demand, not only the power generation sector but also transport, industry, buildings and1

IEEJ：March 2019○ｃIEEJ 2019other energy consumption sectors would have to become almost zero-emission. To this end,
innovative technologies and innovations would have to be developed and diffused. Innovativetechnologies, which are still difficult to develop or diffuse under the current social, economic andtechnological conditions, include hydrogen utilization, the combination of biomass energy withcarbon capture and storage into BECCS known as a negative carbon technology, and a direct aircapture (DAC) technology to directly absorb and collect atmospheric CO2. Interest in these
innovative technologies is growing globally.
However, these innovative technologies have yet to be incorporated into the existingenergy system and are being developed for the far future. There are not only social and technologicalhurdles but also difficulties in outdoing existing technologies due to economic efficiency problems.
Although conditions are set to change depending on future technological development and cost
reduction, the replacement of existing technologies with innovative ones for the energy system may
take much cost. As a matter of course, it may be concluded that the ambitious target of building adecarbonized society should be attained even at considerable cost.
While efforts are being made to attain an ideological target, however, it is important in thepresent society to consider the cost of such efforts and their social impact. France is now planning to
cut its share of nuclear power from more than 70% at present to around 50% in the power mix while
nuclear has been considered as a key energy source for energy security and climate change
prevention. To attain the ambitious target of cutting GHG emissions by 75%, however, France will
have to make up for the nuclear share drop with the expansion of other zero-emission energy sources.
It is now considering utilizing wind power and other renewable energy sources, hydrogen and biogas.
The problem is that the replacement of existing nuclear power generation as the mostcost-competitive energy source at present with other zero-emission energy sources could boost
electricity cost or energy bills.
There may be a view that it is inevitable to pay higher cost to address key externalities
including climate change. Given that a fuel tax hike triggered France’s Yellow Vest movement
suddenly last November, however, the affordability of energy prices is a factor that even industrial
countries such as France cannot ignore. It may be understandable that some cost would be required
to address key externalities such as climate change. Unless such cost is understood clearly andspecifically in a society, however, the cost may trigger grave political, social or economic problems
depending on social or economic conditions of respective country/society. In this sense, the problem
of affordability exists even in industrial countries, as noted above.
Traditionally, the affordability of energy supply cost has been highlighted as an important
problem particularly in emerging and low-income developing countries. As these countries featuringlower per capita income must give priority to economic growth and development, the viewpoint ofenergy price affordability is naturally important in these countries. As far as fundamental social
system reforms such as thorough decarbonization are concerned, however, it may be difficult evenfor industrial countries to shrug off the affordability problem. In the way the world goes, any country
makes adjustment or revision depending on situational changes while trying to attain ideologicaltargets. It may be important to make energy transition as affordable as possible while watching theadvancement of innovative technologies and progress in relevant cost reduction.

2IEEJ：March 2019○ｃIEEJ 2019
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