Challenges of Decarbonization Polices and Technological Innovations
toward Carbon Neutral Societies in East Asia

Panel Discussion

Comments and Discussions
on Dr. Masui`s Presentationin Japan
Soocheol Lee
Meijo University
slee@meijo-u.ac.jp

Comments on thePresentation about
Carbon Neutrality
in JapanOn the Macro Framework(slide 13)●GDP growth rate 1.7%/year (2020-2030)⇒This is estimated by Cabinet Office
👉I think this might be overestimated. For example, IEEJOUTLOOK2021 estimated 0.7% GDP increase(reference case) between 2018~2030.
●GDP growth rate 0.5%/year (2031-2050)⇒This is estimated by SSP2
👉In my opinion, this might be underestimated thinking thespread of the decarbonization technological innovations and theirstimulation to the economy positively during that period.

On the Electricity Supply(slide 20)●Nuclear shares are around 10% both Technology scenario andTech+Social transformation scenario by 2050 in AIM model👉Nuclear power generation tends to be determined
politically not by market mechanism. I wonder how nuclear
power generation determined in AIM model. Endogenously
or Exogenously?
👉I suggest AIM model simulate scenario with nonuclear power case also considering the possibility of nonuclear society in the future, although very small possibility
in the current political situation in East Asia.

On the Electricity Production Cost (slide 21)●The average power generation cost in 2050 will be almost
the same as the current level by the simulation of AIM model⇒11.5 yen/kWh(2018), 11.8 ‐ 12.2 yen/kWh(in 2050)●I think, there might be two factors to influence power generation cost.
👉Factors of pushing cost up : adding CCS or CCUS to current
thermal power generation, new fuel cost of hydrogen and Ammonia andnuclear safety regulation cost👉Factors of pushing cost down : high speed of technological innovation ofrenewable and new fuel power sources by the spread of thosetechnologies
👉Estimation of pathway to pushing cost up or down of electricity properly
will be very Important to simulate carbon neutral economy.

On the Main implication of detailed analysis(slide 26)●Decarbonization may have a positive impact on reducing theoutflow of national wealth. Annual required investment will beestimated to be about 10 ‐ 11 trillion yen.
⇒This investment will significantly reduce fossil fuel demand.
As a result, it is estimated that it will lead to a reduction in net energy imports of about 12 trillion yen in 2050.
👉I strongly support this point of view!
I think this is one of the biggest winning attribute ofcarbon neutral society.

Discussions-How to model thecarbon neutral society?-

The First Issue

Designing decarbonization policy to stimulate de-carbon technologicalinnovation effectively is crucial to achieve carbon neutrality.
Carbon pricing(as carbon tax) including subsidies and regulations isessential policy instrument for the carbon neutrality
👉Keeping tax revenue neutrality, carbon tax revenue could be
used to pay for decarbonization investment, renewable subsidies, and the phase-out of thermal power.
👉And policy cooperation with Japan, China and Korea results in 0.
1~0.4% GDP increase compared with no policy cooperation(Lee,etal.(2015)) 👉See the forth issue.

Pathway of Carbon Dioxide Emissions toward Carbon
Neutral in 2050
1400

Baseline scenario ofIEEJOUTLOOK2021⇒31.7% reduction
compared with 2018

1200
1000
800600CO2 emission for carbon neutral in 2050
⇒92.4% reduction compared with 2018400
20002010

2015

2020
BANZ

2025

2030

NZ_noNC

Assumed absorbtions through LULUCF

Source: E3ME model estimates from Lee,S. et al.(2021)

2035

2040

2045

2050

Remains(80 million ton) will be absorbed by LULUCF

Decarbonization policy package toward carbon neutrality(set by Lee,S. et al.(2021))
2020
Carbon Tax

2030

2040

Step up increase from 50US$/CO2t to 400US$ to 2040

2050
400US$/CO2t from 2040 to 2050

Phasing out nuclear power plant to 2040
Powergeneration
sectorNuclear power generation share from 5% in 2020 to 13% in 2050

Phasing out coal power plant to 2040
Keep FIT to wind and biomass power by 2035
Biomass power subsidy 👉 60% of facility investment cost
Regulation to sales of gasoline and diesel car from2035

Transport
sectorEV subsidies to 2025
Biomass fuel mandate to truck and airplane from 5% in 2020 to 100% in 2050

Industry
sectorZero emission of CO2 by 2050 in the blast furnace of steel industry

Building
sectorPhasing out fossil fuel boiler by 2050 in the building sector

Decarbonization investment subsidies to the industry sector

Impact on GDP from carbon neutrality in 2050
(Growth rate versus baseline (%))
With no nuclear power

5.0%
4.5%
4.0%
3.5%
3.0%

With nuclear power

2.5%
2.0%
1.5%

Baseline scenario set by IEEJ OUTLOOK2021(2020)
👉Around 15% increase in 2050 compared with in 2018

1.0%

0.5%
0.0%
2010

2015

2020

2025

2030
NZ

NZ_noNC

Source: E3ME model estimates from Lee,S. et al.(2021)

2035

2040

2045

2050

Key Findings in GDP
Macroeconomic indicators in 2050, % differences from
Additional low and decarbonization
investment stimulate GDPbaseline
10.0%
8.0%
6.0%

4~4.5% GDP increase
compared with the baselineby carbon neutrality policies

Additional investment
stimulate employment

4.0%

2.0%
0.0%
-2.0%
-4.0%
GDPConsumer
spending

Exports

Imports
NZ

NZ_NoNC

Reduced energy bills, additional income
from employment

Investment

Employment

Inflation

Reduce of fuel imports improve GDP

The Second Issue

In simulating the impact of achieving carbon neutrality by 20
50 on the economy and the energy mix, it is extremely important that the model properly reflects the speed of innovation
in a variety of decarbonization technologies(speed of costdown and spread of the technologies).
👉 However, most of the current E3(Energy-Economy-Environment) models tend to rely on conventional learningcurves.
⇒This might underestimate desirable impact on theeconomy of carbon neutrality
Adjusting the learning curves of these technologies toreflect future speed of technological innovation accurately
is a topic for future challenges in most of the E3 models.

Optimisation vs Simulation approach

In case decarbonization invest
ment stimulate GDP by thecost down and spread effect of
the technological innovation.

In case decarbonization investment suppress GDP by the crowding
out and cost up effect of theMercure et al (2018) https://www.tandfonline.com/doi/full/10.1080/14693062.2019.1617665
Investment.

The Third Issue

The third issue is most of the E3 models use thenuclear power generation cost data before the Fukushi
ma accident. This means that the existing E3 models
do not reflect initial construction costs and operation
costs under strengthened safety.
👉Reflecting stricter safety regulation cost of nucle
ar power generations properly in the model is very
important to simulate future energy mix.

2030 electricity cost outlook by METI,Japan(July, 2021)
Unit:
Yen/kWhOn-shore wind
Coal power

Small hydroGeo-thermal

NuclearOn-shoreWindSolarBiomass

The Forth Issue
As already told at [the purpose of this conference], policy cooperationand strategy in East Asia would maximize the benefits and minimize
the costs associating with carbon neutral climate policies. Successfulpolicy design, supporting of new technologies, and cooperation inEast Asia will not only lead to climate neutrality but will also strengthen future industries and businesses in the regions.
👉For the first step of the decarbonization policy cooperation inEast Asia, I suggest to build common carbon market in this region.
👉In the first stage, indirect link(soft link) with China ETS, Korean
ETS and Japanese regional ETS, like link with EU-ETS and those ofSwiss, Norway and Australia. In the second stage, direct link(hardlink) like EU-ETS itself.
👉East Asia Super Grid⇒using cheaper renewable power in NEarea
👉Benchmarking EU` 「Effort Sharing Regulation」