IEEJ：September 2019○ｃIEEJ 2019
Special Bulletin
A Japanese Perspective on the International Energy Landscape (445)September 12, 2019

International Energy Companies’ Strategies and Initiatives for Decarbonization
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
Abnormal weather has attracted global attention this year due to unprecedentedly hightemperatures recorded in numerous countries or regions. As a result, climate change and its
countermeasures have become a key matter of interest in the world, leading the world to pay
attention to the annual United Nations Climate Action Summit opening in New York on September
23.
As climate change has attracted attention, how to use energy in response to climate change
has become controversial. A focus of discussion is energy transition including the reduction ofenergy consumption and the switching from fossil fuels to non-fossil fuels to cut greenhouse gas(GHG) emissions to which climate change is attributed. Particularly, plans to cut GHG emissions by
more than 80% by 2050 and a “net zero emission” initiative seen in some European countries
represent fundamental GHG emission reduction measures or great innovations that could be
described as decarbonization rather than low-carbonization.
Energy transition has become a complex, difficult issue as energy is an indispensable goodfor humans, society and economy and it is important to provide energy stably at affordable prices.
The reason fossil fuels such as oil, natural gas and coal account for 85% of global energy supply atpresent is that fossil fuels are selected as excellent in terms of stable supply and affordability in theworld. Decarbonization to prevent climate change represents a solution to the difficult issue of how
to balance climate change countermeasures with the stable supply and affordability of energy.
Complicating the issue further is the fact that circumstances of national governments
taking climate change countermeasures are varied. While the prevention of global climate change
represents a global interest, national governments that implement climate change countermeasures
act according to national interests that differ widely depending on their circumstances. Climatechange negotiations cannot avoid becoming a complicated, difficult international negotiation
process.
Attracting attention are not only national governments but also companies that play key
roles in tackling climate change. Remarkably, a growing number of companies have beenemphasizing their aggressive efforts to switch to renewable energy-based electricity. In Westerncountries, particularly, companies have increasingly recognized the significance of their
responsibility for and contributions to environmental protection and publicized such recognition.
In response to such changes in the energy demand side, companies in the energy supply
side have taken various initiatives in consideration of long-term decarbonization. These initiatives
represent serious challenges for major energy companies that have been responsible for global
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IEEJ：September 2019○ｃIEEJ 2019energy supply at present. Under such challenges, their future courses are at stake.
This is because fossil fuels dominate the present assets of these major energy companies
responsible for present energy supply and because their organizations and infrastructure are adapted
to the present energy supply system. They must make optimum use of their present assets andinfrastructure to secure profits while considering balancing the stable supply and affordability ofenergy with the decarbonization trend. At the same time, however, they must develop and implement
strategies for reforming their business portfolios toward future energy transition. In suchcircumstances, decarbonization-related challenges widely differ from company to company and fromindustry to industry. However, the present conditions of major energy companies in the world
indicate that they have the following common problems or challenges.
First, they have the problem of how to take effective advantage of fossil fuels as theirpresent dominant assets over a long term while reducing their environmental load as much as
possible. The promotion of clean fossil fuel combustion technologies and the improvement ofvehicle fuel efficiency remain effective, realistic solutions for low-carbonization. The effective useof natural gas emitting less GHG than other fossil fuels is also significant. For preventing carbon
emissions, meanwhile, the development of carbon capture and storage (CCS) technology will remain
important over a long term. Carbon recycling and other CO2 use technologies are also important.
Furthermore, initiatives have been taken to explore the potential to use CCS technology for
producing CO2-free hydrogen from fossil fuels.
Second, major energy companies are remarkably trying to enhance their renewable energy
business, the area that has attracted the greatest attention and expectations in today’s world.
Renewable energy, which includes wind and solar photovoltaics and is expected to play a role as
distributed power sources free from CO2 emissions, has rapidly expanded in the world thanks torapid declines in renewable energy power generation costs in recent years. At a time when renewableenergy is increasingly expected to play a great role in decarbonization, renewable energy business:though producing less earnings than present fossil fuel assets, has become significant for majorenergy companies in the world from a multifaceted viewpoint.
Third, advanced or innovative technologies: and how to respond to changes through theirpotential penetration, have grown strategically important. For example, how to respond to oildemand’s peaking amid rapid progress in the electrification of automobiles has become a problem
for major energy companies. The abovementioned potential of CO2-free hydrogen is also asignificant problem for existing energy companies. CCS and carbon recycling technologies areexpected to dramatically change society and the future course of energy companies. Advanced
nuclear technologies, though in a different field, have potential to exert great influence on the future
picture of energy and are greatly significant for relevant energy companies. How to deal with theseadvanced or innovative technologies and how to position them in business strategies are significant
challenges for major energy companies in the world.
How to secure and expand profits for their survival while being conscious ofdecarbonization as a matter of interest to society and responding to social needs has become a matterof commonly shared significance for major energy companies’ long-term survival strategies. Climatechange prevention and decarbonization initiatives have become complex, difficult challenges fornational governments and companies.
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IEEJ：September 2019○ｃIEEJ 2019

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