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US-Japan Forum 2023

11 January, 2023

Energy Crisis and its Impact on Paths for
Carbon Neutrality
ーSubsidy Race or Paths for International Cooperationー

The Institute of Energy Economics, Japan
Climate Change and Energy Efficiency Unit
Naoko DOI, Ph.D.

Summary• Developed countriesʼ governments have been strengthening the efforts for mitigating
the impacts on current energy crisis, through the provisions of mechanisms/subsidies
for moderating the energy price increases.
• International race for subsidy provision for green growth has been intensified. “How”
and “to what extent” governments offer support for the path for green growth havebecome the watershed toward attracting private investment.
• Move toward “environmental protectionism” is observed, at the same time whenbottom-up actions for international cooperation on climate change begin to beformulated.

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• Leadership from G7 governments should be taken to in a concerted manner to bottomup the international efforts for climate change.

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Comparison of Paths for Green TransformationUSAJapanEU

CN Policy and its
BudgetInflation Reduction Act (369Billion USD)
Infrastructure Investmentand Jobs Act: IIJA (88Billion USD)

Green Transformation
Strategy (20 trillion yen ofpublic investment for thecoming 10 years)

Remarks• Green growth to beachieved from theinvestment in (1)renewable energy, (2) EV
manufacturing, (3)industry decarbonization,and (4) building energy
efficiency improvement.

• Comprehensive approach • Fit for 55 package toto promote 14
involve economic
technology areas withmeasures (EU-ETI, CBAM),
regulation andregulatory approach andincentives
support for the poor.
• 20 trillion yen of public• Completely independent
funds will be provided tofrom Russian natural gas
invite altogether 150
import by 2030, of which
trillion yen of publicapproach should be in line
private investment.
with green growth.

European Green Deal
REPowerEU (250.4 BillionEuro)2

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Global Governments Spending on Clean Energy Transition

Source︓International Energy Agency (2022) “Governments Energy Spending Tracker”

3Global Governmentsʼ Energy Spending
Governments’ Energy Spending

Governments’ Clean energy
Investment Support

Billion USD

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Source︓Diagrams Created from International Energy Agency(2022) “Governments Energy Spending Tracker”4Roadmap for Japanʼs Green Transformation
2023
Economic
IncentivesRegulation

2024

2025

2026

2027

Support for existing technologies

Support for commercialization

Energy conservation law, building energy conservation law, Law on energy supply structure

GX
ETS

Trial (2023-)Companies responsiblefor 40% of Japan’s CO2 emissions are
joining the trial.

Start operation of emissions tradingCarbon
Surcharge

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2030

Strengthening regulation for decarbonization and new industry innovation

Issuance of Green Transition BondInternationalStrategy

2029

Provision of incentives for green transformation

GXTransition
BondFinance2028•Comprehensive
approach tomobilize 150
trillion Yen of
public-private
investment for
GX

Gradual auctioning
Introduction to
power generators(2033-)

Carbon surcharge (2028-) tofossil fuel importers
Plan for blended finance Implementation of blended finance
Plan for sustainable finance, transition finance

Finance innovative industrial GX activities

Support for Asian Countries for their “realistic” energy transition through AZEC (Asia Zero Emission Community)
Cooperation on green innovation
Rule-making (ISO on green products evaluation, corporate GHG emissions reduction assessment)

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Image of Japanʼs Carbon Pricing•

Comprehensive approach to mobilize 150 trillion
Yen of public-private investment for GX•

Issuance ofGX Transition Bond(2023-) at 20 trillion yen•

Incentives for existing
technologies, and R&D•

Creation of investment climatefor GX

Strengthen regulation•••

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GX ETS(2026-)
CarbonSurcharge(2028-)

Energy conservation law
Building energy conservationlaw
Law on energy supply structure

Invite private
investment for GXl GX economy transition bond (20 trillionyen for 10 years) will be issued from2023. Funds for redemption will berefund from carbon pricing including
GX-ETS (from 2026), and carbon
surcharge (from 2028).
l GX-ETS: Emissions trading will startfrom 2026 (trial phase is being
implemented already with theparticipating companies CO2
accounting for 40% of Japanʼs total).
l Carbon Surcharge: Carbon surcharge
will be placed on fossil fuel importersfrom 2028.

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International Cooperation or Competition?
Climate Club G7

Germany,
Italy,
France, UK
SwissMiddle
East

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AfricaBelt and Road Initiative
International GreenDevelopment Coalition(BRIGC)

CentralAsia

CanadaChinaUSAJapan

SoutheastAsia
Asia Zero Emission
Community (AZEC)
Asia Energy Transition
Initiative (AETI)First Movers Coalition (FMC)

EU: Path for Ending Russian Gas Reliance, and IndustryʼsConcerns

European Gas Demand Growth (November,2022 vs November 2021)
EU27Italy

Reaction to Electricity, Gas and Fuel Price Increases(Germany)
Cost Transfer toConsumers

50%
50%

Energy Efficiency
Investment

37%
6%

No Action

13%
12%

Production
Adjustment

10%

Alternative Energy

10%
10%
10%
9%
9%

Others2%
3%
2%

0%
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22%

17%
13%

14%

Industry Relocation

Source︓Bruegel (2022). “European Gas Demand Tracker”

27%

32%

Germany

France

58%

73%
72%

21%

Industry
Building

17%
16%

Trade
Service8%

20%

40%

60%

80%

Source︓Deutsche Industrie- und Handelskammer, DIHK.

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International Race for “Green” Industrial Competitiveness
Incentives for Energy Efficiency Improvement
US Inflation Reduction Act and EU Recovery and Resilience Facility
Billion USD

400

Others350

Energy Efficiency

300
250
200
150
100
50
0

29%

16%
IRA

EU Recovery andResilience Facility

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Source︓Congressional Budget Office (2022), European Commission (2022).

9Reference: International Cooperation or Competition?
(1)l Climate ClublG7 members agreed to establish the “Climate Club” with a view to accelerate climate action and increasingambition, with a particular focus on the industry sector.
l Members would share best practices.
l Transforming industries to accelerate decarbonization building on the existing initiatives such as
Industrial Decarbonization Agenda, and the Hydrogen Action Pact.
l Boosting international ambition through partnerships and cooperation to encourage climate action.

l Asia Zero Emission Community (AZEC)IEEJ © 2023lJapan and Indonesia jointly announced an initiative toward realizing the Asia Zero Emission Community (AZEC)concept on 14th November 2022 in Bali, on the side-lines of the G20 Summit. Both countries believe that Asia, as
the center of global economic growth, will become a driving force for the world economy as well as a model forcooperation in realizing a clean, sustainable, just, affordable, and inclusive energy transitions while taking into
account different national circumstances. Security of supply, affordability, and people-centered are the main keys
in the energy transition process to achieve the goal of carbon neutrality/net zero emission to enable this region tolead the global energy transition process without compromising economic development.

10Reference: International Cooperation or Competition?
(2)

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l Carbon Border Adjustment MechanismlImporters will have to start reporting the embedded emissions in the goods (2023-2025).

lImporters will have to declare annually the quantity of goods and the amount of embedded emissions in the total
goods they imported in the preceding year, and surrender the CBAM certificates.

lCBAM will apply to: cement, iron and steel, aluminium, fertilizers, electricity and hydrogen.

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