IEEJ e-NEWSLETTER
No. 195(Based on Japanese No. 205)

Published: October 19, 2020
The Institute of Energy Economics, Japan(As of October 16, 2020)

Sources:(1) DOE-EIA(2) Investing.com

Sources:(1) Ministry of Finance "Japan Trade Statistics"(2) Ministry of Economy, Trade and Industry (arrival month basis)(3) Estimated by World Bank (Netherland Title Transfer Facility)(4) DOE-EIA, NYMEX (Front-month Futures)

Source: x-rates.com

Sources:(1) Finance. Yahoo.com(2) Investing.com

Contents
Summary【Global Monitoring】
1. US: The California Power Crisis and Storage Batteries
2. EU: Strengthened Security for Critical Raw Materials
3. China: China Declares Plans to Go Carbon-Neutral before 2060
4. ME: Israel Continues to Normalize Diplomatic Ties with Neighboring Countries
5. Russia: Will the Putin Regime Regain Stability
after the Constitutional Revision?

Summary【Global Monitoring】
1. US: The California Power Crisis and Storage Batteries
On August 14 and 15, the State of California suffered rolling blackouts for the first time in 19 years due
to insufficient electricity supply. Factors included a decline in imports from outside and delayed introductionof storage batteries as a countermeasure.

2. EU: Strengthened Security for Critical Raw Materials
On September 3, the European Commission released the Action Plan for Critical Raw Materials and the2020 EU Critical Raw Materials List, newly including lithium. It is hoped that these will benefit Japan’s
critical raw material security.

3. China: China Declares Plans to Go Carbon-Neutral before 2060
On September 22, President Xi Jinping declared that China’s CO2 emissions will peak before 2030 andthat carbon-neutrality will be achieved before 2060. The future plans being drawn up deserve close attention.

4. ME: Israel Continues to Normalize Diplomatic Ties with Neighboring Countries
Bahrain signed a diplomatic normalization agreement with Israel following the UAE. A new regional order
including Israel is starting to be established in the Middle East as the Palestine issue remains unresolved.

5. Russia: Will the Putin Regime Regain Stability after the Constitutional Revision?
The Russian Constitution was amended through a referendum amid the deepening Covid-19 crisis,
virtually allowing the Putin administration to stay in power till 2036. Meanwhile, Russian people are
increasingly critical of and frustrated with the administration’s heavy-handed policy.

1. US: The California Power Crisis and Storage Batteries
Junichi OGASAWARA, Senior Research Fellow
Manager, Electric Power Group
Assistant Director
Electric Power Industry & New and Renewable Energy Unit
On August 14 and 15, the State of California suffered rolling blackouts due to insufficientelectricity supply as demand soared due to a massive heat wave. A Stage 2 emergency was alsodeclared on September 5–6 as demand soared and customers were urged to curb power
consumption. This was the first Stage 2 emergency to be declared in 14 years since 2006, andthe Stage 3 emergency, under which rolling blackouts were conducted, was the first in 19 years
since the California power crises in 2000 and 2001.
The rolling blackout on August 14 was caused by the failure of power generation equipment
at the Blythe Energy Center (loss of 475 MW of power), in addition to a partial load shutdown
at 18:36 on the same day due to soaring demand (power distributors were ordered to implementa proportional cut of 1,000 MW in total). The August 15 rolling blackout was reportedly caused
by a partial load shutdown conducted at 18:25 as the area imbalance widened to 1,421 MW due
to a drop in the initial wind power (a proportional cut of 470 MW in total was ordered). However,the cause was later found to be the scheduling coordinator (equivalent of a balancing group in
Japan) issuing an erroneous instruction to cut 248 MW of electricity to the Panoche Energy
Center. Another Stage 2 emergency was declared on August 17, but a load shutdown was
averted thanks to calls to curb electricity consumption.
The maximum generation on August 14 was 46.78 GW, which exceeded the maximum of
44.30 GW in 2019 but was not abnormal compared to 50.12 GW in 2017 and 46.43 GW in
2018 and was lower than the highest maximum generation of 47.76 GW in five years.
Compared to August 2019 when the state depended on imports from outside and renewable
power for 40 to 50% of power at the peak, the percentage was around 30% on August 14–18,
2020, and therefore it is considered that the decline in supply capacity was the direct cause of
the supply crunch. The supply-demand balance tightened again on September 5 and 6 as the
maximum generation soared to 45.96 GW and 46.86 GW but was overcome by requesting users
to cut back their power consumption.
The State of California is currently working to introduce storage batteries, but they are usedmostly for secondary adjustment to stabilize the frequency rather than for energy trading which
would enable a peak shift. As a result, revision of the system to facilitate the use of storage
batteries and EV batteries in energy trading was not completed in time for the recent electricity
shortage even though it was at the final stage, preventing the batteries from being usedeffectively during the problem. In California, the installed capacity of gas-fired thermal powerhas been declining since 2014. As an alternative source, private power companies have beenrequired to install 1,325 MW of storage batteries since 2020, which is expected to be completed
by around 2024. According to a survey by the US Energy Information Administration, the US
has 204 MW of installed storage battery capacity as of June 2020, with an additional 694 MW
due to be installed in 2020. The supply problems this time occurred during the transition of
supply sources and illustrate the difficulty of introducing batteries “as scheduled” based on
government policy in a liberalized power market.
Joe Biden maintains his lead in the presidential election, and the presidential TV debates
starting on September 29 are eagerly anticipated.
(September 25)

2. EU: Strengthened Security for Critical Raw Materials
Ichiro Kutani, Senior Research Fellow, Manager
Global energy Group 1
Assistant to Managing Director
Strategy Research Unit
On September 3, the European Commission released the Action Plan for Critical Raw
Materials (“the Action Plan”) and the 2020 EU Critical Raw Materials List. First published in2010 and revised in 2014, these documents were revised again to reflect the latest situation. The
Action Plan aims to minimize the dependency on supplies from outside the EU for critical raw
materials by strengthening the ability to secure such materials within the EU, diversify external
supply sources, and correct the distortion in international trade. Regarding the thirty raw
materials included in the revised list, the addition of lithium is notable. Lithium is indispensable
for manufacturing lithium-ion batteries and its usage is expected to increase for electric vehicles
and distributed storage batteries, in addition to mobile devices for which it is already used inhuge quantities. However, the production of lithium is dominated by the four countries of Chile,
Australia, Argentina, and China, and Japan depends entirely on imports. In view of thesecircumstances, the security of lithium supplies is clearly critical and the European Commission
had every reason to add it to the new list.
According to media reports, Europe is also set to launch a new collaborative framework forcritical raw materials at the end of this month. An organization similar to the European Battery
Alliance for batteries established in 2017 is being considered. Joined by the European
Commission and the governments of its member states, the European Investment Bank, andindustry groups, the European Battery Alliance’s goal is for Europe to acquire world-leading
technologies and to promote industry. Not only the governments and relevant companies but
also financial institutions will be an integral part of its activities. Europe is expected to build asimilar structure for critical raw materials and to set up an organization for firmly ensuring the
supply security of critical raw materials. Under this framework, Europe, which is not only
developing critical raw materials within the region, is expected to urge the international
community to “correct distortions in international trade.” This should work in favor of thecritical raw material security of Japan, which depends on imports of these materials. The
affected countries have not forgotten China’s past export ban on rare earth materials. Enhancing
the transparency of critical raw material management around the world and ensuring fair trade
are in line with Japan’s interests.
Behind such moves also is the Covid-19 pandemic. A European industry association on
critical raw materials has pointed out that Covid-19 has revealed Europe’s vulnerability andhigh dependence on the import of critical raw materials, threatening the productivity andcompetitiveness of its major industries. The association has also argued that mineral resources
are essential for batteries and renewable energy technologies and a shortage could threaten
Europe’s climate actions. The need to diversify and strengthen supply chains and theimportance of rare metals in clean technologies are common to Japan as well. Collaboratingwith Europe to improve the international management of such materials would strengthen
Japan’s security for these raw materials.
(September 25)

3. China: China Declares Plans to Go Carbon-Neutral before 2060
Li ZHIDONG, Visiting Researcher
Professor at Graduate School
Nagaoka University of Technology
On September 22, President Xi Jinping delivered a video speech at the general debates of the UN
General Assembly. Concerning preventing climate change, he highly praised the Paris Agreement
for clarifying the general direction of the transition to a low-carbon society and called on theinternational community to comply with the Agreement as the minimum action needed to protect
the Earth. At the same time, he declared that China will reach peak CO2 emissions before 2030 andachieve net-zero emissions, namely, carbon-neutrality before 2060, in a bid to enhance its
contribution to the Agreement.
As international negotiations on climate change struggle to make progress and with COP26
postponed to 2021 due to Covid-19, China is trying to enhance its presence as the driver of global
warming prevention by showing its commitment to comply with the Agreement to the international
community at the UN General Assembly. It also appears to be seeking to highlight its difference
from the US Trump Administration which has withdrawn from the Paris Agreement based on its
America-first policy, while forging closer collaboration with the EU which is keen to tackle global
warming.
In China, the standing committee of the National People’s Congress (the equivalent of a national
parliament) adopted in 2009 a resolution to aim to achieve a low-carbon society. Since then, thegovernment has ramped up its efforts to lower emissions, while actively participating in the
UNFCCC negotiations. To date, China submitted in 2010 its voluntary medium-term action target
to reduce its CO2 emissions per unit GDP (emissions intensity) by 40–45% from 2005 levels by
2020, and submitted in 2015 an NDC (Nationally-Determined Contribution) to reduce the emissions
intensity by 60–65% by 2030 and to reach peak total emissions as early as possible by around 2030.
In this remarkable third announcement of its aspirations, China brought forward its timing forreaching peak total emissions from “around 2030” to “before 2030” and mentioned for the first timethat it will aim for carbon-neutrality, setting a clear deadline of before 2060.
Regarding the global warming prevention effect of the new target, Chinese experts have said that,
if achieved, it would bring forward the timing of reaching carbon-neutrality of the entire world by
5–10 years. Climate Action Tracker (CAT), an independent research institute, has estimated that
China’s new target, if achieved, would curb the rise in temperature due to global warming by 0.2–
0.3°C within this century, according to some media reports.
Latest statistics show that China’s emissions intensity fell by 48.1% from 2005 levels in 2019,
surpassing the 2020 voluntary action target ahead of schedule. This was a result of comprehensive
measures including assigning a target for energy saving, renewable energy usage, and emissions
reduction for each region and introducing a reprimand system to hold each region responsible forachieving those targets, and providing government assistance for renewable energy development
and the spread of new energy vehicles. However, it will not be easy to achieve the new target. The
Fourteenth 5-year Plan that starts next year and ends in 2025 and the long-term vision up to 2035
will have to be formulated so as to guarantee that the new target will be achieved. The key is whether
a binding control on the total quantity of CO2 emissions can be implemented and whether a national
market for carbon emissions credit trading, which is believed to be effective for efficiently
achieving the regulatory targets, can be launched. The frameworks for these future plans are to bedeliberated at the Fifth Plenary Session of the 19th CPC (Communist Party of China) Central
Committee scheduled for October. The progress deserves close attention.

54. ME: Israel Continues to Normalize Diplomatic Ties with Neighboring Countries
Sachi SAKANASHI, Senior Research Fellow
Assistant Director, JIME Center
On September 15, a ceremony was held at the White House for the signing of a treaty on thenormalization of diplomatic ties between Israel and the United Arab Emirates (UAE), and a
declaration to the same effect between Israel and Bahrain. The ceremony was attended by the
UAE Foreign Minister Abdullah bin Zayed Al Nahyan and Bahrain’s Foreign Minister Khalidbin Ahmed Al Khalifa, alongside President Trump and Prime Minister Netanyahu of Israel.
Israel declared independence in 1948 after occupying an Arab land originally called Palestine,causing a large number of Palestinians to become refugees and diplomatic normalization with
Israel has long been a taboo for Arab nations. After the 1973 Arab–Israeli War, Egypt decided
to establish diplomatic ties with Israel on its own in 1979, followed by Israel’s neighbor, Jordan,
which signed a peace treaty with Israel in 2004. Since then, however, no Arab country had
normalized diplomatic ties with Israel in 16 years until the UAE did this summer.
Founded in 1971, neither the UAE nor Bahrain has fought a war with Israel and theirconfrontational stance against the country was simply due to the “Arab cause.” However, thedefenders of the Arab cause have lost influence one after another over time and as a result, thebelief that “the Palestine issue must be solved first” appears to have faded.
Thus, the recent moves by UAE and Bahrain will not resolve the Palestine issue (usuallycalled the “Middle East Peace issue”) but rather, have been made possible by setting aside theproblem of Palestine. If the other Arab simply ignores the anger of non-Arab nations such as
Iran and Turkey and follow UAE and Bahrain, Palestine will only be even more isolated.
The Democratic presidential candidate Joe Biden has welcomed the Israel-UAE peaceagreement, and the normalization of diplomatic ties between Israel and neighboring countries
is likely to continue even if Mr. Biden wins the election in November. What might change if
Mr. Biden becomes president is US policy toward Iran. The Trump Administration’s“maximum pressure” policy, starting by withdrawing from the Iran nuclear deal (JCPOA), has
met maximum resistance from Iran and the situation has reached a stalemate. In contrast, Mr.
Biden has openly stated that the US will return to JCPOA if he becomes president, and in thatcase, the current maximum pressure policy is expected to be corrected.
However, President Trump has boasted that normalizing relations between Israel and Arabnations is his achievement, trying to make most of it to increase his chance of reelection.
Without the knowledge of who will be elected the US president in November, the only thingthat is clear is that a new regional order is emerging as a result of the thorough containment of
Iran by the Trump Administration, with Israel as its major power. (September 25)

6

5. Russia: Will the Putin Regime Regain Stability after the Constitutional Revision?
Shoichi ITOH, Manager, Senior Analyst
Global Energy Group 2, Strategy Research Unit
On July 1, Russia held a referendum on the Constitution. The draft amendments wereapproved with a voter turnout of 65% (minimum turnout of 50% required) and about 78%
voting “yes.” This referendum was held amid a prolonged economic slump particularly after
the annexation of Crimea, a sharp rise in the number of Covid-19 cases, and a decline in
President Putin’s popularity in public opinion surveys. Regarding the referendum, crackdowns
on anti-government activists by the Putin administration, as well as vote-rigging in various partsof the country, were widely reported by the Russian media.
On July 15, the Central Bank of Russian Federation released an estimate that the country’s
economy shrank by 9.5–10% year-on-year in the second quarter of 2020. Further, industrial
production decreased by 9.4% year-on-year in June after falling for three consecutive quarters.
Ahead of the referendum, President Putin had laid out a $360 billion national development planfeaturing enhanced social and economic security, but on July 13, already announced that theplan’s deadline would be postponed from 2024 to 2030 due to the severe squeeze on
government finances.
According to an official announcement, the number of Covid-19 cases in Russia reached
810,000 as of July 26. The announcement also stated that the number of new cases had peaked
one week before the referendum at over 6,000 cases per day, and President Putin is now proudly
declaring that Covid-19 is starting to subside in Russia. However, while the administrationconsiders that the regional governments are responsible for handling Covid-19, mass media are
increasingly criticizing the government’s efforts to smother reports about the soaring numberof cases and demanding that the truth be revealed.
Protests against the Putin administration are also gaining momentum in the regions. On July
9, in Khabarovsk Krai in Far Eastern Russia (population: 590,000), the governor Sergei Furgal,
who had been critical of the administration, was arrested on charges of involvement in several
murders in 2004-2005. This sparked a protest on July 11 by 30,000 citizens claiming that thearrest was politically motivated and demanding his immediate release. On July 18, an anti-Putin
rally was held, gathering around 20,000 people. The protests have inspired similar social actionsin other regions including Vladivostok, the capital of the neighboring Primorsky Krai.
The Constitutional amendment in theory allows President Putin to stay in power for two moreterms or till 2036. However, widespread frustration over the government’s heavy-handed
approach has been mounting, fueled by a prolonged economic recession. President Putin has
said that it has not yet been decided whether he will run for the next presidential election in2024.
Given that the Putin regime is likely to face more difficulties going forward, Japan and the othercountries should take into account of foreseeable volatility in Russian domestic politics informulating policies and strategies toward Russia, including the field of energy

7

Past IEEJ Events
Energy and Economy Indicators of JapanIEEJ Homepage Top

Back Numbers of IEEJ e-Newsletter

Back Numbers of IEEJ Newsletter (Original Japanese Version - Members Only)

The Institute of Energy Economics, JapanIEEJ e-Newsletter Editor: Yukari Yamashita, Managing Director
IEEJ j-Newsletter Editor: Ken Koyama, Senior Managing Director
The Institute of Energy Economics, Japan (IEEJ)Inui Bldg. Kachidoki, 13-1 Kachidoki 1-chome, Chuo-ku, Tokyo 104-0054, Japan
Tel: +81-3-5547-0211 Fax: +81-3-5547-0223

IEEJ：October 2020

8

ｃ IEEJ 2020○