IEEJ e-NEWSLETTER
No. 199(Based on Japanese No. 207)

Published: December 21, 2020
The Institute of Energy Economics, Japan(As of December 18, 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: Climate-focused Biden Administration to Take Office
2. EU: European Commission Adopts a New Methane Reduction Strategy
3. China: Creation of a Medium- to Long-Term Plan towards Net-Zero Carbon Emissions
4. ME: Saudi Arabia and Israel Drawing Closer
5. Russia: Hydrogen, the Arctic, Climate Action, and the Threat of Additional Sanctions

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Summary【Global Monitoring】
1. US: Climate-focused Biden Administration to Take Office
The administration is expected to highlight climate action as its key policy. It is not clear
how effective it will be, but it will open up possibilities for cooperation in various areas between
the US and Japan, which share the same policy direction.
2. EU: European Commission Adopts a New Methane Reduction Strategy
The European Commission adopted a new strategy to reduce methane emissions, which is amajor global-warming gas. The strategy deserves attention as it may affect the actions of natural
gas developers and energy companies worldwide.
3. China: Creation of a Medium- to Long-Term Plan towards Net-Zero Carbon Emissions
The Central Committee of the Communist Party set the medium- and long-term basic policy
for reaching net-zero emissions. The Development Plan for the NEV Industry up to 2035 has
been released; attention is now turning to the upcoming climate change prevention plan andenergy plan.
4. ME: Saudi Arabia and Israel Drawing Closer
As a warning to the incoming Biden administration, which clearly intends to return to the
Iran nuclear deal, Saudi Arabia and Israel have taken a step forward toward normalizing
diplomatic ties, with the common goal of maintaining the anti-Iran containment.
5. Russia: Hydrogen, the Arctic, Climate Action, and the Threat of Additional Sanctions
The Russian government approved policy documents regarding the action plan for hydrogenenergy development, the Arctic development strategy, and the GHG reduction target. In the US,
Congress has started deliberating a bill for additional sanctions against Russia.

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1. US: Climate-focused Biden Administration to Take Office
Yoshikazu Kobayashi, Senior Economist
Planning & Administration Unit
On November 8, the Democratic presidential nominee Joe Biden declared that he had won
the November 3 presidential election by gaining a majority of the electoral votes. Incumbent
President Trump has yet to acknowledge defeat, but Mr. Biden is certain to be inaugurated as
the next president.
Fighting the expanding Covid-19 pandemic and restoring the affected economy are thegreatest challenges for the incoming Biden administration. The administration is also expected
to highlight climate action as its key policy. Mr. Biden revealed his plans to return the UnitedStates to the Paris Agreement, the global framework for climate action, on his first day in office,and is expected to promptly reintroduce various environmental regulations (on fuel economy,
methane emissions from oil and gas fields, pollutants from power stations, and so on) that the
Trump administration has eased by issuing executive orders. Also, to ramp up climate actions
by the federal government as a whole, the new administration is expected to require all federal
departments including the State Department and the Department of Defense to set their own
climate actions, alongside those already directly involved such as the Environmental Protection
Agency and the Department of Energy.
However, such moves are purely within the country’s executive branch; in practice, thelegislative branch also has a significant impact on the policy trends of the country. While twoseats still remain open, the Republicans have already won 50 seats, or half, of the Senate. The
Democrats maintained their majority in the House but have fewer seats than before the election,
narrowing the gap in the number of seats between the two parties. As a result, the newadministration will need to run the government while seeking Republican support, making it
difficult to implement drastic changes in policy involving new legislation and budgeting,especially as the country is more divided than ever. Likewise, the ban on hydraulic fracking,which was a sticking point in the election, is likely to be limited only to federal lands. Since
economic recovery is a top priority, the government must be cautious about restricting shale
resources development, which has helped the US economy to flourish. Thus, the Biden
administration’s climate actions are unlikely to have a major immediate impact on the domesticenergy situation in the US. However, President Biden’s declaration to return the US to the Paris
Agreement on his first day in office will add momentum to the global fight against climatechange, boosting the influence of climate actions on the decisions of governments andcompanies under a global code of conduct.
In Japan, Prime Minister Suga announced in October the target of reaching carbon neutrality
by 2050. Japan’s policy is in sync with the new US administration regarding this point, opening
up possibilities for cooperation in many areas. As the whole world starts taking climate actions,more specific international rules will need to be established for individual reduction
technologies and for measuring the amounts of reduction. When that happens, Japan should
become closely involved in formulating neutral and effective rules while cooperating with theUS, among others. Mr. Biden has set a goal of reaching carbon-neutrality in the US electricity
sector by 2035, paving the way for various related possibilities for cooperation in the nuclear
and CCS areas. Further, in October this year, a memorandum of cooperation was signed
between the two governments concerning carbon recycling, in which CO2 is collected andreused as a resource. It is hoped that cooperation will deepen in this area as well.
32. EU: European Commission Adopts a New Methane Reduction Strategy
Ichiro Kutani, Senior Research Fellow
Manager Global energy Group 1
Assistant to Managing Director
Strategy Research Unit
On October 14, the European Commission adopted a new strategy to reduce methane
emissions. Methane is a global-warming gas second only to carbon dioxide in the amount ofemissions. The new strategy focuses on reducing methane emissions to achieve the 2030 GHG
reduction target and net-zero emissions by 2050. According to the EU, agriculture accounts for
53% of methane emissions, waste for 26%, and energy for 19%. The amount of energy-related
methane is insignificant compared with the total amount, and it is considered easier and lesscostly to reduce such emissions compared to that from other sectors.
One notable feature of the EU strategy is that it aims to reduce methane in collaboration with
the international community, as well as working on its own. Europe is an importer of natural
gas and LNG, and the strategy covers reducing methane during production and transportationof those energies as well. Specifically, it aims to set standard procedures for measuring methane
emissions and reporting and verifying those measurements, not only for the EU but also at theinternational level. This endeavor must be closely watched as it could restrain the development
and utilization of natural gas in the world.
The strategy may also affect corporate activities. The week after the methane strategy was
adopted, the media reported an unprecedented move by the French government: it stopped theFrench major electricity and gas company, Engie, from signing a new contract for importingLNG from the US, citing a high methane emission intensity. To the author’s knowledge, this is
the first time a business deal has been stopped for such a reason. The important point is therelationship between the French government and Engie. Engie was originally a state-run
enterprise and the government still owns golden shares in the company, allowing the Frenchgovernment to exercise a veto over important decisions on matters of national interest. Thisdecision may have been taken because of the special relationship between the Frenchgovernment and Engie, but it is also possible that methane emission intensity may become anew benchmark for regulating or restricting the actions of energy companies.
Meanwhile, the EU needs to balance its methane emission reduction strategy with the supply
security of natural gas. According to BP’s statistics, the EU’s self-sufficiency in natural gas
was 21% in 2019, with imports from Russia accounting for some 44% of the total. Although
Europe is trying to shift to a renewables-centered energy structure, the demand for natural gas
will not fall so readily. There is strong demand particularly for heating; it is worth rememberingthat Russia cut its supply of natural gas through Ukraine in midwinter, causing an uproar.
According to the World Bank’s Global Gas Flaring Reduction Partnership, Russia is the world’s
number one in terms of flaring, or burning off associated natural gas produced with crude oil,meaning that Russian natural gas is producing large amounts of methane in the production stage.
However, the problem is complex, as applying the methane strategy strictly would make it
difficult to import Russian gas, which would be unacceptable for the natural gas security ofEurope.

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3. China: Creation of Medium- to Long-Term Plan towards Net-Zero
Carbon Emissions
Li ZHIDONG, Visiting Researcher
Professor at Graduate School Nagaoka
University of Technology
At the UN General Assembly held on September 22, China announced a new global warming
prevention target to reach peak CO2 emissions before 2030 and achieve net-zero emissions before 2060
as a voluntary promise to the international community. Subsequently, the Central Committee of theCommunist Party and the government set about formulating relevant domestic plans to ensure that thepromise would be achieved. Here are the key points regarding this effort.
The Fifth Plenary Session of the 19th CPC (Communist Party of China) Central Committee was heldfrom October 26 through 29 in Beijing, and the Proposal on Formulating the Fourteenth Five-year Plan
and the Long-Term Target for 2035 was adopted. While “proposal” usually denotes a suggestion or
opinion, the proposal by the CPC Central Committee is understood as a “supreme order” that must beobeyed. As the basic policy for climate actions up to 2035, the Proposal mentions accelerating green,
low-carbon development and pursuing the clean, low-carbon, safe, and highly efficient use of energy. It
also stipulates that the government will reduce its CO2 emissions per unit GDP (emission intensity),
support regional governments to reach peak emissions as soon as possible based on region-specificconditions, and formulate a national action plan for reaching peak carbon emissions before 2030. As
policy measures, the Proposal specifically refers to fully deploying carbon emission credit trading anddeveloping the renewable energy industry and the new energy vehicle industry (NEVs, including EVs,
fuel cell vehicles and plug-in hybrids). As a long-term target for 2035, accelerating the reduction ofcarbon emissions is stipulated. The relevant ministries must now develop feasible and detailed
government plans based on these stipulations in the Proposal.
Conventionally, the National Development and Reform Commission (NDRC) assumed sole control
over energy administration and climate change prevention, formulated both the energy plan and climatechange prevention plan consistently, and was responsible for achieving the planned targets. Under thecentralized control of the NDRC, which has so much authority that it is nicknamed the “little StateCouncil,” China’s emission intensity decreased by 48.1% from 2005 levels in 2019, surpassing its 2020
voluntary action target and international promise of 40–45% ahead of schedule. Meanwhile, control
over global warming prevention was transferred from the NDRC to the Ministry of Ecology andEnvironment (MEE) in the 2018 administrative reform. As a result, energy administration was assigned
to the NDRC and global warming prevention to MEE. Under this new allocation of responsibility, it
will be interesting to see how the global warming prevention plan can be formulated consistently withthe energy plan, which must ensure that the new target will be achieved.
On November 2, the Development Plan for the NEV Industry 2021-2035, created under the initiativeof the Ministry of Industry and Information Technology (MIIT), was issued. The Plan describes thedevelopment of the NEV industry, spanning from the manufacturing of parts and finished cars to theestablishment of charger and hydrogen supply infrastructure, as the route that China must take totransform from just one of major car manufacturing countries into a car manufacturing powerhouse as
well as strategic measures indispensable for preventing global warming. The Plan sets the goals ofraising the percentage of NEVs in all new car sales to 20% by 2025, making EVs the mainstay of newvehicle sales, electrifying all vehicles in the public sector, and commercially implementing fuel cellvehicles by 2035. The Plan does not specify the target share of NEVs in new car sales in 2035, but theTechnology Roadmap 2.0 for Energy-saving and New Energy Vehicles, commissioned by the MIIT and
created and issued by the China Society of Automotive Engineers on October 27, sets a target share ofat least 50% for NEVs, with all the rest being hybrids (HVs). Further targets include reaching peak auto
industry-related CO2 emissions by 2028 and reducing them by 20% from peak levels by 2035.

54. ME: Saudi Arabia and Israel Drawing Closer
Sachi SAKANASHI, Senior Research Fellow
Assistant Director, JIME Center
On November 21 and 22, the G20 Summit was held online in Riyadh, the capital of Saudi
Arabia. The G20 Riyadh Leaders Declaration, which stresses the determination to “build a moreenvironmentally sustainable and inclusive future for all people as we recover from thepandemic,” was adopted at the closing of the Summit. The Declaration expresses support for
the Circular Carbon Economy and its 4Rs, namely reducing, reusing, recycling and removing
emissions, advocated by Saudi Arabia.
On the same day, November 22, Prime Minister Netanyahu of Israel and Crown Prince
Muhammad bin Salman of Saudi Arabia reportedly held talks in NEOM, a futuristic city that
Saudi Arabia is building on the coast of the Red Sea. The meeting was reportedly joined by US
State Secretary Pompeo who had visited Israel and then Saudi Arabia immediately before themeeting, causing many to assume that Israel is likely to normalize its diplomatic relations with
Saudi Arabia, as did the UAE, Bahrain, and Sudan.
The reactions of Middle Eastern countries to Joe Biden’s victory in the US presidential
election are divided. Iran has expressed relief, as Mr. Biden has been clear about returning the
US to the Iran nuclear deal if he wins the election. On the other hand, Israel and Saudi Arabia,
who have been working closely with the Trump administration to contain Iran, are wary about
possible changes in US policy towards Iran under the Biden administration.
Nevertheless, it is not clear how the Biden administration will return to the Iran nuclear deal.
Iran has already stopped complying with the deal, and both the US and Iran are demanding thatthe other party return to it (that is, start implementing the deal) as the condition for their return.
Furthermore, many of the various sanctions imposed by the Trump administration under the“maximum pressure” policy will not be lifted simply because the US returns to the deal. For
example, sanctions connected to non-nuclear-related factors including Iran’s missile
development and activities within the region might remain.
Furthermore, Israel and Saudi Arabia, who have opposed the Iran nuclear deal establishedunder the Obama administration from the very beginning, have declared that they do not support
the Biden administration returning to the existing nuclear deal. Israel has pointed out that thedeal refers neither to Iran’s missile development nor to its actions that destabilize the region,
while Saudi Arabia has claimed that it should be included in the negotiations with Iran toward
reaching a new nuclear deal.
As such, neither the Biden administration’s return to the deal nor the complete lifting of the
sanctions on Iran thereafter seems easy. The competition between Iran, whose already-batteredeconomy was hit hard by Covid-19 and which desperately needs to have the sanctions lifted,
and Israel and Saudi Arabia, which are determined to block the lifting of the sanctions on Iran(and the country regaining strength), is likely to continue for the time being.

65. Russia: Hydrogen, the Arctic, Climate Action, and the Threat of Additional Sanctions
Sanae Kurita, Senior Researcher
Global Energy Group 2Strategy Research Unit
The Russian government approved three policy documents closely related to the country’s
energy policies. On October 12, Prime Minister Mishustin signed a government orderconcerning the roadmap for hydrogen energy development in the Russian Federation up to 2024,
prescribing the measures and legal systems necessary to support the development of hydrogenenergy, and the timeframe and agency responsible for creating a research platform. According
to the roadmap, the Concept for Hydrogen Energy Development in Russia will be formulated
by 2021, and a project office and an inter-ministerial working group will be set up to support
pilot projects and to promote both the export of hydrogen energy and its domestic use. The
roadmap aims to run multiple pilot projects by 2024, with possible areas including gas turbinesthat can use methane and hydrogen energy as fuel, hydrogen-fueled trains, a zero-carbonhydrogen generation process, low-carbon hydrogen generation in hydrocarbon refining or
natural gas production facilities, and hydrogen generation in nuclear power plants. Efforts will
also be made to register innovative hydrogen energy technologies; to promote research on thegeneration, transportation, and storage of hydrogen energy; to develop hydrogen energy
regulations; and to develop human resources. Former Energy Minister Novak (presently Deputy
Prime Minister of Russia in charge of energy) has said that “hydrogen may become a driver ofRussia’s energy in the future.”
On October 26, an executive order was signed to approve the Strategy for Developing
Russia’s Arctic Zone and Ensuring National Security until 2035. The executive order points outthat the warming of the Arctic will present both opportunities and risks for Russia’s economy
and environment. The Strategy indicates measures for developing society, the economy, andinfrastructure in the region and the expected results, and outlines efforts in three phases (20202024, 2025-2030, 2031-2035). In the energy area, the goal is to boost the share of the Russian
Arctic in Russia’s total oil and condensate production from 17.3% in 2018 to 26% in 2035 and
LNG output in the Russian Arctic from 8.6 million tonnes in 2018 to 91 million tonnes in 2035.
The Strategy also states that the total amount transported via the Arctic Ocean will be increased
to 130 million tonnes in 2035, with LNG accounting for most of it.
On November 4, an executive order regarding the reduction of greenhouse gas emissions was
signed. The order requires Russia to work toward fulfilling the Paris Agreement, which thecountry ratified in September 2019, by cutting GHG emissions by 30% from 1990 levels in
2030. To achieve this reduction, the ability of forests and other ecosystems to absorb emissions
will be utilized to the maximum extent.
In the US, meanwhile, Congress is moving to impose additional sanctions on the Nord Stream
2 project, which supplies Russian gas to Germany via the Baltic Sea. Members of both housesof Congress have agreed to incorporate and deliberate a new bill into the bill for Protecting
Europe’s Energy Security Act (PEESA) which is due to be approved by the end of December
2020. The new bill adds insurance companies and technical certification companies related tothe project to the scope of sanctions. According to industry sources, the Danish government isasking third-party certification company Det Norske Veritas (DNV) to issue a compliancecertificate before Nord Stream 2 goes into operation, but DNV may decline to become involvedin the project due to concerns over the sanctions. Developments in this project must continue
to be watched.
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