IEEJ e-NEWSLETTER No. 25: November 15, 2013ｃ IEEJ 2013○IEEJ e-NEWSLETTER
No. 25(Based on Japanese No. 122)
Published: November 15, 2013
The Institute of Energy Economics, JapanIEEJ e-Newsletter Editor: Yukari Yamashita, Director
IEEJ Newsletter Editor: Ken Koyama, Managing Director
Inui Bldg. Kachidoki, 13-1 Kachidoki 1-chome, Chuo-ku, Tokyo 104-0054
Tel: +81-3-5547-0211 Fax: +81-3-5547-0223

Contents

Summary【 Energy Market and Policy Trends 】

1.

Discussions on the Review of the Energy Policies in the Basic Policy Subcommittee

2.

Asia/World Energy Outlook 2013

3.

IPCC’s Fifth Assessment Report and Future Countermeasures against Global Warming【 Global Watch 】

4. ME Watching: Concerns Emerge as the US-Iran Relationship Improves
5. US Watching: Problems of the Renewable Fuels Program1

IEEJ e-NEWSLETTER No. 25: November 15, 2013ｃ IEEJ 2013○

Summary【 Energy Market and Policy Trends 】

1. Discussions on the Review of the Energy Policies in the Basic Policy Subcommittee
The sixth and seventh meetings of the Basic Policy Subcommittee were held. The themes of themeetings were “the desirable direction of energy policies regarding consumption and demand” at thesixth meeting, and “the future nuclear policy” at the seventh meeting.
2. Asia/World Energy Outlook 2013
The IEEJ published the “Asia/World Energy Outlook 2013”, which analyzes the supply anddemand of energy and the reduction of carbon emissions by 2040, as well as the scenario for
maximum progress in developing non-conventional oil and natural gas resources.
3.

IPCC’s Fifth Assessment Report and Future Countermeasures against Climate Change
In September, the IPCC released a report on the latest scientific evidence for climate change. The

parties to the discussions on the future framework for preventing climate change must understandand incorporate the latest scientific knowledge accordingly.

【 Global Watch 】

4. ME Watching: Concerns Emerge as the US-Iran Relationship Improves
Although hopes for progress in the nuclear talks were high, differences among the P5+1 blocked apossible deal at the last minute. While the US’s relationships with Egypt and Turkey are also cooling,
Saudi Arabia is tacitly showing its displeasure at the improving relations between Iran and the US.
5. US Watching: Problems of the Renewable Fuels Program
Due to delays in the development of cellulosic ethanol, the biofuel quota of the EPA is facing
various problems such as the expiration of credits sold to refiners to make it easier to meet the quota,
and the lowering of the quota itself.

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IEEJ e-NEWSLETTER No. 25: November 15, 2013ｃ IEEJ 2013○

1. Discussions on the Review of the Energy Policies
in the Basic Policy Subcommittee
Akira Yanagisawa, Senior Economist
Energy Data and Modelling Center

On October 2 and 14, the sixth and seventh meetings of the Basic Policy Subcommittee were held. The
themes of the meetings were “the desirable direction of energy policies regarding consumption anddemand” at the sixth meeting, and “the future nuclear policy” at the seventh meeting.
The sixth meeting mainly discussed energy conservation, CO2 emissions reduction and the rise inelectricity tariffs. Regarding energy conservation and CO2 emissions reduction, the members emphasized
the importance of regional efforts and overseas transfer, while cautioning against excessive optimism about
energy saving and suggesting that a realistic speed of expansion should be determined. Regarding the risein electricity tariffs, concerns were expressed about the economic and environmental impacts of using
low-quality coal to reduce costs.
The discussions at the seventh meeting were so heated that it ran about thirty minutes over schedule.
Various topics were discussed, including the contaminated water problem at the Fukushima Daiichi
Nuclear Power Station, the appropriate form of safety agreements with local communities, the scope ofdamages to be borne by power companies in the event of an accident, the problems of a private company
run under government policy, the role of nuclear energy in the energy mix, interim storage of spent fuel, therole of the Monju FBR, and exporting nuclear power plants.
IEEJ CEO and Chairman Masakazu Toyoda commented in the meeting as follows:Both short- and medium-term measures are needed for dealing with the Fukushima Daiichi
accident. Seventy percent of the IAEA’s safety measures are preventive measures, while theremaining thirty percent are to be taken after an accident occurs. This should be taken into
consideration when developing safety measures for Japan. The government should take the lead in
dealing with the contaminated water issue.



It is unacceptable that power companies currently have only two choices for compensating for anuclear accident: unlimited liability or exemption. It is important to consider limited liability,
which is adopted in the US and France.

Some suggest that the nuclear power industry should be placed under state control, but Japan has
had no success with this system in the past. It is necessary to redefine the appropriate balance
between the government and the private sector in running a private company under government
policy.



Three elements are needed for regaining trust: safety technologies, safety schemes and safety
culture. Safety technologies are already at the top level. The safety scheme of Japan was alignedwith the international standard by setting up an individual regulation authority. Regarding thesafety culture, although the JANSI was established following the US model, economic incentives
should be provided to encourage further voluntary efforts by the power companies to improvesafety. It is also important for the public to learn more about risk science and risk communication
through discussions with nuclear power industry officials. Regarding technology, a wide range ofoptions should be considered, and a roadmap covering all technological options should be
reviewed.
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IEEJ e-NEWSLETTER No. 25: November 15, 2013ｃ IEEJ 2013○

The government should promote the export of nuclear power technologies, aiming at exporting
safer nuclear power from Japan by strengthening the safety scheme and safety culture of nuclear
power in the country. Furthermore, there should only be a single contact point or organization in
charge. The organization should be a unified team of the public and private sectors, with thegovernment taking the lead when necessary.

Assuming that safety has been secured, nuclear is the best option under the 3E principle and should
be positioned as the base load power source. To keep the share of nuclear at a certain level, the
new Basic Energy Plan should enable the construction and expansion of nuclear power plants to
replace existing ones. Like the UK which builds new nuclear power plants while reforming theelectric power system, Japan too should secure the investment needed for nuclear by adopting
ideas such as the CFD (Contracts for Difference).

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IEEJ e-NEWSLETTER No. 25: November 15, 2013ｃ IEEJ 2013○

2. Asia/World Energy Outlook 2013
Yuji Matsuo, Senior Economist
Energy Data and Modelling Center
On October 21, IEEJ released the Asia/World Energy Outlook 2013. This extends the forecast period
from 2035 to 2040, and analyzes the impact of the increased supply of non-conventional fossil fuels,
particularly shale gas and shale oil.
In the “Enhanced Development Scenario”, which assumes the maximum speed of development of
non-conventional resources compared to the “Reference Scenario” which assumes that the current trends
will continue, the global natural gas output will reach 6.2 Tcm (1.8 times the current level), much higher
than the Reference Scenario output of 5.4 Tcm. Non-conventional resources will account for two thirds ofthe increase from 2011, and production will increase in China, Latin America, Australia and other regions.
The production of non-conventional resources will also increase for oil, from 0.8 Mb/d in 2011 to 26 Mb/d
in 2040.
Increased development of non-conventional resources will drastically change the supply-demand
structure of energy and boost the global economy. In the Enhanced Development Scenario, GDP will
increase by 1.4% in 2040 in the US where oil and natural gas exports will expand (up to 4% more than the
scenario entirely without the Shale Gas Revolution), and by 1.9% in China where imports will decrease. As
a result of falling prices and expansion of the global economy, Japan’s GDP will also increase by 1.1%. In
contrast, for the Middle East and the former Soviet countries whose net oil and gas exports will fall below
the Reference Scenario, the GDP in 2040 will drop by 4.1% and 2.3%, respectively, partly due to lower
export prices. Meanwhile, the expansion of non-conventional gas output will have only a limited effect on
reducing CO2 emissions, as it will accelerate the shift in electricity generation from coal to natural gas,
while delaying the introduction of low-carbon power sources and boosting demand by lowering the price ofenergy.
To deal with climate change and ensure energy security, energy conservation and carbon reduction will
be strengthened. In the “Advanced Technology Scenario”, which assumes the maximum success of such
efforts, the global primary energy consumption in 2040 will be 14% lower than the Reference Scenario.
However, this is still a 29% increase from 2011 levels, due particularly to growth in Asia. While renewableenergies and nuclear power are also expected to grow significantly, the share of fossil fuels in the primaryenergy of Asia will decrease from approximately 80% in 2011 to 70% in 2040 at most, indicating that Asiaand the world will continue to depend on fossil fuels.
Even under the “Advanced Technology Scenario”, the current global GHG reduction target of limiting
the increase in global temperature to within 2ºC by halving CO2 emissions from current levels by 2050 will
not be met. In terms of the Representative Concentration Pathways (RCP) presented in the Working Group
1 contribution to the IPCC Fifth Assessment Report (WG1 AR5), the CO2 emissions of the “Advanced
Technology Scenario” are halfway between RCP2.6 (the average temperature increase from pre-industrial
to the end of the 21st century of 1.6 ± 0.4ºC) and RCP4.5 (2.4 ± 0.5ºC), and somewhat closer to the RCP2.6
path. It is necessary to make maximum efforts to save energy and reduce carbon emissions over the longterm in order to achieve the global common goal of preventing climate change, and hence R&D and the useof advanced technologies will become increasingly important for all countries.

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IEEJ e-NEWSLETTER No. 25: November 15, 2013ｃ IEEJ 2013○

3. IPCC’s Fifth Assessment Report and Future Countermeasuresagainst Climate Change
Hiroki Kudo, Assistant to Managing Director
Global Environment and Sustainable Development Unit
At the 36th Plenary Session of the Intergovernmental Panel on Climate Change (IPCC) and the 12th
meeting of Working Group 1 (WG I) held from September 23, the Summary for Policymakers (SPM) for
the Fifth Assessment Report (AR5) WG1 was approved and released, and the WG I report itself was
accepted. The AR5 is based on the achievements of research worldwide published during the six years
since the release of the Fourth Assessment Report. WG I compiled the latest Report focusing on thescientific evidence of climate change.
The key points of the latest WG I report are that it states that global warming is indisputably increasing,on the basis of cumulative scientific knowledge and progress in climate science, and that the main cause of
the warming observed since the mid twentieth century is almost certainly human activity. Furthermore, theReport adopts the Representative Concentration Pathways (RCP) method and sets multiple GHG
concentration scenarios for the atmosphere, evaluating the impact of each scenario on the climate system.
Each of the four RCP scenarios represents a level of stability of GHG concentration in the atmosphereresulting from the efforts made by each country to alleviate warming. Thus, the information can be used as
an input for planning measures to combat global climate change in the future. However, the relationshipbetween GHG concentrations in the atmosphere and the temperature increase represented by the scenarios
may need to be evaluated differently from conventional understanding. Looking ahead, the WG II report(assessment of the impact of climate change and measures for adaptation; March 2014), WG III report(assessment of climate change countermeasures; April 2014) and the Synthesis Report (October 2014) will
be published using this scenario assessment as a reference, and will be used as an input for considering
domestic and international climate change countermeasures.
The recently-released AR5 is particularly important in view of the schedule for international
negotiations on the future framework of climate change countermeasures. With COP21 set for 2015 as thedeadline for deciding the international framework beyond 2020, AR5 provides updated scientificknowledge just as the negotiations are deepening. Thus, AR5 provides useful insights on the issues forinternational negotiations, such as how far the measures must be taken worldwide, what policy measures
are appropriate, and how to deal with the impact of climate change.
Going forward, the international community must digest the scientific views presented by the AR5, andagree on the measures to be implemented. The climate change negotiations so far have not managed tobuild a sustainable and effective long-term framework due to the confrontation between developed anddeveloping countries. In international negotiations in the future, it is essential to share scientific knowledge
and appropriately use its achievements. In particular, the parties to the negotiations must better understandthe scientific knowledge on climate change, taking into account the problems and uncertainties in therelationship between GHG concentration and temperature increase described above, and select the mosteffective measures.

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IEEJ e-NEWSLETTER No. 25: November 15, 2013ｃ IEEJ 2013○

4. ME Watching: Concerns Emerge as the US-Iran Relationship Improves
Koichiro Tanaka, Managing Director &President of JIME Center
The dialogs at various levels between the US and Iran which started during the UN General Assemblyin September are stirring up the situation in the Middle East which has been extremely volatile since the“Arab Spring.”
At the latest nuclear talks in Geneva, following the previous round of negotiations the US
Undersecretary of State evaluated as “detailed, substantive discussion with a candor,” details of aframework for moving towards a comprehensive agreement was negotiated in an extensive manner.
Although the details of the discussions are yet to be disclosed, the suspension of construction works at Arak
Heavy Water Research Reactor, and the dismantling of enriched uranium stocks at the level of 20% appear
to be the key issues of dispute, but not between Iran and its interlocutors, but amongst the P5+1 countries.
The US and its allies will need to work hard to sort out the differences with France, which cited Israel’s
security concerns when it blocked the agreement. President Obama will need to persuade the Congress not
to invoke legislations to strengthen sanctions against Iran at this sensitive and delicate juncture.
Saudi Arabia surprised everyone when it rejected a seat as a non-permanent member of the UN Security
Council, which it had volunteered for, citing the failure of the Council to properly deal with the Syrian
crisis and the stagnation of the Middle East peace process. This decision is presumably the reflection of the
Saudi royal family’s distrust towards the improving US-Iran relationship. Meanwhile, the Saudi
government is persistently refusing to receive Lakhdar Brahimi, United Nations and Arab League’s Joint
Special Envoy to Syria, who is in charge of the Syrian issue which is developing into a surrogate war
between Saudi Arabia and its old foe Iran. This illogical foreign policy could erode its own influence in theregion. The country is also facing a “revolt” by a female driver who is appealing for the right to drive.
Regarding Syria, the world’s interest in bringing an end to the civil war is waning as the chemical
weapons destruction program agreed upon by the US and Russia proceeds without major hindrance. The
Geneva II Conference has yet to be convened, due to the constant in-fighting between the subgroups ofarmed rebels, as well as their objection for Iran to take part. As the number of non-combatants affected by
the war rapidly increases, more refugees are fleeing to neighboring countries. In Iraq, where politicalconfrontation is intensifying in the run-up to the parliamentary election next spring, the terrorist attacks
continue with high casualties. The deterioration in security is undoubtedly related to the situation in Syria.
President Obama has decided to withdraw part of the 1.5 billion dollar annual US aid to Egypt, citing
the crackdown on the Muslim Brotherhood. This decision will worsen the Arab community’s distrust of the
US. Prime Minister Abe visited Turkey again after his visit in May to follow up on the nuclear plant export
talks. The US and Europe are urging Turkey, a NATO partner, not to cooperate with China in developing
its long-distance missile and missile-defense systems.

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IEEJ e-NEWSLETTER No. 25: November 15, 2013

5.

ｃ IEEJ 2013○

US Watching: Problems of the Renewable Fuels Program
Ayako Sugino, Senior Researcher
Coal & Gas Subunit
Negotiations between the Environmental Protection Agency (EPA) and the oil industry are continuingregarding the biofuel quota which the EPA is due to release soon. The Energy Independence and Security
Act (EISA) of 2007 requires that annual sale of renewable fuel in the US be raised to 36 billion gallons by2022. Each year, by December 1, EPA, which is responsible to implement the Renewable Fuel Standard(RFS), sets the volume of renewable fuel required to be blended into transportation fuel next year. The
minimum volume required by the law for 2014 is 18.15 billion gallons.
Many problems have been pointed out concerning the RFS. First, while a quota is set for each type ofalternative fuels such as corn-ethanol, cellulosic-ethanol and biodiesel etc., cellulosic ethanol has not yet
reached the stage of commercial production. The Renewable Identification Number (RIN) credits, which
the fuel suppliers buy from the EPA to make up for the unfulfilled quota, can be carried over only for five
years. With no prospect in sight for the commercial production of cellulosic ethanol, there are concerns that
the RIN may expire, inflicting losses on the suppliers. In 2012, due partially to the undersupply of corn
ethanol due to drought, the oil industry requested that the RFS mandate be eased. In August 2013, the EPA
permitted the RFS requirement for cellulosic fuel for that year to be lowered from 1 billion gallons to 6
million gallons. This caused RIN prices to soar, as the overall alternative fuels volume was kept at 16.55
billion gallons.
Second, the 10% threshold of ethanol-mixed gasoline could be making it harder to achieve themandate. Originally, EPA set the maximum 10% ethanol content so as not to cause damage to engines,
while the overall demand for auto fuels has been slipping due to improvements in fuel efficiency. To deal
with this situation, the EPA allowed the mixing ratio to be raised to 15% for cars later than model-year
2001. However, fuel suppliers are reluctant to sell E-15, as it is not clear who is responsible for safety.
Under such circumstances, on October 24, it was leaked that the draft 2014 RFS rule will lower thelegal quota by 3 billion gallons to 15.21 billion gallons (23 million for cellulosic ethanol, 1.28 billion forbiodiesel fuel, and 2.21 billion for next-generation fuels) to reflect the actual state of alternative fuels
supply. This came closer to an acceptable volume for petroleum industry, as the EPA expects a supply of
13.0 billion gallons for conventional (corn-derived) ethanol, while the industry expects 12.9 billion gallons.
A more serious concern for the fuel suppliers is that the RIN credits that they have been purchasing
since the launch of the RFS system in 2008 may expire and incur full losses, so the suppliers aredemanding Congress to repeal the RFS. This issue reveals the inconsistency between the fuel policy under
the EISA of 2007 and the increased fuel economy standards, the lynchpin of the Obama administration’senergy policy. It also affect the evaluation for public support for the development of next-generation
biofuel.
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IEEJ e-NEWSLETTER No. 25: November 15, 2013

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