IEEJ：July 2020

©IEEJ 2020

Special Bulletin
A Japanese Perspective on the International Energy Landscape (491)

July 29, 2020

Significance of Best Energy Mix Should Be Reaffirmed Now
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanAs the international energy situation undergoes an unprecedented upheaval, withuncertainties growing about the future, Japan has resumed policy discussions in the run-up to updating
its Strategic Energy Plan. On July 1, the Strategic Policy Committee of the Advisory Committee for
Natural Resources and Energy held its 31st meeting to resume the discussions for the first time insome 10 months.
In the previous updating, the government decided on the Fifth Strategic Energy Plan in July
2018, reaffirming that Japan would steadily achieve its target energy mix for FY2030 (formulated in2015). Of the target FY2030 energy mix, renewable energy accounted for 22-24% of total powergeneration, nuclear for 20-22%, liquefied natural gas for 27% and coal for 26%. It was a desirable
energy mix designed to simultaneously attain the energy self-sufficiency rate, electricity cost and CO2emission reduction targets related to the so-called 3Es – energy security, economic efficiency andenvironmental conservation. The Fifth Strategic Energy Plan also specified energy policy challenges
over the longer term up to 2050 and featured such key concepts as multiple scenarios, a scientificreview mechanism and a technology self-sufficiency rate.
Since policy discussions for the formulation of the Fifth Strategic Energy Plan, however, thesituation surrounding Japan has changed dramatically. Policy discussions based on such changes andthe new situation are indispensable for formulating the next Strategic Energy Plan.
The new situation first features the impact of the COVID-19 pandemic. The novel
coronavirus outbreak rapidly expanded early this year into the pandemic, of which the future courseor result cannot be forecast by anyone. Its impact has dramatically shaken the international energy
situation to an extent that no one could foresee. Over a short to medium term, substantial drops inenergy demand, subsequent oversupply and plunges in crude oil, natural gas, LNG, coal and electricity
prices have become the greatest matter of concern to the world. Price drops differ by market depending
on conditions. However, price drops have greatly affected the energy supply industry, discouraging
energy investment. Weak energy prices have economically hurt oil-producing countries depending
heavily on energy export revenue. Their economic deterioration is expected to lead to their economicand social destabilization.
While the short to medium-term impact is serious, whether the world would transformstructurally over a long term is attracting global attention. A key issue is whether the global energy
transition, which had seemingly started before the pandemic, would accelerate, stagnate or change itscourse.
Particularly, decarbonization initiatives and the impact of international politics andgeopolitics changes on energy security in a post-corona world have become matters of great interest.
How will global energy consumption change under the impact of these factors? How will the position
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IEEJ：July 2020

©IEEJ 2020of fossil fuels such as oil, gas/LNG and coal change? Will the electrification accelerate? Will the future
picture of renewable energy or nuclear change? What will the roles of hydrogen and other innovative
energy technologies be? These questions are attracting great attention.
As these matters of interest have great uncertainties, their future courses are difficult topredict. It is therefore risky to fix any single future picture for considering a relevant strategy. We must
prepare future scenarios covering various possibilities and work out subsequent long-term strategies
and roadmaps for their implementation flexibly and strategically. As a matter of course, such longterm strategies may include a strategy to realize or attain a “desirable future”.
When considering long-term strategies with future uncertainties taken into account, weshould have high-level philosophies or ambitions for ideal goals. At the same time, we should coolly
assess realities and have realistic strategic discussions based on objective, scientific and reasonablefacts. How to balance idealism and realism is also important for policy discussion in Japan.
It is also important to have a balanced energy mix. As noted above, the target FY2030 energy
mix was designed to simultaneously attain the 3Es targets. The simultaneous attainment of the 3Estargets hold the key to the balancing. Japan’s basic policy of attaining the 3Es targets while securingsafety will remain important in future policy discussions. The problems are how we should assess
progress and challenges regarding the attainment of the FY2030 targets, how we should set new 3Es
targets for a new target year (like FY2040) and what optimum energy mix we should select.
I here would like to note anew that there is no perfect energy source. All energy sources
including energy savings have both strengths and weaknesses. Discussions frequently focus on brightor dark sides of a specific energy source. We must keep some distance from such discussions andconsider the optimum energy mix required for Japan. The best energy mix differs by country,depending on endowed energy resources, economic, industry and social development phases, energy
industry structure, energy-related infrastructure and technology development conditions, thegeopolitical environment and other factors. Given that the best energy mix varies by country, Japan
should pursue its own best energy mix based on its inherent conditions. In doing so, Japan should takeadvantage of the strengths of individual energy sources and technologies, make maximum efforts toovercome their respective weaknesses, and utilize all options in a balanced manner. The energy mix
should also include contributions from innovative energy technologies while giving consideration totime horizon.
In addition to the best energy mix, the integration and best mix of foreign, economic,technological, industrial, educational and other relevant policies are important for Japan and othercountries to realize energy and environment policy targets. Given that energy agenda are extensive
and comprehensive, the best policy mix is indispensable. The full utilization of market mechanisms is
also important for the efficient attainment of energy policy targets. On the other hand, policy responses
or interventions are required to address so-called “externalities” including national security andenvironmental problems. In this sense, the best mix of policies and market mechanisms plays a keyrole. Also indispensable is the best mix of integral initiatives to bring together the wisdom of thegovernment, industry, academia/experts and citizens, with these agenda taken into account.

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