IEEJ： October 2014

ｃ○ IEEJ 2014

Special Bulletin

A Japanese Perspective on the International Energy Landscape (190)

October 8, 2014

Energy Security, Environmental Protection and Economic Competitiveness
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn October 6 and 7, an international conference titled "Energy and Economic
Competitiveness" took place at the Royal Institute of International Affairs, known as Chatham House,in London. Discussions there focused on conditions and challenges facing major countries regarding
four policy goals -- the so-called Three Es (of energy security, environmental protection andeconomic efficiency) and economic competitiveness -- which can trade off against each other. Those
discussions also covered these countries' efforts to overcome these challenges and their policy
implications. These topics represented most fundamental and up-to-date issues for the present worldenergy situation. Participants in the conference discussed these issues from various angles. I here
would like to summarize the points that impressed me through the meeting.

First, participants in the conference were strongly conscious that the abovementioned
challenges, though common to all countries, are serious and difficult particularly in Europe. Thismay be because the conference took place in Europe with Europeans being dominant among theparticipants. But the actually serious European situation was a more important factor behind thestrong consciousness. In the discussions, the United States whose shale revolution has exerted great
influences on the four energy policy goals was compared variously with Europe that is plagued withchallenges regarding the four policy goals. Many participants pointed out that Europe has been put ina more difficult situation than the United States.

Regarding energy security, for example, the United States is taking advantage of the shale
oil and gas production expansion to accelerate a shift toward “energy independence”. In starkcontrast, Europe has no choice but to increase its dependence on energy imports in the future.
Furthermore, the Ukraine crisis has caused tensions in Europe's relations with Russia regarding
energy security. The growing tensions have become a grave challenge for the immediate future. Asfor environmental problems, particularly global warming, the United States has been steadily
reducing carbon dioxide emissions with gas replacing coal under the shale revolution. In Europe, the1IEEJ： October 2014

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expansion of renewable energy use under policy support has triggered higher energy cost and otherproblems. At the same time, coal consumption has increased due to relatively cheaper coal costs thanother alternatives including natural gas, plunging Europe into a situation where it has become
difficult to reduce CO2 emissions.

Furthermore, the shale gas and oil production expansion will allow the United States tosubstantially reduce energy imports and overall energy costs, invigorate oil/gas, petrochemical andenergy-intensive industries and produce various spillover effects on her economy. The United States
will thus benefit from the enhanced competiveness of its overall economy and some specificindustries and from economy-boosting effects. In contrast, Europe will be plagued with various
competiveness-affecting factors including higher energy costs than in the United States, a cost hikeaccompanying the expansion of renewable energy use, possible cost hikes for enhanced long-term
measures against global warming, and higher energy security costs for implementing various policy
options to cope with energy security challenges including the Russian problem.

In considering these difficult challenges and how to overcome them, we may have tocheck whether it is appropriate or reasonable to compare Europe with the United States, which is in aspecial situation benefitting from the shale revolution. Irrespective of such comparison, however, it
is significant to question what energy and environmental policies Europe should implement, avoid orrevise to resolve the unfavorable factors facing the region.

Therefore, the conference participants actively discussed an analysis of the gas supply
security problem regarding Russia, the significance of gas procurement at more competitive prices,
the need for fundamental revisions to renewable energy policies, CO2 pricing and the invigoration of
the European Union Emissions Trading System, long-term greenhouse gas emission reduction
targets, the EU energy market's further integration for the three Es, relevant infrastructuredevelopment and other issues. Medium to long-term efforts, rather than short-term efforts, arerequired to resolve these issues. But I felt the conference participants were conscious that such
efforts should be launched immediately.

Second, the discussion at the conference indicated that the problem of the Three Es andeconomic competiveness is more serious and difficult for Japan than for Europe in reality. Japanafter the Fukushima nuclear accident is also in a special, severe situation reversing the U.S. situation.
Japan is more required than Europe to promote policy discussions on these challenges while locking
its sight on the present difficulties. In this respect, future policy discussions in Europe will be
undoubtedly helpful for Japan. It is important for Japan to consider how to take advantage of2

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European policy discussions to have useful lessons learned. Through the conference, I felt that
European policy planners are promoting frank discussions with industrial stakeholders on the threeEs and economic competitiveness in an attempt to have those discussions reflected appropriately inpolicies. In this respect, relevant Japanese efforts may be less sufficient than indicated by theseriousness of these challenges. There may be room for Japan to enhance the efforts. Japan will haveto organize public arguments that coolly and objectively analyze the entire economic or societal
situations and realities in order to resolve the energy challenges facing Japan.

Contact: report@tky.ieej.or.jp
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