IEEJ：March © IEEJ 2023
Special Bulletin
A Japanese Perspective on the International Energy Landscape (634)

April 28, 2023

Challenges for Energy Transition to Balance Decarbonization with Enhanced
Energy Security
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
It has been a long time since energy security enhancement became a top priority for theworld due to the chaotic international energy situation under the Ukraine crisis. As seen just after thefirst oil crisis a half century ago, Japan and other countries have been strongly promoting initiatives
to secure stable energy supply. Still, however, decarbonization initiatives to prevent climate change
and conserve the global environment have remained important. Although a comeback to coal andother short-term measures to secure stable energy supply has been realized, the European Union’sREPowerEU plan and other policy initiatives to strike a balance between the phase-out ofdependency on Russia (energy security enhancement) and decarbonization have become a key global
challenge. On the other hand, it is important for countries around the world to understand thedivision of the world and growing geopolitical tensions as background factors for considering energy
security and decarbonization initiatives, and studying and implementing countermeasures.
In such a situation, the eighth IEEJ/APERC International Energy Symposium took place atGrand Prince Hotel Takanawa on April 27. The symposium is an annual flagship event for theInstitute of Energy Economics, Japan, and the Asia Pacific Research Center, which has been held
since the first one in 2016 that marked the 50th anniversary of the IEEJ and the 20th anniversary ofthe APERC. After the fifth to seventh ones that were held on an online basis due to the COVID-19
pandemic, the eighth one took a hybrid form including the first face-to-face meeting in four years
and online participation. In the latest symposium titled “Challenges for Carbon Neutrality andEnergy Security – Searching for a realistic and pragmatic pathway,” participants vigorously
discussed the up-to-date topic. The symposium comprised Session 1 on “Smooth and orderly energy
transition policies to balance out use of fossil fuels,” Session 2 on “Bolstering supplies of criticalmaterials for decarbonization technologies” and Session 3 on “Asia’s initiatives for zero carbonemissions.” In these sessions, prominent experts and government officials made presentations
followed by panel discussions. In the following, I would like to spell out key points that I was
inspired by the symposium to consider, instead of summarizing symposium discussions.
Issues discussed in Session 1 regarding fossil fuels’ relationship with energy transition are
essential for energy transition in a sense. Transition means a constructive change from the existingholistic system to an entirely different system. It is important for the existing holistic system to be
dominated by fossil fuels. Given economic and population growth trends in developing countries
that have become the leader of global energy consumption, as well as long service lives for global
energy supply chains, infrastructure and equipment, fossil fuel consumption, though falling indeveloped countries, may fail to decline in developing countries. Global fossil fuel consumption isthus expected to remain firm. While energy efficiency improvements and non-fossil energy
consumption are promoted strongly, cleaner fossil fuels will be selected, with fossil fuels being
decarbonized. As fossil fuel consumption remains firm, stable supply of fossil fuels accounting for a1

IEEJ：March © IEEJ 2023
key part of overall energy supply will stay significant. How to secure investment for stabilizing
fossil fuel markets including the upstream sector will be the key to facilitating the future energy
transition. Attention should be paid to whether the Group of Seven leaders at their Hiroshima
Summit would reaffirm the significance of gas sector investment compatible with climate goals for
initiatives to strike a balance between energy security enhancement and decarbonization.
In today’s world, how to minimize a cost hike accompanying energy transition isextremely important for energy transition. If a cost hike for preventing climate change and enhancing
energy security is very high, society may have difficulty absorbing the impact of such cost hike. In
the world where energy prices have shot up under the Ukraine crisis, even developed countries haverefrained from passing such market-based price hikes on to consumers directly and introduced
energy subsidies to protect consumers or low-income earners. Given that developed countries withhigher average income levels than in developing or emerging countries take such measures, it isconceivable that a cost hike accompanying energy transition may have even stronger regressive
effects in developing or emerging countries. If this is taken into account, it may not be strange thatcountries will choose different options for and give different priorities to energy transition in linewith their various national conditions. It is reasonable for countries to pursue common goals throughvarious pathways. If Japan restarts idled nuclear reactors and prolongs their service lives toeffectively utilize existing nuclear power generation capacity while securing safety, for instance, it
may efficiently reduce CO2 emissions, cut electricity costs and stabilize electricity supply. As how toreduce a cost hike accompanying energy transition becomes a global challenge, countries may berequired to take various measures in line with their various national conditions.
Regarding costs accompanying energy transition, we are increasingly required to pay
attention to factors that had not been considered in the past. One of such factors is that costs for
integrating solar photovoltaics and wind power as intermittent renewable energy sources into theelectricity system should be considered separately from falling costs for solar photovoltaics andwind power generation that is expanding into a mainstay electricity source. An even newer factor isthat strategic consideration should be given to costs accompanying the tightening supply-demandbalance for critical minerals and the heavy dependence on limited supply sources for them. As theworld has shifted to the age of its division and geopolitical tensions from that of free trade and theinternational horizontal division of labor, priority is given to economic security and supply chains forcritical materials, goods and resources. As indicated by discussions at one of the three sessions in thesymposium, how to secure stable critical mineral supply has become a key challenge for futureenergy transition.
The above means that energy transition talks should cover not only narrowly definedenergy costs but also total system and economic security costs for more comprehensive and strategic
analyses. Initiatives to minimize energy transition costs should be based on such analyses. Theenergy transition challenge will become more complicated in the future.
However, countries in the world should pursue the principle of pursuing common goals
while admitting their diversity. If developed countries condescendingly force a single prescription
for energy transition on developing countries, it may hamper the smooth global energy transition anddeepen the division of the world. I hope that Japan will take leadership in promoting talks on theabovementioned challenges at the coming G7 summit.
Contact: report@tky.ieej.or.jp
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