IEEJ e-NEWSLETTER
No. 241(Based on Japanese No. 232)

Published: January 24, 2023
The Institute of Energy Economics, Japan(As of January 24, 2022)

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)

Sources:(1) DOE-EIA(2) Investing.com

Sources:

Source: x-rates.com(1) Finance. Yahoo.com(2) Investing.com

Contents
Key Points for 2023
Summary
1. Overall Energy Policy
2. World Energy and the Environment
2.1 Oil
2.2 LNG
2.3 Coal
2.4 Renewable Energy
2.5 Nuclear Power
12.6 Energy Efficiency
2.7 Hydrogen and Carbon Recycling
2.8 Policies Related to Climate Change
3. The Domestic Energy Industry and Its Challenges
3.1 Oil Industry
3.2 Electricity and Gas Industries
4. International Politics, Geopolitics, and Energy
4.1 US: Balance between Oil and Gas Exports and Climate Action
4.2 EU: Concerns about Securing Gas Storage Levels and Concrete Industrial Policies
4.3 China: A Year That Will Test the New Leadership’s Ability to Steer the Country
4.4 ME: Economic Recovery in Gulf Countries; Continuing Turmoil in Iran andOther Conflict Zones
4.5 Russia: Signs of a Protracted War and Weakening of Putin’s Power Base

2Key Points for 2023
Summary
1. Overall Energy Policy
In 2023, more concrete measures for achieving the 2030 GHG reduction target (46% from 2013
levels) will be discussed, based on the 10-year roadmap set by the GX Implementation Council.
2. World Energy and the Environment
2.1 Oil
In 2023, the oil market is expected to be tightened, and Brent price will average at $90/bbl. The
market is likely to focus on the possibility of a recession, additional production cuts by OPEC
Plus, and the war in Ukraine.
2.2 LNG
The key in the LNG industry in 2023 is whether it is possible to secure the necessary supply inthe short term, with cooperation and coordination between operators and consuming markets tothat end. Along with the activation of long-term procurement activities, the industry is expected
to see progress in LNG production projects.
2.3 Coal
In 2022, the coal market saw turmoil following the invasion of Ukraine, coal prices soared andremained high. In 2023, the coal market will stabilize, and coal prices will decline on an annual
average basis, although high.
2.4 Renewable Energy
Renewable energy will continue to expand in and outside Japan, but issues are emerging. It will
become ever more important to gain public understanding in taking measures toward carbon
neutrality, including introducing renewable energy.
2.5 Nuclear PowerIn 2023, we will closely monitor Germany’s decision to extend the operating period of its three
nuclear reactors, the UK’s decision to provide governmental financial support to a nuclear
project, and the public debate on nuclear new builds in France.
2.6 Energy Efficiency
In 2023, initiatives mainly for saving gas and electricity in wintertime are expected to continue
in many countries, which are facing an energy crisis. In Japan, the revised Act on the Rational
Use of Energy will come into effect, and the use of non-fossil energy will be added to the scopeof reporting.
2.7 Hydrogen and Carbon Recycling
In 2023, the detailed institutional design for supporting the introduction of hydrogen will be
discussed. Sufficient support is necessary also for stable procurement and infrastructuredevelopment. There are high expectations for the new carbon recycling hub on Osaki Kamijima
Island.

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2.8 Policies Related to Climate ChangeInternationally, a Global Stocktake, which assesses the progress toward the global target of theParis Agreement, is scheduled in COP28. In Japan, the main focus will be the institutional
design of the growth-oriented carbon pricing system.
3. The Domestic Energy Industry and Its Challenges
3.1 Oil Industry
In 2022, domestic retail prices of petroleum products remained stable, though high, despite thehigh oil prices and weak yen thanks to subsidies. To achieve carbon neutrality, the oil industry
must urgently change its business model and develop innovative technologies.
3.2 Electricity and Gas Industries
In 2023, the risk of higher tariffs due to high fuel prices and tight supply will remain for boththe electricity and gas industries. How to keep long-term fuel supply contracts viable in acompetition policy will be key.
4. International Politics, Geopolitics, and Energy
4.1 US: Balance between Oil and Gas Exports and Climate Action
The Biden administration has introduced a policy to expand oil and gas exports to address theenergy crisis. The course of the policy must be watched, including the response to criticism
within the party that it is a backward step in terms of climate action.
4.2 EU: Concerns about Securing Gas Storage Levels and Concrete Industrial Policies
Ensuring adequate LNG supplies is the top priority of many efforts, chiefly the REPowerEU,
but concerns remain. Attention must also be paid to the final form of Europe’s new industrial
policies, which include a new common fund.
4.3 China: A Year That Will Test the New Leadership’s Ability to Steer the Country
At the end of last year, China optimized its zero-Covid regulations. In 2023, can China
simultaneously achieve the twin goals of economic recovery and pandemic control on the one
hand, and stable energy supply and decarbonization on the other, after the pause in 2022? The
new leadership’s ability to steer the country will be tested.
4.4 ME: Economic Recovery in Gulf Countries; Continuing Turmoil in Iran and Other
Conflict Zones
The situation in Middle Eastern countries remains divided: Gulf oil producers enjoyed an
economic upturn as the pandemic subsided and Russia invaded Ukraine, while Iran now has
little chance of rebuilding the JCPOA due to widespread protests.
4.5 Russia: Signs of a Protracted War and Weakening of Putin’s Power Base
The war in Ukraine looks set to continue. With Russia reportedly losing ground, anti-war
sentiment growing back home, and economic sanctions biting harder, the Putin administrationis under mounting pressure from both in and outside the country.

41. Overall Energy Policy

Shigeru SUEHIRO, Senior Economist, Manager
Econometric and Statistical Analysis Group
Energy Data and Modelling Center

On July 27, 2022, the GX (Green Transformation) Implementation Council was established, chairedby Prime Minister Kishida, to deliberate the measures necessary to transition from the current economic,
social, and industrial structures based on fossil fuels to clean energy-centered ones. However, the current
crisis in Ukraine and the tight electricity supply clearly show that a stable energy supply is a prerequisite
for GX. Prime Minister Kishida has also said that “Overcoming the current crisis is our top priority.
Without getting this done, the GX by 2030 and 2050 will not be possible. On the other hand, overcoming
the current crisis cannot be done separately from implementing the medium- to long-term GX plan.” In
addition, the GX Implementation Council is scheduled to develop by the end of 2022 a 10-year roadmap
for the five policy initiatives set out in the Grand Design and Action Plan for a New Form of Capitalism,
which was approved by the Cabinet in June 2022: establishment of GX Economic Transition Bonds,
investment promotion measures that integrate regulations and support, step-by-step development andutilization of the GX League utilization of new financial instruments, and strategies for international
expansion, including the concept of the Asia Zero Emissions Community (not yet formulated at the timeof writing).
In parallel with the GX Implementation Council, the Strategic Policy Committee of the Advisory
Committee for Natural Resources and Energy also began discussing how to re-establish a stable energy
supply. In view of Prime Minister Kishida’s earlier statement, the responses for two timeframes are
examined: immediate, and medium- to long-term.
In the immediate term, the Committee intends to address concerns about the power crunch this winterand beyond by mobilizing all available initiatives, and is considering measures in four areas: securingresources, electricity and gas, easing supply and demand, and nuclear power. In addition to calling forincreasing LNG production and adding power sources, including by restarting suspended thermal power
plants, more concrete ideas are being proposed on restarting nuclear power plants, including ensuringthat up to nine of the 10 restarted nuclear reactors are in operation and restarting the seven reactors thathave obtained a reactor installation and modification permit.
As for the medium- to long-term supply stability, the Committee believes that political decisions must
be made to resolve the delays in energy policy, and is discussing measures in five areas: power system,
renewable energy, nuclear power, securing resources, and easing the supply-demand balance. Whilerenewable energy is intended to serve as the main clean energy, here too more specific measures forutilizing nuclear energy are being proposed, including mobilizing all parties concerned to restart nuclear
power, extending the operational lifetime of reactors, developing and constructing next-generation
reactors, and accelerating the processes toward reprocessing, decommissioning, and final disposal ofradioactive wastes.
The Sixth Strategic Energy Plan was formulated in November 2021; the Plan is to be revised every
three years, and so the next revision will be in 2024. As such, 2023 will likely see the start of discussions
toward the revision. In particular, nuclear power may be put at the center of the debate. The meeting is
expected to discuss more concrete measures for achieving the 2030 GHG reduction target (46%reduction from 2013 levels), based on the 10-year roadmap set by the GX Implementation Council.
Another important issue for 2023 is considering and implementing energy-related diplomatic strategy,
taking into account the G7 Summit in May.

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2.1 Oil
Tetsuo MORIKAWA, Senior Economist, Manager
Oil Group
Fossil Energies & International Cooperation Unit
In the oil market in 2023, The market is likely to focus on the possibility of a recession,
additional production cuts by OPEC Plus, and the war in Ukraine. The IEEJ forecasts that oil
supply and demand will be tightened in 2023, and that Brent price will average at $90/bbl.
However, the price may fluctuate wildly depending on how these factors develop.
As for the possibility of deteriorating demand due to economic recession, the International
Monetary Fund’s World Economic Outlook forecasts that global GDP growth will slow from
3.2% in 2022 to 2.7% in 2023. While some consider that major countries and regions including
the U.S. and the Eurozone will fall into a recession, others believe that the U.S. economy willhold up because inflation is slowing and so will the pace of interest rate increases. China, theworld’s largest oil importer, has eased its zero-Covid policy, but the country shows no
inclination to adopt Western vaccines even though the number of cases is reportedly soaring,indicating that Covid-19 will remain a risk for oil demand. In 2023, macroeconomic conditions
and the pandemic could cause prices to decrease.
At its December 4 meeting, OPEC Plus decided to continue to cut production by 2 mb/d,
stating that it will carefully assess the risk of recession and respond to market trends if necessary
by taking additional measures immediately. It also said it will assess the effect of the price cap
on Russian oil. The next meeting is scheduled for June 2023, but depending on market
conditions, OPEC Plus—or Saudi Arabia or others on their own—may cut more production
before the meeting. In addition, OPEC Plus’s real surplus production capacity remains
extremely low and it has a little buffer to mitigate if supply disruptions happen. It is thus rational
to view OPEC Plus related factors for higher prices.
The war in Ukraine is intensifying with no sign of a ceasefire. Despite the various sanctions
already imposed, Russia exported 8.1 mb/d of oil as of November last year, which was higher
than the 2021 average of 7.5 mb/d. To reduce Russia’s oil export revenues and ensure a stablesupply of oil, the G7, the EU, and Australia set a price cap of $60/barrel for Russian oiltransported by sea on December 5 last year. On the same day, the EU imposed an embargo on
Russian oil. A price cap will also be set for Russian petroleum products from February 5, 2023.
It is said that the price cap will be enforced by granting or denying marine insurance by Westerncountries. However, it is not clear whether the cap will remain effective as Russia is highly
likely to exploit loopholes such as their or Chinese marine insurance and transshipment andblending in a third country. There is also the risk of embargo by Russia. On the other hand, if aceasefire becomes reality, the risks related to Russian supplies will recede. Thus, Russia could
be a cause of both higher and lower prices.

62.2 LNG
Hiroshi HASHIMOTO
Head of Gas Group
Fossil Energies & International Cooperation Unit
The main concern in the global natural gas and LNG industry in 2023 is whether thenecessary supply will be secured. In order to avoid overheated competition between consumers,
coordination between governments and international frameworks will play an important role,
alleviating extreme regional and seasonal market tightness.
LNG flows to Europe, shifting from elsewhere, increased in 2022, mainly from sources in
the United States. While the share of the European Union (EU) plus the United Kingdom among
U.S. LNG shipment destinations was more than 60%, almost doubling from around 30% in2020 and 2021, LNG imports declined in Japan and China, the world's two largest LNG
importers. As among China's reduction of LNG import Chinese buyers' resale of LNG producedin the United States was significant, EU's plus the United Kingdom's LNG imports increasedby more than 60% year-on-year to surpass the 100-million-tonne mark in 2022. In 2023, thesupply of Russian pipeline gas to Europe is expected to decrease by about 30 million tonnes of
LNG equivalent compared to 2022. While assuming no production facility problems, global
LNG production is expected to increase by about 9% (about 30 to 40 million tonnes), Europe
and China are expected to absorb the increase in LNG production. Spot LNG prices are
expected to stay high at an annual average of over USD 30 per million BTUs and LNG imports
to Japan of a little over USD 16. Therefore, the LNG procurement environment is expected tocontinue being challenging for emerging markets.
LNG procurement activities accelerated in 2022, mainly from North American LNG
production projects. Term contracts and highly accountable basic agreements amounting to 74
million tonnes per year were announced, with sales from North American LNG projects
representing 64 million tonnes. Qatar, which is developing large-scale expansion projects, also
accelerated contract marketing activities. While Chinese companies made an annual
commitment of 15 million tonnes, sales to the European market amounted to 17 million tonnes
per year. Some procurement deals by Japan companies were also announced near the end of2022. Procurement activities and the development of LNG production projects are expected togather pace in 2023.
In order to continue stable procurement in markets until 2025, it will be more important topromote cooperation, including joint procurement, among domestic and overseas operators.
From 2026 onwards, securing long-term LNG contracts, including those from new projects is
crucial. It will be important to take measures to promote investment in the upstream and LNG
production sectors. Among LNG production projects, brownfield projects and small- andmedium-sized projects are likely to advance. Furthermore, in LNG production projects,
measures to reduce GHG emissions, mainly those of CO2 and methane, are essential.

72.3 Coal
Atsuo SAGAWA, Senior Research Fellow
Fossil Energies & International Cooperation Unit
We expect the coal market to recover from the turmoil caused by Russia’s invasion of
Ukraine and stabilize in 2023, but that coal prices will remain high. Steam coal prices soared
to over $400/tonne in 2022 and remained high, but will fall from the current level of over $400
to nearly $300 in 2023. On the other hand, coking coal prices, which temporarily surged to $600
in 2022 before falling, are expected to rise to the low $300 level in 2023 from the current upper$200 level.
Looking back at the coal market in 2022, the spot price for steam coal (FOB, shipped fromPort of Newcastle, Australia) was rising in early 2022 due to the recovery of demand in 2021,
poor weather in supplier countries, a coal export ban in Indonesia, and concerns over the
Ukraine situation, and after the invasion began, the price surged from mid-$200/tonne to $400.
The price then temporarily fell, but soared to over $400 when the EU and Japan announcedplans to ban imports of Russian coal and procure alternative coal, as well as heavy rainfall in
New South Wales, Australia, and remained high at around $400 thereafter. In October, the pricefell to the low $300 level on reports that the EU had secured its winter coal supply, but has
currently risen to $400.
The spot price for coking coal similarly surged in March after the invasion of Ukraine,
temporarily approaching $600. The price then declined for a while but soared again after April,
exceeding $500, then fell to the low $200 level after late June as supply caught up with themarket, and has since remained around the low $200s to just over $300.
In Asia, China stepped up coal production starting in the fall of 2021, and imports for 2022
will decline (dropped by 27.6 million tonnes year-on-year for January-October). Consumption
is expected to pick up in 2023 along with economic recovery, and imports will also increasedepending on domestic production. In India, both domestic production and imports increased
in 2022 (imports rose 7.4 million tonnes year-on-year for January-October) and are expected tocontinue to grow in 2023. Imports are also expected to increase in Japan due to the restart ofcoal-fired power plants in 2022 and 2023 and in Southeast Asia due to the expansion ofelectricity demand.
In the EU, the invasion of Ukraine exposed problems in the stable supply of fossil energies,
forcing the EU to postpone the closure of coal-fired power plants and restart the plants. Coal
consumption and imports increased in 2022, and in 2023 imports are expected to remain at thelevel of late 2022.
On the supply side, coal exports remained sluggish in Australia in 2022 due to a series ofnatural disasters, but are expected to exceed the previous year in 2023. Indonesia’s coal exports
were roughly half the level a year ago in January 2022 due to a self-imposed ban on coal exports,
but have outrun last year’s levels since March and are expected to remain strong in 2023.

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2.4 Renewable Energies
Yoshiaki SHIBATA, Senior Research Fellow, Manager,
New Energy System GroupElectric Power Industry & New and Renewable Energy Unit
Renewable energy power generation could reach approximately 8,700 TWh in 2022
(including 4,500 TWh of hydropower), and the share of renewable energy in power output could
increase from 28% in 2021 to 30%. China, Europe, and the U.S., which are driving the
introduction of renewable energy, have introduced policies to expand renewable energy
capacity further: China’s 14th Five-Year Plan for Renewable Energy Development set a target
renewable energy power generation for 2025 (at 3,300 TWh, up from 2,200 TWh in 2020),
Europe significantly raised its renewable energy target through the RePowerEU Plan (from thecurrent target of 32% to 45%), and the U.S. extended the tax incentives for renewable energy
under the Inflation Reduction Act.
In Japan, the amount of electricity generated by FIT power sources in FY2022 is estimatedat 179 TWh. Even if renewable capacity continues to grow by 11 TWh per year, the annual
average for the past five years, the cumulative total, including large-scale hydropower, would
only be about 320 TWh in 2030, falling short of the target share of 36–38% for renewableenergy in the power mix. Curbing the surcharges paid by the public also remains an issue.
Thanks to the auction system introduced in FY2017, the bidding price for commercial solar
PV finally fell below 10 yen/kWh in FY2022, although it remains high compared tointernational levels. In addition, various measures are being launched to deploy new renewablecapacity without relying on the FIT system, such as the Feed-in Premium (FIP) system, whichaims to make renewable energy competitive in the market, and the Power Purchase Agreement(PPA), a one-on-one contract between renewable power producers and consumers. In 2023, it
will be necessary to verify the effects of these new systems.
To reach the target renewable energy capacity, policies must be reinforced further. One
notable initiative is Tokyo’s revised ordinance that requires all newly built detached houses tobe installed with solar panels. The ordinance was enacted on December 15, 2022. During theperiod until the rule comes into force in April 2025, which will be used for awareness-raisingand preparation, housing manufacturers will prepare themselves and the Tokyo Metropolitan
Government will come up with various support measures. Views on the revised ordinance vary,
but those who support the mandatory installation consider that Japan can afford no more delays
to achieve carbon neutrality. On the other hand, those who oppose it argue that the revised
ordinance does not fully specify the size of business and the effects, and has not gained public
understanding.
Recent examples of a plan gone awry due to a lack of public understanding include onshore
wind power development projects. Concerns about impacts on the environment and landscapehave led to a series of troubles between onshore wind farm developers and local governments
and residents. Measures to achieve carbon neutrality, including renewable energy, affect not
only large corporations and energy suppliers but also impact each and every citizen significantly.
It will become ever more important to gain public understanding while proceeding.

92.5 Nuclear Power
Tomoko MURAKAMI, Senior Economist, Manager
Nuclear Energy Group, Strategy Research Unit
The year 2022 saw notable developments in nuclear policy in major European countries.
In particular, Germany made a major historical U-turn. The country had been pursuing along-term policy of phasing out nuclear power since the 1980s, and by the end of 2021 only
three reactors remained. All three reactors were scheduled to be shut down permanently at theend of 2022, but the government decided to keep them running until April 2023 as an
emergency response to the energy crisis triggered by Russia’s invasion of Ukraine in February.
According to a poll in early August of last year (1,313 respondents), more than 80% said thatthe operating period of the three units should be extended. With no prospect of the energy
supply crunch easing in 2023, might there be another U-turn in Germany’s radically changed
nuclear policy?
In April 2022, the UK government set specific nuclear targets for 2050—a total installed
nuclear capacity of 24 GW and a 25% share of electricity demand—in the latest version of the
British Energy Security Strategy, reflecting the difficult energy situation since the invasion of
Ukraine. As of December 2022, the UK’s installed nuclear capacity is nine units totaling 6,530
MW. All but one are old reactors that commenced operation in the 1980s, so the government isaiming to license and start constructing at least one unit each year to reach the target capacity.
In June, the Nuclear Energy Financing Act, which features a support policy based on theregulatory asset base (RAB) model, was legislated, and in November, the government
designated Sizewell C (EPR, 1,670 MW x 2 units) as the first new construction project to befinanced based on the model. The U.K. government will invest 679 million pounds in the projectand hold roughly a 50% stake, but third-party investments will also be solicited. We willcontinue to monitor the investment scheme and progress of this project in FY2023.
On February 10, 2022, French President Emmanuel Macron unveiled France’s new energy
strategy, announcing a policy to actively expand the development and use of renewable energy
and nuclear power. Unlike Germany, this policy was not cobbled together suddenly after theinvasion of Ukraine, but is part of the “France Relance” recovery plan, an industrial policy thathas been underway since September 2020. The strategy states that six new units of EPR2
innovative light water reactors will be constructed, and the construction of eight more will beconsidered.
As of December 2022, a public debate on nuclear power and energy has been underway inFrance via an online participatory platform and in several regions (until December 31). The
points to watch in 2023 include the progress of construction of Flamanville Unit 3 (1,650 MW,
EPR), which began in 2007, and the long-term outlook for France’s nuclear policy.

10

2.6 Energy Efficiency

Naoko DOI, Senior Economist, Manager
Energy Efficiency Group
Climate Change and Energy Efficiency Unit

As the world faces an energy crisis, efforts to boost energy efficiency are being reinforced as
an immediate countermeasure. Initiatives to save gas and electricity in wintertime are expected
to continue in many countries in 2023, especially in Europe.
The EU will provide €250 billion in low-interest loans and subsidies through the Recovery
and Resilience Facility to reduce fossil fuel dependence (from 2022 through 2026). Of thisamount, efficiency improvements in production processes and energy-saving renovations forhomes account for about 30%. Can these economic measures not only help EU countries
overcome the near-term crisis, but also put them on a path to green growth? The countries will
face the moment of truth in 2023. In addition, the draft amendments to the Energy Performanceof Building Directive (EPBD) proposed in 2021 are expected to be approved in the summer of2023. The amendments deserve attention as they strengthen regulations in a wide range of areas,
including (1) modernizing existing houses and other buildings that are less energy-efficient, (2)setting a vision for all new houses and buildings to be “zero-emission buildings” from 2030
(from 2028 for public buildings), and (3) calculating the lifecycle global warming coefficient
for all new houses and buildings starting from 2030.
The U.S. Inflation Reduction Act enacted in August 2022 will invest $60 billion over 10
years in energy efficiency (accounting for 16% of the total amount of $369 billion for the overallclean energy sector), to support domestic manufacturers as well as to reduce the burden on
consumers. A large portion of this amount, $24 billion, will be spent on housing-related energy
efficiency measures such as tax credits and rebates. In addition, measures to enhance energy
efficiency as a system will continue to be considered, including “grid-interactive efficientbuildings,” in which demand is optimized in line with supply fluctuations by utilizing control
systems and integrating sensors and devices.
Meanwhile, emerging economies such as China and ASEAN countries will continue to
implement energy efficiency initiatives to meet their medium-term CO2 emission reduction
targets. Countries that depend heavily on energy imports, such as Thailand, implemented powersaving measures in 2022 and will strengthen these measures in 2023. In 2023, Japan’s support
will be increasingly sought in areas such as finance for energy-saving capital investments inemerging countries, transfer of energy management know-how, and formulation of energy
conservation policies.
In Japan, measures need to be accelerated to achieve the target of saving 62 million kL in
FY2030 compared to FY2013 levels. The government will provide roughly 160 billion yen as
part of multi-year energy efficiency subsidies for the manufacturing sector with the second
supplementary budget for FY2022. This is a new mechanism for seamlessly funding investment
programs that continue for several years and was established using the multi-year national debt
framework; if subsidies are distributed at an even pace, 500 billion yen in subsidies will be
disbursed over the next three years. There are high expectations for the benefits.
In addition, the revised Act on the Rational Use of Energy will come into effect in April 2023.
This revision will add the use of non-fossil energy to the scope of efficiency improvement
measures. Furthermore, with the goal of optimizing demand in line with supply fluctuations,
the Act will begin to assess positive and negative demand response (DR) in FY2023.
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2.7 Hydrogen and Carbon Recycling
Yoshikazu KOBAYASHI, Senior Economist, Manager
CCUS Group
Fossil Energies & International Cooperation Unit
In 2023, discussions on Japan’s policy support system for introducing hydrogen andammonia will reach the final stage. The specific support being considered is a system in which
the government pays the difference between the cost of introducing hydrogen, as estimated by
the supplier (the reference price) and the user (the base price). In 2023, deeper discussions on
the detailed institutional design are scheduled, including how to actually calculate these prices,reflect the environmental value of hydrogen and ammonia as decarbonized energy sources, andincentivize operators to reduce costs. Meanwhile, these support measures will require asubstantial budget, and how to fund such budget is another major issue for the future.
Hydrogen is categorized into “colors” based on how it is produced. In particular, some havesuggested that policy support should only be provided for green hydrogen produced fromrenewable energy sources. Regarding this issue, the international trend has been to include bothgreen and blue hydrogen after the U.S. Inflation Reduction Act enacted in August 2022 decided
to include blue hydrogen, which is produced from fossil fuels with CCUS, in the scope of
support, but with different levels of support depending on the degree of CO2 reduction. In 2023,
deeper discussions are also slated on the requirements for eligibility for support in Japan. Since
the introduction of hydrogen supply infrastructure requires an enormous initial investment, it isnecessary to secure as much supply as possible early on. This makes it desirable to allow someleeway in terms of the carbon footprint of hydrogen in the initial phase, and gradually tighten
the criteria as costs fall and technology advances.
On the supply side, many new projects on fuel ammonia plants are underway in North
America, the Middle East, and Australia, and some projects may reach final investment
decisions in 2023. Recently, in addition to South Korea, which, like Japan, has been keen touse fuel ammonia, German companies have been actively developing overseas fuel ammonia
production and export projects, indicating that international competition for stable fuelammonia sources has already begun. As Japan’s support program will have a significant impact
on the course of fuel sourcing efforts like these, an adequate support system will be essential.
For carbon recycling, a carbon recycling demonstration and research center was established
on Osaki Kamijima Island in Hiroshima Prefecture in September 2022. The center is a majorcarbon recycling hub unlike any other in the world, equipped with demonstration facilities forvarious carbon recycling technologies, such as concrete and algae fuel that capture and utilize
the CO2 emitted from local power plants. Products made with carbon recycling will inevitably
cost more than regular products, and so steady technological development at demonstration
facilities like this will be essential to minimize the costs. As Japan is not blessed with resources,
there are high expectations for carbon recycling, which treats CO2 not as a waste but as aresource and reuses it for a wide range of purposes.

122.8 Policies Related to Climate Change

Junko OGAWA
Senior Researcher,
Climate Change Group
Climate Change and Energy Efficiency Unit

International trends: At the 27th Conference of the Parties to the UNFCCC (COP27 in Egypt),a Mitigation Work Programme with an annual check on progress was launched in the mitigationarea, and technical negotiations on how to operate the mechanism were carried out in the credit
area. Ultimately, no agreement was reached on methodological matters or guidance on removals
for Article 6.4 (the UN-managed mechanism), and the approach based on Article 6.2(international transfer of reductions based on voluntary bilateral or multilateral agreements) is
expected to be implemented first. Meanwhile, as voluntary credits currently cannot be used for
adjusted emission volume or emission potential under the Act on Promotion of Global WarmingCountermeasures, it will be important to keep working on J-Credit and JCM initiatives.
COP28 will coincide with the final phase of the first Global Stocktake (GST), a five-yearassessment of progress toward the long-term goals of the Paris Agreement. The purpose of the
GST is a “world-wide” assessment; it will not evaluate the progress of each country.
Nevertheless, it could impact the discussions on Japan’s next Strategic Energy Plan, and thus
must be closely watched.
Domestic trends: The biggest focus will be the institutional design for the growth-oriented
carbon pricing (CP) initiative. One of the centerpieces of this initiative is GX Economic
Transition Bonds, for which the government will make an upfront expenditure of 20 trillion yen
in total over 10 years to accelerate decarbonization efforts by companies. GX Economic
Transition Bonds will start to be issued in FY2023, with redemptions financed by a new CP
program and scheduled to be completed by 2050. The criteria for the technologies and measures
to receive support, as well as details of the support methods, will be discussed going forward.
The CP system being envisioned is a hybrid of emissions trading (GX-ETS) and carbon
surcharge (GX surcharge). The surcharge will be applied upstream and is expected to be
introduced around FY2028. The emissions trading system will be provisionally run by meansof the GX-League operating the GX-ETS with a focus on autonomy by member companies, but
in order to ensure fairness and effectiveness, third-party certification and discipline will bestrengthened from FY2026, and a paid auction will be introduced in phases in the power
generation sector from around FY2033.
As the power generation sector may be subject to both emissions trading and surcharges
under the proposed CP system, some sort of adjustment measures will be indispensable. While
the policy is to reduce the total financial burden compared to current levels (including frompetroleum and coal taxes, renewable energy surcharges, etc.), due consideration must be given
to the impacts on people’s lives and the international competitiveness of industry. One approachis to allocate the proceeds from Transition Bonds to support companies that are active in the
GX League, in addition to decarbonization technologies. In particular, the effects of measuresthat involve the supply chain, including small and medium-sized enterprises, will trickle down
to the base of the supply chain. Furthermore, since trading power generation sector emissions
in paid auctions could push up electricity prices at least in the short term and thus hamper
electrification, which is one of the pillars of the CN policy, measures to address this issue must
be considered. Finally, to set the foundation for introducing CP, a review and clarification ofexisting policies in this area is urgently required. This is essential for realizing the growthoriented CP concept, even more so than for the design of the CP system.
13

3.1 Oil Industry

Yoshihiro HASHIZUME
Researcher
The Oil Information Center

In Japan, domestic retail prices of petroleum products have conventionally followed
fluctuations in oil prices; however, in 2022, thanks to fuel subsidies that began to be paid on
January 27 to curb extreme price increases and stimulate the economy, prices remained stable,
though high, despite the rise in oil prices following the invasion of Ukraine and the rapidly
weakening yen. The subsidies are intended to control the retail prices of gasoline, kerosene,light oil, heavy fuel oil, and jet fuel by providing wholesale distributors and others with funds
for curbing wholesale prices. The amount paid is determined every week based on thefluctuations in crude oil prices and exchange rates and other factors. As a result, in 2022, thedomestic retail gasoline price temporarily reached 175 yen per liter in March, the highest sinceAugust 2008, but then hovered around 170 yen until the end of the year thanks to increased
subsidies. Without these subsidies, the price would have exceeded 200 yen per liter, judging
from the price of imported oil. A subsidy of 41.4 yen was provided in the second week of June
but as oil prices softened and the yen strengthened somewhat thereafter, the amount was
reduced to 13.7 yen by the third week of December. At present, the subsidy program isscheduled to continue through the end of the first half of the next fiscal year, to be phased out
from the beginning of 2023 and hopefully end with a soft landing.
As economic activity continues amid measures to combat Covid, Japan’s fuel oil demand in
the first half of FY2022 (April–September) fell 1.2% from the same period last year to 70.38
million KL. The demand for Bunker B and C rose 28.6% year-on-year with the increase in fueloil demand for power generation, rose sharply by 23.4% for jet fuel, and also increased by 7.2%
for Bunker A, but remained almost unchanged for gasoline and diesel oil, down 0.9% and 0.6%,
respectively, while it decreased by 9.5% and 13.6%, respectively, for naphtha and kerosene.
Refineries had a capacity factor of 76.6% in the first half of the year, up 8.4 percentage points
year-on-year, mainly due to switching from imports to domestic production for gasoline
products.
Domestic oil demand had already dropped 38% by FY2021 from the peak in 1999 and theoil industry is managing its business anticipating that demand will halve by 2040. Accordingly,
the scrapping of several refineries was announced in 2022, including the shutdown of the Seibu
Oil Yamaguchi Refinery and the downsizing of the ENEOS Negishi Refinery. The oil industry
urgently needs to shift its business model to a “comprehensive energy and materials business”;
it must also utilize existing infrastructure such as by converting service stations into “regional
service centers.”
In addition, the oil industry has already declared its goal of becoming carbon neutral by
2040–2050 for emissions arising from its operations (Scope 1+2); furthermore, to reduce
emissions from the consumption of petroleum products (Scope 3) to contribute to society, it isworking on developing innovative technologies such as hydrogen, synthetic fuels (such as eFuel), and CCUS (Carbon Capture, Utilization, and Storage) by leveraging its technologicalexpertise. These endeavors are expected to accelerate in 2023.
Japan’s dependence on the Middle East for oil imports reached 95.1% in the first half of
FY2022. The figure was 92.5% in FY2021, but rose further as Japan switched to the Middle
East after banning Russian oil imports (3.6% in FY2021) as part of economic sanctions. The
invasion of Ukraine has reaffirmed the importance of energy security; ensuring a stable supplyof oil, including during the transition period, remains an issue.
143.2 Electricity and Gas Industries
Junichi OGASAWARA, Senior Research Fellow
Assistant Director
Electric Power Industry & New and Renewable Energy Unit

With the rise in fuel prices since the fall of 2021, it became normal for the average day-ahead
spot price to exceed 20 yen/kWh in 2022, except in the Kyushu area which has a high ratio of
low-carbon power sources. Electricity futures in Europe suggest that prices will remain highuntil at least March 2024, and so Japan’s day-ahead domestic spot market prices, which areclosely linked with European wholesale prices, may remain high. In response to the fuel pricehikes, five companies have applied to raise also their regulated tariffs (Tohoku, Hokuriku,
Chugoku, Shikoku, and Okinawa Electric Power Companies). Meanwhile, more and more
major electric power companies have removed the caps on fuel cost adjustments for theirliberalized tariffs, and some are now reflecting market price factors in their electricity tariffs.
These electricity tariff raises by major power companies will make it easier for power producers
and suppliers (PPSs) to raise their rates and thereby alleviate their problems somewhat. It should
be noted that the government subsidy to curb extreme electricity and gas price increases requires
an application to be filed, and not all consumers are eligible.
While securing long-term LNG contracts is becoming harder due to soaring fuel prices andEurope’s vigorous efforts to secure LNG, one possible source of problems is ensuring nondiscriminatory treatment of internal and external parties by major power companies, which
would require their power generation divisions to sell to both their group companies andexternal parties, including PPSs, under the same conditions. Some major power companies haveapparently already begun to solicit business partners through bidding. However, in a long-term
LNG contract, the producer country and the LNG buyer often share the price risk by reflecting
fuel supply-demand fluctuations through oil-linked pricing. If the principle of nondiscriminatory treatment is imposed strictly, power producers will be required to decide thewholesale price before the LNG purchase price is fixed, which may cause them to shorten thecontract period considering the risk of fluctuations in the LNG purchase price. Thus, howstrictly the principle of non-discriminatory treatment of buyers will be imposed in 2023 must
be watched.
In 2023, both the electricity and city gas businesses will need to focus on ensuring a stablesupply. The electricity business is expecting a reserve ratio of around 3% during extreme
weather in July during summer in the Tokyo area. The predictability of plant shutdowns has
improved since the revised Ordinance for Enforcement of the Electricity Business Act wasenacted in November 2022, requiring prior notice of at least nine months before shutting down
power sources of 100 MW or more, but vigilance is required as the risk of unplanned outagesof aging power plants may be higher than expected. In the city gas business, supply uncertainty
is expected to continue due to the change in the LNG supply-demand structure caused by the
Ukraine crisis and equipment breakdowns in producer countries. The partial revision of the Gas
Business Act and the Act on Japan Organization for Metals and Energy Security (JOGMEC) in
November 2022 has made it possible to take measures to stabilize supply on both the supply
and demand sides. On the supply side, JOGMEC can purchase LNG at the government’s request.
On the demand side, it is now possible to issue usage restrictions for gas, as well as electricity.
The city gas industry is also working on economic demand response (DR) to enhance gas
conservation; it will be interesting to see how successful this is.
15

4.1 US: Balance between Oil and Gas Exports and Climate Action
Ayako SUGINO, Senior Researcher
Associate Professor
Musashino University

2022 was a year in which the United States, like others, continued to fight the pandemic,
combat inflationary pressure, and struggle to deal with the Ukraine crisis from the end of
February.
The US possesses large domestic reserves of oil, natural gas, and coal and has a low
dependence on energy imports. Nevertheless, 3.2% of the country’s oil imports came from
Russia as of 2021, but then a complete ban was declared in March as part of the sanctions
against Russia. This happened just as US demand for petroleum products was recovering fromthe pandemic-induced plunge in 2020 and just before refineries ramped up operations for thesummer driving season, forcing the refining industry to scramble to secure alternative oil
supplies amid declining heavy crude supplies from Mexico and Venezuela. In 2022, the US
remained nearly self-sufficient in oil overall, but the rise in gasoline prices caused by high oil
prices on the international market had a significant impact on US politics and the economy.
The Biden administration also fast-tracked the approval of construction of terminals forexporting US oil to help European countries end their dependence on Russia. With domestic oil
production still below 2019 levels, albeit recovering from the decline in 2020, and with noconcrete policies coming from the Biden administration to expand domestic oil production, US
domestic oil prices are likely to face further upward pressure if the US actually increases exports.
The US and Russia also have little direct trade in natural gas. Against this backdrop, theBiden administration is expediting the approval of construction plans for terminals, with theaim of expanding LNG exports to support Europe. According to media reports, US LNG
operators prefer long-term contracts while European buyers remain cautious toward them, but
again, the government’s policy of expanding LNG exports could push up domestic energy
prices. Further, due to rising gas prices, the ratio of coal to electricity supply, which declined
steadily under the Obama and Trump administrations, reversed course in 2021 and the pricegap between coal and natural gas widened further in 2022.
The Biden administration’s policy of expanding fuel exports, albeit for the energy securityof European allies, has caused a backlash from US environmental activists as a backward stepin terms of climate action aimed at halving domestic greenhouse gas emissions by 2030. In
August 2022, the Biden administration passed the Inflation Reduction Act, which is considereda landmark piece of climate change legislation in US history, which will provide $68 billion
over 10 years to encourage the widespread introduction of decarbonization technologies andstrengthen their domestic manufacturing. However, the Act will be implemented in stages
starting in 2023, following procedures by federal agencies responsible for its implementation.
As a result, the Biden administration’s moves, which are rolling back climate efforts, arecausing disappointment and a backlash from climate-dedicated liberals as well as suspicion in
the fossil fuel industry, which has been urged to make large capital investments, that climate
measures may be short-lived.
Heading toward the 2024 presidential election, the process of selecting a candidate will be infull swing after the summer of 2023. Debates in the Democratic Party on the locus of
responsibility for rolling back climate action and the acceleration of inflation should bemonitored.
16

4.2 EU: Concerns about Securing Gas Storage Levels and Concrete
Industrial Policies
Kei SHIMOGORI, Senior Researcher
Global Energy Group 1
Strategy Research Unit

In December 2022, European Commission President von der Leyen, together with IEA
Director-General Birol, outlined the energy outlook for Europe for 2023. Among the manypriorities and chiefly the REPowerEU plan, the top priority is ensuring adequate LNG supplies.
The EU achieved its target gas storage levels ahead of schedule, but has been drawing down
the gas inventories gradually since the winter demand season began. As a result, inventories
could be quite low by the spring of 2023. Replenishing inventories from a low level may cause
high prices to continue in Europe and negatively affect industrial activity. In addition, the global
LNG supply and demand is likely to become even tighter if China’s currently sluggish LNG
demand revives in 2023 and beyond. The possibility of additional shutdowns of pipeline gas
supplies by Russia and a severe winter is also causing concern over gas storage levels in thewinter of 2023. To ensure energy security, the EU has launched the EU Energy Platform tonegotiate regional demand pooling, efficient use of gas infrastructure, and joint gas andhydrogen purchasing; among these, the initial focus is introducing a common purchasing
mechanism. A Council regulation that includes this mechanism was formally adopted at an
extraordinary meeting of energy ministers in December.
European industrial policy is another focus of attention. The EU is worried that the tax credits
under the US Inflation Reduction Act (IRA) will distort competition in the clean energy sector
to the disadvantage of EU companies. President von der Leyen of the European Commission
has highlighted the need for a common European industrial policy along with a European
Sovereignty Fund (ESF) and noted that a detailed ESF proposal will be presented in the summerof 2023 at the mid-term review of the Multiannual Financial Framework (the EU’s long-termbudget). Relaxing state aid rules to allow member countries to more easily subsidize companies
is also being proposed. The EU is committed to leading the world in technology for a green
economy and clean energy; how Europe reshapes its industrial policy in 2023 in response to the
IRA in the US could have important implications for Japan and should be watched closely.
Other issues to watch in 2023 and beyond include the launch of the EU hydrogen market andthe accelerated diffusion of renewable energies. There are also moves related to critical raw
materials, which could also affect the wider use of hydrogen and renewable energy. The
Commission published a policy paper on the supply of critical raw materials in September 2022,
and a bill is scheduled for the first quarter of 2023 which is said to include targets for improving
Europe’s self-sufficiency for certain raw materials. Amid the growing global attention on astable supply of raw materials, the EU’s actions must be followed carefully.

17

4.3 China: A Year That Will Test the New Leadership’s Ability to Steer the Country
Li ZHIDONG, Visiting Researcher
Professor at Graduate School
Nagaoka University of Technology
In 2022, China attracted the world’s attention in various areas. On the political front, the five-yearly
National Congress of Communist Party of China (CPC), the 20th, was held in October, and at the firstplenary session of the Central Committee Mr. Xi Jinping was elected as the party’s leader for a third
consecutive term. Regarding governance, the government’s goal of simultaneously achieving “zeroCovid” and economic recovery did not deliver. China has the lowest rate of positive cases per population
among major countries with 132 cases per 100,000 people (as of December 12, 2022, Nikkei website).
However, despite the declining virulence of the Covid variant and progress in vaccination, rigorous
measures including lockdowns and travel restrictions continued, causing great inconvenience to citizens
and sparking protests. Economic recovery was also hampered; GDP growth fell from 8.1% in theprevious year to 3% for the January–September period, and is estimated to be around 3.3% for the fullyear, well below the target of around 5.5%.
In 2022, progress was observed in energy security. As of the end of November, renewable powersources increased to 1.18 billion kW, and the installed capacity ratio increased to 46.9%, up 2.1
percentage points from the end of 2021. Coal, oil and natural gas production in January–November grewby 9.7%, 3% and 6.4%, respectively, while imports fell by 10.1%, 1.4% and 9.7% from the same period
last year. The estimated foreign dependence of nominal consumption (production + imports - exports)
fell by 1.3 points to 6% for coal, by 0.5 points to 70% for oil, and by 4 points to 40.9% for natural gas.
Meanwhile, regarding decarbonization, the share of fossil energy in primary energy consumption
declined by 0.6 points year-on-year for January–September, while the share of coal rose by 0.4 points
with an estimated 3% increase in consumption. Coal made a comeback. Meanwhile, sales (including
exports) of new energy vehicles (NEVs: including EVs, PHEVs and FCVs, but not including HVs)
increased to 6.07 million units in the January–November period, up 103% from the same period lastyear, and the share in overall sales grew by 12 points to 25%.
The year 2023 will mark the start of the third term of the Xi leadership. The Politburo of CPC met on
December 6, 2022 and the Central Economic Work Conference meeting was held on December 15–16,
and the following basic governance policy was set for 2023: “place top priority on stability and move
forward with stability (original text: 穏字当頭、穏中求進).” On December 7th, the government
optimized its Covid control measures mainly by easing restrictions, prohibiting total lockdowns of cities
and apartment complexes, abolishing population-wide PCR testing, and permitting home quarantine forasymptomatic patients and those with mild symptoms. This has heightened expectations for an economic
recovery. However, easing restrictions could also lead to the spread of infections and an economic
slowdown. With one eye on the pandemic situation and economic trends in major countries that haveeased Covid restrictions, the Chinese government is aiming to simultaneously control infections
effectively and revive the economy, by lifting excessive restrictions while concentrating medical
resources on the seriously ill and elderly.
The numerical economic growth target has yet to be announced, but many believe that the turmoil
that followed the easing of restrictions will be temporary and that the economy will pick up from thesecond quarter after a sluggish first quarter, with a full-year growth rate of around 5%. In addition, toachieve the goal of building a “modern socialist country” with high-quality growth, China will continue
to simultaneously pursue energy security and decarbonization. Matters to watch include whether the
instability of power supply and return to coal will be resolved, and whether NEV sales will surpass 10
million units.
Achieving both of the above two pairs of goals simultaneously is a challenge for the entire world.
China’s progress toward these goals paused in 2022; will the country see success in 2023? The newleadership’s ability to steer the country will be tested.

18

4.4 ME: Economic Recovery in Gulf Countries; Continuing Turmoil in Iran andOther Conflict Zones
Shuji HOSAKA, Senior Research Fellow
President of JIME Center

In 2023, the Middle East will be impacted largely by external factors such as the pandemic
and the war in Ukraine. Although restrictions are being eased in most of the Middle East, fullrecovery of the economy may depend on oil prices, developments in Ukraine, China’s zeroCovid policy, and other factors.
Important political events include elections in Tunisia, Turkey, and Libya. Tunisia held
parliamentary elections on December 17, 2022. However, the opposition forces, which are
critical of the concentration of power in President Said, boycotted the elections, resulting in aturnout of just over 11%, and so confrontation in the country is likely to continue.
Turkey is scheduled to hold simultaneous presidential and parliamentary elections by June,
but the elections are likely to be brought forward. However, as there is persistent criticism of
the extreme inflation, the weak Turkish lira, and coercive political methods, PresidentErdoğan’s re-election and the ruling coalition’s victory are far from assured. In addition, theconflict between Libya’s two “governments” which is splitting the country into east and west
remains unresolved, making it impossible to even hold a presidential election.
Meanwhile, in Sudan, the military government and the country’s main pro-democracy group
have agreed to transition to civilian rule, but the future is uncertain. Furthermore, Lebanon held
parliamentary elections in May 2022 but has been unable to elect a president due toparliamentary gridlock. Lebanon has been hit hard by economic, energy, and food crises and isin serious difficulty. In addition, if a new cabinet that includes the far-right is formed in Israel,
it could worsen the conflict with Palestine. The health of Kuwait’s Emir Nawaf is also a concern.
Meanwhile, the anti-regime protests that erupted across Iran show no sign of abating, and,fueled by public dissatisfaction over the worsening economy, the regime is being severely tested.
With the West growing increasingly critical of the Iranian regime’s clamp-down on the protests,
there is little hope for progress in the negotiations to rebuild the JCPOA.
In the energy area, if Russian gas and oil exports remain stalled, the roles of Middle Easternoil-producers will become even more important. With the UAE hosting the World Future
Energy Summit in January and COP28 in November, there is growing interest in shifting awayfrom fossil fuels in the Gulf. So far, the only Middle Eastern countries that have declared thegoal of carbon neutrality are the GCC countries (excluding Qatar), Turkey, and Israel, but thislist is expected to lengthen.
On the diplomatic front, China’s influence is likely to grow as that of the United States
shrinks. However, relations between the Gulf Arab states and China will be limited to theeconomy and energy, and America’s position regarding security will remain unchallenged forthe foreseeable future. Regarding oil and gas policy, Middle Eastern oil and gas producing
countries and Russia are expected to continue to take coordinated action. In particular, military
cooperation between Iran and Russia is expected to deepen as the conflict in Ukraine sinks into
a quagmire.
19

4.5 Russia: Signs of a Protracted War and Weakening of Putin’s Power Base
Shoichi ITOH, Senior Analyst, Manager
Global Energy Group 2, Strategy Research Unit
Ten months since Russia invaded Ukraine in February 2022, the war increasingly looks set
to continue. On December 3, 2022, the Ukrainian forces recaptured Kherson, the capital ofKherson Oblast in southern Ukraine, and flew the flag of Ukraine on the east coast of the
Dnieper River, an area that was occupied by Russia, and set up their base. Footage of the scene
spread globally via social media. Ukrainian forces are also striking back hard in many Russianheld areas in Luhansk and Donetsk Oblasts in eastern Ukraine. On December 5–6, two airbases
and an oil storage facility in Russia were hit by drone attacks, allegedly carried out by Ukrainianforces.
Meanwhile, Russian forces continue to make rocket and Iran-made drone attacks in various
parts of Ukraine, including the capital Kyiv, hitting energy infrastructure facilities in particular.
By December 9, 40% of Ukraine’s high-voltage transmission network had come under attack.
As Russia’s stockpiles of shells and missiles are dwindling, on December 10 President Putinsuggested the possibility of revising Russia’s military doctrine to enable preemptive nuclear
attacks. At a G7 Summit held online on the 13th, the members agreed to coordinate to provide
air defense systems to Ukraine, and the leaders issued a statement that “condemned Russia’scontinuous inhumane and brutal attacks.” On the same day, at an international conference
hosted by France to help Ukraine prepare for winter, Ukrainian President Zelenskyy said that
12 million Ukrainians were without electricity and need urgent humanitarian aid to get throughthe harsh winter.
According to the Ministry of Economic Development, Russia’s GDP growth rate for 2022 isestimated to fall 2.9% year-on-year (announced in the end of November). For 2023, theMinistry of Economic Development and the Accounts Chamber released a GDP growth rateestimate of 1% and the Central Bank of Russia of minus 2.4% However, the disruption andcollapse of domestic supply chains due to unprecedented sanctions, funding and technology
shortages due to the exit of foreign firms, and the decreasing supply of workers due partly tooutflows across the border are taking a heavy toll on the Russian economy. A top private-sector
Russian bank, Alfa-Bank, released a forecast that the GDP growth rate will fall by as much as
6.5% year-on-year in 2023. Apparently, censorship of comments that conflict with thegovernment’s official view and pessimism are gradually losing their effect despite the ongoingwar.
As the situation for Russian forces worsens, and despite the spreading anti-war sentimentamong the public, President Putin is pushing ahead with his policy to continue the war.
However, with no military achievements, the annual press conference and direct dialog withthe public, held every year for the past 10 years, was canceled in December 2022. In 2023, it is
not clear whether President Putin can contain the discontent among the government and Russian
society, heading toward the next presidential election scheduled for March 2024. Will the Putin
government, which appears to be cornered, try to fight an even bigger war in Ukraine? Would
it be possible? The situation remains unpredictable.

20

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