IEEJ e-NEWSLETTER
No. 228(Based on Japanese No. 222)

Published: March 9, 2022
The Institute of Energy Economics, Japan(As of March 3, 2022)

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

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)

Source: x-rates.com

Sources:(1) Finance. Yahoo.com(2) Investing.com

Contents
Summary【Energy Market and Policy Trends】
1. Developments in Nuclear Energy
2. Recent Developments in the Oil and LNG Markets
3. Update on Policies Related to Climate Change and Energy Conservation
4. Update on Renewable Energies

1Summary
1. Developments in Nuclear Energy
On February 10, French President Emmanuel Macron announced plans to extend thelifetime of all the country’s 56 reactors and build up to 14 new ones as part of a newenergy strategy. The actual plans that will be formulated are keenly awaited.
2. Recent Developments in the Oil and LNG Markets
Rising tensions over Ukraine are fueling concern over disruptions to oil and natural
gas supplies to EU countries and the market remains unpredictable. Meanwhile, the Irannuclear deal, if agreed, will help ease the oil supply-demand balance.
3. Update on Policies Related to Climate Change and Energy Conservation
In Europe, the surge in gas prices is highlighting the importance of enhancing energy
efficiency by improving the insulation performance of buildings. In Japan, a report wasissued on the next energy efficiency standards for residential air conditioners.
4. Update on Renewable Energies
Moves to spur the use of domestic forest resources are accelerating under partnerships
between private corporations and municipalities. The aim is to help achieve carbon
neutrality, improve energy and economic security, and boost domestic industry.

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1. Developments in Nuclear Energy
Tomoko Murakami, Senior Economist, Manager
Nuclear Energy Group, Strategy Research Unit
On February 2, the European Commission unveiled the EU Taxonomy Climate Delegated
Act, which prescribes technical screening criteria for classifying certain economic activities assustainable. The Act specifies the conditions for natural gas and nuclear to be included in the
EU Taxonomy as “transitional activities.” The conditions for nuclear are as follows.
Newly built plants must:
 Obtain a construction permit by 2045.
 Use best available existing technologies.
Existing nuclear installations must:
 Obtain a permit for lifetime extension by 2040.
 Have a safety goal and safety culture in place, and have facilities for responding to asevere accident.
Both new and existing plants must: Have final disposal facilities for very low-, low-, and medium-level radioactive wastes
in operation.
 Have a detailed plan for a disposal facility for high-level radioactive waste in place by2050.
 Use accident tolerant fuel from 2025.
Can EU nuclear user countries satisfy all these conditions? The hurdle is very high. The status
of installing safety facilities varies by country. Also, opinions may differ over exactly what
constitutes “best available existing technologies”—for example, whether they include the EPR,
the large PWR currently under construction in the UK and elsewhere. It is not yet clear how
these conditions will be discussed and interpreted by the Council of the European Union andthe European Parliament.
On February 10, French President Emmanuel Macron unveiled France’s new energy strategy,
setting renewable energy and nuclear as the two pillars, in Belfort, France (published on theofficial government website on February 11). In the speech, he said that no existing nuclear
reactor will be closed, unless necessary for safety reasons, and that they will remain in operation
beyond their current operational lifetime of 50 years following a review by the French Nuclear
Safety Authority (ASN). He also shared plans to build six EPR2 (improved EPR) plants by
2050, starting construction of the first one in 2028 aiming to commence operation in 2035, andstated that the construction of eight more is being considered. He also revealed plans to allocate
a total of one billion euros to the development of innovative reactors—500 million euros eachto SMRs called NUWARDs and innovative reactors that produce less waste—as part of France
2030, a strategic investment program to strengthen the French economy. The plan to build up
to 14 new reactors underlines France’s status as a nuclear powerhouse, but it is the plan toextend the lifetime of all 56 existing light-water reactors that deserves attention. Japan’s
regulation currently allows one 20-year lifetime extension after operating for 40 years. It is
important to consider this regulation in light of the developments in other countries.
32. Recent Developments in the Oil and LNG Markets
Tetsuo MORIKAWA, PhD
Senior Economist, Manager
Oil Group
Fossil energies & International Cooperation Unit
Tensions are rising higher over Ukraine. As the likelihood of Russia invading Ukraine
increased, the Brent price temporarily surpassed $96 on February 16. The price fell back to $93
on the 17th as the US’ return to the Iran nuclear deal became more likely, but upward pressure
on prices is sure to rise as President Biden said on the 18th that he is “convinced that President
Putin has made the decision” to invade Ukraine. Natural gas prices had climbed to as high as$30/Mbtu for the Dutch TTF market at the end of January and to $29/Mbtu for spot LNG prices
for Asia in early February. Both are trending at around $25 as of late February.
Currently, Russia exports 2.35 mb/d of oil and 148.4 bcm of natural gas to the EU. The EU
depends on Russia for as much as 30% of its oil and 40% of its natural gas supply. Of theseamounts, 0.25 mb/d of oil and 1.1 bcm of natural gas are supplied via pipelines throughUkraine. If Russia invades, these supplies through Ukraine are likely to be cut off. The EU has
sufficient oil stocks as of November 2021 to cover 170 days of consumption and has yet to start
securing alternative sources. However, stocks of natural gas are only enough for around 20 daysof consumption and a supply disruption would likely have a greater impact, and so the EU is
working with the US and others to secure alternative supplies. The EU imported 11 million
tonnes of LNG in January, four times more than in the same month in the previous year. The
US has discussed increasing supplies for the EU with Qatar and other LNG exporters and has
asked LNG importers including Japan to send some of their supplies to the EU. Japanesecompanies have reportedly diverted several LNG cargoes to the EU in response.
Needless to say, the Ukraine crisis is threatening the very foundation of Europe’s energy
security. Reducing dependence on Russia emerged as the EU’s priority energy policy especiallyafter the Ukraine crisis in 2009. In fact, reducing its dependence on Russian oil and gas had
partly motivated the EU to increase renewable energy even before the Paris Agreement, though
the current crisis has revealed that such efforts were insufficient. Accordingly, the EU is
expected to pursue renewable energy even more fervently and, like France, revert to nuclear
power to satisfy the dual goals of energy security and decarbonization.
Meanwhile, the US is expected to ease its sanctions on Iran’s oil industry if an agreementwith Iran on the nuclear deal is reached. Iran had an estimated oil output of 2.5 mb/d in January,of which 1.0 mb/d was exported. Exports will increase if the US lifts the ban on Iranian oil.
When it did so in January 2016 based on the Iran nuclear deal (JCPOA) of July 2015, Iran’s oil
output increased by about 1.0 mb/d in a year or so. If the Iran nuclear deal is agreed and Iran’s
output increases at the same pace as 2015 to 2016, it could ease the ongoing oil supply crunch.

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3. Update on Policies Related to Climate Change and Energy Conservation
Naoko DOI, PhD
Senior Economist, Manager
Energy Efficiency Group
Climate Change and Energy Efficiency Unit

In Europe, the surge in gas prices is strengthening awareness that higher insulation
performance for houses and buildings and curbing space heating demand are important forenergy security as well as climate change. At the end of last year, the European Commission
proposed revisions to the Energy Performance of Buildings Directive, whose top priority
includes accelerating the renovation of buildings with the lowest energy efficiency. Specifically,
the law categorizes the 15% worst-performing buildings in the member countries’ national
housing and building stocks as EPC (energy performance certificate) class G, and requires thatthese properties be renovated and improved to at least energy performance class F by 2027 forhouses and by 2030 for other buildings.
The aim of these measures is to improve the heating environment for energy-poor households
living in poorly insulated housing and to save electricity and gas tariffs by setting mandatory
energy efficiency renovation requirements for owners of leased property. EU member states are
already implementing short-term measures for houses and small enterprises including energy
tax payment waivers and subsidy programs, but it is hoped that they will act promptly to
encourage renovations to raise energy efficiency.
On February 10, the US Department of Transportation and the Department of Energy
released a guidance on the National Electric Vehicle Infrastructure Formula Program for EV
chargers. The federal government has designated key highways in each state as “Alternative
Fuel Corridors” with the aim of developing EV and FCV charging and refueling infrastructure,
and will provide subsidies worth $5 billion over five years to its development. Each state willneed to submit an EV infrastructure development plan to the federal government in line withthis guidance. In the second half of this year, subsidy programs for boosting EV charging
infrastructure will be announced around the country, including in those regions where EV user
services are not yet fully available.
On February 17, the Asia Development Bank approved $150 million in loans to Indonesia tofund the country’s clean energy transition and fulfillment of the SDGs targets. This facility,
called SIO-GEF, funds ten projects in Indonesia and aims to catalyze private investment andimprove the projects’ financing capability. There is an estimated annual gap of $51 billion
between the investments necessary for achieving a clean energy transition by 2030 and the
public funds the country can spend (investment gap), and it is hoped that the ADB’scontribution will help solve this issue.
In Japan, preparations were under way to pass a bill requiring all new houses and smallbuildings to comply with energy efficiency standards starting from FY2025 during the current
Diet session. However, in early February, the media reported that the government has decided
to postpone the legislation process until at least this autumn. Some experts have expressed
concern over the postponement as Japan is already trailing Europe which is implementing
innovative policies in energy-efficient houses and buildings. Meanwhile, on February 8, a
council of the Agency for Natural Resources and Energy on energy efficiency standards
published a report on the next energy efficiency standards for residential air-conditioners. The
target fiscal years for their introduction are (1) FY2027 (wall-mounted type) and (2) FY2029(other than wall-mounted type, multi-split type). The FY2027 target for a wall-mounted A/Cwith a cooling capacity of 4.0 kW, for example, will be to improve efficiency by up to 34.7%.
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4. Update on Renewable Energies
Yoshiaki SHIBATA, Senior Economist, Manager
New and Renewable Energy GroupElectric Power Industry & New and Renewable Energy Unit

Interesting joint projects are emerging in which private corporations team up withmunicipalities for effectively using Japan’s forest resources. At the end of last year, Shunan
city of Yamaguchi prefecture, Idemitsu Kosan, Marubeni, and others signed a partnershipagreement aiming to enhance the use of wood biomass and maintenance of forests. Also, Shisocity in Hyogo prefecture and Green Power Fuel (part-owned by Osaka Gas) signed anagreement to cooperate on the use of fast-growing trees, to spur the local consumption of
locally-produced biomass fuel and the sustainable growth of the domestic forestry business. In
February this year, Shibushi city in Kagoshima Prefecture and Sumitomo Forestry signed anagreement to discuss the construction of a processing plant for domestic wood and a biomass
power plant.
The goals set in these enterprises such as the use of lumber for wood products and biomass
fuel, local consumption of locally-grown produce, maintenance of forests and development ofrelated industries are all crucial for Japan, which is trailing other countries in using domestic
forest resources effectively. While the area of woodland, which accounts for 70% of Japan’sland area, has remained largely unchanged for the past 50 years at 250,000 km2, Japan’s forest
stocks, or the amount of forest resources, have almost tripled in the same period to 5.2 billion
m3 and are growing by 70 million m3 each year. Meanwhile, Japan’s annual harvesting rate is
only 0.5%, the lowest among OECD countries which generally have a rate of 1–2%. The stocksof natural forests have remained mostly unchanged; however, the man-made forests planted
after World War II by government policy have remained unharvested after reaching maturity,
causing problems for preserving healthy forests. It is necessary to make use of the man-madeforests that are ready for harvesting and systematically redevelop them for cyclic use. Thanks
to the Basic Plan for Forest and Forestry revised every five years, the self-sufficiency rate oflumber has been recovering after bottoming out at less than 20% in 2002, but is still only 40%.
This is because Japan relies on cheap imported lumber and does not properly use its own forest
resources.
Inexpensive imported lumber has its advantages, but it also has risks. The prices of many
internationally-traded products have soared due directly and indirectly to the pandemic, andlumber, being import dependent, is no exception. There is currently a “wood shock” in Japan,
with wood prices soaring as a result of an imported lumber shortage caused by increased
demand for housing construction in the US and growing consumption in China, as well as thefall in the operating rate of wood processing plants overseas and delays in international logistics.
The uses of forest resources are not limited to wood products and biomass fuel; the CO2
generated by combustion can also be used effectively. There are efforts under way to utilize theCO2 from waste incineration plants that use large amounts of biomass, as shown by themethanation demonstration project of the Environment Ministry carried out by Hitachi Zosen
and Odawara City since a few years ago, and the plan for a methanation demonstration project
by Yokohama city and Tokyo Gas announced in January. Utilization of CO2 from burning
biomass is indeed a possibility.
With appropriate maintenance, domestic forest resources, with a wide variety of uses, could
make a sustainable contribution to carbon neutrality efforts and help improve the energy andeconomic security and develop the industry of Japan as a valuable domestic resource. It is hopedthat efforts will continue to be strengthened.
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