IEEJ e-NEWSLETTER
No. 208(Based on Japanese No. 212)

Published: May 17, 2021
The Institute of Energy Economics, Japan(As of May 14, 2021)

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. Energy Policies
2. Developments in Nuclear Energy
3. Recent Developments in the Oil and LNG Markets
4. Update on Policies Related to Climate Change
5. Update on Renewable Energies

1Summary【Energy Market and Policy Trends】
1. Energy Policies
Discussions on formulating the Sixth Strategic Energy Plan continue at the Strategic Policy
Committee. Meanwhile, the Japanese government announced a new reduction target. Ensuringconsistency between the new target and this Committee, which is currently accumulating
supporting scientific evidence, is also a challenge.
2. Developments in Nuclear Energy
An administrative action was issued based on the relevant law to prohibit the movement of
nuclear fuel at TEPCO’s Kashiwazaki-Kariwa Nuclear Power Plant, regarding the partial lossof functions of physical protection equipment there. It will be interesting to see how TEPCO’sremedial plan is evaluated.
3. Recent Developments in the Oil and LNG Markets
Oil prices are stable in the $60 range and are becoming firmer due to the recovery of oil
demand, steady production cuts by OPEC Plus, sluggish growth of US output, and decreasing
OECD industry stocks. China’s gas market reforms also deserve attention.
4. Update on Policies Related to Climate Change
Japan and the US released new GHG emission reduction targets: a 46% reduction from
FY2013 levels for Japan and a 50–52% reduction from 2005 levels for the US, both by 2030.
5. Update on Renewable Energies
The discussions at the Subcommittee on Large-scale Renewable Energy Introduction and the
Next-Generation Power Network revealed that many issues remain to be solved in order toexpand renewable energy capacities.

21. Energy Policies

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

On April 13 and 22, the Strategic Policy Committee of the Advisory Committee for Natural
Resources and Energy met to discuss the energy policies toward 2030. The two-day meeting
discussed a wide range of topics including energy conservation, renewable energies, thermal power,
nuclear power, distributed resources (including batteries), system reform, and hydrogen; this broad
scope was perhaps too much to discuss in sufficient depth. Furthermore, Japan declared a newemissions reduction target of 46% from FY2013 levels (the current target is 26%) at the US-hosted
Leaders Summit on Climate on the 22nd. Ensuring consistency between this target and thediscussions at this Committee, which is accumulating scientific supporting evidence, will be achallenge going forward.
The Committee moderator indicated that the 2030 energy consumption outlook may be revised
downward from the previous one (formulated in 2015) due to Covid-19. Meanwhile, the outlook
for new renewable energy capacities will be revised upward. The share of renewable energies in
power generation is estimated to increase to around 30%, a sizable jump from the previous outlookof 22–24%. For thermal power, the moderator commented that it is necessary to consider thebalance between the need to decarbonize and the stable supply of thermal power as adjustment
capacity to complement renewables. There were also comments that the direction of the nuclear
energy policy must be determined immediately and the decision cannot be delayed considering theneed to secure technologies and human resources.
Many members commented on renewables and nuclear power. In view of the increase in troubles
with local communities regarding renewables, many said that collaboration with local communities
and among ministries and agencies will become essential in introducing new capacities. While somemembers expressed concerns about the public cost burden and the impact on international
competitiveness with reference to the total purchasing cost for renewables, a member representing
a consumer group said that the public burden should be tolerated in order “not to pass on any burden
to future generations.” Regarding nuclear power, many members said that its use should bepromoted, on condition of safety, because it is a carbon-free, stable power source, but there wasalso a comment that nuclear power is a high business risk. Another member also expressed
frustration as to when public trust will be regained, despite constant talks of achieving it.
IEEJ Chairman and CEO Masakazu Toyoda commented as follows:・Japan has been among the top countries in energy conservation with moderate regulations andassistance to date, but there has been little progress in recent years. To make further progress, itis necessary to tighten regulations and provide stronger support.
・The previous outlook for new renewable capacities did not anticipate any rise in electricity tariffs.
However, a possible rise in costs was indicated this time in the process of raising the target.
Higher costs entail the risk of weakening the international competitiveness of the manufacturingsector and so costs must be thoroughly discussed.
・It is dangerous to reduce thermal power strictly based on the power mix. Thermal power isessential for output adjustment and grid inertia, and it is also possible to decarbonize while usingit.
・The decision on nuclear new builds and expansions must be made before it is too late. The current
discussion is about 2030, but this issue also has a bearing on 2050. While noting the importanceof recovering trust and ensuring safety, nuclear new builds and expansions should be increased
steadily, premised on permission by the Nuclear Regulation Authority and consent by local
communities.
・The nuclear fuel cycle has merits such as reducing the use of uranium and the waste volume. Now
that the procedures for establishing a final disposal facility have begun, I hope that the nuclear
fuel cycle will be achieved.

32. Developments in Nuclear Energy
Tomoko Murakami, Senior Economist, Manager
Nuclear Energy Group, Strategy Research Unit
On April 14, the Nuclear Regulation Authority (NRA) issued an administrative action basedon the relevant law that prohibits the movement of nuclear fuel at TEPCO’s KashiwazakiKariwa Nuclear Power Plant, regarding the partial loss of functions of physical protection (PP)equipment there. On March 23, this incident was rated Category 4 (significant material
degradation of the operator’s safety activities for sustained periods), the second most serious of
the five response categories of additional regulatory inspections. TEPCO is scheduled toformulate a remedial action plan and report it to the NRA by September 23, 2021.
This is the first administrative action concerning reactor facility safety and nuclear security
issued to a commercial power plant, and the second after the order for operational safetymeasures issued to the prototype fast-breeder reactor Monju of the Japan Atomic Energy
Agency (JAEA). The JAEA was ultimately judged to be “ineligible as the operator of Monju”
and it was later decided to decommission Monju based on a political decision. The recent
incident of the loss of PP equipment function at Kashiwazaki-Kariwa is far more serious thanthe problems in the quality assurance system of Monju. How should TEPCO’s remedial action
plan be evaluated?
The first dialog forum regarding the high-level radioactive waste (HLW) final disposal
facility project was held at Suttsu Town and Kamoenai Village in Hokkaido Prefecture, wherea literature survey is underway, the first phase in the siting of such a facility. Representatives
from the government and the Nuclear Waste Management Organization of Japan (NUMO) were
present at the forum held at Suttsu Town on the 14th and in Kamoenai Village on the 15th toprovide information to the town and village representatives. However, the dialog forum wasstrongly criticized by some as merely an “occasion for persuasion; the siting of the facility isirrevocably fixed,” and so it was decided that future dialogs will not ask questions on whether
the community accepts the HLW facility and that the dialogs will be held privately except forthe opening.
Only a few countries in the world have decided on the siting of an HLW final disposal
repository, so Japan’s actions are receiving attention both domestically and internationally.
The Power Generation Cost Verification Working Group, an expert panel to revise theestimated generation cost for each of Japan’s electricity sources, has been meeting since March
31 after a five-year hiatus. The topics discussed in the five meetings up to April 26 included thepreconditions for costs of each source of thermal, nuclear, and renewable power generation andthe definition of grid optimization costs and policy expenses. The costs of new technologies
such as hydrogen and ammonia, and new phenomena and indicators such as changes in the
power market resulting from introducing large volumes of variable renewable energies, provide
important references for shaping the future energy mix and must be incorporated into thegeneration cost estimate as rationally and realistically as possible.

43. Recent Developments in the Oil and LNG Markets
Tetsuo Morikawa, PhD
Senior Economist, Manager
Oil Group
Fossil energies & International Cooperation Unit
Oil prices are trending stably. On April 1, OPEC Plus decided to ease joint production cuts
from May through July. Saudi Arabia has also announced to phase out its own additional cuts.
As a result, the production cuts will decrease from an estimated 6.9 mb/d in April to 6.55 mb/d
in May, 6.2 mb/d in June, and 5.76 mb/d in July. Upon news of the scaling-down, Brent on
April 5 dropped 5% from the previous business day to $59 but subsequently bounced back andwas in the higher $60 range in late April.
In its monthly Oil Market Report released on the 14th, the International Energy Agency
revised the 2021 global oil demand to 96.70 mb/d, up 0.2 mb/d from the March outlook. This
upward revision assumes that the pandemic will subside as the vaccine is rolled out and that
economic activity will accelerate, based on the latest World Economic Outlook of the IMF.
While OPEC Plus is steadily implementing its joint production cuts, the slow growth of US
output is evident. As shale drillers prioritize strengthening their finances over increasing
production, the oil output for March stood at 16.26 mb/d, remaining unchanged from last
autumn despite recovering oil prices. The US Department of Energy estimates the 2021 output
at 16.30 mb/d, which is below the 2020 production level. Due to these supply-demandconditions, industry stocks of OECD countries have clearly declined, almost reaching the
average of the past five years. Thus, oil prices are becoming firmer.
In Japan, the Natural Resources and Fuel Committee of the Advisory Committee for Natural
Resources and Energy met on April 23 to discuss the draft Committee report. IEEJ Chairman
and CEO Masakazu Toyoda commented that the government must quickly implement powerfulpolicies in order to achieve carbon neutrality, international rules should be established to avoid
disadvantages for fossil fuels, and reloading LNG should be promoted in all of Asia to establish
an Asia-wide system for accommodating LNG needs.
In China where LNG demand is growing rapidly, the gas market is being reformed. It isparticularly notable that the state-run oil and gas infrastructure company PipeChina took controlof the nationwide gas pipeline network at the end of March. In the context of gas market
liberalization, this corresponds to the unbundling of the gas infrastructure, but its impact willreach beyond the Chinese gas market. In Europe, the unbundling began in the 1990s and led to
the formation of the wholesale (hub) prices and the end of oil indexation for imported gas pricecontracts. China appears to be following in the footsteps of Europe and heading toward hub
pricing and de-oil indexation. With China certain to become the world’s largest LNG importeras early as the end of this year, if its wholesale market becomes more liquid, Chinese buyers
are likely to demand that LNG import prices be linked to China’s hub prices. While the end of
oil indexation is not expected for at least another 10 years, it is necessary to closely analyze
how gas price formation in China affects Japan’s LNG import prices.

5

4. Update on Policies Related to Climate Change
Takahiko Tagami, Senior Coordinator, Manager
Climate Change Group
Climate Change and Energy Efficiency Unit

At the Japan-US summit meeting on April 16, the two countries released a Joint Leaders’Statement announcing that they “are committed to taking decisive climate action by 2030, bothaligned with efforts to limit the global temperature increase to 1.5°C and 2050 greenhouse-gas
emissions net-zero goals.” They also stated in an attachment to the statement titled “Japan-U.S.
Climate Partnership on Ambition, Decarbonization, and Clean Energy” that the countries will“align official international financing with the global achievement of net zero greenhouse gas
emissions no later than 2050 and deep emission reductions in the 2020s, and will work topromote the flow of public and private capital toward climate-aligned investments and awayfrom high-carbon investments.”
After the Global Warming Prevention Headquarters meeting on April 22, Prime Minister
Yoshihide Suga said Japan aims to reduce GHG emissions by 46% in FY2030 compared to
FY2013 and will continue strenuous efforts cutting its emissions by 50% (not published as aheadquarters decision). He said at a press briefing that the number 46% was the result of abottom-up analysis by the government (though not by the Strategic Policy Committee of theAdvisory Committee for Natural Resources and Energy). Furthermore, relevant ministers havebeen instructed to swiftly consider specific initiatives to meet the target. When asked about
restarting nuclear power plants, the Prime Minister said renewable energies will be given
priority.
On the same day, President Biden announced the US’ new target of reducing GHG emissions
by 50–52% from 2005 levels in 2030 and submitted it to the UNFCCC secretariat. This target
is said to have been set based on a detailed bottom-up analysis, consultation with stakeholders,and consideration of multiple pathways, but documents on the quantitative analyses andmodeling results are unknown at the time of writing. Simultaneously, the US international
climate finance plan was released. The plan intends to double, by 2024, the US’ annual public
climate finance to developing countries relative to the average level during the second half of
the Obama-Biden Administration. Efforts will also be made to promote improving information
on climate-related risks and opportunities, identifying climate-aligned investments, managing
climate-related financial risks, and aligning portfolios and strategies with climate objectives.
The Leaders Summit on Climate, hosted by the US, was convened online on April 22 and 23,
attended by the leaders of 40 countries and regions. US-India, US-China, and China-EU
meetings were convened in the few weeks before the Summit, but neither China nor India
announced new targets. It was reported that some countries may update their 2030 targets orannounce they will end funding for coal, but apart from Japan, only Canada raised its 2030
reduction target, from 30% to 40–45% below 2005 levels. South Korea stated it will further
raise its 2030 NDC (the current target is a 24.4% cut from 2017 levels) and submit it to the UN
within this year, and announced it will end public financing for overseas coal-fired plants.
President Xi Jinping participated online from China and stated the importance of stepping up
measures and international cooperation on climate change. Even as the US-China rift widens,possibilities for cooperation on climate change are appearing, though the battle between the US
and China for leadership may intensify. Developments must be closely monitored.
65. Update on Renewable Energies
Yoshiaki Shibata, Senior Economist, Manager
New and Renewable Energy GroupElectric Power Industry & New and Renewable Energy Unit

In line with the Economy, Trade and Industry Minister Kajiyama’s instruction in January to“discuss the targets and policies for 2030 looking ahead to 2050, and regarding renewableenergies, shift gears based on the 2050 carbon neutrality target, scale up discussions, and gather
the outcomes at the Strategic Policy Committee,” the Subcommittee on Large-scale Renewable
Energy Introduction and the Next-Generation Power Network has been discussing since March
the renewable energy policy for 2030.
In the five meetings of the Subcommittee held to date, hearings of research institutes andrenewable energy operators were conducted. The aim is to estimate comprehensively therealistic and economically rational amount of new renewable capacities that can be added by2030 and to identify the challenges in expanding capacities.
The first point is securing suitable sites for solar PV and wind power. Suitable sites forground-based solar PV plants are running out. Renewable operators suggested utilizing
abandoned farmland, land whose owner is unknown, and municipal land, but Committee
Members pointed out that the lost benefits these lands would have earned had they been used
for their original purposes should also be considered. Further, for roof-mounted solar PV, theneed to consider mandatory installation in new buildings and granting of incentives, to devise
construction methods for mounting plants on existing buildings more easily, and to develop
lighter solar PV plants were raised. Regarding wind power, there was an opinion that it isnecessary to use forest reserves, to which Members stated that measures must be taken to use
forest reserves while ensuring consistency with their original policy objectives.
The second point is the possibility of cost reduction. There was an opinion that solar PV
cannot achieve the target generation cost of 7 yen/kWh before 2030 due to the high construction
cost in response to disaster countermeasures, among others. The generation cost for wind power
can be lowered by increasing the size of the plant and project, but transporting large blades may
increase the costs.
The third point is grid enhancement. There was an opinion that “connect & manage,” which
is being implemented in the main power grids, should also be applied to lower-level grids anddistribution networks. Renewable energy operators stressed the need to expand the system sothat it supports corporate PPA, in which electricity is sold directly to consumers, so as to avoid
grid enhancement.
Other opinions included the need to optimize and accelerate environmental assessments forwind power, coordination with fishing rights for offshore wind power, response to opposition
by local communities and natural park regulations for geothermal power, difficulty in reducing
costs due to development sites for medium- to small-sized hydropower in more remote areas,
and the need to utilize domestic biomass resources.
The framework for the FIP system, which is due to commence in FY2022 aiming for selfsustained introduction of renewable energies, was mostly finalized in only February. The
Committee meetings revealed that many challenges remain to be solved to expand renewablecapacities.
7

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