IEEJ e-NEWSLETTER
No. 226(Based on Japanese No. 221)Published: February 15, 2022
The Institute of Energy Economics, Japan(As of February 14, 2021)

10095908580757065605550

Crude Oil Prices (US$/bbl)(Feb'21-Feb'22)

UK- BrentWest Texas
Intermediate(Front-month Futures)/ F / M /A / M /J /J/ A /S/ O /

2021-2022
D X J / F /

N /

100
95908580
75
70656055
50

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

ContentsSummary【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
4. Update on Renewable Energies

1Summary
1. Developments in Nuclear Energy
The European Commission began consultations on including nuclear energy in theEU Taxonomy. New developments in nuclear investment must be closely monitored.
The excessive concentration of uranium production in Kazakhstan has emerged as a risk.
2. Recent Developments in the Oil and LNG Markets
International natural gas and crude oil prices stay high, with LNG prices bipolarized
between term contracts and expensive spot cargoes, although Japan's import prices havebeen lower than others.
3. Update on Policies Related to Climate Change
In December 2021, as part of the enhanced efforts for decarbonization, a green
finance roadmap was released in China and an ocean-based carbon dioxide removal andsequestration roadmap was announced in the United States.
4. Update on Renewable Energies
Efforts to support the transition towards decarbonization through transition bonds arespreading. Development of the bond market, such as by establishing a system to help
investors properly understand the impact of a transition project, needs to be established.

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1. Developments in Nuclear Energy

Emiri YOKOTA, Senior Researcher
Nuclear Energy Group
Strategy Research Unit

On January 1, the European Commission announced that it had begun consultations onincluding certain gas and nuclear activities in the draft text of the Taxonomy Complementary
Delegated Act, which stipulates the technical screening criteria (TSC) to determine whether atechnology is sustainable under the EU Taxonomy. The Delegated Act is slated for official
adoption following deliberations by two advisory bodies, after which it will go throughscreening by the European Parliament and the European Council.
The start of application of the Delegated Act will endorse the sustainability of nuclear- andnatural gas-related corporate activities under the proprietary framework set up by the EU,aiming to transition to a decarbonized society. According to media reports, a nuclear new build
investment will be certified as sustainable provided that: (1) the latest technology is used, (2) aconstruction license is obtained by 2045, and (3) a plan for high-level radioactive waste
treatment is submitted by 2050.
The EU member states are divided over whether to include nuclear energy in the Taxonomy.
In October 2021, ten member states supporting its inclusion, including France and the Czech
Republic, declared in a joint statement that “if Europe is to win the climate war, it needs nuclear
energy. It is a vital and reliable source for everyone to secure a low-carbon future.” TheNetherlands and Sweden are also reported to be positive toward including nuclear. On the otherhand, five member states including Germany and Australia have shown a negative stance,
stating in a joint letter that “nuclear has the risk of accidents and is not suitable for inclusion in
the Taxonomy.” Attention must be paid to investments in nuclear power by each EU member
state going forward.
In the wake of massive protests in Kazakhstan, on January 6, Canada’s Cameco, one of theworld’s top uranium producers, stated that it might resume production at its North American
uranium mines where operations are currently suspended. This is the first official
announcement from Cameco regarding the reopening of multiple mines, including McArthur
River whose operation is suspended due to low prices, and underscores the magnitude ofKazakhstan’s influence as a uranium producer. Kazakhstan is the world’s top uranium producer,
accounting for about 41% of global output (as of September 2020). The Kazakh state firm,Kazatomprom, announced on January 13 that the mines are ready to operate as usual and there
are no issues with the railway infrastructure that provides transportation. Since most uranium
trades are based on long-term contracts, the current rise in spot prices is unlikely to drive up
electricity tariffs immediately. Meanwhile, the protests revealed that the world’s highdependence on Kazakhstan’s cheap and abundant uranium resources is a potential risk. It will
be increasingly important to diversify the sources and means of access to uranium not only forthe sake of prices but also for energy security.

32. Recent Developments in the Oil and LNG Markets
Hiroshi HASHIMOTO
Head of Gas Group
Fossil Energies & International Cooperation Unit
International natural gas and crude oil prices started the year 2022 at extremely high levels.
The European TTF front-month futures shot up close to USD 60 per million Btu on 21
December 2021. The surge was caused by higher gas demand in Russia due to cold weather,
low wind-power outputs in Europe, German regulator’s suspension of approval process of theNord Stream 2 pipeline, and concern over the Russia-Ukraine conflict. Only ten days later thespot price sled back down to the low of USD 20s to conclude the dramatic year, thanks to theinflux of LNG cargoes from the United States and relatively mild weather in Europe toward theend of the month.
Volumes of natural gas stored in underground gas storage facilities in Europe (including theUnited Kingdom) decreased from 50 to 41 million tonnes of LNG equivalent during December
2021. High gas prices do not give market players incentives to increase inventories. As
uncertainty continues over pipeline gas supply, prices are expected to stay in the high levels.
Landed LNG prices in the four big markets in Northeast Asia in November and December
2021 showed a persistent upward trend and bipolarization of prices. As front-month spot LNG
price assessments and crude oil prices applicable to contracted LNG prices had kept their highlevels since October, the average LNG import prices in the four markets shot up significantlyin November and December. In December they were USD 18.88 in China, USD 17.20 in Korea,
USD 17.26 in Chinese Taipei, making Japan's USD 14.36 per million Btu the lowest in theregion. Among different supply sources delivered to Japan, LNG cargoes from the United States
were notably expensive on average, indicating that low costs of feedgas and liquefaction do notalways result in low delivered prices. China was officially the number one LNG importer in theworld in 2021 with 78.93 million tonnes compared to Japan's 74.32 million tonnes.
The oil market also braces a bullish sentiment, as Brent crude futures price had risen to thehigh of USD 80s by the end of January from USD 79 at the beginning of the year. Behind thehigh prices, there are concern over deteriorating tensions in the Middle East and the Former
Soviet Union, shrinking spare capacity in oil producing countries, as well as prospects ofrecovering oil demand thanks to relatively limited aggravation risks from the Omicron variant.
The International Energy Agency (IEA) raised its estimate of global oil demand in 2022 by
200 thousand barrels to 99.7 million barrels per day in its latest monthly Oil Market Report on
19 January. On the supply side, although the OPEC-plus group agreed to stick to its planned
0.4-million-b/d output increase for February on 4 January, some producers fail to fulfil theirproduction quota. U.S. Energy Information Administration (EIA) forecasts 0.6-million b/d
year-on-year increase of the country's oil production for 2022. The market does not apparently
anticipate a relaxed balance even with those increases in production.

43. Update on Policies Related to Climate Change
Takahiko TAGAMI, Senior Coordinator, Manager
Climate Change Group
Climate Change and Energy Efficiency UnitIn December 2021, two roadmaps on decarbonization initiatives were released, one in China
and the other in the US.
On December 3, the research group (led by Dr. Ma Jun, President of the Institute ofFinance and Sustainability and former Chief Economist of the People’s Bank of China) of theChina Green Finance Committee of China Society for Finance and Banking, released the report“Roadmap for Financing China's Carbon Neutrality.” The report discusses paths for economictransition under the carbon neutrality goal and stated that China’s cumulative demand for green
low-emission investment will amount to 487 trillion yuan (at constant 2018 prices,
approximately 8,700 trillion yen) over the next 30 years on the way to reaching carbon
neutrality. It also considers how the financial sector can capture opportunities arising from theefforts to reach carbon neutrality and prevent risks associated with climate change.
The report presents seven proposals for improving the Chinese green finance policy system:(1) revise green finance standards (exclude fossil fuel energy-related high-emission projects),(2) instruct financial organizations to calculate and disclose the extent of their involvement withhigh-emission assets and the carbon footprint of major assets, (3) encourage financial
institutions to conduct environmental and climate risk analysis, (4) implement the “carbon
emission reduction support tool,” which contains the definition of loan purposes, measurement
methods and disclosure processes, and standards for and the list of third-party organizations
that verify the measurement results, (5) encourage sovereign wealth funds to conduct ESG
investments, (6) improve the level of environment/climate risk management of financial
institutions related to foreign investments, and (7) improve a supervisory mechanism for carbonmarket.
On December 8, the National Academies of Sciences, Engineering, and Medicine of theUnited States released a report titled “A Research Strategy for Ocean-based Carbon Dioxide
Removal and Sequestration.” This report builds on the report “Negative Emissions
Technologies and Reliable Sequestration” which was published in 2019 and which consideredvarious CO2 removal technologies. While the ocean has huge potential for the uptake andlonger-term sequestration of CO2, the benefits, risks, and potential scale of ocean-based CO2
removal and sequestration are largely unknown. The report examines the following six oceanbased CO2 removal approaches: (1) Nutrient (iron, nitrogen, or phosphorus) fertilization toincrease photosynthesis, (2) Artificial upwelling (nutrient-rich water from depths is pumped up
to the ocean surface to increase localized primary production) and downwelling (transport ofCO2 to depths), (3) Seaweed cultivation, (4) Recovery of ocean and coastal ecosystems using
kelp and sargassum, (5) Ocean alkalinity enhancement through enhanced mineral weatheringand electrochemical reactions, to remove atmospheric CO2, and (6) Electrochemical approaches(by passing an electric current through sea water to change the pH to remove its CO2, andthereby enhance the capacity of sea water to store CO2).
As research priorities, the report pointed to the following: Among the biotic approaches, (1)research on ocean iron fertilization and seaweed cultivation offer the greatest opportunities forevaluating the viability of possible biotic ocean CDR approaches; and (2) research on thepotential CO2 removal and sequestration permanence for ecosystem recovery would bebeneficial. The report stated that among the abiotic approaches, research on ocean alkalinity
enhancement (including electrochemical alkalinity enhancement) has priority.

54. Update on Renewable Energies
Akiko SASAKAWA, PhD
New and Renewable Energy GroupElectric Power Industry & New and Renewable Energy Unit
Efforts to support the transition towards decarbonization in the medium to long term throughtransition bonds are spreading. The issuance of ESG bonds, primarily green bonds(environment bonds), has been growing steadily, spurred by the trend of incorporating ESG(environment, society, and corporate governance) into investment decisions and the Paris
Agreement and other international accords. While the purpose of green bonds is limited tofunding environment-related projects, primarily renewable energy projects, transition bonds areissued to fund projects that accelerate the “transition” toward decarbonization. Transition bonds
are expected to diversify the methods of financing for the decarbonization projects of issuers(companies) such as the shipping and steel industries, which do not necessarily qualify as green
bond issuers, as described below.
The importance of the “transition” towards decarbonization is widely recognizedinternationally and active discussions are underway. The EU’s draft report on taxonomy
extension options released in July 2021 classified all economic activities into green, red, amber,or other, and defined transition as the change from red or amber to green. Furthermore, therevised guidance, released by the Task Force on Climate-related Financial Disclosures (TCFD)
in October 2021, newly requires that transition plans be disclosed.
With a focus on transition, transition bonds are expected to be actively utilized particularly
in shipping, air transport, steel, chemicals, cement, and energy areas that have high carbonemissions. Nippon Yusen, which was the first in Japan to issue transition bonds in July last year,
issued approximately 20 billion yen in bonds with a term of five, seven, or ten years. Thecompany described the purpose of the bonds as funding the company’s entry into the offshore
wind power and hydrogen/ammonia supply chain businesses, as well as introducing vessels,
including offshore wind support, ammonia fuel, hydrogen fuel cell, LNG fuel, and LPG fuelvessels. Further, according to media reports, on January 19, JFE Holdings is expected to becomeJapan’s first manufacturer to issue transition bonds in FY2022, aiming to improve the energy
efficiency of its steel production process and invest in steel plates for EV motors.
Outside of Japan, airlines, power companies, gas companies and others have been issuingtransition bonds since 2017 in various regions including Hong Kong, Italy, Spain, the UK, theUAE, and Australia. In 2019, French asset management company AXA Investment Managersand European financial institutions released guidelines on transition bonds. In 2020, theInternational Capital Market Association published the Climate Transition Finance Handbook.
While the transition bond scene is gathering momentum, there are still no unified
international rules on these bonds. For the transition bond market to develop and prosper, asystem needs to be established for issuers to concretely present their “transition” plans to ensurethat investors are properly informed on the contribution and impact of a transition project on
decarbonization.

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