IEEJ e-NEWSLETTER
No. 222(Based on Japanese No. 219)

Published: December 13, 2021
The Institute of Energy Economics, Japan(As of December 13, 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 and Energy Conservation
5. Update on Renewable Energies
1Summary【Energy Market and Policy Trends】
1. Energy Policies
The Kishida administration secured an absolute majority in the House of Representatives
and will work towards implementing the Sixth Strategic Energy Plan in the energy policy area.
His economic stimulus package includes clean energy investment and a subsidy for easing wild
fluctuations in petroleum product prices.
2. Developments in Nuclear Energy
France announced plans to start building new nuclear power plants again. This is the firstannouncement since the one on the construction of Flamanville Unit 3 currently under way.
Further details are keenly awaited.
3. Recent Developments in the Oil and LNG Markets
The decision by the US, Japan and others to release their national oil reserves has weakened
OPEC Plus’ incentive to boost production. Unstable spot LNG prices are adversely affecting
the introduction of LNG in emerging LNG importing countries in Asia.
4. Update on Policies Related to Climate Change and Energy Conservation
COP26 closed on November 13 after adopting the Glasgow Climate Pact. Countries called
the decade up to 2030 the “decisive decade” and agreed to strengthen climate measures, butthere were disagreements over what should be done.
5. Update on Renewable Energies
Japan’s renewable energy value trading market held its first auction. Launched to provide
consumers with direct and inexpensive access to renewable energy value certificates,
upcoming transactions in the market and improvements to the system deserve attention.

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1. Energy Policies
Seiya ENDO, Economist
Econometric and Statistical Analysis Group (ESA)
Energy Data and Modelling Center (EDMC)

On October 31, the 49th House of Representatives election was held. The Liberal Democratic
Party secured an absolute majority with 261 seats, though fewer than the 276 seats held before
the election, enabling Fumio Kishida to remain at the helm as the 101st prime minister of Japan.
The Kishida government’s energy policies are in line with the Sixth Strategic Energy Policy
approved by the Cabinet in October and the Green Growth Strategy, and there has been no
major reversal of policy of the Suga government. In his first policy speech, the prime ministerannounced his vision of developing a “new form of capitalism” towards “a virtuous cycle ofthe environment and economy.” He spoke little about his environment and energy strategy, andonly said: “In working to achieve carbon neutrality by 2050, we will also formulate a clean
energy strategy that ties global warming mitigation into growth and will vigorously promotethat strategy.” This contrasts with the inaugural speech of former prime minister Yoshihide
Suga, who stressed his commitment to the 2050 carbon neutrality goal, a year ago.
On November 19, the Cabinet approved the “economic measures to overcome newcoronavirus infections and to carve out a new era,” the largest economic stimulus package everwith fiscal spending of 55.7 trillion yen. The program includes the clean energy strategy
towards 2050 carbon neutrality as one of its growth strategies, and sets clean energy investment
as one of its key measures. In addition to assistance for increasing electric vehicles, securing
production bases for battery cells and semiconductors, and making renewables a main powersource, the program includes support for R&D and expansion of all options including nuclear
and hydrogen.
The program also includes a subsidy for easing the wild fluctuations in petroleum productprices, as a temporary measure until March next year. When the national average price ofregular gasoline surpasses 170 yen per liter, a subsidy of 5 yen per liter will be provided togasoline, diesel oil, and kerosene wholesalers to prevent higher retail prices. In addition, theJapanese government will join the United States and others in releasing its oil reserves to stop
the rise in fuel prices. Both the subsidy to wholesalers and the release of oil reserves to lower
prices are new attempts, and it will be interesting to see their impact on oil markets both in andoutside Japan.
While it is imperative to secure stable and inexpensive energy supplies for the coming winterand beyond amid serious increases in resource prices, it is also necessary to work steadily on
the mass introduction of non-fossil fuels (nuclear, renewables), and thorough energy
conservation by 2030 in line with the Sixth Strategic Energy Plan. Now that COP26 is over, wemust watch closely how the new government implements the measures of the Energy Plan andtakes action to achieve the ambitious 2030 targets and 2050 carbon neutrality goal.

32. Developments in Nuclear Energy
Emiri YOKOTA, Senior Researcher
Nuclear Energy Group, Strategy Research Unit
In a televised speech broadcast on November 9, French President Emanuel Macron
announced that France will start building new nuclear power plants again. He said that in orderto keep energy prices at appropriate levels and ensure energy security without depending onother countries, it is necessary to invest in energies that do not produce climate change-inducing
carbon emissions. He then declared that it is necessary to start building new nuclear power
plants again for France to maintain its energy self-sufficiency rate and go carbon neutral by
2050.
France has the second largest installed nuclear capacity in the world at 64 GW as of January
2021, but has been considering its nuclear policy since the Fukushima Daiichi accident, which
prompted debates on safety. In August 2015, France enacted an act on energy transition forgreen growth and decided to lower the ratio of nuclear power from 75% to 50% by 2025,
indicating that it would continue to use nuclear power but give it a less important role. However,
the timeline for achieving the target was later delayed by 10 years to 2035 from 2025 due toelectricity shortages in the 2020s and rising concern about increasing CO2 emissions.
Consequently, the Macron government adjusted the goal of reducing dependence on nuclear
power set by the Hollande administration, and put France on a more realistic course.
Regarding its nuclear policy, France has announced plans to invest 1 billion euros on
introducing small modular reactors (SMRs) in its domestic investment plan, “France 2030,”
released on October 12. Also, the government had said that an announcement would be madein early November on the issue of allowing nuclear new builds, which the Multi-Year Energy
Program (PPE) published in April 2020 had stated would be decided by 2021 throughconsultation with industry. The announcement this time refers to nuclear new builds after
Flamanville Unit 3, which is currently under construction.
The Glasgow Climate Pact released at the 26th Conference of the Parties to the UNFCCC(COP26) held in the UK included the goal of striving to limit the temperature increase to 1.5°C
above pre-industrial levels, once again endorsing the aspiration confirmed at the Paris
Agreement, the internal rule for addressing climate change. The importance of nuclear powerin tackling climate change was recognized, and discussions focused on technologicalinnovations including the feasibility of SMR deployment and hydrogen production using
nuclear power.
The fact that France announced that it would restart nuclear new builds during the COP26
term was a clear sign that the French government sees nuclear power as a means to fight climatechange. Specific construction plans that are due to be released hereafter will be closely
monitored.

43. Recent Developments in the Oil and LNG Markets
Tetsuo MORIKAWA, PhD
Senior Economist, Manager
Oil Group
Fossil energies & International Cooperation Unit
On November 23, the United States announced plans to release 50 million barrels of crude
oil from its Strategic Petroleum Reserve. The release is scheduled from January through April
2022. According to the U.S. Department of Energy, this is a coordinated effort with Japan,
China, India, South Korea, and the UK, which will also release their reserves. Prime Minister
Fumio Kishida announced on the 24th that Japan will release 4.2 million barrels of its reserves.
According to reports, China will release 7 to 15 million barrels, India 5 million, South Korea
3.5 million, and the UK 1.5 million. This is the first time for consumer countries to release their
oil reserves explicitly for the goal of curbing high oil prices. President Biden has said that oil
prices are rising because oil producing countries are not increasing production fast enough, andpredicted that the joint release of reserves would eventually bring oil prices down. If released
from the beginning of January to the end of April as announced or reported, roughly 0.6 million
barrels of petroleum will be made available per day.
Market reaction to the release of reserves has been muted. After rising to $86 in early October,
the Brent price had fallen below $80 by November 19 amid reports of a possible release ofreserves, anticipating an easing of the supply-demand balance. However, the market thenjudged that the amount to be released would be inadequate and assumed that OPEC Plus would
respond by tightening supply again, sending the Brent price up $2.6 to $82 from the previous
day. The UAE Energy Minister Suhail Al Mazroui has said that the release of reserves is theUnited States’ issue, and that he saw no logic in OPEC Plus increasing supply when the oilmarket foresees an oversupply in Q1 of 2022. OPEC Plus is set to meet on December 2 todiscuss the policy on production cuts in 2022, but the decision to release reserves is believed tohave undermined its incentive to continue easing production cuts.
In its November 16 Oil Market Report, the International Energy Agency predicted thatdemand will grow 4.8 mb/d year-on-year to 98.9 mb/d in Q4 of 2021. Demand is continuing torecover, and the outlook for 2022 has also been revised upward from the previous month by 0.1
mb/d to 99.7 mb/d. However, it is important to continue monitoring the possibility of aresurgence of the pandemic and supply chain disruptions which would slow down the macro
economy and thus affect oil demand. The impact of winter temperature on demand also requires
attention.
Meanwhile, the spot LNG price for Asia, which rose to an extreme of $36/Mbtu in late
October, remained around $30 in November. However, this price does not represent the LNG
procurement price of the entire Asian market. For example, the average import price for Japan,
whose imports are based mostly on long-term, oil indexed contracts, is approximately $12 asof October, and is expected to rise only slightly within this year. Thus, the impact of soaring
spot prices on importer countries varies significantly depending on each country’s dependence
on spot LNG purchases. For Asian buyers, higher spot prices will boost their incentive tomaintain or increase oil price contracts. Unstable spot prices will have a negative effect on the
expansion of the LNG market in Asia, particularly on the introduction of LNG in emerging
LNG importing countries that depend heavily on spot purchases.

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4. 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

COP26, which gathered some 40,000 people from around the world, closed on November 13
after adopting the Glasgow Climate Pact and other documents. With calls for ambitious climate
action coming from leaders of various countries, and the decade up to 2030 designated the“decisive decade,” the event attracted global attention. However, the meeting also highlighted
the differences in measures among countries, as shown by fierce arguments over the handlingof coal thermal power. This report summarizes the main points of the discussions.
The Parties to COP26 reconfirmed the goal of the Paris Agreement of holding the increasein the global average temperature to well below 2°C above pre-industrial levels and pursuingefforts to limit it to 1.5°C. However, the total of the Nationally Determined Contributions(NDCs) submitted by the countries is not enough to reach a CO2 emission reduction of “45%in 2030 from 2010 levels,” the level necessary to limit the temperature increase to 1.5℃. At theConference, an agreement was reached to strengthen the NDCs “as necessary, taking into
account different national circumstances” by the end of 2022.
Regarding efforts on coal power, the President suggested a “phase-out” of unabated coal
power (without emission reduction measures in place) and inefficient subsidies for fossil fuels.
However, in the final version of the Pact, the wording was watered down to “phase-down” coal
power even though the expression “phase-out” was maintained for inefficient fossil fuelsubsidies, and was incorporated in the document as part of the efforts to deploy clean power
generation and energy efficiency measures.
To achieve the 1.5℃ target, developing countries need support. Each country expressed deep
disappointment that developed countries’ commitment to mobilizing $100 billion by 2020 has
not been met, and strongly demanded that developed countries double their collective support
for adaptation, including disaster preparations, by 2025 from 2019 levels.
Article 6 of the Paris Agreement stipulates rules on the “market mechanism” for the crossborder trading of carbon credits. At COP16, the “Paris Agreement rulebook” on theimplementation of Article 6 became complete. The Parties reached agreement on matters that
ensure enhanced reliability and wide use of the market mechanism, including introducing asystem to avoid “double counting” of emissions reductions in the country that purchased credits
and the country that actually reduced emissions.
At COP26, not only nations but also cities, state governments, and companies committed
themselves to voluntary efforts. The activities span an unprecedented range of areas, including
agriculture and land use, aviation, automobiles, finance, forests, and energy. For automobiles,
for instance, over 30 countries as well as cities, states, and companies have signed acommitment to “work towards all sales of new cars and vans being zero emission (EVs and
FCEVs) by 2040 or earlier, or by no later than 2035 in leading markets.” However, countries
with a large auto industry including Japan, the United States, China, Germany, and France are
exploring PHEVs and e-fuel options as well as EVs and FCEVs, and have not signed thisvoluntary target. The parties are required to step up specific measures to spread these newtechnologies, including R&D, execution of policies, and allocation of funds.
65. Update on Renewable Energies
Akiko SASAKAWA, PhD
New and Renewable Energy GroupElectric Power Industry & New and Renewable Energy Unit
Japan’s renewable energy value trading market held its first auction on November 19. Until
now, the value of renewable energy had been traded in the non-fossil-value trading market open
only to electricity retailers. However, amid the growing momentum toward decarbonization
and accelerated calls to expand eco-friendly electricity purchasing to individual electricity
consumers, the renewable energy value trading market was launched to allow consumers to buy
renewable energy value certificates directly and inexpensively.
The non-fossil-value trading market was launched to help electricity retailers achieve aminimum non-fossil electricity ratio of at least 44% in their electricity sales by 2030, a
mandatory requirement under the Act on Sophisticated Methods of Energy Supply Structures.
The market was designed to trade certificates for electricity from FIT renewables, non-FIT
renewables, nuclear energy, and wastes, and the prices of certificates were decided throughauction with a price cap. In November, the non-fossil-value trading market was split into the“renewable energy value trading market,” which allows consumers to directly purchaserenewable energy value, and the market for facilitating retailers to fulfill their obligations underthe Act on Sophisticated Methods of Energy Supply Structures.
The key discussion points in launching the renewable energy value trading market were the“nature” of the FIT certificates, trading frequency, price levels, requirements for consumers andbrokers, the validity period of certificates, and how to handle unsold ones. In particular, thenature of the FIT certificates and their price levels were studied in detail by referring toEuropean and American systems and conducting consumer surveys. According to the draft sixthinterim report by the Basic Policy Subcommittee on Electricity and Gas issued in November,regarding the nature of the FIT certificates, the plan is to start by simply guaranteeing that theelectricity is produced from renewable sources (“renewable electricity certification”), andeventually move on to guaranteeing more specific sources and places of production (“power
origin certification”).
While renewable electricity certificates are designed solely to demonstrate the value of
renewable energy itself to consumers and do not accommodate their choice of preferredrenewable power sources, a “power origin” certificate is linked to a particular renewable powersource and place of production, as is the case with the environmental value trading systems in
Western countries, and allow trading to be conducted for each particular power source. For
example, in North America, the Renewable Energy Certificate (REC) was introduced in 1999
in Texas as the first system for guaranteeing the environmental value of renewable power
generation. RECs are used widely as a means for companies to purchase renewable energy, andfor power companies to achieve their RPS targets. In Europe, the EU directive to promote theuse of renewable energy was established in 2001, and with it, the framework for the Guaranteeof Origin (GO) system was developed. GO carries clear information on the power source of
renewable electricity, as well as where and when it was produced, and is used in Europe toguarantee that the electricity sold by the renewable power producer indeed comes fromrenewable sources.
There are many challenges in introducing power origin certificates in Japan, including
building a system for tracking power source attribute information and measures for avoiding
double counting when certificates are traded. It is hoped that discussions will be conducted
while paying close attention to the transactions in the renewable energy value trading market
and the status of renewable energy procurement by consumers who obtained FIT certificates.
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