IEEJ e-NEWSLETTER
No. 196(Based on Japanese No. 206)

Published: November 16, 2020
The Institute of Energy Economics, Japan(As of November 13, 2020)

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. Key Points of IEEJ Outlook 2021
2. Energy Policies
3. Recent Developments in the LNG and Oil Markets
4. Update on Policies Related to Climate Change
5. Update on Renewable Energies

Summary【Energy Market and Policy Trends】
1. Key Points of IEEJ Outlook 2021
The IEEJ Outlook 2021 forecasted the global supply and demand for energy through 2050
and analyzed the issues in transforming the global energy system from three perspectives: thespread of Covid-19, the circular carbon economy, and minimizing the total cost of climate
action.
2. Energy Policies
On October 13, the 32nd Strategic Policy Committee was convened, commencing
discussions on formulating the Sixth Strategic Energy Plan. The discussion points are thepathway to carbon-neutrality in the second half of this century and verifying the 2030 energymix.
3. Recent Developments in the LNG and Oil Markets
In the US, more refiners are converted to bio refineries. Advanced and more progressive
decarbonization measures were presented at the LNG Producer-Consumer Conference. The
International Conference on Carbon Recycling 2020 discussed the issues involved in
implementing carbon recycling in society.
4. Update on Policies Related to Climate Change
The EU announced a methane strategy to reduce methane emission with the possibility of
regulating natural gas imports. In China, research organizations presented a scenario forachieving net-zero CO2 emissions by 2050.
5. Update on Renewable Energies
A special event of the Hydrogen Energy Ministerial Meeting was held online. There are now
12 countries and regions formulating their own hydrogen strategies and road maps; hydrogenuse is gaining momentum globally.

1. Key Points of IEEJ Outlook 2021
Shigeru Suehiro, Senior Economist, Manager
Econometric and Statistical Analysis Group
Energy Data and Modelling Center
The IEEJ Outlook 2021 forecasted the global supply and demand for energy through 2050 basedon a reference scenario and analyzed the issues in transforming the global energy system from threeperspectives: the spread of Covid-19, the circular carbon economy, and minimizing the total costof climate action.
The Covid-19 pandemic may reshape society
Under the post-Covid world transformation scenario which assumes that the changes in politics,
the economy, and society caused by Covid-19 will remain and only grow stronger, the world will
shift from pursuing economic efficiency to an awareness of security. Improving the energy selfsufficiency rate and diversifying energy sources will be the focus, introduction of nuclear andrenewable capacities will accelerate, and the use of hydrogen energy will begin. Electrification will
make significant progress as the digital transformation enables more economic activities to be
conducted remotely. Meanwhile, transportation demand will fall, causing oil demand to peak byaround 2040. Furthermore, efforts to strengthen energy security and decarbonize will trigger a race
to develop innovative technologies, thus spurring the use of CO2-free hydrogen. CO2 emissions will
peak by around 2040 and then start to decline.
Energy policies and strategies will need to be formulated factoring in the ever-present possibilityof drastic changes to enable flexible and proactive responses to such changes.
Simultaneously reducing emissions and securing a stable energy supply through the use of
decarbonized fossil fuelThe international community is becoming more aware of the circular carbon economy, in which
the CO2 generated when using fossil fuel is reduced through the four “R technologies,” namely,
reduce, reuse, recycle, and remove. By fully introducing the four R technologies that are closest to
becoming commercially available, CO2 emissions can be reduced by around 5 billion tonnes
assuming that global fossil energy consumption remains generally unchanged between now and
2050. In particular, the combination of fossil fuel-sourced blue hydrogen and CCS (Carbon Captureand Storage) will play a major role.
To achieve ambitious emissions reduction targets, it is essential to take a comprehensive
approach and leverage all available options to the maximum. It is clearly worth cutting the cost offossil fuel decarbonizing technologies further and actively developing and implementing thosetechnologies.
A practical approach and long-term perspective for resolving climate issues
The key idea in addressing the long-term challenge of climate change is economic optimization,that is, minimizing the total cost of mitigation, adaptation, and damage. However, the total cost
minimization approach entails various uncertainties. There is particular concern about the earth
becoming permanently hotter due to irreversible changes to the earth’s system called tipping
elements, such as rapid acceleration of the mechanism that is causing the West Antarctic Ice Sheetto collapse. The analysis in IEEJ Outlook 2021 indicated that the total cost minimization approachremains valid even when considering the impact of tipping elements.
Taking tipping elements into consideration will reinforce the importance of decarbonization
technologies in the future. To address climate issues, it will be increasingly important to executepolicies that back the steady development and commercial implementation of technologies with along-term perspective.

2. Energy Policies
Seiya Endo, Economist
Econometric and Statistical Analysis Group
Energy Data and Modelling Center
On October 13, the 32nd Strategic Policy Committee of METI’s Advisory Committee for Natural
Resources and Energy was convened for discussions on formulating the Sixth Strategic Energy Plan.
In the discussions, two notable points were indicated regarding the future direction: (1) Japan
will aim to go carbon-neutral in the second half of this century, and (2) the necessary measures will
be verified without assuming the 2030 energy mix is fixed. At the start of the meeting, METI
Minister Kajiyama indicated the Suga administration’s policy to achieve a carbon-neutral society
and a stable supply of energy, calling for discussions on long-term measures for simultaneously
achieving these targets. He also stated that the measures for 2030 are open to change, hinting thatthe 2030 plan should be discussed based on a long-term vision. This compares with the words offormer METI Minister Seko who said that Japan is not at a stage where the framework of the Fifth
Strategic Energy Plan should be changed, and maintained the 2030 numerical targets.
In response to this policy, Committee members posed questions to reconfirm the 2030 vision.
The opinions included raising the share of renewable energy, which is actively being increased,
revising downward the share of nuclear energy which is struggling to restart, and reviewing theestimated demand in line with changes in society. Some commented it is necessary to clarify
whether the Energy Mix, as a framework for policy discussion, is an outlook or a target, and to
determine whether the Energy Mix should be revised based on changing circumstances.
Regarding the long-term discussions looking beyond 2050, many members pointed to theimportance of boosting Japan’s international competitiveness in various decarbonization
technologies from the perspective of industrial policy. Considering that the EU has set the green
recovery plan as a “national” strategy and is designing a system that will boost its industry, various
technologies including wind power, nuclear, hydrogen energy, batteries, and digital technologies
were presented as promising areas. The Committee is expected to determine where Japan stands inthe stages up to the completion of each advanced or innovative technology.
IEEJ Chairman and CEO Masakazu Toyoda commented as follows:
Countries other than Japan are formulating climate actions with a view to strengthening theirinternational industrial competitiveness. Japan should foster wind power as well as nuclear
power, in which Japan is largely self-sufficient in terms of technologies, in addition toaccelerating the development of technologies to decarbonize fossil fuels such as hydrogenenergy and ammonia, an area in which Japan is leading.

There is growing concern over energy security as the Middle East destabilizes and supply
chains are disrupted. Japan should recognize once again the value of nuclear power, a semidomestic energy source. Further, with energy investment currently low, assistance is needed tosecure investment. It is also important to respond to geopolitics, including resource diplomacy
in the Middle East and building joint Asia-wide stockpiles.
Maximum effort is needed to reduce energy prices in order to maintain and improve Japan’sinternational competitiveness. It is also necessary to reduce renewable energy costs while
promoting nuclear power and technologies for decarbonizing fossil fuels.


Shortly after the Committee meeting, the government announced that it would aim to achieve net
carbon-neutrality by 2050. As mentioned by Chair Shiraishi at the meeting, the Committee will
discuss a long-term period of up to 2050. The results of the discussion will serve as the base fordiscussing the 2030 vision.

3. Recent Developments in the LNG and Oil Markets
Yoshikazu Kobayashi, Senior Economist
Planning & Administration Unit
International oil prices remain stable with WTI around $40/bbl and Brent in the lower $40/bbl
range. Regarding the global oil supply and demand balance, demand exceeded supply in thethird quarter as oil demand has been increasing since May, albeit slowly, and as OPEC Plus
continues to cut production. However, the oil market is expected to remain under downward
price pressure since demand is still extremely uncertain with Europe and other areas being hit
hard by the second wave of Covid-19 and with the decrease in US shale oil production starting
to level off.
As oil demand remains sluggish due to Covid-19, refineries are being rationalized in thedownstream sector of the US oil industry. On October 1, major US oil refiner Marathon
announced plans to convert its Martinez refinery (processing capacity of 161,000 b/d) in
California into a renewable-sourced fuel production plant. The company plans to produce
48,000 b/d in 2023. Another major refiner, Phillips 66, also revealed plans on August 12 toconvert its San Francisco refinery (processing capacity of 120,000 b/d) into a renewablesourced fuel production plant (production capacity: 52,000 b/d). In California, on September
23, Governor Gavin Newsom announced plans to allow only zero-emission vehicles such asEVs, fuel cell vehicles, and plug-in hybrids to be sold in the state from 2035, adding to thesevere pressure on the downstream oil business. There are currently 15 refineries (total
processing capacity: 1.91 mb/d) in the state, but yet more refineries may switch to otherbusinesses going forward.
In October, many international conferences on the future of fossil fuels were held. On
October 12, the eighth LNG Producer-Consumer Conference was held online to discuss two
topics, the pricing system and the decarbonization of LNG. In the session on pricing, thepanelists agreed on the importance of having a single common price benchmark that reflects
the supply and demand for LNG. However, multiple candidate benchmarks currently exist, andsome panelists pointed out problems in the transparency of their pricing method and issues inusing them as a reference price for long-term contracts and making investment decisions. In thesession on decarbonization, recent efforts such as carbon-neutral LNG that uses CO2 credits andthe utilization of CCS were presented. One panelist pointed out that synergies can be expected
between the LNG supply business and the clean ammonia and hydrogen supply businesses.
While discussions in this area so far have mostly assumed gas-fired thermal power as a backup
electricity supply for variable and intermittent renewable power generation, many forwardlooking opinions were heard in this session about the new role of LNG in decarbonization.
On the following day, October 13, the second International Conference on Carbon Recycling
2020 was convened. Since the first meeting last year, awareness of the significance of carbon
recycling, in which CO2 is reused and recycled as a resource, has been rising graduallyinternationally. In the conference, participants pointed out the need for policy measures to spurthe implementation of carbon recycling technologies in society, such as first visualizing the
progress of development of individual technologies such as CO2-absorbing concrete andsynthetic methane through industry-academia-government collaboration, and then providing
incentives and regulations to accelerate investment by the private sector.

4. Update on Policies Related to Climate Change
Takahiko Tagami, Senior Coordinator, Manager
Climate Change Group
Climate Change and Energy Efficiency Unit
The European Commission is set to propose the EU’s carbon border adjustment mechanism byJune 2021. On October 13, Diederik Samsom, head of the team of Frans Timmermans, European
Commission Executive Vice-President for the European Green Deal, stated at an online event thatthe mechanism will be applied initially to the steel, cement, and electricity sectors. Earlier, on
September 30, the European Roundtable on Climate Change and Sustainable Transition, a research
institute, compiled a report based on communications with the Commission and stakeholders, inwhich they announced that the most probable scenario for implementing the mechanism is to extend
EU ETS to import products, rather than imposing a carbon tax or customs duty. In this case,companies exporting target products to Europe will be required to purchase emission allowances.
Developments in the debate over the mechanism must be watched going forward.
Regarding natural gas imports, on October 14, an EU strategy to reduce methane emissions was
released. In the course of discussions on the methane strategy, there was a call for setting a methanestandards in the upstream sector and regulating the import of natural gas that does not meet thestandards. However, the released methane strategy only incentivized a compulsory measurement,
reporting, and verification (MRV) framework for all energy-related methane emissions. It must be
noted, however, that in the absence of significant commitments from international partners on
methane emissions reductions, the Commission will consider proposing legislation on targets,standards or other incentives to reduce methane emissions from fossil energy consumed andimported in the EU. There have been reports in the media that the French government is delaying
the signing of a contract between Engie and a US LNG company because of the high methane
emission intensity of US shale gas.
On October 12, regarding China’s 2060 carbon-neutrality target, a project to study “China’s lowcarbon development strategy and transition pathway,” involving Tsinghua University, the Energy
Research Institute and others, held a meeting to present the accomplishments so far. In the meeting,a scenario for achieving net-zero CO2 emissions by 2050 was presented. Professor He Jiankun ofTsinghua University stated that CO2 emissions will peak before 2030 and progress will accelerate
thereafter, heading toward the emissions reduction pathway for achieving the 1.5℃ target. By 2050,
non-fossil energy will account for more than 85% of primary energy consumption (the percentages
for renewables and nuclear are not indicated) with coal at 5% or less. The remaining 1.72 billion
tonnes of CO2 will be offset through removals by forests and CCS. Further, the project proposed a
19-20% reduction in CO2 intensity per unit GDP and capping total energy-related CO2 emissions at
10.5 billion tonnes as indicators for the Fourteenth 5-year Plan.
In Japan, Prime Minister Suga announced a goal to achieve net-zero GHG emissions by 2050 in
his first policy speech on October 26. Japan’s goal thus far was to cut GHG emissions by 80% by
2050 and to achieve a decarbonized society at the earliest possible time in the latter half of thiscentury. By setting this goal, Japan is emphasizing its efforts to the international community with
the Environment Innovation Strategy in mind, which aims to establish innovative technologies for
cutting global CO2 emissions to net zero or lower, formulated in January. The next steps will include
considering industrial policies and measures to boost industrial competitiveness toward adecarbonized society.

5. Update on Renewable Energies
Yoshiaki Shibata, Senior Economist, Manager
New and Renewable Energy GroupElectric Power Industry & New and Renewable Energy Unit
On October 14, the third Hydrogen Ministerial Meeting was convened. To be precise, it washeld as an Online Special Event of the Hydrogen Energy Ministerial Meeting amid thecontinuing Covid-19 pandemic, and as part of the Tokyo “Beyond-Zero” Week alongside fiveother meetings, namely ICFF 2020, RD20, TCFD Summit 2020, the Ninth LNG ProducerConsumer Conference, and the International Industry-Academia-Government Conference on
Carbon Recycling 2020. In the meeting, ministers and representatives from 23 countries,
regions, and international organizations including Japan delivered messages on the importanceof hydrogen energy for decarbonization, and 25 private companies reported their latest efforts
regarding hydrogen.
At the same time, a progress report on the status of efforts of each country on the Global
Action Agenda published at the Second Hydrogen Ministerial in 2019 was released. The Global
Action Agenda sets six action guidelines for building a hydrogen-based society, namely theformulation of a hydrogen strategy, etc., the use of fuel cells in the mobility sector, building aninternational hydrogen supply chain, sector integration, investigation and analysis byinternational organizations and others, and communication, education, and awareness raising.
Progress was reported on a demonstration project on international hydrogen supply chains andsector integration using renewable hydrogen and on the spread of fuel cell vehicles and forklifts.
The most notable fact was that more and more countries have drawn up hydrogen strategies in
the past two years. In addition to Japan, China, South Korea, France and others who have madea head start, 12 more countries and regions including Australia, Germany, Norway, Spain,
Portugal, and the EU have now released hydrogen strategies or hydrogen roadmaps, with four
more countries considering following suit, and the trend is expected to expand.
Furthermore, at this event, the IEA declared they will publish a Global Hydrogen Review
every year to summarize the hydrogen energy-related efforts worldwide and strengthen ties
with the Japanese government heading toward the Hydrogen Ministerial meeting next year.
Both the supply potential and demand potential of hydrogen vary by country, and so does the
purpose of using hydrogen. For instance, Japan is the only country to use the expression“hydrogen economy,” which implies a society in which hydrogen accounts for most of theenergy supply. In contrast, most other countries consider hydrogen as one of the many options
for reducing carbon emissions or decarbonizing. Needless to say, however, one of the mostimportant roles of hydrogen is to contribute to the global effort to reduce carbon emissions anddecarbonize. As efforts on decarbonization accelerate, the momentum of hydrogen use isbuilding each year in the international community.
Another important role of hydrogen is enhancing energy security, yet the key phrase “energy
security” was hardly mentioned at the event. Hydrogen can be produced using a wide varietyof resources and technologies found around the world, allowing countries to build various typesof international and domestic supply chains. Other advantages of hydrogen include a stablesupply secured by diverse sources of import and ramping up energy resilience through theconsumption of energy produced within the country. It is important to discuss hydrogen energy
also from these perspectives, and not only for carbon emissions reduction and decarbonization.
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