IEEJ：July 2021©IEEJ 2021
Special Bulletin
A Japanese Perspective on the International Energy Landscape (543)

July 29, 2021

IEEJ Forum on Latest Energy Situation towards Carbon Neutrality
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn July 26, the Institute of Energy Economics, Japan, held its 438th forum on researchworks online. Under the general theme “the latest energy situation towards carbon neutrality,” IEEJ
experts made reports on five topics: (1) carbon neutral policy trends in major countries, (2) Japaneseand foreign initiatives for carbon pricing, (3) European Union and other trends regarding carbon
border adjustment, (4) challenges for further renewable energy diffusion and (5) fossil fueldecarbonization initiatives in the world. These reports were followed by a question-and-answer
session in which reporters answered questions from participants. I moderated the session. As
decarbonization initiatives have accelerated in the world, interests in long-term energy transition aregrowing globally. The forum became the largest ever IEEJ-hosted webinar attracting more than 570
participants at the peak. Participants asked a large number of questions in the question-and-answer
session, leading to vigorous discussions. In the following, I would like to summarize key points ofthe five reports and review highlights of the webinar forum.
The first report titled “Carbon Neutrality Trends in Major Countries – How Do Major
Countries Plan to Reach Carbon Neutrality?” came from Takahiko Tagami, Manager, Climate
Change Group, Climate Change and Energy Efficiency Unit. The report reviewed key points ofenergy scenarios (supply and demand outlooks) in the European Union, the United Kingdom, France,
Germany, Japan and other major economies and analyzed the characteristics of their respective
prescriptions for carbon neutrality. As for greenhouse gas emission cuts towards 2050, these
economies basically plan to reduce such emissions by around 80% from the present levels and use
forest sinks and CO2 removal technologies (including direct air capture) to offset the remainingemissions. They commonly place great hopes on energy savings among GHG emission reduction
measures, planning to cut final energy consumption by 30-40% by 2050. They also plan to promoteelectrification and achieve zero emissions in the power sector. Most of these economies plan to raise
their respective electrification rates from present levels around 20% to about 50%. China has set a
goal of boosting the electrification rate to more than 70%, indicating that electrification holds thekey to carbon neutrality in the country. Great hopes are placed on renewable energy to achieve zeroemissions in the power sector. However, renewables’ shares of power generation mixes in 2050
range wide from more than 50% for Japan to more than 80% for the United Kingdom and theEuropean Union. Nuclear shares range from 9% to 16% for these economies other than France witha high nuclear share. Hydrogen (and synthetic fuels and synthetic methane) is projected to accountfor some 20% of final energy consumption in 2050, indicating that hydrogen and other innovativetechnologies hold the key to reaching carbon neutrality.
The second report titled “Carbon Pricing Trends in Japan and Other Countries – Can theRelated Mechanism Be Designed to Contribute to Economic Growth?” was made by Tohru Shimizu,Senior Researcher, Climate Change Group, Climate Change and Energy Efficiency Unit. Explicit
carbon pricing systems including carbon tax and emissions trading have attracted interests as1

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economic means for promoting GHG emission cuts. Cases of European and other countries that haveintroduced high carbon taxes indicated that backgrounds and effects of the carbon tax introduction
differ from country to country, including tax reforms and national energy supply and demand
characteristics (such as a unique power mix comprising hydro and nuclear alone). The report pointed
out that it is difficult to predict the relationship between tax rates and CO2 emissions and that it is noteasy to make carbon taxes consistent with emission reduction targets. Attracting attention regarding
emissions trading are the recent trend of the European Union Emissions Trading System known as
EU-ETS (including the enhancement of emission reduction targets for some sectors from 2030) andChina’s introduction of emissions trading touted as featuring the world’s largest scale. The report
also indicated that any emissions trading system, though being made consistent with an emission
reduction target easily in comparative term, would be extremely complex and that emissions prices
would be very volatile. It pointed out that carbon pricing towards carbon neutrality would contributeto hikes in final energy prices, affecting industrial competitiveness and household consumption.
The third report titled “Up-to-date Carbon Border Adjustment Trends – Cooperation orConfrontation?” was made by Miki Yanagi, Senior Researcher, Climate Change Group, Climate
Change and Energy Efficiency Unit. It focused on the Carbon Border Adjustment Mechanism
proposal announced by the European Commission in July. Carbon border adjustment is designed fora country to impose a tax or surcharge on imports from countries with lax GHG emission reduction
measures to adjust emission reduction cost gaps. It is aimed at spreading momentum for enhancing
emission cuts in the world, securing fair competitive conditions, preventing carbon leakage, andprotecting domestic industries forced to take tougher emission reduction measures or ensuring tax
revenue. The European proposal calls for testing the CBAM from 2023 to 2025 before its full
introduction in 2026. While details of the CBAM are being discussed now, relevant issues to note
may include its consistency with World Trade Organization rules, its impact on the global economy,developing economies’ possible opposition to the CBAM and the escalation of the North-Southconfrontation. The report noted that Japan should proactively engage with the European mechanism
by promoting talks with Europe and cooperating with countries outside the European Union in
dealing with the European measure.
The fourth report came from Yoshiaki Shibata, Manager, New and Renewable Energy
Group, Electric Power Industry & New and Renewable Energy Unit, under the title “Challenges for
Further Renewable Energy Diffusion – What Diverse Viewpoints Are Required?” As solar
photovoltaics and wind power generation expands, hopes are growing on renewable energy’s roles inrealizing carbon neutrality. Japan’s draft strategic energy plan indicates that renewable energy power
generation would expand substantially to 330-350 billion kWh by 2030. Solar PV and otherrenewable energy power generation will have to be expanded dramatically to achieve a target of
cutting GHG emissions by 46% in 2030. However, challenges for the expansion exist, including how
to secure suitable sites for solar PV and wind power generation and how to utilize renewable energy
power generation projects for which the feed-in-tariff scheme has expired. Although renewableenergy power generation costs are expected to decline in the future, the report pointed to a potential
rise in renewable energy costs including those for countering variable output and inertia, as well as
the need for developing wider grid networks and battery systems. Hydrogen as well as batteries will
be important for storing electricity. Anyway, additional costs will be required for storing electricity
in line with the expansion of renewable energy power generation. The report also pointed out that
how to secure lithium and other key materials would become a significant challenge in line with thepromotion of renewable energy and that policy to enhance domestic relevant industries would berequired in parallel to the renewable energy promotion.
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The fifth report titled “Fossil Fuel Decarbonization Trends: Could Stable Supply Be
Balanced with Emission Cuts?” was presented by Yoshikazu Kobayashi, Manager, CCUS Group,
Fossil Energies & International Cooperation Unit. While interests are growing in the key role ofrenewable and other non-fossil energy sources in realizing carbon neutrality, the decarbonization offossil fuels accounting for most of present energy consumption could play a key role. The reportintroduced decarbonization initiatives in the downstream oil sector (transition to biorefineries andsupply of sustainable aviation fuels and synthetic fuels) and the gas sector (synthetic methane andcarbon-neutral LNG initiatives) and pointed out relevant challenges. It also indicated hopes andtechnological and economic challenges for carbon capture and storage technology as one of the key
technological options for decarbonizing fossil fuel. The report noted that international rulemaking
for measuring, reporting and verifying methane emissions will be required as Europe and the UnitedStates move to toughen restrictions on such emissions and that there are challenges regarding
CO2-free hydrogen/ammonia utilization initiatives on which hopes are growing towards realizing
carbon neutrality. Future relevant developments in the world would be worthy of attention.
Contact: report@tky.ieej.or.jp
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