Power Japan Newsletter - World Energy Investments, G7, Japan's Nuclear Fleet and Small Town Climate Hero
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This is the inaugural edition of the Power Japan Newsletter, where I share news and analyses on Japan’s energy transition and climate actions, usually in the broader global and regional context.
I began Power Japan on Substack and on note (the Japanese language counterpart) earlier this year as places where I take deep dives into the politics and economics of Japan’s clean energy transition. This newsletter is a way for me to share what I can’t always incorporate into these articles. There’s a tremendous changes surrounding clean (and not so clean) energy in Japan and Asia.
If you like this content, the best thing you can do is to share it, like it, and comment on it. If you have suggestions or questions, by all means, comment at the bottom or send me a message.
Without further ado…
On the Global Stage…
The IEA published an overview of energy investments…
The International Energy Agency published its World Energy Investment 2023 in May. In its own words, this report “provides a global benchmark for tracking capital flows in the energy sector and examines how investors are assessing risks and opportunities across all areas” of the energy industry.
Highlights for those of us living in wealthy countries are very encouraging
Clean energy investments are rising faster than ever. Globally, investments in renewables, energy efficiency, grids, and EVs have far surpassed investments in fossil fuels since 2020. Annual clean energy investment rose by 24% between 2021 and now, compared to 15% for fossil fuels.
4 factors are driving these clean energy investments. 1️⃣ improved economics at a time of high & volatile fossil fuels prices provoked by Russia’s invasion of Ukraine, 2️⃣ strong push of policy support (think IRA in 🇺🇸), 3️⃣ strong alignment of climate & energy security goals, and 4️⃣ a focus on industrial strategy as countries start competing in the emerging clean energy economy.
But these gains are unevenly spread. Advanced economies & China 🇨🇳 enjoy the vast majority of clean energy investments.
Finance is the main bottleneck. 78% of sustainable debt issuances and 52% of clean energy spending were in advanced economies in 2022. Financial flows into emerging & developing economies must scale up for a more broad-based energy transition.
Fossil fuel companies saw extraordinary profits in 2022. Fossil fuel investments rose by 15% in 2021-2023, Russia’s invasion of Ukraine constrained supply, raising fuel prices and sending revenues upward.
But less than half of those fossil fuel revenues will be reinvested into new supply. That’s because of uncertainties over long-term demand, worries about costs, and pressures from investors and owners to focus on returns rather than new production.
For Japan 🇯🇵 these trends were mixed. Boost in clean energy spending in Japan has been far less than in China, EU, and the US in 2019-2023. In fact, the spending increase in Japan is closer to that of India, Africa and Brazil than to other advanced economies.
But the IEA mentioned several developments in Japan that can contribute to increasing low-emission energy and energy efficiency like…
Its move to extend the lifetime of nuclear power plants beyond 60 years. But this has been a controversial issue inside of Japan.
Its investments in Australia in developing a supply chain for blue hydrogen (produced using coal gasification with carbon capture). My first gut reaction to this news isn’t very favorable, but I’ll reserve judgment until I know more…
Its target for 63% of new buildings achieving zero energy housing (ZEH) standard. The proportion of new green buildings increased from 19% of construction in 2018 to >34% in 2021.
Sustainable finance-related regulation, including around disclosures, sustainable lending and stewardship practices.
…and the G7 came and went.
The Group of Seven Meeting of Climate, Energy and Environment Ministers was held in mid-April, and the G7 Summit took place in Japan. Its communique re-affirmed the G7’s overarching “commitment to the Paris Agreement and keeping a limit of 1.5C° global temperature rise within reach through scaled up action in this critical decade” as well as to halt and reverse biodiversity loss.
On the energy transition, the G7 agreed on a number of important items:
Offshore wind. Increase capacity by 150GW by 2030
Solar power. Increase capacity to more than 1 TW by 2030
Power sector. Achieve full or predominant #decarbonization by 2035
Unabated coal. Accelerate phase-out, although the ministers couldn’t agree on an explicit timeline
Natural gas & LNG. New investments in this sector are “appropriate” given the supply constraints triggered by Russia’s invasion of Ukraine.
Critical minerals. Diversify the sources and supply chains for critical minerals – a nod to the fact that the energy transition will require massive amounts of critical minerals. An annex to the communique – “Five-Point Plan for Critical Minerals Security” – spells out the specifics.
Road sector. Predominant decarbonization by 2030 and net-zero emissions by 2050.
Nuclear energy. Nuclear has a role to play in enhancing energy security.
These agreements reflected the dual objective of achieving decarbonization and energy security in the face of recent geopolitical uncertainties. It also reflected significant differences in opinion between the G7 countries. As readers of Power Japan know, I discussed both the notable agreements and the tug-of-war between nations at the negotiating table.
IN AND AROUND JAPAN
Critical minerals partnerships are forged…
In keeping with the G7 agreement on critical minerals, Japan announced that it will assist the development of critical mineral resources with the G7 and other “like-minded countries” as part of its efforts to enhance economic security.
Tokyo secured a record supplementary budget of more than ¥200 billion (USD 1.4 billion) for mineral resources this year. This is the first budget of this kind.
Anticipating soaring demand for minerals like lithium, nickel, cobalt due to the accelerating energy transition, this budget will be used for equity investment and feasibility studies for mineral resources projects, especially in upstream to midstream developments in partner countries.
This move comes on top of Japan’s participation in the Minerals Security Partnership formed with the US, Canada, Australia, Finland, France, Germany, South Korea, the UK and the EU in 2022.
It also comes after Japan and the US announced an agreement in March to strengthen critical minerals supply chains for battery production, which may allow Japan to benefit from the US Inflation Reduction Act’s tax incentive measure.
As a country haunted by resource-scarcity, this and other tactics that ensure a diverse source of critical minerals is essential for Japan’s own clean energy transition. The key point here will be to require private-sector firms that make up the minerals supply chain to adhere to responsible mining practices, strict pollution control measures, and protect social and human rights. The G7’s Five-Point Plan hints at this, but standardized implementation will be a challenge.
…nuclear power plants get a new lease on life…
The upper house of Japan’s legislature passed the Green Transformation Electricity Decarbonization Act (🇯🇵).
The main thrust of this law is to permit the operating life of nuclear power plants that were paused for safety inspections and/or lawsuits to be extended beyond their 60-year limit. It also includes important provisions to promote renewable energy.
Following the Fukushima nuclear accident in 2011, all nuclear plants were paused. As of late May 2023, only 10 out of 54 reactors have been permitted to restart.
The government aims for nuclear power to account for 20-22% of the overall energy mix by 2030. This law constitutes one big step toward meeting that goal.
Coupled with the Green Transformation Promotion Act (🇯🇵) that was passed on May 12 this year, this legislation establishes Japan’s carbon neutral by 2050 framework. The latter law introduces a stricter carbon pricing system than had been the case so far.
Before the Fukushima disaster, nuclear power was Japan’s trusted source of clean base load power. While the government shut down all nuclear power plants after the disaster, the ruling Liberal Democratic Party has long sought to revive nuclear power. The global energy crisis, a sweltering summer and high heating costs domestically last year put wind in its sails. The Kishida administration also wants to build next-generation reactors to supplement the existing ones.
But there are many unresolved questions surrounding Japan’s use of nuclear power. A survey by one of Japan’s major newspapers found that 42% of respondents (🇯🇵) are against the use of nuclear power. That’s the lowest percentage since the Fukushima accident, but still a formidable segment of the population. What unsettles them are the risks in an earthquake-prone country, the storage of nuclear waste, and the worryingly frequent scandals involving nuclear plant operators.
…and a small town in Japan vows to become a climate leader
The residents and businesses of Hakuba, a village in Nagano Prefecture in central Japan, submitted a “Hakuba Zero Carbon Action Plan for 2030” on June 1 to the office of the mayor. Alarmed by the IPCC’s 6th Assessment Report’s warning that this decade’s actions will shape the next few thousand years, Hakuba residents drew up this plan over the span of six months.
A village of 9,000 people, Hakuba held the 1998 Winter Olympics. Now, climate change is dealing heavy blows to its ski resorts and agriculture.
The Plan spells out clear goals of achieving 68% reduction in CO2 emissions compared to 2016, increasing renewable energy capacity by 17.6 MW, enhancing energy efficiency and emissions reduction in buildings, transport, businesses, and energy.
It also couples these climate actions with human resources development and economic revival, something that small towns in the Japanese countryside are struggling to achieve.
Hakuba is only one of many villages, towns and prefectures taking proactive measures to become more sustainable and reduce their environmental footprint. I and many other Japan observers are often critical of Japan’s national government for its apparent foot-dragging on climate change. Seeing the people of Japan unite with local leaders to take climate matters in their own hands is truly a breath of fresh air.
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My goal for now is to send out the newsletter every two weeks. In the near future, I’ll also feature 2-3 in-depth studies by experts to help us get a better understanding of the news headlines.
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