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Vanand Meliksetian

Vanand Meliksetian

Vanand Meliksetian has extended experience working in the energy sector. His involvement with the fossil fuel industry as well as renewables makes him an allrounder…

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Japan Struggles To Diversify Energy Mix

LNG vessel

The percentage of renewables in the global energy mix has risen significantly over the years due to, for example, lower costs for photovoltaic cells. The improved financial position of wind and solar energy has been a boon for the fight against climate change. With the signing of the Paris Agreement in 2016, an accord was reached on dealing with greenhouse-gas-emissions mitigation, adaptation, and finance starting in 2020. Regardless, of the unilateral withdrawal of the United States, it was the first time that developed, and the developing countries agreed on measures to mitigate climate change.

An early attempt to unite the world in 1997 resulted in the Kyoto Protocol hosted by Japan. The event was an outspoken sign of Tokyo’s support for the fight against global warming. Recently, Prime Minister Shinzo Abe even published an op-ed in the Financial Times calling for other countries to “join Japan and act now to save our planet”. 

Despite Japan’s support for environmentalism, plans concerning the construction of another 7 GW of coal-fired power plants contradict Tokyo's intentions. Also, through its banks and international development agencies, the Asian country is financing a string of coal-fired power plants from Vietnam to Indonesia. The Japan Bank for International Cooperation is providing $5.2 billion in financing for six coal-related projects in southeast Asia.

Also, in the area of public relations, Japan is far from achieving its goals. During the 2017 United Nations Climate Change Conference held in Bonn, Germany, an international network of nongovernmental organizations awarded the Fossil of the Day ‘prize’ to Japan. The ‘winner’ represents the country that has done most to obstruct international negotiations on climate change mitigation.  

Tokyo has set itself the goal of reducing coal’s share in its energy mix to 26 percent by 2030 from 32 percent in 2016. Despite a short period of progress, CO2 emissions have been rising again after the tsunami of 2011 and the subsequent disaster at Fukushima which led to the closure of the country’s nuclear facilities. Related: Sources: Saudis Admit They Want $70 Oil

Japan emissions

To achieve its goals, Japan needs to significantly increase energy production from renewable sources and restart all reactors. Tokyo intends to increase the share of renewables in its energy mix to approximately 22-24 percent and nuclear power to 22 percent. However, significant technical, geographic, and financial hurdles constrain Tokyo in achieving these goals.

The Asian country faces monumental challenges due to its geography. The country's interior consists out of scenic but inhospitable mountainous areas while the majority of the population is restricted to narrow coastal territories. The rocky surface and the Japanese archipelago isolate metropolitan cities such as Tokyo, Osaka, and Kobe which increases costs to create a well-connected and efficient grid. Japan, therefore, lacks a national power grid and instead has ten service areas, each with its transmission network.

Furthermore, due to the problematic geography, Japan is having a hard time increasing its share of renewables compared to European countries. The mountainous terrain decreases the amount of suitable land in the vicinity of major cities for the installation of wind and solar power infrastructure. Offshore wind farms are also facing opposition from the country's powerful fishing lobby which has significantly hampered development.  Related: World’s 2nd Largest Oil Company Sees Huge Drop In Profit

On top of that, Japan is lacking energy resources of its own, which has resulted in a large energy import bill. The nuclear disaster at Fukushima and the closure of all facilities have increased demand for LNG which propelled Japan into becoming the largest importer of the fuel in the world. The rise of China and growing demand for LNG in India mean that regional competition for LNG will keep the price of this commodity elevated. To improve the security of supply, Japanese firms are encouraged to maintain a broad portfolio including coal.

Finally, it remains uncertain whether the companies operating Japan’s nuclear power plants will be able to restart the reactors in the face of increased public opposition and tighter regulation. Experts question whether the restart of the program is realistic given the technical, safety and cost hurdles involved. Failing to restart nuclear reactors will be a boon for coal-fired power plants (see figure below).

Nevertheless, multiple companies are developing alternative technologies that could change the energy mix of the Asian country. Japanese auto companies have been investing in fuel-cell vehicles for several decades. The government is supporting these efforts with plans for the construction of 160 hydrogen filling stations before the 2020 Tokyo Olympics. Furthermore, the Tokyo Electric Power Company Holding (TEPCO) and JXTG have announced the construction of the world’s biggest hydrogen stations in mid-2020 which could mean that predictions on Japan’s future energy mix will alter if these plans come into fruition.

By Vanand Meliksetian for Oilprice.com

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