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12 November 2006 Powering up a nation: Energy security in Japan and AustraliaThis year marks the Australia-Japan Year of Exchange, which celebrates 30 years since the signing of the Basic Treaty of Friendship and Co-operation. Back in 1976, Japan, still reeling from the first oil shock of 1973, was forced to revise its approach to energy security. Australia’s oil supply, on the other hand, remained largely uninterrupted, which did little to encourage any rethinking of energy policy. Fast forward to 2006, and the energy situation is looking no better. The peak oil debate and increasing tensions in the Middle East have pushed up the price of crude, and just about every natural resource is in high demand and tight supply. Meanwhile, global warming is presenting unprecedented challenges for governments worldwide. It seems, then, an appropriate time to compare the energy security and climate change policies of Japan and Australia, and to look at what solutions they may be able to offer each other. The Home of the Kyoto Protocol: Japan’s New National Energy StrategyJapan has always relied heavily on imported fuels for energy production, but when the first oil crisis of 1973 hit, it was largely unprepared, with no stockpiles, and very little capacity to use alternative fuels. It was a hard lesson, but it led Japan to formulate three principles to underpin its future energy security policy: Japan would need to diversify its resources, reduce its dependency on oil, and increase its energy efficiency.
According to the Ministry of Economy, Trade and Industry (n.d.), Japan has reduced its use of oil for primary energy generation from 77 per cent to 52 per cent since that time. Energy efficiency has grown by 37 per cent in the same period, making Japan the most energy efficient nation in the developed world (Ministry of Economy, Trade and Industry 2006, p. 17). But these successes are not enough: Japan still imports 88 per cent of all its oil from the Middle East, and faces ever-increasing competition for resources from the United States, China and India (Ministry of Economy, Trade and Industry 2006). In addition, an increase in the worldwide demand for the raw materials needed for manufacturing is beginning to squeeze the economy and the international competitiveness of Japan’s private sector. In May 2006, the Ministry of Economy, Trade and Industry of Japan (METI) responded by releasing the New National Energy Strategy (NNES), a revised energy security policy. The policy has three main objectives: to establish energy security measures, to create a foundation for sustainable development through funding of innovative technologies, and to make a firm commitment to improving the energy efficiency of its Asian neighbours. As an extra challenge, the policy demands that Japan achieves its energy security objectives while adhering to its Kyoto Target Achievement Plan. Supplying Demand: Increasing Japan’s Investment PowerJapan needs to understand the global supply-demand structure if it is to succeed in its energy security plans. Stable oil prices throughout much of the 1980s and 90s led to a steady increase in demand, particularly from the United States and China, while the low prices failed to encourage upstream investments into supply infrastructure, such as pipelines (Ministry of Economy, Trade and Industry 2006, p. 1). International demand has the greatest potential to divert resources from Japan, and has already been evident in China’s aggressive acquisition of oil and gas reserves worldwide through companies such as the China National Offshore Oil Corporation (CNOOC). However, neither China nor India, which have the world’s fastest growing economies, have experienced an oil shock, and if they do, a panic in the crude oil trade might ensue. According to Mr Shigeo Naruse, Director of the Fuel Policy Planning Office for METI’s Agency for Natural Resources and Energy, ‘There’s a great possibility that China can buy oil at a higher price than the market price [and] this [could create] trouble in the market. This is one of the vital risks for security’. The NNES stresses that Japan must increase investment capability among its corporations, particularly within the energy sector. In a bid to create a Japanese competitor for some of the world’s largest oil and gas companies, INPEX Corporation and Teikoku Oil became wholly owned subsidiaries of INPEX Holdings in April 2006 (INPEX 2006). As Mr Naruse explains, Japan needs to address its ability to compete with the majors such as BP, ExxonMobil, or Royal Dutch Shell. ‘They are very big, which means big money, so larger investments are possible’, he said. ‘Unfortunately in Japan, we don’t have that big, major oil company, so in order to explore or develop overseas, we have to have a lot of money, and a lot of information on technology’. The Japanese government holds a 29.3 per cent stake in INPEX Holdings (Ministry of Economy, Trade and Industry 2006), and with capital currently sitting at 30 billion yen, the recent merger is an example of what Japanese government and private sector co-operation is capable of achieving (INPEX 2006).
The merger will also enable Japan to realise another of its NNES goals—to increase the ownership of its imported oil from the current 15 per cent to 40 per cent by 2030 (Ministry of Economy, Trade and Industry 2006, p. 14). Currently, INPEX Corporation holds 75 per cent operating rights in Iran’s Azadegan oil field, one of the largest untapped reserves in the world (Wahlin & Natsuda 2006, p. 6). Other corporations have been increasing their rights in liquefied natural gas (LNG) projects in nations that have some of the world’s largest gas reserves, including Qatar and Indonesia. In Australia, Japan Australia LNG (MIMI), a joint venture between Mitsubishi and Mitsui & Co., owns one-sixth of the North West Shelf gas project, as well as the North West Shelf Shipping Services Company that delivers the resource to market. Interestingly, Japanese companies also built all but one of the LNG tankers that make up the fleet of nine (Woodside Petroleum 2006). Their investment capability infiltrates the whole supply chain: from feasibility studies to project construction, from operation to delivery. The Kyoto Protocol Mechanisms: Japan’s Big WindfallThe New National Energy Strategy emphasises that diplomatic ties with supply nations are essential in securing its future energy needs. Japan has long used Official Development Assistance (ODA) to create those ties, but the investment power of the Kyoto Protocol Mechanisms are providing the Japanese private sector with far greater investment reach (Wahlin 2006, p. 46). Written into the protocol to increase the economic viability of reducing greenhouse gas emissions, the mechanisms include Joint Implementation (JI), which are projects between two developed nations; Carbon Trading, which sells and buys carbon credits equivalent to a tonne of CO2; and the Clean Development Mechanism (CDM), from which a developed nation can earn carbon credits by investing in a sustainable development project that reduces CO2 in a developing country. The clean development mechanismAlthough Japan must implement domestic measures under the protocol, its domestic abatement cost is extremely high when compared with other nations. ‘According to one estimate’, explains Mr Hisane Misake, a Tokyo-based scholar and commentator on international politics and economics, ‘it costs Japan about US$110 to eliminate a ton of carbon, compared with about $80 for Europe and $50 for the United States, on average’. Investing in CDM provides an economical avenue for Japan to reduce its emissions, while also enabling them to increase diplomatic ties with developing nations. Further, by increasing the energy efficiency of a developing country, resource demand is also stemmed. To date, nearly 50 CDM projects have received METI support, and this number is expected to rise sharply with the recently amended Kyoto Target Achievement Plan. The new law gives the New Energy and Industrial Technology Development Organisation (NEDO) the power to buy carbon credits on behalf of the government, and will invest a large proportion of its US$100 million budget in CDM projects (Wahlin 2006, p. 46). Mr Takio Aiba, Deputy Director of the Policy Planning Department of Environmentally Sustainable Development for the Development Bank of Japan, said the CDM has significant potential for combating climate change in the long-term. ‘CDM is quite important to stimulate activities in developing countries, especially China or India, with rapidly growing economies’, he explained. With Japan’s technology and investment capability combined, CDM is an effective vehicle for increasing the energy efficiency of its neighbours. Trading in carbonThe Development Bank of Japan (DBJ) and the Japan Bank for International Co-operation (JBIC) have jointly created the Japan Greenhouse Gas Reduction Fund (JGRF), into which all 55 major utility companies in Japan have invested funds for the procurement of carbon credits. Joining them are some of Japan’s major corporations spanning the manufacturing, oil, engineering, and trading sectors. To date, JGRF manages investment funds totalling US$145.5 million, over half of which has already been allocated to projects (Aiba 2006).
Unlike the European Union, Japan has not set mandatory targets for industry, and has not instigated a domestic trading scheme, a decision that has been unpopular among environmental groups, such as the World Wildlife Fund, and the Ministry of Environment, whose preferred plan of a carbon tax has been stringently opposed by Japan’s business federation, Keidanren. Instead, industry has taken up voluntary targets, the energy sector committing to a 20 per cent reduction (Wahlin 2006, p. 46). Unfortunately, the targets are becoming elusive. In a September report by Point Carbon (2006), the Japanese energy sector announced that its emissions had increased by 3 per cent in the fiscal year 2005. Companies must now use the Kyoto Mechanisms more aggressively if they are to reach their target by 2010. This means that Japan, already a major investor in the world’s carbon market, will be throwing even more investment funds into the arena, particularly because those targets are so heavily reliant on the smooth operation of Japan’s burgeoning nuclear power industry, which has been far from incident-free. In 1999, for example, all seventeen reactors in Tokyo Electric Power Co’s (TEPCO) network suspended operation, after they admitted to falsifying safety records. This required a return to thermal power generation, and a subsequent 4.9 per cent increase in CO2 emissions (Wahlin 2006, p.46). There has also been a spate of accidents in recent years, the most serious at the Mihama plant in Fukui prefecture in Japan’s west, in which a burst pipe killed five workers (Buckley 2006). Despite growing concern from many Japanese citizens, the NNES outlines an increase in nuclear power generation from the current level of 30 per cent to 40 per cent by 2030, and also suggests that nuclear power should be added to the CDM framework (Ministry of Energy, Trade and Industry pp. 14–24). This could have a two-fold effect: if Japan increases its CDM investment in the nuclear industry, there would be a sharp rise in the number of reactors across the Asian region, raising the world demand for uranium and creating problems with waste control. Secondly, it would almost certainly divert money away from more sustainable projects, such as solar and wind. Japan’s approach to energy security and its commitment to the Kyoto Protocol has been somewhat successful, in that it has made large inroads into reducing the nation’s dependency on oil, diversified its resources, and been exemplary in its energy efficiency achievements. But Japan’s increasing reliance on nuclear power has clearly presented other problems. The nuclear industry has been given a new lease on life with the onset of global warming, because nuclear power produces low carbon emissions. However, Japan’s push for nuclear to be added into the CDM network could place a ‘clean’ tag on something to which it doesn’t really belong: the nuclear industry still presents some serious environmental and biological hazards. Given these developments the recent emergence of a nuclear power debate within Australia, instigated by Prime Minister John Howard, is concerning. Australians would do well to take into account Japan’s nuclear power history, and at the same time, ask why investors in renewable energy projects are packing up and heading offshore. Australia: A Love Affair of Jurassic ProportionsIn 2004, the Australian Federal Government released its White Paper Securing Australia’s Energy Future (Department of Prime Minister and Cabinet 2004). Within its pages, Australia is painted as a nation with an enviable energy security position, but there is no recognition that a move away from fossil fuel dependency is necessary for achieving both energy security and mitigating climate change. According to the Bureau of Meteorology (2006), last month was the hottest and driest October on record for New South Wales, and the deepening water crisis is alarming. The Federal Government’s policy resembles the boy with his fingers in the dyke, trying to plug simultaneous drought disasters, cyclones, and water shortages without seeming to realise they are intricately connected. Adamant that Australia has little impact on the world’s CO2 levels, John Howard’s refusal to ratify Kyoto is a failure to recognise that Australia’s per capita ‘carbon footprint’ is the second largest in the world after the United States (Hunt 2004).
Attempts to explore Australia’s energy security needs are having trouble gaining a foothold in Australian political debate. Greens Senator Christine Milne recently tried to establish an energy enquiry, which would have incorporated the most basic step of agreeing upon a nationally recognised figure for dangerous, anthropogenic climate change. The government voted against the inquiry, so it did not proceed. ‘I regard this as a strategically critical issue for Australia’, Ms Milne told the Senate in June this year, in response to the government’s decision. ‘There needs to be an integrated industry, energy, employment and environment strategy’ (Milne 2006). This lack of strategic planning places Australia in a vulnerable geopolitical position over the next few decades. The Australian Government persists in favouring maintenance of fossil fuel based economy, as laid out in the charter of the Asia Pacific Pact on Clean Development and Climate (AP6), of which Australia is a member. Australia to date has committed $100 million over five years to AP6, 25 per cent of which is earmarked for renewable technology (amounting to around $5 million per year) (Barker & McKenzie 2006). The United States has committed a paltry US$52 million towards implementing the AP6 Work Plan. When stacked up against the possible US$100 billion the United Nations Framework on Climate Change (2006) estimates will be the future JI/CDM project investments, the effort amounts to little more than hot air. Australia’s role in AP6 is largely concerned with investigating clean coal technology, CO2 sequestration and LNG/natural gas opportunities across the Asia-Pacific region, and it’s clear why. Clive Hamilton (2006), in his Milthorpe Lecture at Macquarie University in June this year, said:
Unfortunately, however, clean coal technology and sequestration are estimated to be at least 25–30 years away from commercialisation, leaving a large hole where a short-term plan needs to be. In real terms, that means that a brown coal power plant, such as the Hazelwood plant in Victoria’s La Trobe Valley, which is one of the dirtiest plants in the developed world, will continue to pump out approximately 17 million tonnes of CO2 a year (Australian Conservation Foundation 2006). Renewing the Debate on RenewablesSpeaking from his office in Tasmania, Roaring 40s spokesman, Josh Bradshaw, laments the current course of Australia’s renewable energy industry. ‘In May this year we made an announcement that we were suspending several projects in Australia’, he explained. Like other renewable energy businesses in Australia, Roaring 40s is struggling to survive after the Australian government pulled the rug from under the rapidly expanding industry with its decision not to extend the Mandatory Renewable Energy Target (MRET) in 2004. Instead, the company, which specialises in wind farm developments, has found more lucrative offers in China, and is now part of a $300 billion joint venture with the power utility China Datang Corporation. The MRET scheme was widely applauded when it was introduced in 2001. It required the sourcing of 9500 GWh, or 2 per cent, of extra renewable electricity per year be generated from 2010 to 2020 (Hill 2004). Australia quickly saw a booming renewable energy sector. ‘It was very successful’, said Mr Bradshaw. ‘It really stimulated investment here in Australia in the renewable energy industry’. What happened, he explained, is that the scheme was so successful that its fifteen year life span was quickly subscribed, and the industry grew very quickly in the first few years. ‘By about 2004 there was a recognition that it was working very well, but there was going to have to be some kind of an extension to it … to allow that growth to continue over time’.
At the time, then Acting Minister for the Environment and Heritage, Robert Hill, released a statement that applauded MRET as ‘a key plank in achieving Australia’s 108% emissions target and in positioning Australia for a lower greenhouse signature’ (Hill 2004). However, this had little effect on the final decision on the scheme. The results of the government-initiated inquiry into MRET were contained with the October 2003 Tambling Report, and largely echoed what the industry already knew—that the scheme was indeed successful and should be extended. According to Josh Bradshaw, the industry anticipated that the extension would be at least four or five per cent. He said recently:
In a September sitting of Parliament this year, Mr Howard said of the Kyoto Protocol: ‘I am never going to support something that will result Australian industry and Australian jobs being exported from Australia to countries like China and Indonesia’ (Howard 2006). However, the decision not to extend MRET has done exactly that. The lure for renewable energy companies to China is not merely the size of the market, but also potential access to investment funds that the CDM provides, as well as the measures put in place by the Chinese government. Josh Bradshaw believes that Australia has the potential to become a manufacturing hub for the world in renewable energy technology, but warns that Australia should take care not to let intellectual property slip overseas, after years of R&D investment, because of a lack of domestic commercialisation incentives. ‘We do have the expertise and we are developing the knowledge and technical expertise, particularly in wind energy, but also in other renewables like solar and potentially geothermal and biomass, to be able to export that to the world’. He says MRETS was fostering this kind of economic growth. ‘You’d see the cell factories and blade factories beginning to be established in Australia for the wind industry, but without that long-term security of investment in the industry in terms of a long-term measure from the federal government, those places are beginning to shut down’. The potential for Australian manufacturing in the renewable energy business is staggering, despite the rapid decline of traditional manufacturing sectors such as steel. Australia is now at a crucial moment in its economic history, and has the potential to shift from a primarily resource dependent economy, to one based on high-skills manufacturing. In his speech ‘Avoiding Dangerous Climate Change’ (2006) in September, Shadow Minister for Environment and Heritage, Anthony Albanese said: ‘There’s a trillion-dollar emerging industry in renewable energy technologies, and we are not part of it’. Mr Albanese has been at the forefront of a Labour campaign which promises, if they reach the Lodge next year, not only ratify Kyoto, but also increase the MRET scheme up to as much as 8 per cent. Howard has long argued that Kyoto will remain ineffectual while developing nations have no set targets. However, while China has no set target, is has increasingly seized on the opportunity to invest in the renewable energy industry in preparation for its expanding energy needs. According to Josh Bradshaw, China has set its own ambitious targets for increasing the percentage of renewable energy—up to 15 per cent by 2020. ‘To put that into context, that means two-thirds of Australia’s current energy generation’. Conclusion
The recent report, ‘The Business Case for Early Action’ (2006), released by the Australian Business Roundtable on Climate Change, emphasises the critical need for the government to put a short-term plan in place immediately. The Prime Minister claims he has ‘seen the summary and [is] aware of the broad thrust’ of it (Howard 2006). The group, comprised of some of Australia’s largest corporations, including Westpac, Origin Energy, Insurance Australia Group, BP Australasia, Swiss Re, and Visy, first commissioned independent research from the CSIRO to quantify climate impacts on Australia. Then the group took the findings to the Allen Consulting Group to ascertain what it will cost Australia to substantially reduce its greenhouse gas emissions as part of an international response, and compared the costs of early and delayed responses. The CSIRO concluded that Australia needs to reduce its emissions by 60 per cent or more by 2050 in order to avoid the dangerous effects of climate change. Importantly, the report found that, despite the government’s beliefs to the contrary, such a reduction is possible while still maintaining strong economic growth. Under the early action scenario, GDP would continue to grow by 2.1 per cent per annum, while under the delayed scenario, it would be only a slight increase of 2.2 per cent. Delayed reaction, on the other hand, is projected to cause a major disruptive shock, when deeper cuts needed to accelerate CO2 emissions are implemented. This would bring the GDP growth down to 1.9 per cent. In other words, cuts made gradually over a longer period of time will be more cost effective, when compared to delayed action that requires a delayed spending spree in later years. The implications for employment are under the early action scenario are also impressive, with an estimated 3.5 per cent job increase from 2013 to 2050, equating to 250,000 more jobs than if action was delayed (Australian Business Roundtable on Climate Change 2006, pp.4–6). Even if clean coal technology is a roaring success in 30 years time, Australia still needs a comprehensive short-term plan that incorporates the immediate commercialisation of its renewable energy technology. There are ample studies that suggest waiting until a network of nuclear reactors are built, or clean coal technology is fully implemented, will cost Australia dearly, both economically and environmentally. Looking to Japan’s policy successes and failures, as a nation that has weathered its fair share of energy crises, would serve Australia well, particularly in the areas of energy efficiency, diversification of resources, and the creation of a high-skills manufacturing sector for renewable energy. Coupled with the future potential of clean coal technology, Australia would have much to offer Japan in return. In short, there’s no reason why Australia cannot have its coke and eat it too. INTERVIEWSMr Takio Aiba, Deputy Director of the Policy Planning Department of Environmentally Sustainable Development for the Development Bank of Japan (March 2006 and September 2006). Mr Josh Bradshaw, Communications Manager, Roaring 40s, Australia (26 September 2006). Mr Hisane Misake, commentator on International politics and economics, journalist (March 2006). Mr Shigeo Naruse, Director of the Fuel Policy Planning Office, Agency for Natural Resources and Energy, Ministry of Economy, Trade and Industry, Japan (June 2006, September 2006). Dr Hiroshi Yamagata, Director of Environmental Affairs, Ministry of Economy, Trade and Industry (March 2006). REFERENCESMinistry of Economy, Trade and Industry, Japan, n.d., Measures and Policies [Online], Available: http://www.enecho.meti.go.jp/english/policy/policy/in_japan.html [2006, Oct 1]. Aiba, T. 2006, DBJ’s Environment Activities & Japan’s Climate Change Policy, slide presentation for the Meeting of the UNEP FI Climate Change Working Group 2006, Munich, Germany, 22 February. Albanese, A. 2006, Avoiding dangerous climate change, Transcript of speech to Shortland FEC, Swansea RSL Club, Swansea, 24 September. Australian Labour Party. Australian Bureau of Meteorology 2006, NSW October 2006: Hottest and driest October on record, Media release, 1 November [Online], Available: http://www.bom.gov.au/announcements/media_releases/nsw/20061101nsw.shtml [2006, Nov 7]. Australian Business Roundtable on Climate Change 2006, The Business Case for Early Action, April [Online], Available: http://www.businessroundtable.com.au/pdf/F078-RT-WS.pdf [2006, Sep 27]. Australian Conservation Foundation 2005 (5 September), Green groups to fight Hazelwood new coal application, Media release, 5 September [Online], Available: http://www.acfonline.org.au/news.asp?news_id=551 [2006, Sep 18]. Buckley, S. 2006, ‘Japan’s Shaky Nuclear Record’, BBC News, 24 March [Online], Available: http://news.bbc.co.uk/2/hi/asia-pacific/3548192.stm [2006, Oct 26]. Department of the Prime Minister and Cabinet, Energy Task Force 2004, Securing Australia’s Energy Future [Online], Available: http://www.dpmc.gov.au/publications/energy_future/index.htm [2006, Aug 20]. Hamilton, C. 2006, Transcript of the Milthorpe Lecture, Macquarie University, ‘The political economy of climate change’, Sydney, 8 June. Hill, R. 2004, Mandatory renewable energy target to continue, 16 January, Media release No. 9/2004 [Online], Available: http://www.minister.defence.gov.au/Hilltpl.cfm?CurrentId=3435 [2006, Sep 12]. Howard, J. 2006, Prime Minister Howard, Answer to Questions Without Notice, Hansard, House of Representatives, Parliament of Australia 11 September, p. 39 [Online], Available: http://www.aph.gov.au/hansard/reps/dailys/dr110906.pdf [2006, Nov 9]. Hunt, C. 2004, ‘Australia’s greenhouse policy’, in Australasian Journal of Environmental Management, vol. 11, no. 2, June 2004, pp. 156–163. INPEX Holdings, Japan 2006, Company Overview [Online], Available: http://www.inpexhd.co.jp/english/company/cmpny_overview.html [2006, Sep 19]. Milne, C. 2006, Transcript of speech to the Australian Federal Senate Committee on the proposed energy inquiry by Environment, Communications, Information Technology and the Arts Reference Committee, 20 June. Ministry of Economy, Trade and Industry, Agency for Natural Resources and Energy, Japan 2006, Energy in Japan 2006, [Online], Available: http://www.enecho.meti.go.jp/topics/energy-in-japan/energy2006E.pdf [2006, Nov 6]. Ministry of Economy, Trade and Industry, Japan 2005, The Kyoto Target Attainment Plan, Tokyo, Japan. Ministry of Economy, Trade and Industry, Japan 2006, New National Energy Strategy (Digest) [Online], Available: http://www.enecho.meti.go.jp/english/data/newnationalenergystrategy2006.pdf [2006, Jul 5]. Point Carbon Market Online News Service 2006, ‘Power sector emissions up in Japan’, Point Carbon, 12 September [Online], Available: http://www.pointcarbon.com/Home/News/All%20news/Energy%20&%20Emissions [2006, Sep 26]. Tambling, G., Laver, P., Oliphant, M. & Stevens, N. 2003, Renewable Opportunities: A Review of the Operation of the Renewable Energy (Electricity) Act 2000 [Online], Available: http://www.mretreview.gov.au/report/index.html#summary [2006, Nov 9]. United Nations Framework on Climate Change 2006, Annual green investment flow of some 100 billion dollars possible as part of fight against global warming, Media release (Riyadh, 19 September) [Online], Available: http://unfccc.int/files/press/news_room/press_releases_and_advisories/application.pdf [2006, Sep 20]. Wahlin, W. & Natsuda, K. 2006, ‘Power sourcing: Japan’s race for resources’, Japan Inc, Autumn 2006, no. 69, p 4–7. Wahlin, W. 2006, ‘Japan: Land of the rising target?’, Japan Inc, Summer 2006, no. 68, p 44–47. Woodside Petroleum, Australia, North West Shelf Venture [Online], Available: http://www.woodside.com.au/Regions/Australia+and+Asia/Producing+assets/North+West+Shelf [2006, 20 Aug]. Willhemina Wahlin is a staff writer and editor for Japan Inc Magazine, and is based in Tokyo, Japan. Her previous articles on energy issues can be found on the Japan Inc website http://ww.japaninc.com. |
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