Chapter 3
Japan's Economic Diplomacy to Promote National and Global Interests
Section 4 Promoting Resource Diplomacy along with Foreign Direct Investment in Japan
1 Securing a Stable Supply of Energy and Mineral Resources at Reasonable Prices
(1) Current Situation Concerning Energy and Mineral Resources in Japan and Abroad
A Situation in the World
Structural changes in the recent years have been seen in the international energy market with respect to three areas: (1) demand (consumption), (2) supply (production), and (3) resource selection. Regarding demand, global demand for primary energy has shifted toward non-OECD member countries, primarily China and India. With respect to supply, the U.S. became the world's largest producer of both oil and natural gas due to the “Shale Revolution,” and lifted its ban on crude oil exports in December 2015. The U.S. is promoting energy export policies such as further exports of U.S. liquefied natural gas (LNG) promotion under the Trump administration. As for resource selection, based on the fact that production and usage on energy account for about two-thirds of greenhouse gas (GHG) emissions, the transition to cleaner energy resources such as renewable energy is accelerating. In addition, since the Paris Agreement on climate change was adopted in December 2015, companies have made their efforts to further advance toward low-carbonization.
In oil markets, oil demand and prices have fallen significantly due to reduced movement of people and sluggish economic activity owing to the spread of the novel coronavirus disease (COVID-19). For the first time in history, oil prices dipped into the negative following a coordinated production cut breakdown by the Organization of Petroleum Exporting Countries (OPEC) Plus.1 OPEC Plus later agreed to begin a coordinated production cut in May and gradually resolved the excess supply problem. Furthermore, the supply-demand balance was improved and rising oil prices began trending up due to a recovery in oil demand in China and India, a continued coordinated production cut, and other factors, contributing to the continuation of a stable condition. However, uncertainty grows as COVID-19 continues to spread, muddying prospects for an energy demand recovery and fueling concerns of oil market instability. It is important that continued attention is paid to the impact of these oil price fluctuations on future energy security.
1 OPEC Plus consists of OPEC members and the world's major non-OPEC oil-exporting nations
B Situation in Japan
Since the Great East Japan Earthquake, the percentage of fossil fuels in Japan has reached about 90% of the country's power generation in 2012, up from about 60% before the earthquake, due to the shutdown of nuclear power plants. Japan's primary energy self-sufficiency ratio (including nuclear power), which relies on imports from overseas for almost all of its oil, natural gas, coal and other energy resources dropped sharply from 20% before the earthquake to 6.4% in 2014. It remains at a low level compared to other OECD countries despite a recovery to 11.8% in FY2018. Furthermore, nearly 92% of crude oil imported by Japan comes from the Middle East. With regard to LNG and coal, Japan depends less on the Middle East for oil but almost completely on Asia and Oceania (both 2019). Under the circumstances, efforts to secure a stable supply of energy at reasonable prices are becoming increasingly important.
Against this backdrop, the Cabinet decided on the “5th Strategic Energy Plan” in July 2018. Aiming to realize a stable, low-burden and environmentally compatible energy supply and demand structure under the 3E+S (“Energy Security,” “Economic Efficiency,” “Environment,” and “Safety”) principle, this Plan includes efforts aimed at utilizing renewable energy as the major power source and promoting energy system reform. It aims to steadily achieve the energy mix needed to realize a 26% greenhouse gas reduction by FY2030 (compared to FY2013). The Strategic Energy Plan will be reviewed at least once every three years, and discussions aimed at creating the next Strategic Energy Plan began in October 2020.
(2) Diplomatic Efforts to Secure a Stable Supply of Energy and Mineral Resources at Reasonable Prices
Securing a stable supply of energy and mineral resources at reasonable prices are the foundation for a vital Japanese economy and the livelihoods of its people. MOFA has been strengthening diplomatic efforts with a focus on the following activities.
A Gathering and Analysis of Resource-Related Information at Diplomatic Missions overseas
“Special Assistants for Natural Resources” have been appointed to 60 diplomatic missions overseas in a total of 53 countries to work intensively on the acquisition and stable supply of energy and mineral resources with a view to strengthening the function of diplomatic missions overseas, as of the end of 2020. MOFA also calls for “Strategy Meetings on Natural Resources” every year, which bring together officials assigned to diplomatic missions overseas with the objective to ensure stable supply of energy and mineral resources. Although the 2020 meeting was canceled due to the spread of COVID-19, the most recent meeting was held in Tokyo in February 2019 with attendants from the representatives from the relevant ministries and private-sector agencies. Active discussions took place on the international affairs surrounding energy and mineral resources, as well as on the direction of Japan's strategies in light of this situation. In addition, MOFA has been holding Regional Meetings on Energy and Mineral Resources for certain regions since 2017. At the 2019 meeting, held in Egypt, which was focused on the Middle Eastern region, participants discussed the importance of strengthening collaboration among MOFA, diplomatic missions overseas, and government-affiliated organizations, as well as Japan's policy for promoting energy and mineral resources, and renewable energy diplomacy effectively.
B Securing Transportation Route Safety
Piracy threatens the sea lane stretching from the Middle East to Japan, through which approximately 90% of all imports to Japan pass, as well as other internationally important sea lanes in places such as the Gulf of Aden and waters off the coast of Somalia. In response, Japan has supported the coastal countries along these lanes through such measures as enhancing counter-piracy capacities, cooperating on information sharing among countries concerned, and developing navigation facilities. Japan has also been dispatching Japan Self-Defense Force units and Japanese Coast Guard officers to areas off the coast of Somalia and the Gulf of Aden to engage in escort operations for any of country's commercial ships.
C Making Use of International Fora and Rules
Japan makes active use of international fora and rules to cooperate with the international community toward securing a stable supply of energy. While endeavoring to strengthen its capability to respond to emergencies such as disruptions in oil supply, Japan strives to quickly and accurately grasp information such as trends in the global energy markets and resource-producing countries, as well as revisions to the medium- and long-term outlooks for supply and demand.
In response to the impact on energy demand caused by the economic downturn brought about by the spread of COVID-19, the G20 Extraordinary Energy Ministers Meeting (virtual meeting) was held in April (with Minister of Economy, Trade and Industry Kajiyama Hiroshi in attendance from Japan). G20 ministers affirmed the significant adverse effects of the unstable energy market on the real economy and confirmed the intention to strengthen coordination as G20 in the interest of market stabilization and stronger energy security.
A G20 Energy Ministerial Meeting (virtual meeting) was held in September, chaired by Saudi Arabia, with State Minister for Foreign Affairs Washio Eiichiro in attendance from the Ministry of Foreign Affairs. At the meeting, ministers discussed issues such as the Circular Carbon Economy (CCE), energy access, and energy security and market stabilization, and a Ministers' Communiqué was issued as an outcome document. In response to the destabilization of the global energy market caused by the spread of COVID-19, the Ministers' Communiqué affirmed the importance of international cooperation toward strengthening the energy system, and of achieving safe, affordable and sustainable energy access. Ministers also reaffirmed the importance of transforming the energy mix toward achieving 3E+S (“Energy Security,” “Economic Efficiency,” “Environment” and “Safety”), which was established at the G20 Osaka Summit 2019.
In November, State Minister for Foreign Affairs Washio attended the Ministerial Forum on Africa co-chaired by the International Energy Agency (IEA) and African Union Commission (AUC). At the meeting, State Minister for Foreign Affairs Washio emphasized the importance of Japan's continued involvement in the improvement of energy access and investment in Africa, while also introducing Japan's efforts to achieve universal access to energy in Africa.
(3) Major Efforts Concerning Energy and Resource Diplomacy in 2020
A Consideration and Launch of New Energy and Resource Foreign Policy
At the 10th Session of the International Renewable Energy Agency (IRENA) Assembly held in Abu Dhabi (United Arab Emirates) in January, State Minister for Foreign Affairs Wakamiya Kenji made a speech on Japan's plans and efforts toward further promotion and expansion of renewable energy use, while also raising the issue of the need to dispose of large quantities of solar panels and other equipment beginning in 2030 as the equipment approaches the end of its service life. State Minister for Foreign Affairs Wakamiya also stressed, in relation to promoting further penetration of long-term and stable sustainable energy, the importance of thinking about and taking action now toward the issue of future disposals and not simply speeding the pace of new installations, while considering the environment.
State Minister for Foreign Affairs Wakamiya giving a speech at the 10th Session of the IRENA Assembly (January 11, Abu Dhabi, UAE)
B Study Tour of Carbon Recycling Facilities in Chiba and Fukushima Prefectures for the Diplomatic Corps in Tokyo
In March, MOFA conducted a study tour of CCUS2/carbon cycle facilities (CCUS/Carbon Recycling Study Tour) in the cities of Noda and Kashiwa in Chiba Prefecture and Iwaki in Fukushima Prefecture for the Diplomatic Corps in Tokyo, in cooperation with the Agency for Natural Resources and Energy, Tokyo University of Science, and the city of Iwaki, Fukushima.
In accordance with such initiatives as the Fukushima Plan for a New Energy Society, this study tour was held to inform the world of Japan's initiatives toward achieving decarbonization. Five embassy staff from five countries participated in the tour. In addition to attending the CCUS/Carbon Recycling Seminar held at the Noda Campus of the Tokyo University of Science, the participating diplomatic corps deepened their knowledge of the carbon dioxide reduction technologies of the Tokyo University of Science Photocatalysis International Research Center at the university as state-of-the-art technologies for achieving a carbon cycle. The corps also visited Hitachi Zosen Corporation in Kashiwa, Chiba and observed hydrogen production equipment and methanation test equipment, which produces methane from carbon dioxide and hydrogen. In addition, the corps visited Tomato Land Iwaki and Joban Joint Power Co., Ltd.'s Nakoso Power Plant in Iwaki to observe progressive agricultural initiatives being carried out with regard for a variety of environments, as well as the Integrated coal Gasification Combined Cycle (IGCC), which Japan prides itself on as being the world's most advanced clean coal technology.
2 CCUS: Carbon dioxide Capture, Utilization and Storage
C Start of Negotiations Concerning the Modernization of the Energy Charter Treaty
The Energy Charter Treaty (ECT), a multilateral treaty that entered into force in April 1998 (signed in 1995 and entered into force with Japan in 2002), was established as a legal framework for implementing the European Energy Charter, which called for promoting improvements based on market principles in the energy sector in the former Soviet Union and Eastern Europe following the collapse of the Soviet Union, as well as promoting trade and investment activities in the global energy sector. This treaty was signed by 52 countries and organizations mostly located in Europe and central Asia.
The ECT prescribes the liberalization of the trade and transit of energy source materials and commodities, the protection and liberalization of investments in the energy sector, and other matters. It ensures a stable supply of energy from supply countries to demand countries, contributes to improving energy security for Japan, which largely relies on other countries for energy resources, and provides an important legal foundation for further improving the investment environment for Japanese companies overseas.
For this treaty, which has been in force for over two decades since 1998, 2017 saw the start of discussions concerning modernizing the treaty by making necessary revisions. In December 2019, the decision was made at the 30th Meeting of the Energy Charter Conference to begin negotiations related to modernizing the ECT. Full-scale negotiations, in which Japan also actively engaged, began in 2020, with discussions held on such wide-ranging issues as investment protection, dispute settlement and commodity transit. Japan has also contributed to the development of the ECT as the largest contributor of assessed donations. This includes serving as chair for the first Meeting of the Energy Charter Conference in East Asia, which was held in 2016, and hosting the 27th Meeting in Tokyo. During the 31st Meeting of the Energy Charter Conference, which was held online in December 2020, State Minister for Foreign Affairs Washio shared a video message in which he emphasized the importance of the ECT in energy security and introduced Japan's initiatives regarding the recent energy situation.