Yukari Yamashita shares her insights on recent market dynamics and the need to balance between low carbon energy initiatives and driving economic recovery from COVID-19. She is also the Managing Director for the Institute of Energy Economics, Japan (IEEJ), in charge of the Energy Data and Modelling Center.
1. What is IAEE’s role in the global transition to a low carbon energy economy?
The IAEE was founded in 1977 in response to the 70’s global energy crises. As an association, the IAEE neither takes a position on political issues nor endorses any candidates, parties, or public policy proposals. My colleague and former President of the IAEE, Prof. Peter Hartley, from Rice University, often emphasises that although other perspectives are not excluded from our publications or conferences, “our attention is towards energy economics”. The IAEE does postulate that economic analyses and perspectives are useful and represent a productive way for approaching energy issues.
We have over 4,000 members, geographically distributed over about 100 countries. To ensure that a wide range of views are heard and discussed, the IAEE is happy to have academics, industry professionals, policy makers, and individuals from many different backgrounds and experiences in the energy field as its members.
The energy transition towards a low carbon energy economy is broadly acknowledged as shifting from burning molecules (fossil fuels) to using electrons (electricity), and is a challenging and difficult process across the world. With the clear goals of the Paris Agreement set five years ago, the speed at which decarbonisation is required has been accelerating, and the aim for carbon neutrality is recognised as essential by most governments. As each country faces different local challenges, solutions may not be universal. Collaboration among countries is essential to fast track our efforts to address these challenges. The IAEE is well positioned to take on the role of gathering diverse views and different perspectives on how to address these new challenges.
2. As the world looks to recover from COVID-19, what needs to be done to foster new financing models and policies to build a low carbon energy economy in the Asia Pacific region?
COVID-19 has impacted all levels of society. Some of the weakest economies have been so severely hit that the pursuit for low carbon energy economy may appear incompatible with a quick or even slow economic upturn. The signs of recovery from the devastating economic effects of the pandemic must be clearly visible on the horizon before some countries will start re-introducing climate policies.
There exists a series of financial guidelines readily available to address climate change issues, such as the Task Force on Climate-related Financial Disclosures (TCFD) guidance, the UN Principles for Responsible Investments or Sustainable Development Goals (SDGs). Firms and companies have been rushing to declare divestment from fossil fuel projects, under pressure from financial sector to meet such guidelines. The impression is that a paradigm shift towards a low carbon society has already started to happen.
After the hit from COVID-19, it is difficult to imagine the adoption of new financing models and policies to build a low carbon energy economy in the Asia Pacific region while most of it is still in a recovery mode. Some countries announced their plans to increase the use of coal, which would have long-term implications on decarbonisation efforts.
“A world recovering from Covid-19 will face increased financial constraints. It is therefore even more essential that resources devoted to decarbonisation be expended prudently. I would suggest that prudence requires not just a local but a global perspective”, advised my colleague, Prof. Adonis Yatchew, the editor-in-chief of one of IAEE’s prominent flagship journals — The Energy Journal. I fully agree with him that transferability of technologies to other jurisdictions, especially to low-income countries, is key and should be part of any policy evaluation mechanisms.
Funds need to be spent on research and development of technologies that are likely to be adopted in developing economies where energy demand is growing rapidly. The funds should not simply be spent on multi-billion dollar technologies which reduce carbon output domestically but are not transferable.
3. Many companies and analysts have claimed that we have reached the peak of crude oil and overall fossil fuel demand. What is your view and the implications for a low carbon energy transition in Asia?
I think it is way too early to claim we have reached the peak in fossil fuels demand. Given the current blow on ground and air transportation demand, it seems very likely that we have reached a temporary peak in oil demand. However, we are years away from a true peak because as the economies grind their wheels again, people may hold on to their older cars a little longer and industries may also hold on to their current technologies.
As for gas or coal, I doubt the region is even close to a peak. Former President of the IAEE and Professor Emeritus of Norwegian School of Economics and Business Administration, Einar Hope, shared with me that natural gas, with a much lower carbon footprint, will play a key role for energy transition. Unfortunately, knowing if we are at the oil, gas or coal peak or not, may not mean much if the goal is to be carbon-free.
Oil suppliers and companies are already in the middle of a perfect storm, anticipating a serious drop in demand. How we respond after reaching the peak is very important for both the consumers and the suppliers. With a peak in oil demand, investments for maintaining upstream production may rapidly disappear, resulting in a real supply shortage.
IEEJ produces an annual energy outlook and continuously reports the rising trend of Asia as the world growth centre. While energy consumption in Asia is expected to rise, indigenous energy is rapidly facing a shortage; former energy exporters are now becoming importers. Unlike what is happening elsewhere, Asia’s dependence on Middle East oil is steadily increasing. As energy security is an important factor, the geopolitics and stability of the Middle East remain a concern.
It is too simplistic to assume that decarbonisation can happen simply by switching to renewable energy. We need to face the reality that demand for fossil fuels will remain for the coming decades, thus consolidated wisdom and collaboration is needed to accelerate the energy transition process.
4. What are the opportunities for new advances in hydrogen and fuel cell to drive the momentum towards decarbonisation?
Hydrogen has two advantages. One, it can serve as storage for renewable energy and be used for power generation. Second, hydrogen can be transported. The IEEJ has been advocating the hydrogen society for many years and we work closely with the Middle East on technologies that would benefit both fossil fuel producers and energy consumers.
I moderated a SIEW Thinktank Roundtable on this subject a few years ago. Since then, the situation surrounding hydrogen has advanced hugely. Nowadays, different colours are associated with hydrogen. Green hydrogen refers to hydrogen produced by electrolysis with renewable electricity or nuclear. Blue hydrogen is produced from fossil fuels, combined with carbon capture and storage (CCS), carbon dioxide enhanced oil recovery (CO2-EOR) or carbon capture, utilisation and storage (CCUS).
Many countries have developed strategies to promote the use of hydrogen. This includes France, Netherlands, New Zealand, Australia, Norway, Germany, and the EU. Some of these countries only consider green hydrogen while others consider blue hydrogen for meeting short to mid-term targets and green hydrogen for the long-term. Saudi Arabia — the current G20 president — is working with Japan to showcase the potential of hydrogen. We hope to demonstrate the effective transportation of carbon-free ammonium as a carrier of hydrogen by the end of this year.
From the viewpoint of an energy importing country like Japan, the concept or availability of carbon-free hydrogen presents great opportunities for a wider variety of energy choices in a decarbonised world. Japan is looking forward to importing carbon free (green or blue) hydrogen. As transporting hydrogen is still costly, we are happy to collaborate in the development of technologies to make hydrogen of both colours available at lower cost. For the hydrogen market to develop faster, we could first create a market and induce demand with blue hydrogen to reduce costs, in preparation for green hydrogen.
From the traditional energy supplier’s point of view, hydrogen presents promising opportunities to generate revenue. The producers could utilise their fossil fuel assets to produce blue hydrogen and lower the CO2 footprint by utilising it in their upstream operation. They could also develop their renewables energy resources to produce green hydrogen.
Through collaboration and eventually through competition, I hope that a variety of methods for hydrogen production, transport and usage will be realised on a commercial scale in the near future. This will widen the usage of hydrogen, not limited to power generation or transport, but to include industrial use for us to get closer to a decarbonised world.
5. The theme for SIEW 2020 is Creating Our Low Carbon Energy Future Together. What do you look forward to discussing at SIEW this year?
For the moment, the realities of COVID-19 outweigh the ambitions of Creating Our Low Carbon Energy Future. I am hoping for the opportunity to hear and learn about policies and measures that would equally work towards resolving both.
COVID-19 and a Low Carbon Future are both calling for a push on the “restart button”. We need a clean and fresh new beginning.
About Yukari Yamashita, President of the International Association for Energy Economics (IAEE)
Yukari Niwa Yamashita is the Managing Director for the Institute of Energy Economics, Japan (IEEJ), in charge of the Energy Data and Modelling Center. She is responsible for quantitative and qualitative analyses on energy policy issues. Her team’s analyses and recommendations contribute greatly to debate and policy making for Japan and international communities such as ERIA, APEC and IEA. The annual IEEJ's Outlook is globally recognized for its timely analyses and pragmatic approach towards climate change.
She has been serving as a member of various government councils and committees in the fields of energy and science & technologies. She has been leading miscellaneous international and regional programs in the area of energy cooperation through IEA, APEC, ERIA and IPEEC. She is an independent director, a board member of a Japanese oil company and a visiting professor at Kyushu University. She is currently the President of the International Association for Energy Economics (IAEE), of which she has been a member since 1986.