Michael Liebreich
I want to start if I could on the state of the world. Have you ever seen in your time working on energy an analogous situation? How can we learn from history?
Nobuo Tanaka
Well, very good question, Michael. I joined METI (Japan’s Ministry of Economy, Trade and Industry) in 1973 when the first oil crisis happened. But, you know, the current crisis is much more than that. Fatih Birol has said it's the first global energy crisis, because it's not only an oil shock, it's not only coal, it's not only gas, it's electricity. So, this is a total energy crisis, very complicated, connected. The invasion by Russia into the Crimea in 2014 was the turning point because Europe suddenly reacted with sanctions, but that wasn't enough, and the gas dependency of Europe continued to increase, Nord Stream 2 continued. So, I think Europe sent a terrible message to Russia, this is a mistake of Angela Merkel. Phasing out nuclear power after Fukushima, too much dependency on gas from Russia, reducing coal… I mean, it's necessary politically at that moment, probably. But her decision triggered this geopolitical crisis of the current situation. A couple of days ago, the IEA World Energy Outlook 2022 said that the golden age of natural gas is closing. This surprised me a lot. The price of gas is very high, but because of the acceleration of Europe moving away from gas from Russia means Russian importance in the gas trade will decline dramatically, the demand for gas even may eventually level off toward 2030. And peak demand for total fossil fuel, including oil, gas, and coal will level off or decline, maybe even in a few years’ time. I think this energy crisis will probably subside when Russian gas finds an alternative destination by enhanced gas pipeline to China, or more LNG facilities to move gas from Russia to Asia. But the climate crisis, together with European independence from Russia will create a huge energy structural change. That is the current IEA's analysis, and I cannot agree more; this is a huge energy restructuring.
Michael Liebreich
You've just given a fantastic synopsis, not just of the IEA's output, with which you agree, but also of my views. Could you talk about the Japanese part of that matrix?
Nobuo Tanaka
Well, before doing that, let me say that in this great competition of the global energy crisis and climate crisis, I think there will be winners and losers, Michael. And Europe as a leader of this transformation, and really accelerated by this Russian situation in Ukraine, I think Europe can be a winner. Also, Europe is really putting the resources into that and also making a standard setting, because this Carbon Border Adjustment Mechanism is forcing other countries to play the same game with Europe. So, Europe can be a big winner. And the United States, because I am really surprised to see their new Inflation Reduction Act and also Infrastructure Act, which gives a huge subsidy to CCS for example, and also huge support to the electric vehicle, and hydrogen infrastructures. This is really revolutionary US activity and I think this will make a big difference. Also, now the major, mega tech firms are trying to decarbonize their operation totally, including their supply chains. So, this demand side-driven transformation is happening, led by American companies, and the auto sector is doing the same.
Michael Liebreich
Are we entering a period where the combination of competition and supply chain pressures might achieve what 30 or 40 years of diplomacy has really failed to do?
Nobuo Tanaka
That’s an important point. Now, we try to use endogenous energy sources like renewables, together with nuclear, for the sake of energy security, and this trend is much more strengthened, thanks to the Russian invasion, and thanks to the great competition between nations, US, China, US, Russia, etc. So Europe is now making up one unified energy market covering gas, oil, together with renewables and grid connectivity, gas pipelines, and making that unified policy of carbon pricing and forcing others to do the same. So, this standardization of Europe, in terms of sustainability, and security is a really great power to make other countries to do the same. Japan is isolated out. Unfortunately, we try be leaders in hydrogen, but we are overtaken by China, overtaken by Europe, now by the United States. Can we really match? Japan has to again start investing in the new technologies for hydrogen in the industrial sector, just like Europe is doing. Steel-making, or cement, and by co-firing clean ammonia to the coal power plant or gas, starting with green hydrogen, and making a global supply chain of hydrogen or ammonia. Japan started liquid natural gas 50 years ago, now we are trying to build the hydrogen supply as soon as possible. That's what Japanese policy is all about now.
Michael Liebreich
I'm doing a lot of work on hydrogen transportation, and there's a fundamental problem: you're going to make Japan's energy three to five times higher than its competitors. How do you compete?
Nobuo Tanaka
The price of clean hydrogen, ammonia is very expensive. So, can Japan compete? If we replace the current energy by these resources, no way. We need the Contract for Difference type of arrangement like the UK, or we need H2Global type of procurement policy of Germany. Some kind of deployment subsidy is definitely necessary. If we have to move to the hydrogen economy, for the sake of sustainability, I think there's no other way. The cost of carbon will be high enough to legitimize the use of hydrogen. Our renewable energy situation is not so strong, we are trying to increase as much as possible but our power market structure prohibits the expansion of renewable energy. So I'm arguing for the sake of competition domestically in Japan with renewable energy, imported green hydrogen or green ammonia or blue ammonia, or blue hydrogen, may really help us to achieve that. Can we continue to maintain the steel industry in Japan? This is a huge question. Japan lost the aluminium industry, and the same thing could happen to the steel industry, then can we continue as an industrial state? Can we maintain auto companies? Maybe not. This is a really challenging thing for the industrial strategy of Japan. A kind of big, global industrial restructuring may happen because of this climate shock. Another challenge for Japan is to expand the use of renewables. A very dynamic, drastic market change is necessary for the power sector. We have to change our mindset and try to restructure the big energy vision, including nuclear power.
Michael Liebreich
Where does nuclear sit in Japan? Where is society? Where is the sector?
Nobuo Tanaka
We have 33 reactors operable. Public opinion of restarting is very positive; I think there's about 60% of population supporting restarting. Because of this Ukraine situation, the Japanese public think nuclear is very important for energy security. But without permission from individual governors, we cannot build or restart any nuclear reactors. So, to convince the governors, we need a different narrative than only the safety, only carbon dioxide reduction, emission reduction. We have to move from the light-water reactor paradigm to the small modular reactor. Without clear technology to reduce the toxicity or reduce the volume of the waste and convince some localities to take care of the waste, I think there's no way to proceed to the next generation. And there is the proliferation risk. After Ukraine, small countries want to have a weapon, not only North Korea or Iran. Small Modular Reactors can take care of the waste, can take care of the risk of proliferation, and are small enough to minimize risk. It is much easier to coexist with renewable energy sources in a locality, it’s more decentralized. The small size is a way, otherwise, there is no future for nuclear power. That is what I'm saying. Japanese companies have some designs for Small Modular Reactors, but none of them are really engaged themselves in developing the technology. This is a difficult sector, so without changing drastically the narrative and technology and innovation, [there's] no way for the future. Men in the nuclear sector are too conservative, and they don't have any guts to break up old concepts and start a new one. So, I think women should be promoted in Japan, for the politics, for the government, for the private sector, but especially for the nuclear power. Promoting gender balance means much better sustainability for the future.