The COP Collection
Building the low-carbon global energy system of the future
The world’s energy system has changed dramatically over the past 50 years, and it is set to transform even more radically in the decades to come. For policymakers, producers, consumers and other stakeholders in developed and developing economies alike, building a low-carbon global energy system will take time and will happen in multiple stages. Extensive collaboration and cooperation - every step of the way – are needed to address the gaps between today’s systems and the one we aspire to create.
For this year’s Conference of the Parties meeting (COP29) Energy Day, Tatsuya Terazawa, Chairman and CEO of The Institute of Energy Economics, Japan (IEEJ), shared his thoughts on the energy system of the future. With decades of experience in the sector, including at the Japanese Ministry of Economy, Trade and Industry, Terazawa is a highly respected expert, sought-after speaker, and thought leader. The IEEJ is one of the world’s leading think tanks, focused on energy policy, climate change, and their intersection with geopolitics.
Extensive collaboration and cooperation are needed to address the gaps between today's systems and the one we aspire to create.
Balancing priorities as we transform our energy systems
To illustrate how dramatically systems have changed, he sets the scene, noting that in the simpler, “good old days,” there was one power utility that generated all the electricity, which it sent in one direction to passive consumers. “When I was young, I never dreamed of generating power at my home, but now, it's possible. Anyone can be producing power, and anyone consuming power can be a player in the energy system by engaging in demand-side management.”
“Anyone can be producing power, and anyone consuming power can be a player in the energy system by engaging in demand-side management.”
Tatsuya Terazawa, Chairman and CEO, Institute of Energy Economics, Japan (IEEJ)
In decades past, the energy system was concerned with only two things: energy cost and energy security. Now, climate change has pushed sustainability into the spotlight, and in Japan following the Fukushima Daiichi accident in 2011, safety is also a top priority. For Terazawa, balancing those four elements as we transform our energy systems to achieve the low-carbon future we need is the great challenge. What’s more, he notes, the weighting of that balance shifts as events drive a reprioritization. In 2021, when Japan was developing its energy strategy, there was a strong focus on sustainability. Now, however, in the wake of the energy crisis and geopolitical shifts, governments and other stakeholders in Japan and elsewhere have refocused on energy security and affordability as well. Japan has also faced a shortage of power supply to deal with the intermittency of renewable power generation and with the growing demand for data centers driven by the expansion of AI. “While sustainability is important, we also need to have the energy to support economic activity and daily life. We can’t wait to find out some day that we have a shortage of energy and tell the people ‘We’re sorry!’ That is not something we can afford or accept.”
Terazawa envisions that the energy system of the future will be diverse, dynamic, and market-oriented, it will be broader and more participatory.
“We have long been concerned about the competitiveness of Japanese industry. Cost is an extremely important part. So, whatever energy system we have, we must be careful there is sufficient supply, but at a cost that is as competitive as possible. Doing that, while also reducing CO₂ emissions, that’s what’s difficult.” Today’s systems include not only conventional thermal power plants, but also utility-scale and distributed renewable energy, battery storage and, increasingly, electric vehicles. Terazawa envisions that the energy system of the future will be diverse, dynamic, and market-oriented, it will be broader and more participatory. Managing this balance in the short-, medium- and long-term, as we transition to a low-carbon energy system requires a multi-pronged, multi-stage approach.
The near-term gap between energy supply and rising demand is going to need some immediate solutions.
Creating a Long-term Secure Energy Future
Taking Japan as an example, he pointed out the near-term gap between energy supply and rising demand is going to need some immediate solutions, like building new gas-fired plants and making existing coal-fired plants more efficient. Sustainability is not being forgotten, he says, with regards to coal- and gas-fired plants. “That's why we are looking at co-firing coal-fired power plants with low-carbon ammonia, and co-firing gas with low-carbon hydrogen. This would be the bridge from where we are and carry us at least into the midterm, enabling us to provide power reliably and cost-effectively, while reducing CO₂ emissions.” Carbon capture and storage (CCS) also will play a part in reducing thermal plant emissions into the medium term.
Expanding nuclear’s share of the energy mix will take time too. Following the Fukushima Daiichi incident, all plants were closed, and only 13 of 33 available plants are today operational. Implementing safety upgrades is time consuming, and public opposition must be addressed. An effective policy response could help move this along, Terazawa said, as one major obstacle to plant restarts is communities feeling they don’t benefit from the facilities, whose electricity is sent elsewhere, leaving them only the perceived risks. One proposal is to encourage energy-intensive industries to locate near nuclear plants by changing rules to give them preferential electricity pricing. Not only would such a set-up boost the local economy and create jobs, it also would reduce transmission bottlenecks. In the long term, he says, Japan’s energy system will be comprised of renewable power and nuclear power generation. Gas turbine plants will be fired with 100% low-carbon hydrogen to provide grid stabilization for the large share of renewables generating power.
Building the infrastructure for low-carbon ammonia and hydrogen
Low-carbon hydrogen and ammonia also will be key to decarbonizing hard-to-abate sectors such as heavy industry, high-heat process industries and transportation sector that cannot be electrified, he says. The question, however, is how can the world quickly and efficiently build the infrastructure necessary for low-carbon ammonia and hydrogen? For Terazawa, the answer is cooperation: through vertical integration and horizontal collaboration. “Ammonia, hydrogen, and CCS – to be honest – are very expensive,” he explains. “No one is going to use them [at current prices]. Not too many companies are in the charity business!” What’s required is somewhat akin to what Japan did to jumpstart the Liquefied Natural Gas (LNG) industry – but moving much, much faster, he says, noting that Japan was the only importer of LNG for more than a decade. There must be a concerted, collective effort.
The question, however, is how can the world quickly and efficiently build the infrastructure necessary for low-carbon ammonia and hydrogen? For Terazawa, the answer is cooperation: through vertical integration and horizontal collaboration.
Through vertical integration, producers, transporters and consumers must together move fast to innovate and reduce costs. It requires government to make fiscal commitments – such as the US$20 billion that Japan has committed to low-carbon hydrogen and ammonia, and policy action to encourage the sector. Japan is implementing policy to close the cost gap between conventional fuels and these new fuels, including an emissions trading scheme beginning in 2026 and a carbon surcharge beginning in 2028. Horizontal collaboration is about building scale. That means encouraging multiple countries to make the same commitment as Japan to these low-carbon fuels. LNG took decades to mature, he said, because it scaled so slowly. “For hydrogen and ammonia, we should pursue this in a much faster way, and that requires partnership with other countries, both supplier side and demand side, ideally, from day one.” Moving quickly also requires that industry players along the value chain – from producers and technology providers to final consumers – as leaders – to absorb a share of the initial higher cost. “Some of those projects may not be profitable in the earlier stage. But you cannot have chickens without eggs; someone will have to lay the eggs.”
A busy crossing in Shinjuku, Tokyo. The future global energy system will look different from country to country, based on unique conditions.
“Even if we realize net zero in the US or Japan or Europe, it will mean very little climate-wise by itself. It’s critical to get other parts of the world, especially emerging and developing economies, onto the pathway journey.”
Multiple pathways, multiple voices
Another defining aspect of the future global energy system is that it will look different from country to country, based on unique conditions. A country rich in hydro power will have a very different energy system than a country like Japan, that is energy resource poor. “Just as the energy transition will take place over multiple steps, there will be multiple pathways and, for countries like Japan with difficulties, there will be multiple components of that pathway.” Terazawa explained that these different national pathways to decarbonization point to the broader need to partner with countries around the world to build the energy systems of the future. “Even if we realize net zero in the US or Japan or Europe, it will mean very little climate-wise by itself. It’s critical to get other parts of the world, especially emerging and developing economies, onto the pathway journey.
“the tendency is for advanced economies to tell others what to do, without listening. Listening is what’s lacking. We need their inclusion and participation.”
“That’s challenging, and much more difficult than for Europe or Japan, because they have the legitimate aspirations to grow and raise their living standards, and that will increase their demand for energy. We must collaborate together, share technologies together, and recognize their different starting point.” The voices of these regions also need to be raised, he said. “To be honest, the tendency is for advanced economies to tell others what to do, without listening. Listening is what’s lacking. We need their inclusion and participation.” He pointed to the Asia Zero Emission Community (AZEC), which includes both developed and developing countries in its membership, as an example of a collaborative platform designed to drive progress, in part through its participatory approach. For Terazawa, success in moving the global community to a low-carbon energy system will depend on many factors, but one stands above the others: collaboration. “Many of the things I discussed today, they can be achieved, but the way to make that happen is through collaboration and cooperation.”
