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Stephen D. Eule: Coal Rush

Coal may have its critics, but Japan is demonstrating that the fossil fuel can have a role to play in sustainable economic growth.

 

Few countries in the world face the energy security challenges of Japan. With virtually no domestic energy resources to speak of — its large methane hydrate resources being decades away from development — Japan has had to rely on imported fuel for almost all of its energy needs.

Japan has responded to these challenges in a couple of ways. On the demand side, Japan has instituted programs that make it one of the most energy-efficient countries in the world. On the supply side, Japan’s strategy has been to rely on nuclear power for a large share of its electricity mix as a hedge against unreliable supplies of imported fossil fuels.

Yet the Fukushima Daiichi nuclear incident in 2011 has called the second part of this strategy in question. Japan added nearly 30 gigawatts of nuclear capacity (to 45 gigawatts total) between 1980 and 2010, at which point its 54 reactors accounted for 26 percent of all electricity generation. By 2013, however, all of Japan’s nuclear plants were offline.

With additional safety measures now in place, the Japanese government is moving to restart many nuclear facilities, but strong public opposition means nuclear is unlikely to regain such a large role in Japan’s power sector.

Such a swift and large loss of generating capacity in such a short amount of time left security-conscious Japan with a serious problem. Over the short term, Japan has increased sharply the amount of electricity produced from natural gas (from 29 percent in 2010 to 39 percent in 2013) and coal (from 27 percent to 32 percent). Even mothballed oil-fired plants were called on to fill the gap.

All of these fuels had to be imported, but the large jump in imported liquefied natural gas (LNG) — which can cost four to five times more than natural gas in the United States —was a major factor behind the spike in electricity costs and the outflow of capital that pushed Japan’s trade balance from black to red.

So what’s the answer to Japan’s energy security? Diversification — both in the type of fuel being imported and the source of those fuel supplies.

Natural gas is part of the answer. Japan is already the world’s largest importer of LNG, and it will be looking to the United States for an increasing share of its supply. Virtually all of the natural gas contracted for export from recently approved U.S. LNG export facilities is destined for Japan.

Nevertheless, given the high and often volatile price of natural gas in Asian markets, the source of most of its gas supply, Japan also is likely to opt for coal to play a bigger role in replacing lost base load nuclear generation.

Coal makes sense on a number of levels. It is relatively inexpensive, and — because there are large and diverse sources of supply, including the United States — there is very little geopolitical risk. U.S. exports of steam coal to Japan, while modest, have increased more than 700 percent from 2010 to 2014.

Moreover, state-of-the-art coal plants are much more efficient than their earlier incarnations, and they emit far less. Compared to the 33 percent efficiency of the average coal plant in operation in the world today, ultra-super critical coal plants can achieve efficiencies of 45 percent.

Indeed, the switch to coal is well under way. Many Japanese utilities reportedly are already in the midst of replacing several aging coal power units, with more than 40 new high-tech new plants slated for construction.

Indeed, Japan’s decision to use more coal in the power sector is part of a larger trend toward coal in developing Asia in general, where coal use for electricity generation is expected to jump 25 percent between 2012 and 2020. With well more than a billion people lacking access to electricity, many of whom live in Asia, developing countries have an overriding interest in providing affordable power to boost their economies and lift their people out of poverty. Coal will remain the fuel of choice for many Asian economies for the same reasons Japan is choosing more coal — it is cheap, plentiful and readily available.

These developments are not without their critics, who are worried about the climate and other environmental impacts of coal. But because of the large buildout of advanced coal technologies now underway, Japan will be in unique position to influence the type of coal technologies these countries deploy by demonstrating that — with the right technologies — coal use can go hand-in-hand with greater environmental protection.

Asian developing countries are going to use coal because economic development remains their priority, and Japan can show them the way.

 

Stephen D. Eule is Vice President at the U.S. Chamber of Commerce’s Institute for 21st Century Energy.

 

 

 

 

All views expressed are those of the author.

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