Project Background

The East Asia Energy Futures (EAEF) project is designed to encourage the collaborative elaboration and evaluation of national and regional energy futures for Northeast Asia. Northeast Asia, broadly defined to include China, the Democratic Peoples’ Republic of Korea, the Republic of Korea, Japan, the Russian Far East, and Mongolia, will make large energy-sector investments in the coming decade. Currently, two of the primary technological alternatives for future energy supply in the region are perceived to be coal and nuclear power. These options are problematic on both environmental and security grounds. Pursuing energy development that is based primarily on coal and/or nuclear power may also be sub-optimal on financial grounds compared to alternative “paths” for energy sector development that are based on waste minimization and on increasing fuel supply diversity, including the use of stringent emissions controls, fuel switching, and energy efficiency. Given large capital requirements for energy sector investments, and the relative scarcity of available capital in some countries the region, incentives will be strong to optimize investment by selecting least-cost energy development paths.

There are four components of a true least-cost calculus:

1.     Up-front investment and operating capital requirements;

2.     Other fuel-cycle costs (including the cost of fuel supply technologies, the costs of fuel extraction, decommissioning costs, and other elements);

3.     The costs of environmental and security externalities; and

4.     Dynamic opportunity costs, which compare likely future prices stemming from technological trajectories.

 

Most estimates of the “cost” of energy supply expansion in Northeast Asia are partial and do not include both fuel-cycle costs and externalities. More inclusive cost estimates could find that, even without adding in environmental and security externalities, implementing some of the technological options conventionally considered is relatively more costly than implementing “alternative” paths. Adding consideration of environmental and security externalities could point further toward adopting lower-waste alternative energy development paths as least-cost strategies.

Developing a more inclusive least-cost calculus, and using the calculus to prepare quantitative estimates of the costs and benefits of different energy paths is, however, only the first step in evaluating the feasibility of different means of providing energy services in Northeast Asia. A second step is to consider and overcome institutional obstacles to investment in least-cost alternatives by developing innovative financing mechanisms. It is crucial that such analysis be conducted on a regional and preferably collaborative basis. Pursuing the analysis in this manner will help to make sure that all of the relevant actors are included and all of the relevant regional resource options are considered, as well as helping to broaden regional views as to which energy technologies are “modern” and desirable.

The Nautilus Institute is developing a set of alternative future energy “paths” as a part of its East Asia Energy Futures (EAEF) project. The EAEF project is funded by the US Department of Energy and the W. Alton. Jones Foundation (WAJF). These energy paths are built upon detailed data sets that describe energy supply and demand, and track the energy, economic, environmental, and military-security-related aspects of different energy paths for each of the countries of the region. These national energy paths have been designed to illustrate and highlight the choices to be made with respect to energy security on the one hand, and environmental impacts such as acid rain and climate change on the other. The energy modeling work that underlies the energy paths analysis has been carried out using the LEAP (Long-range Energy Alternatives Planning system) software. LEAP has also been used by Nautilus Institute as an analytical tool in collaborative work with regional partners, both in the context of the EAEF project itself and in a variety of other Nautilus projects. Two such projects, the Energy, Security and Environment in Northeast Asia (ESENA) Project and the Pacific Asia Regional Energy Security (PARES) Project, are described briefly below.

The ESENAproject was a three-year policy-oriented dialogue between U.S. and Japanese experts on the nexus of energy, environmental, and security issues in Northeast Asia.The aims of the project were to:

1)   outline an integrative policy framework to assist policymakers in thinking about the linkages between energy, environmental and security issues; and

2)   generate recommendations for small-scale, joint U.S.-Japan initiatives promoting regional energy and environmental security in Northeast Asia.

 

In its first year, the ESENA project focused on energy-related transboundary air pollution in Northeast Asia, specifically acid rain. In year two, the focus in ESENA was on energy-related marine issues in the regional seas of Northeast Asia. In its third year, the focus of the dialogue was on innovative financing mechanisms that could promote sustainable energy investment, with a specific emphasis on investment in advanced clean coal technologies in China.

A regional workshop for the ESENA project also marked the first use by Nautilus of scenario-driven techniques for holding strategic conversations between policymakers, scientists, and others from different countries and/or backgrounds. These scenario methods are applicable in workshops, publications, on-line discussions, and project collaborations. Scenario methods of this type can be used to complement Nautilus’ analytical approach to projecting alternative energy paths and futures (as described above).

Building on this strong foundation of analysis and collaborative research, the Nautilus Institute has, with WAJF funding, launched a related but separate activity on regional energy security called the Pacific Asia Regional Energy Security (PARES) project. The PARES Project has included the exploration and development of methodologies for use in analyzing the impacts of energy-sector choices on energy security “broadly defined” in the Pacific Asia region.

In its initial phase, the PARES project involved a working group of experts from both Japan and the United States. An initial analytical framework was developed and applied to Japan. The Japanese case study examined the energy security implications of two different energy paths from 1995 to 2020: a “Business as Usual” path in which recent trends continue; and an “Alternative” path in which an aggressive policy effort accelerates implementation of energy efficiency, renewable energy, natural gas, and other technologies. An initial analysis of the risks to Japan of loss of energy supply by geographic region and fuel type showed that it is advantageous to Japan from economic, environmental, and security perspectives to adopt the “Alternative” path as opposed to a “Business-as-Usual” path. Some of the advantages of the alternative path accrue through an increase in the diversity of fuel supply, thus reducing loss-of-energy-supply risks.

Results from application of the methodologies developed in the first phase of the PARES project are being used to catalyze widespread acceptance of a well-grounded concept of energy security that can become the basis for safe, secure, and sustainable energy policies in Northeast Asia. The PARES project has brought together key officials and researchers in the region to explore new and comprehensive definitions of energy security, and to develop an analytical framework that can be used to evaluate the degree to which different energy “paths” – sets of energy- and non-energy-related policies and measures enhance or detract from energy security.

As a part of the East Asia Energy Futures Project, the calculus developed under the PARES project will be applied, with collaborative input from researchers and others across Northeast Asia to the region as a whole, and especially to China. A central goal of this application of the PARES methodologies will be to determine what happens to regional energy interdependence when each country optimizes energy policy in order to minimize risk.

Objectives of the EAEF Project

 

The specific overall objectives of the EAEF project are to:

–      Develop a new operational paradigm of energy security for states in the Northeast Asian region by engaging key energy analysts and planners in the region in collaborative, conceptual, and applied work with American counterparts. This element builds on the conceptual foundations laid down in the Nautilus Institute’s Energy, Security, and Environment in Northeast Asia (ESENA) and Pacific Asia Regional Energy Security (PARES) projects.

–      Work collaboratively to construct alternative energy futures from energy plans and projections in each country. Projections for energy supplies and demands will be placed in a common software framework to make assumptions and data sources transparent. In this activity, national analysts will be commissioned to conduct energy security analyses in the common framework. Use of a common framework, including common time horizons for analysis, will assure that the studies produced in each nation can be readily understood by researchers and policymakers in other countries of the region, as well as by outside observers. The use of a common analytical framework will also simplify the collaborative task of combining national energy futures into a coherent, consistent set of energy futures for the region as a whole.

–      Train national counterparts who will participate in the construction of common databases and regional projections of energy supply and demand based on bottom-up (energy end-use-based) national estimates. The counterparts will use a common energy-economy modeling software framework.

–      Conduct missions to review the institutional framework for energy planning and energy policy implementation in each country in the region, and to work with (including, as needed, providing on-site training for) key energy planning experts in each country. The energy planning experts will be chosen for their ability and potential to influence national energy planning in their nation, and specifically, for their interest in working toward improving energy security in the broad sense on both the national and regional level.

–      Establish clear and open means of communication between national counterparts, Nautilus researchers, and others, in order to assist and catalyze the process of collaborative energy paths analysis. In addition to the missions described above, it is anticipated that EAEF workshops that bring together project participants will be held in the region on a periodic basis (once or twice per year-plus a combination of a World-wide Web site for the project, e-mail list-servers, and other communications means will be employed to help keep researchers in contact.

–      Maintain and extend the Institute’s existing modeling of the energy economy of each country in the Northeast Asian region. This internal modeling capability will be used to provide reference benchmarks for the work of national counterparts in the regional project. As a part of this modeling work, Nautilus will continue to collate data sets from each country at a highly disaggregated level, and incorporate these data into a common software framework. Although this type of work is necessarily very data-intensive, it will provide enhanced transparency to the countries of the region and other observers as to the underlying logic of national, regional, and global sources of energy security.

–      Through the collaborative activities described above, establish a collective core of active and interactive energy researchers in the North East Asia region who build a stock of consensual knowledge about energy, environment, and security issues.

–      Through the collaborating energy researchers and through timely and targeted release of project reports and briefings, help the United States, China, and other countries within and outside of Northeast Asia to identify ways to cooperate in grappling with and resolving energy development problems in the countries of the region.

Near-term Activities of the EAEF Project

 

In the year 2000, activities undertaken or initiated under the EAEF project will include:

–      Creation of a regional energy database with data sets from each country. The goal will be to present and to collect energy data that are as highly disaggregated (in terms of fuel types and end-use structure) as possible, and to incorporate these data sets into a common software framework (LEAP). The use of the common software framework allows for the display of the underlying assumptions and trends in a comparative way, and simplifies the generation of graphs and figures to illustrate the results and conclusions of the analysis for policy makers.

–      Generate an analytical framework capable of providing quantitative estimates of the capital requirements and total costs of the alternative energy paths in each of the target countries, and use the framework to prepare preliminary cost estimates.

–      Conduct a regional energy workshop (see more detailed description below) involving energy researchers from the Northeast Asian region. Workshop participants will present national analyses of regional energy futures, and discuss the interrelationships between energy, security and environment in Northeast Asia. As a part of the preparations for this workshop, Nautilus is commissioning selected researchers in the region to prepare papers on specific topics relating to energy futures and energy security in their countries. Nautilus is also commissioning reviews by researchers from China of a draft paper prepared by Nautilus on the topic of energy futures in China.

–      Continue the process of identifying and linking up with partner institutions and researchers in the countries of the region, and begin the process of familiarizing collaborating researchers in the tools and methods of energy security analysis.

–      Continue the analysis, as begun under the Nautilus ESENA project described above, of institutional obstacles to financing least-cost energy investment, and continue the consideration of innovative financing mechanisms that can help to overcome those obstacles.