Chairman’s Message

Tatsuya Terazawa

Tatsuya Terazawa
Chairman and CEO
The Institute of Energy Economics, Japan

Chairman’s Message
“The gap between aspiration and reality: The need for Plan B"

Message for March 2024

<Main Points>

  • G7 members’ GHG reduction off- track from NDCs & carbon neutrality paths.
  • Energy intensity improvement off-track from the IEA-NZE scenario
  • Strengthened efforts required to close the implementation gap
  • Gap between aspiration and reality necessitates “Plan B”
  • More investment necessary for adaptation
  • Investment for conventional energy necessary for market stability
  • Need to start preparing for “Plan B”

  • 1. G7 members’ GHG reduction are off the desired path

    The G7 members have announced their NDC (Nationally Determined Contribution) for 2030. While the starting year for GHG reduction differs among members, linear graphs can be drawn between the respective GHG level at the starting year and the GHG target level in 2030 reflecting the respective NDC. From the GHG target level in 2030, the graphs can be extended towards net zero GHG emission in 2050.
    These graphs can be compared with the track record of GHG emissions (net of sinks), until 2021, the last year for which actual data for all G7 members is available. I would like to share with you the graphs for the USA, EU, and Japan, as produced from this exercise.

    United States of America

    European Union


    Source: National Greenhouse Gas Inventories

    As you can see from those graphs, the USA, EU, and Japan are all off-track from the desired path towards NDC and carbon neutrality.
    The GHG emissions by the USA in 2021 was 5.59 billion tons which was about 1.08 billion tons (or about 24%) above the desired path. The GHG emissions by the EU in 2021 was 3.44 billion tons which was more than 558 million tons (19%) above the desired path.
    Looking at individual countries within the EU, Germany emitted 731 million tons of GHG in 2021 which was more than 110 million tons (18%) above its desired path, while France emitted 404 million tons of GHG in 2021, also around 93 million tons (30%) above its desired path. (Italy has not announced its country specific goal for 2030.)
    Outside the EU, Canada emitted 523 million tons of GHG in 2021 which was 10 million tons (2%) below the desired path. UK recorded GHG emissions of 431 million tons in 2021 which was 42 million tons larger (11%) than the desired path.
    Japan is no exception to being off-track. To be on track, Japan had to keep its GHG emissions within 1.12 billion tons in 2021, but the actual result was 19 million tons, or 2%, above the desired path. While Japan is also off-track, its gap, measured in both tons and %, is much smaller than any of the other G7 members except for Canada. It may be argued that Japan is roughly on track.
    While Japan could deserve credit for this achievement, it must be put into context. A significant portion of the Japan’s GHG reduction has been achieved through the restart of nuclear reactors which were totally suspended in 2013, the base year for its NDC.

    2. The global energy intensity improvement is off the desired track.

    COP 28 pledged to double the 2022 global average annual rate of energy intensity improvements throughout this decade. As IEA showed in its NZE scenario, this goal will require a 4% annual energy intensity improvement throughout this decade.
    Facing an energy crisis in 2022, the world succeeded in improving its energy intensity by 2% which was much higher than the average annual improvement of around 1% in the preceding years. But the world has not subsequently accelerated its energy intensity improvement and, according to IEA, the improvement in 2023 was estimated at just 1.3%.
    The path towards carbon neutrality is strongly based on a sustained and dramatic improvement in energy intensity. Any gap between this path and reality will result in much greater demand for energy. The difference between the desired path of 4.0% and the actual result was 2.7% in 2023. At this pace, the accumulated difference will result in an almost 25% larger energy demand than aimed for in 2030. It is unfortunately clear that the world is substantially off-track from the NZE scenario and the COP 28 pledge to drastically improve energy intensity.

    3. Strengthened efforts are necessary to close the implementation gap

    IEA has identified two types of gaps. One between the pledges and the paths required to achieve global carbon neutrality and the other one between the pledges and the actual results. The former is described as the “ambition gap” and the latter is described as the “implementation gap”.
    Recognizing the significant gap between the desired GHG reduction path and the actual GHG reductions, in part due to lower energy intensity improvement, it is clear that all countries, especially the G7 members, must strengthen their efforts.
    While there is a tendency to try to raise the goal when we face the need for strengthened efforts, I believe that it is urgent for us to focus on narrowing the implementation gap first. Considering that a significant implementation gap exists, merely raising the goal without changing the reality may make us feel better, while meaning very little.

    4. Need for “Plan B”

    As discussed above, we “must” strengthen our efforts to close the implementation gap. But judging from the world’s past record, we must recognize and acknowledge the significant gap between our aspiration and reality. As the desired path is essential to limit the temperature increase to 1.5℃, any deviation from the pathway would result in warmer temperature. The shortfall in energy intensity improvement would result in larger energy demand, deviating our pathway.
    We must be prepared for the possibility of warmer temperature and larger energy demand while we continue to do our best to strengthen our efforts to achieve our aspiration, we need to develop a “Plan B” at the same time.

    5. More investment for adaptation

    Any gap between our aspiration and reality would result in a warmer climate with more damages through natural disasters and changes in the weather. We need to invest more in adaptation measures to minimize the damages caused by natural disasters and address the impact of climate change on agriculture. This will be urgent for the Global South which is more vulnerable to natural disasters. While mitigation is essential, part of “Plan B” must pay more attention to adaptation.

    6. Steady investment for conventional energies

    With the aspiration to achieve carbon neutrality, many stakeholders have been openly negative against investing in conventional energies.
    As the maximum deployment of renewable energy is already incorporated in the desired path, additional energy demand due to lower improvements in energy efficiency, will have to be met mainly by fossil fuels. This is another element of the “Plan B”.
    Without steady investment in fossil fuels, including its infrastructure, the world will most likely face a shortage of supply of fossil fuels which could result in a series of energy crises. The energy crises will hurt not only the lower income population in the advanced economies but even more the people in the Global South. This prospect is certainly not in line with the pledge to achieve a “Just Transition”. The angry reaction from those affected may well derail our challenge to realize carbon neutrality.

    7. We need to start preparing for “Plan B”

    Some may argue that we should wait until it becomes unequivocally clear that the reality falls significantly short of our aspiration but we cannot wait until 2030. Measures to improve adaptation require time to implement and investments in conventional energies also require long lead times.
    As we strengthen our efforts to narrow the implementation gap, we need to also start preparing for “Plan B”.