Fossil Fuel Projects Cost More Than Expanding Renewables, Analysts Say

The latest analyses from respected financial groups like Wood McKenzie and BloombergNEF show a clear consensus on the future of energy globally. Fossil fuel projects are costly and expensive, taking decades to pay off and are at risk of becoming stranded assets. Solar, wind and geothermal are cheaper, faster to deploy and have far less community and social impacts. It’s clear that the future should be one in which renewables expand and fossil fuels fade. Oil and gas production should be reduced to lower greenhouse gas emissions and combat the climate crisis.

Japan: A Major Contributor to Fossil Fuel Production in Asia

In Asia, however, these analyses are falling on deaf ears. Instead, under the Asia Zero Emission Community (AZEC) the Japanese government is pushing its vision of a future in which fossil fuels continue to be burned, but under a green facade. The problem is that with renewables becoming increasingly cheap, sticking with fossil fuels will only put countries in South and Southeast Asia at greater financial and economic risk, while also worsening their climate risk. It’s a lose-lose situation.

“AZEC has been repeatedly denounced as a ploy to promote detrimental energy in developing countries in Asia, particularly with fossil gas and unproven fossil friendly technologies,” said Gerry Arances, executive director of the Centre for Energy, Ecology and Development.

Fossil Fuels Projects Are Costly

The cost of the technologies being promoted as part of AZEC is prohibitively expensive. Ammonia or biomass co-firing with coal would make operating thermal coal plants more expensive, and provide little, if any, climate benefit. Carbon capture and storage (CCS), despite decades of promises, remains far from being commercially viable and is incredibly expensive.

Fossil Gas Production

Also being pushed by Japan and AZEC is liquefied natural gas (LNG). It is a fuel currently primarily consumed by developed countries, with Japan having the largest import capacity. But AZEC has been pushing other countries in the region to expand their fossil gas infrastructure and become more dependent on imported LNG.

Cost of LNG

This comes with massive risks. LNG prices are volatile, fluctuating far more than prices of electricity generated from renewables, or even other fossil fuels like coal and petroleum. Many LNG contracts span multiple years, which enables countries like Japan to lock in prices. That option is not open to most developing countries, who are unable to take on the risk of long-term deals, or lack creditworthiness.

“Dependency on gas imports is a poor strategy,” said nonprofit think tank E3G. “The 2022 gas crisis caused economic turbulence, hitting developed economies with extreme energy bills and developing economies with blackouts.”

There’s another reason that Japan wants to push LNG across Asia – because it has too much. The country is actually seeing consumption drop, partly due to a shift towards renewables. But Japanese fossil fuel companies like JERA, Osaka Gas and TEPCO, have already locked themselves into long-term LNG contracts that will leave them with far more LNG than they can use domestically. The solution? Re-export that to other countries.

“Japan is driven to offload its excess LNG to countries in the region and is currently involved in multiple projects in South and Southeast Asia,” said Yuki Tanabe, program director for the Japan Center for a Sustainable Environment and Society.

There’s no good reason why countries in South and Southeast Asia should take on the risk of accepting re-exported LNG from Japan.

Japan and AZEC Lead Financing of New Fossil Fuel Projects

Japan has invested an astounding USD 119 billion into false solutions, like fossil gas and coal, across Asia, over the past decade. The biggest recipient of Japanese investment is fossil gas, which has received over USD 56 billion.

“Japan is planning to support LNG terminals and gas power plants in Southeast Asia and South Asia, effectively expanding LNG addiction to these countries. This poses a critical danger to meeting the Paris 1.5°C goal,” said Tanabe.

This is incredibly risky. One analysis estimates potential financial losses of USD 70 billion if gas expands across the region. LNG’s high price volatility, and lagging cost-competitiveness with wind and solar, make it an investment that fewer and fewer financiers are willing to support.

“Japan sees this as a route to energy security and regional geopolitical influence,” said E3G. “Instead, this approach will prolong Japan’s dependency on volatile LNG markets, undermining its energy security, and lock Southeast Asia into long-term gas dependence.”

AZEC is also pushing LNG as a so-called transition fuel in several projects across the region, including in Indonesia and Singapore. What it’s failing to do is adequately promote renewables.

Countries that have expanded renewables, like India, Vietnam and Thailand, have reaped the benefits, saving billions in energy costs and creating economic value. What other countries in the region, like Indonesia, the Philippines and Bangladesh, need most is investment in wind, solar and geothermal, better grids and energy storage. That is the role that Japan and AZEC should play.