Energy Competition in Northeast Asia Coal Policies of South Korea and Japan in Comparative Perspective

by

Eunjung Lim Ph.D. Program The Paul H. Nitze School of Advanced International Studies, Johns Hopkins University

Prepared for delivery at

The 2007 Annual Meeting of the American Political Science Association, August 30th - September 2nd, 2007

Please do not cite this version without permission. This is a draft to be revised for future publication. Comment would be warmly welcomed to [email protected]

Another Energy Competition in Northeast Asia

Abstract Due to the overheated regional competition for energy, Northeast Asia currently faces an energy security dilemma. South Korea and Japan, two of the largest economies in the region, are competing heavily in the energy market. By comparing South Korea and Japan’s energy strategies at their governmental level, we can understand microcosm of the energy security dilemma in Northeast Asia. This study started from a simple question of whether two countries compete in terms of coal policies or not. Coal is less prized in advanced industrial countries because of its negative aspects such as climate pollution though many developing countries find it an attractive energy source. I was wondering if coal still plays a significant role in the South Korean and Japanese economy, both of which are highly advanced and industrialized. The first hypothesis to be explored is, therefore, that coal is still a strategic resource to both South Korea and Japan. The other hypothesis will be that the two countries compete against each other through their own coal policies. This paper will examine how important coal is in the two countries’ economies and why coal is getting important in South Korea and Japan. In addition, this paper will analyze the similarities and differences of the two countries’ strategies for securing coal, focusing on policies regarding clean coal technology.

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INTRODUCTION Due to the overheated regional competition for energy, Northeast Asia currently faces an energy security dilemma. Most of Northeast Asian countries such as South Korea, Japan, and China are huge energy consumers in the world. For example, Japan is the third largest oil consumer next to the United States and China, and South Korea is the sixth largest oil consumer in the world. Some scholars have given their attention to the competitions among the Northeast Asian countries in global oil markets. Dr. Kent Calder illuminated their bilateral energy rivalry between China and Japan in his article, “Sino-Japanese Energy Relations: Prospects for Deepening Strategic Competition.” 1 According to him, both China and Japan depend heavily on oil, most of which are from Middle East. Two economic giants in Northeast Asia are competing against each other through their own strategies in order to secure their oil. Actually, these kinds of competitions among the Northeast Asian countries induce the major oil producing countries to request the “Asian Premium” to Northeast Asian major oil consuming countries, which disadvantages Northeast Asian consumers in bargaining the price of imported oil. Dr. Calder’s study stimulated my academic curiosity regarding an energy competition between South Korea and Japan. I claim that the competition between South Korea and Japan should receive more attention than now because of the interesting parallels between the two countries. First of all, both South Korea and Japan are included in the world’s largest economies; Japan’s Gross Domestic Product (GDP) is the world’s second largest and South Korea ranked the twelfth in 2006. GDP per capita of Japan and South Korea are the first and the second highest respectively in Northeast Asia. The competition between these two regional giants cannot be neglected because it must have significant implications for the regional economic cooperation. Secondly, both South Korea and Japan are well developed and highly industrialized commonly based on free market system and capitalism. For an effective comparative politics, it would clearly be meaningful to analyze how two countries compete with each other in the same economic system. Thirdly, both countries are export-oriented economies, but neither South Korea nor Japan has plenty of natural resources within the territories to support their energyintensive economies. Securing energy sources from abroad is accordingly regarded as one of the most important policies to both South Korea and Japan. The primary purpose of this paper is, therefore, to show microcosm of the energy security dilemma in Northeast Asia by comparing South Korea and Japan’s energy strategies at the governmental level. A secondary aim of the study is to emphasize that energy cooperation among the regional members in Northeast Asia is crucial for the stable economic development of the region. This study started from a simple question of whether South Korea and Japan compete in international coal markets as well. Coal is less prized in advanced industrial countries because of its negative aspects such as climate pollution though many developing countries find it an attractive energy source because it is cost-effective. I was wondering if coal still 1

Kent Calder, “Sino-Japanese Energy Relations: Prospects for Deepening Strategic Competition” Conference Paper presented at the Conference on Japan’s Contemporary Challenges in Honor of the Memory of Asakawa Kan’Ichi, Yale University. New Haven, Connecticut, March 9-11, 2007.

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plays a significant role in South Korean and Japanese economy, both of which are highly advanced and industrialized. If coal was crucial in two countries’ economy, I hypothesized that the two countries must have been competing in terms of their coal strategies. The first hypothesis to be explored is, therefore, that coal is a strategic resource to both South Korea and Japan. The other hypothesis will be that the two countries compete against each other to secure coal for their economies through different strategies. In the first chapter, I will overview how important coal is in South Korea and Japan’s economy. This chapter will cover the outline of two countries’ energy consumption and the structure of coal demand and supply. By summing up the energy structure of the two countries, it would be clarified that South Korea and Japan are getting more dependent on coal. In the second chapter, I will analyze why South Korea and Japan rely on coal. First, both South Korea and Japan heavily depend on oil from Middle East, which is their first energy security dilemma. Both South Korea and Japan selected coal as their reliable energy source in order to escape from the oil and Middle East dependency. Second, coal is very important in both South Korea and Japan’s heavy industry, especially in steel industry. They are competing not only to sell their products in the global steel market, but also to secure energy supplies in global coal markets. However, two countries have a common problem to deal with, namely air pollution, while they need to keep their coal dependency. Growing importance of coal in their economies and increasing environmental threat put South Korea and Japan in another energy security dilemma. In the third chapter, I will compare the two countries’ coal policies, especially focusing on Clean Coal Technology (CCT) policy. Both South Korea and Japan perceive that developing CCT is the best way to solve their coal security dilemma, and they are rigorously developing CCT. This set of paired cases will verify that first, South Korea and Japan are competing with one another through different strategies in terms of coal policies, and secondly, this competition reflects a Northeast Asia’s underlying energy security dilemma. In the last chapter, I will analyze the implications of the coal competition between South Korea and Japan for the Northeast Asian energy security, and I will assert that cooperation of regional states including the two countries in terms of clean coal policy is required for the stable economic development and the environmental security of Northeast Asia.

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GROWING IMPORTANCE OF COAL IN SOUTH KOREA AND JAPAN While the world oil reserve is only 120 billion ton, the world coal reserve is almost eight times larger than oil, namely 970 billion ton (converted to oil). 2 In addition, coal reserve is much more distributed over the world; the five largest coal reserve countries are the U.S. (25.4 percent of the world reserve), Russia (15.9 percent), China (11.6 percent), Australia (8.3 percent), and India (8.3 percent). 3 Interestingly, all of the major coal reserve countries are located in the Asian-Pacific region. Consequently, coal is regarded as one of the most stable energy sources for many Asian countries in the long run. Moreover, coal is much more important to developing countries than to developed countries because it is more cost-effective than oil. The demand for coal in the world is steadily rising, and the demand of developing countries including China increases 5 percent annually. As Wonwoong Kim clarifies in his book, the meaning of strategic resource can be defined in two ways: first, a strategic resource should have a significant role in a particular country’s economy, and second, a strategic resource should depend on import because of its lack of sufficient domestic supply. 4 As a quick glance, Table I-1 shows that the amounts of imported coal have steadily increased in South Korea and Japan from 1998 to 2001. 5 In this chapter, I will analyze whether coal is important as a strategic resource in South Korea and Japan. Table I-1. Amount of Imported Coal in South Korea and Japan 1998 1999 2000 2001

South Korea 51.355 52.240 61.638 64.966

Japan 128.979 133.241 149.441 155.145 (Unit: Million Ton)

Source: Agency for Natural Resources and Energy, Comprehensive Energy Statistics 2006 edition

2

산업자원부,『청정석탄 이용을 위한 정전선별 신기술 개발』(산업자원부, 2005년 10월) p. 4. Ministry of Commerce, Industry and Energy (MCIE), Development of New Technologies of Electrostatic Separation for Use of Clean Coal. Seoul: Ministry of Commerce, Industry and Energy, 2005. p. 4. 3 김원웅 엮음,『국제에너지, 자원환경과 자원외교』(다락방, 2005 년 10 월) p. 39. Wonwoong Kim ed., International Energy, Resource Environment, and Resource Diplomacy. Seoul: DaRakBang, 2005. p.39. (translated by the author) 4 Wonwoong Kim, International Energy, Resource Environment, and Resource Diplomacy. pp.79-80. 5 Numbers of this table include all types of coal. 資源エネルギー庁長官官房総合政策課 編,『総合エネルギー統計―平成 16 年版』(2006.1.25.) p. 553. General Policy Division, Director-General’s Secretariat, Agency for Natural Resources and Energy ed., Comprehensive Energy Statistics - 2006 edition. p. 553. (translated by the author)

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South Korea’s Growing Coal Dependency In South Korea, coal occupies more than 20 percent of the total energy demand. 6 As you can see Table I-2, the South Korean government estimates that the amount of coal consumption will continuously increase in the next decade. 7 However, we need to take a careful look into the data. Coal can be largely divided into anthracite coal (hard coal) and bituminous coal (soft coal) in this data, and two types of coals show a very different trend in South Korea. South Korea used to develop their domestic mining industries during the early period of its industrialization, but most of its domestic coal is anthracite coal. Because of its lower calorific content, anthracite coal is usually used for domestic heating fuel. However, since South Korea made great efforts to raise their energy efficiency, anthracite coal as a fuel already began to lose its meaning in South Korea. Currently, anthracite coal has been in oversupply in South Korea. From 1988 to 2001, consumption of anthracite coal decreases at an average annual rate of 13 percent. In 2001, the accumulated stock of anthracite coal was 10.6 million ton. 8 Instead, South Korea heavily depends on bituminous coal, most of which are imported.

Table I-2. Estimated Coal Demand in South Korea

Coal Anthracite Bituminous

2001

2006

2011

2015

2020

45.7 3.7 42.0

52.4 2.8 50.6

65.5 2.6 62.9

67.1 2.2 64.8

72.0 2.3 69.7

'01-'06 '01-'11 '01-'20 Average Annual Increasing Rate 3.1 3.7 2.4 -5.6 -3.5 -2.5 3.8 4.1 2.7 (Unit: Million Ton, %)

Source: The Government of the Republic of Korea, National Basic Plan for Energy (2002-2011).

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2000 – 22.3%, 2001 – 23%, 2002 -23.5%, 2003 – 23.8% MCIE, Development of New Technologies of Electrostatic Separation for Use of Clean Coal. p. 6. 7 대한민국정부,『국가에너지기본계획 제 2 차 (2002-2011)』(2002) p. 26. The Government of the Republic of Korea, National Basic Plan for Energy, 2002-2011. 2002. p. 26. (translated by the author) 8 산업자원부, 에너지경제연구원 공편,『에너지정책방향과 발전전략 – 2010 에너지 비전』(산업자원부, 2002년) p. 231. Ministry of Commerce, Industry and Energy (MCIE) and Korea Energy Economics Institute (KEEI) eds., 2010 Energy Vision – Direction of Energy Policy and Strategy for Development. MCIE, 2002. p. 231. (translated by the author)

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Based on the Wonwoong Kim’s criteria above, it can be assumed that bituminous coal is a strategic resource to South Korea because it plays a significant role in South Korean industry and its supply heavily depends on import. In 2001, South Korean Ministry of Commerce, Industry and Energy (MCIE) also selected bituminous coal as a strategic resource with oil, natural gas, and uranium. 9 Table I-3 shows how bituminous coal is consumed in South Korea. From this data, we can find out several important points for the further analysis. First, during the period of its early industrialization, in other words before 1980s, bituminous coal was used only for industrial purposes in South Korea. Since 1980s, bituminous coal began to be used as an energy source for generating electricity. Second, since 1990s, the demand for generating electricity sharply increased. Compared to 1990’s 5.723 million ton, almost three times larger amount of bituminous coal, 14.229 million ton, was consumed in order to generate electricity in 1995. Increase in the demand for coal for electricity generation caused the general increase in consumption of bituminous coal in South Korea. Third, the consumption levels in the industrial part stably maintain their significant portion, larger than 40 percent since 2000.

Table I-3. Change in Consumption of Bituminous Coal in South Korea Electricity (percent) Industry (percent) Steel Cement Miscellaneous Total

1960 5.032 100 3.987 1.045 5.032

1985 5.14 34.9 9.557 65.1 6.959 2.476 0.122 14.697

1990 5.723 26.2 16.153 73.8 11.735 3.534 0.882 21.876

1995 14.229 37.4 23.86 62.6 16.305 5.59 1.965 38.089

2000 33.305 55.2 27.024 44.8 19.415 5.308 2.301 60.329

2001 36.602 57.5 27.084 42.5 19.313 5.475 2.296 63.686

(Unit: Million Ton, %)

Source: MCIE and KEEI, 10 2010 Energy Vision – Direction of Energy Policy and Strategy for Development

Table I-4 shows how the South Korean government estimates the current and the future demand for bituminous coal. According to MCIE’s analysis, the demand for industrial purposes will keep the current level or increase very slightly in the next decade. On the other hand, MCIE indicates that the demand for generating electricity will increase at an average annual rate of 6.1 percent by 2010. In general, two things can be concluded. First, the coal 9

Wonwoong Kim, International Energy, Resource Environment, and Resource Diplomacy. p. 108. MCIE and KEEI, 2010 Energy Vision – Direction of Energy Policy and Strategy for Development. p. 239.

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demand for electricity increased dramatically in South Korea since 1990s and it will continue to increase in the near future. Second, the demand of bituminous coal for industrial purposes has remained high since 1980s and will keep its current level within the next decade as well. Consequently, the increasing demand for bituminous coal in South Korea has been and will be driven by the increasing consumption for electricity generation.

Table I-4. Estimated Demand for Bituminous Coal in South Korea

Steel Cement Miscellaneous Industries Electricity Total

'00-'10 '10-'20 Average Annual Increasing Rate 0.5 0.0 1.0 0.4

2000

2005

2010

2015

2020

19.415 5.308

20.302 5.728

20.444 5.879

20.512 6.009

20.483 6.115

2.301

2.541

2.754

2.803

2.894

1.8

0.5

33.305 60.329

44.816 73.387

60.183 89.26

56.812 86.135

61.876 91.368

6.1 4.0

0.3 0.2

(Unit: Million Ton, %)

Source: MCIE and KEEI, 11 2010 Energy Vision – Direction of Energy Policy and Strategy for Development

Japan’s Growing Coal Dependency Japan is the largest coal importer in the world. As you can see in Table I-5, Japan imported 24.3 percent of the whole imported coal in the world in 2004. 12 In 2002, Japan imported 22 percent of the imported coal; 82.1 million ton is imported from Australia, which is the largest coal producer country in the world and the largest coal exporter to Japan. 13 China,

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MCIE and KEEI, 2010 Energy Vision – Direction of Energy Policy and Strategy for Development. p. 243. 経済産業省 編,『エネルギー白書 2006 年版－エネルギー安全保障を軸とした国家戦略の再構築に向 けて－』(2006) p. 265. Ministry of Economy, Trade and Industry (METI) ed., Energy White Paper 2006 Edition. 2006. p. 265. (translated by the author) 13 (財)環日本海経済研究所,『北東アジア経済白書』(新潟日報事業社, 2003) p. 141. ERINA (Economic Research Institute for Northeast Asia), Economic White Paper for Northeast Asia. Niigata Daily, 2003. p. 141. (translated by the author) 12

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Indonesia, Canada, USA, South Africa, and Russia are the other major coal exporting countries to Japan.

Table I-5. Coal Import Level of Major Coal-Consuming Countries Japan South Korea Taiwan Germany UK India Italy USA Spain Netherlands Others World’s Total – Imported Coal

24.3% 10.5% 8.0% 5.2% 4.8% 4.1% 3.3% 3.3% 3.2% 3.0% 30.4% 701.9 million ton (Unit: Million Ton, %)

Source: IEA, Coal Information 2005

The domestic demand of coal in Japan has continued to increase. The average annual increasing rate from 1980 to 2003 was 2.4 percent. In 1973, the total demand of coal was 78.98 million ton. The demand firstly exceeded 100 million ton in 1984, and it reached 184.84 million ton in 2004. 14 Japan also used to produce its domestic coal during the period of its early industrialization as South Korea did. Japanese domestic coal production reached a climax in 1961, but since 1960s the domestic production had continuously decreased because of inflow of cheaper imported coal and exhaustion of its domestic reserves. In 2001, Ikedo coal mine (located in Nagasaki Province) was closed, and the only remained coal mine, Taiheiyou mine (located in Hokkaido), was finally shut down in 2002. On the other hand, the demand for imported coal has been increasing in order to satisfy growing domestic demand for coal. Among the total demand for coal, the largest portion is currently occupied by the demand for generating electricity; 79.74 million ton is used for electricity generation. The second largest demand is for making steel; 70.56 million ton is consumed for steel industry.

14

METI, Energy White Paper 2006 Edition. p. 195.

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These two parts hold 84 percent of the whole demand for coal in Japan. 15 Unlike South Korea, the Japanese government usually categorized coal into three different types: anthracite coal, cocking coal (Genryodan - 原料炭) and non-cocking coal(Ippandan - 一般炭). 16 As in South Korea, anthracite coal is not critical as an energy resource either in Japan. However, cocking and non-cocking coal play a significant role in the Japanese economy.

Figure I-1. Change of Coal Demand in Japan Total

Electricity Steel Cokes Ceramic Year (Unit: Thousand Ton)

Source: ERINA, Economic White Paper for Northeast Asia

Figure I-1 above shows how the domestic demand for coal has changed in Japan. 17 Generally, the total coal demand fell down in 1998 including the demand for non-cocking coal for generating electricity, but in 1999 the total demand bounced up again. The coal demand for industrial purposes, which is supplied with cocking coal, steadily maintains its certain level of consumption. The largest demand for cocking coal is still from steel industry. Japanese steel industry is the top in the world, and the demand for coal from steel industry has maintained the level of 40 million ton for the last two decades. Meanwhile, the demand for electricity generation, which is supported by non-cocking coal, continues to increase. Especially since 1980, the imported non-cocking coal for generating electricity has been 15

METI, Energy White Paper 2006 Edition. p. 195. Coking coal (原料炭) is strongly caking bituminous coal. Non-coking coal(一般炭) includes sub-bituminous coal, medium and weakly caking bituminous coal, and lignite. 17 ERINA, Economic White Paper for Northeast Asia. p. 196 16

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sharply increasing. Moreover, since 1999, it rose up again as the Japanese economy recovered from the economic shock by Asian Financial Crisis. 18 From 2001, the coal demand for generating electricity exceeded the demand for making steel. From 1980 to 2003, the coal demand for electricity had increased at an average annual rate of 9.2 percent. 19 In 2006, for example, Japanese Ministry of Economy, Trade and Industry (METI) reported that the total demand for non-cocking coal is 92.71 million ton, which is almost half of the total demand for coal. 20 From the Japanese data above, we can get very similar conclusions with the South Korean case. First, anthracite coal got relatively meaningless in Japan compared with cocking and non-cocking coal. Because Japan does not hold sufficient reserve of cocking and noncocking coal within its territory, Japan has to heavily depend on imported cocking and noncocking coal in order to fulfill its huge domestic demand for coal. Accordingly, cocking and non-cocking coal can be claimed as critical strategic resources for the Japanese economy by the Kim’s criteria. Second, the coal demand for generating electricity has dramatically increased in Japan as well, but the trend started a decade earlier than South Korea, namely since 1980s. Third, the demand for coal for industrial purposes, especially as an input for making steel, has maintained its significant level in Japan for the last two decades just as in South Korea. In the next chapter, I will analyze why these trends are commonly observed in South Korea and Japan.

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산업자원부, 에너지경제연구원 공편,『정책연구보고서 – 동북아에너지협력연구: 동북아 에너지시장 분석연구』(산업자원부, 2006년 4월) p. 228. MCIE and KEEI eds., Policy Research Paper – Study for Northeast Asian Energy Cooperation: Study of Northeast Asian Energy Markets. 2006. p. 228. (translated by the author) 19 MCIE and KEEI, Study of Northeast Asia Energy Markets. p. 227. 20 METI, Energy White Paper 2006 Edition. p. 195.

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RATIONALES AND CONCERNS BEHIND THE GROWING COAL DEPENDENCY In the previous chapter, I outlined the common trend of growing coal dependency in South Korea and Japan. Huge amounts of coal imports are unavoidable for South Korea and Japan to support their energy-intensive economies and both countries are heavily dependent on coal imported from Australia and China. First, the coal demand for electricity generation has increased and this trend is likely to continue for the next decade both in South Korea and Japan. Second, coal for industrial purposes has steadily been demanded in the two countries. For instance, steel, one of the most important export goods for both countries, requires coal as an input. South Korea’s the Pohang Iron and Steel Company, POSCO, and Japan’s the Nippon Steel Corporation, Shin Nippon Seitetsu Kabushiki-gaisha, are the third and the second largest steel producer in the world respectively, and these two companies are the main coal consumers in the countries. However, the coal for industrial purposes has been increasing at a consistent level as shown in the previous chapter. Therefore, it can be assumed that the coal demand for heavy industries did not largely affect the growing demand for coal in the two countries. Instead, it can be claimed that the increasing coal demand in South Korea and Japan has been and will be driven by the increasing demand for electricity generation In this chapter, I will analyze how the two countries became more dependent on coal than before by analyzing the energy security dilemmas South Korea and Japan encounter. Both South Korea and Japan heavily depend on oil especially from Middle East, which causes a serious energy security dilemma in the two countries. Diversification of energy sources is crucial for their stable and secure economic growth. Coal is an attractive energy source not only for developing countries but also for advanced industrial countries such as South Korea and Japan because it is cost-effective, and its reserve is much more distributed widely in the Asian-Pacific.

South Korea’s Energy Security Dilemma In his recent work, Korea’s Energy Insecurities - Comparative and Regional Perspective, Dr. Calder rightly observed the serious energy security dilemma of South Korea, particularly in terms of oil. Dr. Calder indicated, “South Korea confronts some of the most severe energy-security dilemmas in the world, and these dilemmas form an unusual triad combination, intensifying the challenge that they present to the country’s economic future.” 21 As he claimed, first, South Korea does not have sufficient domestic energy resources to support its remarkably growing and energy-intensive economy. Second, South Korea relies on oil as a fuel source, which is very unusual from a world perspective. Third, most of oil imported to South Korea comes from the politically unstable Middle East. Figure II-1 reveals how serious South Korea’s oil dilemma is compared to US’.

21

Kent Calder, Korea’s Energy Insecurities - Comparative and Regional Perspective. Washington D.C.: Korea Economic Institute. p. 7.

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Figure II-1. Three Dimensions of South Korea’s Oil Vulnerability

Source: Kent Calder, Korea’s Energy Insecurities 22

The South Korean government perceives its current energy situation in the very same way as Dr. Calder’s does. According to National Energy Strategy Report for the 2005 Regular Session of the National Assembly, the South Korean government indicated two main energy dilemmas: first, oil dependency and Middle East dependency are the most serious problem South Korea should fundamentally overcome. Second, while the oil and Middle East dependency have not improved remarkably, the pattern of energy consumption is getting more intensive. 23 The South Korean government seems to perceive its heavy oil dependency as one of the most chronic and urgent problems to solve, and it has pursued policies to diversify its energy sources and energy suppliers in order to support its growing energy consumption. The two oil shocks, in 1973 and in 1979, sparked South Korean efforts to escape from oil and Middle East dependency. However, as South Korean economy rapidly grew, the total 22

Kent Calder, Korea’s Energy Insecurities. p. 10. 김태년, 서갑원, 이광재, 한병도 공저,『2005 정기국회 정책보고서 – 국가에너지 전략보고서』(의정연구센터, 2005년) p. 13. Taenyeon Kim, Gapwon Seo, Gwangjae Lee, and Byungdoh Han, National Energy Strategy Report for the 2005 Regular Session of the National Assembly. Center for Korean Legislative Study, 2005. p. 13. (translated by the author) 23

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demand for energy source has increased quickly as well. In particular, the demand for generating electricity increased remarkably. The South Korean government decided coal as a substitutive energy source to fulfill the rising energy demand since the oil shocks. 24 Consequently, the demand for coal rose sharply in the early 1980s as you already see in Table I-3. MCEI and KEEI analyzed that the demand for bituminous coal for electricity generation will lead increase in the total coal demand. They predicted that the average annual increasing rate of the demand for bituminous coal will be 1.9 percent. In addition, the bituminous coal demand for electricity generation will increase at an average annual rate of 2.8 percent. The bituminous coal demand for electricity will 61.9 million ton in 2020, almost two times larger than 33.3 million ton in 2000. 25 However, substituting coal for oil cannot be the ultimate solution for supporting the growing South Korean economy. Bituminous coal, as one of fossil fuels, produce substantial amount of carbon dioxide (CO2) to cause air pollution when it burns. It produces SOx, NOx, and a lot of coal dusts as well. If the conventional way to burn coal is not changed, serious air pollution will clearly be another challenge for South Korea to overcome. South Korea’s CO2 emission is 1.8 percent of the world total, and it ranked the ninth in 2004. Furthermore, South Korea signed United Nations Framework Convention on Climate Change (UNFCCC) in December 1993, and accordingly South Korea has the pressure to abide by the general regulations of the treaty. 26 Thus, for sound economic growth, South Korea needs to address environmental problems that can arise form its being heavily dependent on fossil fuels.

Japan’s Energy Security Dilemma Japan encounters very similar situations with South Korea. Japan’s oil dependency, especially its heavy dependency on Middle East, is as serious as South Korea’s. In 1973, oil occupied 74 percent of the Japan’s total energy supply. However, through experiencing the two oil shocks, Japan improved its oil dependency. The Japanese government encouraged developing new energy technology including nuclear technology and it tried to increase import of natural gas. As Table II-1 shows below, Japan’s oil dependency fell down to 52 percent in 1999. In 2001, the oil dependency finally went below 50 percent, 49.4%. 27 However, Japan’s oil dependency still remains heavy compared to other major developed countries, and more than 80 percent of imported oil is from Middle East. In 2003, 88 percent of the 24

Wonwoong Kim, International Energy, Resource Environment, and Resource Diplomacy. p. 172. MCIE and KEEI, 2010 Energy Vision – Direction of Energy Policy and Strategy for Development. p. 243. 26 UNFCCC, as an international environmental treaty, was opened for signing in1992, and it took effect in 1994. The treaty aims at stabilizing emission of greenhouse gas to stop global warming. 190 countries joined this treaty. However, the treaty originally did not set any mandatory limit on greenhouse gas emission; therefore, it is not legally binding for individual nations. The Kyoto Protocol set updated mandatory emission limits, but only 38 developed countries signed for it, which is much less than UNFCCC. South Korea is not included in the countries that are required to keep the limits of the protocol because it was not categorized as a developed country at that time. However, more developing countries are being encouraged to participate by many developed countries. 27 Nuclear - 13%, Natural Gas - 13% in the same year. 25

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imported oil to Japan was Middle East. 28 This situation constrains Japan politically to rely on “the volatile Middle East” 29 and limits Japan’s energy policy options, which can be assumed the first energy security dilemma of Japan as it was for South Korea.

Table II-1. Major Developed Countries’ Oil Dependency in 1999 Oil Dependency Import Dependency Middle East Dependency

Japan 52 100 85

USA 40 56 25

UK 35 55 4

Germany 40 87 7

France 38 87 41

Italy 56 94 36 (Unit :%)

Source: IEA

30

Since 1980, the amount of imported non-cocking coal sharply increased as Figure II-2 shows. Through the two oil shocks, Japan recognized that it was urgently required to escape from the oil and Middle East dependency. In May 1980, Japan promulgated “the Law Related to the Promotion of the Development and Induction of Oil Substitute Energy (Law No. 71, May 30, 1980) (Sekiyu Daitai Enerugi no Kaihatsu oyobi Donyu ni Kansuru Horitsu – 石油代 替エネルギーの開発及び導入に関する法律).” By subsidizing based on this law, Japan started to substitute coal for oil, particularly for electricity generation. Especially since 1999, the coal demand for generating electricity remarkably rose as you already saw in Figure I-1. One of the main reasons of this was the privatization of the electricity market in Japan. Since Japan decided to privatize the Japanese electricity market in the early 2000s, Japanese electricity companies positively promoted establishing thermoelectric power plants by coal in order to lessen their cost to generate electricity. 31

28

외교통상부,『주요국 에너지 현황 및 에너지 외교』(2005.9.) p.21. Ministry of Foreign Affairs (MOFA), Current Energy Situation and Energy Diplomacy of Major Countries. 2005. p.21. (translated by the author) 29 Kent Calder, Korea’s Energy Insecurities - Comparative and Regional Perspective. p. 7. 30 MOFA, Current Energy Situation and Energy Diplomacy of Major Countries. 2005. p.24. 31 MCIE and KEEI, Policy Research Paper – Study for Northeast Asian Energy Cooperation. pp. 227-228.

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Figure II-2. Change of Amount of Domestic and Imported Coal in Japan

Imported Anthracite Domestic Miscellaneous Imported Non-cocking

Domestic Anthracite

Imported Cocking Domestic Non-cocking Domestic Cocking

Year (Unit: Million Ton)

Source: MCIE and KEEI, Policy Research Paper – Study for Northeast Asian Energy Cooperation 32

However, the economic rationale of Japan’s coal dependency faces against the environmental concern. Japan, as a member state of the Kyoto Protocol, is required to reduce its greenhouse gas emission by 6 percent from 2008 to 2012 compared to 1990’s emission. However, the Japanese government recognizes that it would be very difficult to achieve the goal required by the treaty because Japan’s energy efficiency is as high as the current technology allows. As Figure II-3 shows below, Japan greatly improved its energy efficiency. Especially its energy efficiency in industrial parts is the top of the world. 33 Consequently, the environmental pressure of growing coal dependency looks much greater in Japan than in South Korea.

32 33

MCIE and KEEI, Policy Research Paper – Study for Northeast Asian Energy Cooperation. p. 229. Wonwoong Kim, International Energy, Resource Environment, and Resource Diplomacy. p. 513.

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Figure II-3. Japan’s Improvement in Energy Efficiency

Note: Calculated with 1973 figure as 100 Source: Kent Calder, “Sino-Japanese Energy Relations: Prospects for Deepening Strategic Competition” 34

In sum, South Korea and Japan became more dependent on coal because they decided to substitute coal for oil in order to supply sufficient electricity for their economies. However, it seems certain that the two countries could encounter serious environmental problems by increasing their coal consumptions. In addition, because they joined the environmental treaties, they must keep their emissions below the required level. Thus, South Korea and Japan seem to face a similar energy security dilemma as they did with oil.

34

Kent Calder, “Sino-Japanese Energy Relations: Prospects for Deepening Strategic Competition” p. 18.

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POLICY COMPARISON As analyzed in the previous two chapters, South Korea and Japan made a choice of increasing their coal dependency under the similar situations. Both countries tried to escape from their first energy security dilemma, their heavy oil and Middle East dependency, and increasing coal consumption in order to support their “bike economies” was an economically rational choice. In order to secure sufficient amount of coal, South Korea and Japan are performing various policies. Both of them make diplomatic efforts to promote the close relationship with major coal producing countries and coal reserve countries that are potentially coal exporting countries to South Korea and Japan. The South Korean government also supports establishing ports in order to guarantee smooth transportation of imported coal to South Korea. However, they joined the climate treaties, and thus the two countries need to control their greenhouse gas emissions. While the two countries continue to support their economic growth, they should fight against air pollution as well. It can be claimed that South Korea and Japan face an energy security dilemma by being more coal-dependent, thereby increasing environmental concerns. Consequently, they perceive that developing Clean Coal Technology (CCT) would be the best policy goal for economic growth while addressing environmental security. When coal burns, it produces a lot of harmful pollutants into the atmosphere such as coal dust and sulfurous acid gas. Because coal includes veinstones, which decreases thermal efficiency, burning coal produces a lot of CO2 as well. If every thermal power station is equipped with electrical precipitator or desulfurization equipment, it can reduce air pollution. Nevertheless, installing such equipments costs huge amount of money. Furthermore, it would be very costly to install those equipments in every single power plant including small ones locally located. Therefore, the technology for producing clean coal without harmful pollutants when it burns becomes crucial. In this chapter, South Korea and Japan’s policies regarding CCT would be briefly compared. Comparing the kinds of technologies they already have or the level of development of their CCT will not be discussed.

South Korea’s Clean Coal Policies UNFCCC took effect in March 1994, which conclusively affected South Korea’s energy policies and encouraged South Korea to develop clean technology for fossil fuel, such as oil and coal. The South Korean government announced “the Five-Year Clean Technology Development Plan 1994 – 1998” and has promoted clean technology including CCT. Compared with other industrialized countries such as Japan and U.S., South Korea’s CCT remains at a relatively low level. South Korea’s CCT are not yet put in practical use. The South Korean government’s policy regarding CCT development can be summarized as follows: first, South Korea understands that it is necessary to completely execute “the Ten-Year Energy Technology Development Plan 1997 – 2006.” This plan is the first comprehensive guideline the South Korean government announced in order to rightly react to the pressure by UNFCCC. This plan includes strategies for improving energy efficiency

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and developing new technologies such as developing substitute energy sources and clean technologies. Second, the South Korean government recognizes that South Korea is quite behind other developed countries in terms of CCT, and it suggests that South Korea should concentrate on the technologies that can be put in practical use relatively easily and the development cost of which is relatively affordable. By concentrating on some key technologies, which can make visible results soon, the South Korean government aims to develop CCT efficiently. Third, the South Korean government understands that it is critical to encourage technology exchange by promoting the relationship with the developed countries that hold more advanced CCT than South Korea such as U.S., China, Japan, Canada, and Australia. Since 1984, Korea Institute of Energy Research (KIER) had hold technology workshop with Pittsburgh Energy Technology Center (PETC), which is under Department of Energy. Since 1996, KIER has successfully co-opened its biennial technology workshops with Federal Energy Technology Center (FETC) 35 , and they already had 13 times workshops in South Korea and U.S. In addition South Korea’s MCIE helped technology exchange with China, which is the second largest coal exporter to South Korea and seriously affects South Korea’s environment. The technology exchange workshop between South Korea and China also started in 1996, and it has been held every other year. South Korean engineers, governmental officials, and civil activists have participated in those meetings. In sum, South Korea is trying to improve its CCT by efficiently spending its energy budget and by closely cooperating with developed countries. However, the government reports reveal that South Korea may not be as cooperating with Japan as is with U.S. and China.

Japan’s Clean Coal Policies Japan’s policy regarding CCT is called Clean – Coal – Cycle (C3) Initiative, announced in June 2004. C3 Initiative includes the following strategies: first, Japan should intensively invest on developing CCT, completely execute the technologies in ordinary lives, and extend the technologies domestically and internationally. Second, Japan should stabilize supply of coal, thereby its reasonable price because the most attractive factor of coal is its affordable price compared to other energy sources. Third, Japan should establish infrastructures to support executing this C3 Initiative such as international network with coal-producing countries and publicity activities regarding the policies. 36 Compared to South Korea, Japan’s CCT is more advanced. New Energy and Industrial Technology Development Organization (NEDO), as the center of Japan’s CCT development, has been trying to develop several critical CCT such as coal burning technology, gasification technology and pyrolysis technology. Japan’s C3 Initiative implies three things. First, the Japanese government regards CCT as one of the key technologies Japan should concentrate on, and it has invested huge amount of budget in order to develop CCT. In 2005, the Japanese government spent 11.719 billion yen for developing CCT itself, 3.617 billion yen for developing other related technologies, and 1.083 billion yen for extending the technologies by opening conferences or 35 36

PETC was transformed to FETC after its reconstructing. METI, Energy White Paper 2006 Edition. pp. 90 – 92.

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educating engineers. 37 The total budget related to science and technology of METI in 2005 was 59.07 billion yen, and accordingly the budget spent for CCT in 2005 occupied almost 27 percent of the total, 16.419 billion yen out of 59.07 billion yen. 38 Second, Japan puts efforts to extend CCT to other developing countries, especially in Asia. According to Energy White Paper 2006 Edition, the Japanese government has made efforts to extend Japan’s advanced CCT abroad, especially to Asian developing countries. 39 By opening technology seminars or accepting engineers from abroad, Japan is trying to spread CCT in Asia. The Japanese government seems to perceive that stable economic growth and environmental security of Asian developing countries is conducive to Japan’s economy as well. In addition, Japan understands that it can increase its influence on Asian developing countries by providing substantial CCT. Third, the Japanese government recognizes that it is necessary to further improve the relationship with coal-producing countries. By promoting the relationship with coal-producing countries and developing coal industries abroad, Japan is trying to secure sufficient coal for stable coal supply. To tie this all together, I would like to point out three things regarding South Korea and Japan’s CCT policies. First, South Korea perceives the relationship with the countries that have advanced CCT is important and the South Korean government makes efforts for technology exchange; while Japan understands that the relationship with the coal-producing countries is more important because Japan already has developed CCT. Second, Japan is trying to secure coal and exercise its influence on Asian developing countries by supplying its advanced CCT. Third, South Korea is trying to catch up with other developed countries such as Japan by continuing technology exchanges with key countries such as U.S. and China. In conclusion, it can be claimed that South Korea and Japan show signs of competition in the CCT area in the near future.

37

METI ed., Energy White Paper 2006 Edition. p. 301. 한국산업기술평가원,『일본경제산업성 2005 년도 산업기술관련 예산안 개요』(2005.4.) p. 4. Korea Institute of Industrial Technology Evaluation and Planning, Outlook of Japan’s METI Budget in 2005 for Industrial Technology. 2005. p. 4. (translated by the author) 39 METI, Energy White Paper 2006 Edition. pp. 88-89. 38

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THE IMPLICATIONS AND POLICY SUGGESTIONS FOR THE NORTHEAST ASIAN ENERGY SECURITY Through comparing the structure of energy consumption of South Korea and Japan, this study showed that two countries has been trying to escape from their first energy security dilemma, namely oil and Middle East dependency, by increasing their coal dependency. However, as coal dependency of the two countries grows, South Korea and Japan fell into their second energy security dilemma. While two countries have to increasingly depend on coal, they have to fight against air pollution. Developing CCT is, therefore, regarded one of the most effective ways to solve their second energy security dilemma. Looking into their clean coal policies, it can be assumed that South Korea and Japan show some signs of starting their competition in terms of CCT development rather than cooperating in this area. What does this competition between South Korea and Japan in terms of clean coal policies imply for the energy security and the environmental security in Northeast Asia? Asia is rapidly growing in this century, and the total demand for energy, especially for electricity, is remarkably increasing. Asian countries, as a whole, are planning to increase their capability of thermal power generation from 550 GW in 1992 to 1350GW in 2020. This will be almost 2.5 times larger scale than 15 years ago. 40 Accordingly, the consumption of energy sources, particularly of coal, is predicted to increase seriously, and the air pollution by this is the urgent problem Asia has to deal with. For example, Figure V-1 shows you that China has been the largest CO2 producer in the world, and this trend is likely to continue for a while. In addition, Figure V-2 shows you how SOx emissions have changed and will change in Asia. From 18 million ton in 1975 to 29 million ton in 1987, the SOx emission already increase 1.6 times by increasing demand for energy sources, mainly by increasing coal consumption. The SOx emission in Asia is predicted to increase up to 44 million ton within a decade. 41

40 41

MCIE, Development of New Technologies of Electrostatic Separation for Use of Clean Coal. p. 10. MCIE, Development of New Technologies of Electrostatic Separation for Use of Clean Coal. p. 10.

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Figure V-1. Change of CO2 Emissions by Regions

Source: IEA, World Energy Outlook 2006 42

Figure V-1. SOx Emissions Level in Asia including China

Source: IEA, World Energy Outlook 2006 43 42

제갈성, “전 세계 청정발전 기술 개발 동향 – 1부”『전력기술동향』(통권 40호) 한국전력공사 전력연구원, 2007년 3월. p. 14. Sung Chegal, “Clean Electricity Generation Technologies of the World – Part I,” Today’s Electricity Technologies Vol.40. Institute for Electricity Research, Korea Electric Power Corporation, 2007. p. 14. (translated by the author) 43 MCIE, Development of New Technologies of Electrostatic Separation for Use of Clean Coal. p. 11.

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From the South Korean and Japanese cases, it was proved that developing CCT is an efficient and effective way in order to continue economic growth and keep environmental security at the same time. As Figure V-3 shows, the CO2 emission by developing countries will sharply increase, but it is a complicated issue to push developing countries into the international regulations by the climate treaties. Developing countries claim their right to economic development. If Asian developing countries put CCT in practical use, they can continuously develop their economy by depending on coal and they can decrease the current greenhouse gas emissions significantly. However, as we examined in the South Korean case, it is not easy to afford huge amount of costs for developing the technologies. Japan is trying to extend its advanced CCT to Asian developing countries, but they do not include all developing countries that need the technology because Japan provides its CCT only to the selected countries such as China, Indonesia, and Vietnam related to its national interests. Furthermore, the Japan’s ambition to increase its influence on Asian developing countries by providing CCT could destabilize its already sensitive relations with South Korea and China due to the growing possibility of Japan’s hegemony in terms of energy. Race for CCT is subtly producing a competition structure in Asia.

Figure V-3. Estimated Amount of CO2 Emissions in the World

(Unit: Billion Ton)

Source: IEA, World Energy Outlook 2006 44

44

Sung Chegal, “Clean Electricity Generation Technologies of the World – Part I” p. 14.

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In this century, every single country competes against one another to secure its energy source to support its economy. Richard Barnet appropriately pointed out that today’s hegemony can be got by controlling global resources not by occupying territories. 45 If today’s coal competition in Asia goes further, this can cause a sharp conflict within the region, which can negatively affect the world security as the competition surrounding oil did. What I would like to recommend is that Northeast Asia should build up a multilateral cooperation organization that take coal as the topic. The European Coal and Steel Community (ECSC), found in 1951, was the station of origin for European integration. As Wonwoong Kim notes in his book, ECSC was not simply aimed for energy cooperation. He insightfully states that Europe actually selected coal and steal as an intermediation vehicle for healing its painful historic legacies and preparing for the united Europe. 46 I maintain that the European approach can be effective in the current Northeast Asia. South Korea is one of the most ambitious countries that are willing to promote Northeast Asian energy cooperation. KEEI held the first “International Symposium on Energy Co-operation in Northeast Asia” in June 2001, and at the symposium the South Korean government suggested to regularly open Senior Officials Committee (SOC) at the governmental level for Northeast Asian energy cooperation, which includes six Northeast Asian countries: South Korea, Japan, China, Russia, Mongolia, and North Korea. While Russia, Mongolia, South and North Korea showed their positive reactions toward establishing an inter-governmental cooperation organization, China and Japan showed their ambiguous attitudes. Northeast Asia seems to lack a regional consensus on establishing a multilateral energy cooperation organization yet. The South Korean government also proposed that the future multilateral energy cooperation organization can build up a regional electricity network or gas network, and it can also share strategic oil stockpile. 47 However, multilateral cooperation for coal security has not been fully discussed in spite of its importance in the region. To conclude, I would like to suggest establishing a multilateral cooperation organization for coal security in Northeast Asia, which includes all of the six countries above plus U.S., the country that has advanced CCT, and Australia, the largest coal-producer in the world. The countries, which hold advanced CCT, can provide their advanced technologies to countries that does not have, and the coal-producing countries within the region can stably supply coal to member states. If this goes successfully, it can extend the scope of the organization to Southeast Asian developing countries and South Asian countries, which will also heavily depend on coal in the near future for their economic growth. These kinds of efforts will be conducive to stable economic growth and environmental security of the region. In order to reach a regional consensus for this, the related countries need to realize the necessity of multilateral approach. More frequent dialogues by the regional members and coresearch on effects of multilateral cooperation will be helpful for this. 45

박현주,『동북아 에너지 안보에 관한 지정학적 연구 – 에너지 수급과 수송로를 중심으로』대구대학교 대학원, 2005 년 6 월. p. 8. Hyunjoo Park, A Geopolitical Study for Northeast Asian Energy Security –Focusing on Energy Supply and Transportation. Graduate School of Taegu University, 2005. p. 8. (translated by the author) 46 Wonwoong Kim, International Energy, Resource Environment, and Resource Diplomacy. p. 381. 47 Wonwoong Kim, International Energy, Resource Environment, and Resource Diplomacy. p. 412.

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-

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