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North-East Asian Perspectives on the

Challenges to Energy Security and the Sustainable Use of Energy

Dr. Jae-Seung Lee (Korea University)

Dr. Jungmin Yu (Anyang University)

* This paper was commissioned by UNESCAP for “North-East Asia Sub-regional Consultation Meeting for the Asia-Pacific Energy Forum 2013,” 12-13 November 2012, Incheon, Republic of Korea. The content and views expressed in this paper are those of the authors and not necessarily reflect the views or policies of the United Nations.

** Pre-Editing Draft. Please do not cite.

*** Comments welcomed. Please contact jsleepoli@gamil.com (Dr. Jae-Seung Lee, Professor, Korea University) or yujungmin@gmail.com (Jungmin Yu, Professor, Anyang University).

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Executive Summary

Based on the UN ESCAP Resolution 67/2 which highlighted the development and deployment of

cost-effective new and renewable energy technologies and the cooperation on increasing energy

efficiency, this study tries to assess the current energy situation in North-East Asia (NEA) and to

evaluate the existing energy cooperation initiatives.

There have been major challenges to energy security and sustainable development that necessitated

common responses of NEA countries—China, DPR Korea, Japan, Mongolia, Republic of Korea and

the Russian Federation. The NEA region encompasses some of the largest energy consumers and

fastest growing economies in the world. Energy demand and greenhouse gases emissions have

increased rapidly in NEA. Sustainable economic development and access to energy services also have

been major energy challenges.

The geographical proximity of NEA countries, together with a shared understanding of

abovementioned energy challenges, was expected to lead to collaboration on energy trade, investment

and sustainable development agenda despite their diversity in energy production and consumption

patterns. However, regional attempts to build effective energy cooperation in NEA have faced a

number of economic and geopolitical constraints so far.

In this regard, political commitment by the Member States of North-East Asia is vital for increasing

energy cooperation and for effective implementation of related projects. The success of future energy

cooperation hinges heavily on political mandate from participating countries. A ministerial level

meeting such as the one proposed at APEF could be the start of such cooperation. APEF could

produce a new ministerial declaration or agreement on sub-regional energy cooperation to further

these goals. Once a track record is established, a North-East Asian Energy Summit could be

envisaged in due course.

A renewed political momentum for energy cooperation in Northeast Asia will contribute to sustainable

development by emphasizing alternative energy issues including low-carbon growth, capacity

building and energy welfare. By doing so, NEA energy cooperation can accommodate the interests of

member countries in diverse economic and energy settings. Public-goods-oriented agenda-setting

would be relevant for enhancing more inclusive sustainable energy cooperation. Odd as it may sound

but North-East Asian energy cooperation, at least in the short- and medium-term, needs to be devoid

of unnecessary politics which has proven an obstacle for effective energy cooperation. But this can

only happen, however if the political leadership in the sub-region agrees to a politically neutral

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approach to energy cooperation.

As well, NEA energy cooperation needs to be accompanied by a more effective institutional design

based on a renewed political momentum from member states. Upon the foundation of earlier efforts,

new energy cooperation architecture in NEA could either update and enlarge existing institutions or

create a new institution.

It needs to be admitted that a constructive restoration of bilateral relationships would be a political

prerequisite to the achievement of effective multilateral energy cooperation. The internal momentum

of energy cooperation in North-East Asia is still weak, and the institutional framework has not been

clearly set. In this situation, proper networking with other regional multilateral institutions such as

APEC, ASEAN+3, and ADB would also be useful because overall regional cooperation could

eventually be a foundation for NEA energy cooperation.

On the basis of stronger political mandate and effective institutional architecture, the future pursuit of

NEA energy cooperation should be based on well-designed action plans. A constructive balancing of

Upstream / interconnection projects (hard energy agenda) and sustainable energy projects (soft energy

agenda) would be necessary. Low-carbon growth mechanisms, infrastructure safety (offshore oil, gas,

renewable / power-grid / nuclear), environment- and disaster-related energy security agenda could be

considered as newly focused agenda for further energy cooperation in the region.

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Chapter I: Introduction

1. Brief Description of Sub-region North-East Asia (hereafter NEA) is one of the largest sub-regions in Asia and the Pacific, which

consists of six countries, including China, Democratic People’s Republic of Korea, Japan, Mongolia,

Republic of Korea, and Russian Federation. In many aspects, NEA has been drawing keen attention

due to its huge territorial coverage, growing population, rapid economic growth, increasing demand

for energy and resources and global as well as domestic environmental impacts.

NEA accounts for 25% of world total GDP in 2011. China and Japan contribute to 14.2% and 5.6% of

the world’s GDP, respectively (ESCAP, 2012). Economies of NEA as a whole are on the growing

track with variances among the countries. As shown in the figure, per capita GDP of China has grown

more than six times during 1990-2010. Republic of Korea also shows impressive economic

development during the period while more than doubling its per capita GDP. Although Mongolia and

Russia experienced economic stagnation in early 1990s, they have shown steady economic recovery

trend since mid-1990s.

NEA has shown a high level of economic interdependence among the sub-regions in Asia and Pacific,

having over 30% of intra-sub-regional trade (ESCAP SRO-ENEA, 2011). However, it is also a region

with great disparity in terms of demographic, economic, political and energy situations. It hosts China,

world’s most populous country having 1.3 billion people, while accommodating Mongolia with a

population of only 2.7 million. Economic situation also shows uneven pattern among the countries:

Japan and Republic of Korea has per capita GDP of $36,184 and $21,119 in 2010 respectively, while

DPRK and Mongolia has only $539 and $1,253 per capita GDP (ESCAP, 2012). In terms of economic

system, DPR Korea has remained centrally planned economic system with great leverage of

government while Japan and Republic of Korea have advanced market-based economic systems.

However, when it comes to energy, it is not unusual that even those countries inclined to market

principles frequently handle energy issues as a strategic policy subject. For example, both Japan and

Republic of Korea have promoted nuclear power through national energy supply or R&D policy as

they have virtually no conventional energy resources.

NEA has 1.69 billion of population in 2010, accounting for one quarter of world population (ESCAP,

2012). China, one of world’s most populated countries, takes up largest share of 80% of the NEA

population. Population issue has been seen as one of the most serious problems to be tackled for the

region because it could lead to created social instability (e.g. urban slum and unemployment),

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environmental pollution, and excessive use of natural resources. For example, more than 30% of

urban residents were reported to live in the slum in China in 2005 (ESCAP, 2011).

The recent population growth in NEA, however, has been slow during 1990-2010, averaged at 0.62%,

which is half of world population growth rate in the same period (ESCAP, 2012). It is mainly

attributed to the fact that the pace of population growth of China has substantially slowed declined in

the last 10 years with annual average growth rate of 0.49%. It is good indication that the population

growth trend has come to the mature point in some countries, particularly in China, but ramification

of changes in standard of living for 1.69 billion of population are another greatest challenges faced by

NEA and for the rest of the world.

Table 1. Population Growth Rate of NEA countries (1990-2010)

Country Population Growth Rate

1990-2000 2001-2010 1990-2010 China 0.94 0.49 0.76

DPR Korea 1.17 0.53 0.91 Japan 0.25 0.05 0.16

Mongolia 0.87 1.25 1.09 Republic of Korea 0.62 0.42 0.55 Russian Federation -0.09 -0.22 -0.17

East and North East Asia 0.78 0.39 0.62 World 1.31 1.07 1.26

Source: ESCAP online database Figure 1. Index of Change in GDP per capita, NEA countries (US dollars in 2005)

Source: Constructed using ESCAP online database * Data for DPR Korea is not available at ESCAP online database

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2. Energy Situation

In line with rapid economic growth, energy consumption of the NEA has increased substantially. In

particular, energy consumption of China nearly quadrupled during 2000-2012, with 8.2% of annual

growth rate. The share of China, Japan, Republic of Korea, and Russian Federation combined in

primary energy consumption is 33% in 2011 (BP, 2012). China is world’s single largest energy

consumer, followed by Untied States, using 21.3% of world’s total primary energy. It is very dramatic

change in that China used less than half as much energy as US in 2001. Republic of Korea showed

also rapid increase of energy consumption in 1981-2000 with 7.5% of annual growth rate but the pace

slowed in 2000s with 2.8% annum. Russian Federation is the second largest energy consumer in the

sub-region, using 685.6 Mtoe in 2011 but the growth rate is relatively as low as 0.93% annually in last

ten years. Among the major four NEA countries, Japan shows the declining trend of energy

consumption.

Figure 2. Primary Energy Consumption in North-East Asia (1990-2011)

Country Annual

Growth Rate

(2000-2011)

China 8.19%

Japan -0.62%

South

Korea

2.77%

Russia 0.93%

Source: BP, 2012.

Fossil fuel is dominant energy source for all NEA countries with some variations. One of the

discernible patterns of energy use among the countries is the level of natural gas use. Russia

Federation, world’s second largest gas production country, used 88.57 Mtoe of natural gas in 2010,

which accounts for 55% of the country’s total primary energy supply (TPES). Japan and Republic of

Korea, world’s first and second largest LNG importer, used 86.01 Mtoe, 38.7 Mtoe of natural gas in

2010, which accounts for 17% and 15% of TPES each country, respectively (IEA, 2012a, b).

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Figure 3. Fuel Mix of Total Primary Energy Supply for NEA countries, 2010

Source: IEA, 2012a, b

The energy outlook of NEA sub-region is expected to maintain the current growth pattern although

the pace is not as fast as it was. According to IEA’s New Policy Scenario (2011), the annual growth

rate of China’s primary energy will be 2.0% from 2009 to 2035, consuming 3,835 Mtoe. Russian

Federation is projected to keep its growth trend with 1% per year until 2035, reaching 833 Mtoe. In

short term, energy demand in Japan expected to recover from the abrupt drop caused by earthquake

and tsunami that struck the country and Fukushima nuclear accident, but is projected to keep the

longer-term declining trend, reaching 480 Mtoe in 2035. Energy growth rate of Republic of Korea is

also expected to slower. According to the policy scenario by Republic of Korea, the primary energy

consumption will grow by 1.1%, consuming 300 Mtoe by 2030 (MKE, 2008).

The use of electricity is growing as its cleanness at the end-use side, convenience and diverse

applications. As with economic growth and energy consumption, electricity development in the NEA

sub-region is very impressive. In 2001 to 2010, electricity generating capacity has increased by 80%

with annual growth rate of 6.1% while world’s generating capacity has grown by 42% in the same

period. China has contributed most to this rapid expansion, with its capacity increased by 10.9%

annually. Japan, Republic of Korea, and Russian Federation showed relatively moderate increase,

ranging from 0.9% to 4.1%. However, DPR Korea and Mongolia have not made much progress in

expanding electricity capacity.

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Table 2. Total Electricity Installed Capacity (TW)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Annual Growth rate

China (region) 356 375 410 461 536 644 739 820 904 1001 10.9% DPR Korea 10 10 10 10 10 10 10 10 10 10 0.0%

Japan 264 268 271 275 277 279 279 281 284 287 0.9% Mongolia 1 1 1 1 1 1 1 1 1 1 0.0%

Republic of Korea 57 59 61 65 67 70 73 80 81 85 4.1% Russian

Federation 207 216 217 218 220 222 225 224 225 229 1.0%

Source: EIA, 2012.

Electricity generation in the NEA sub-region is dominantly dependent on fossil fuels in most countries.

In particular, China produced 80% of electricity from fossil fuels in 2010. Japan, Republic of Korea,

and Russian Federation also produced about two thirds of electricity from fossil fuels. Those three

countries have a large share of nuclear generation: 26% for Japan, 30% for Republic of Korea and

16% for Russian Federation.

Figure 4. Electricity Production by Source, 2010

Source: IEA, 2012

Increasing energy demand to meet fast economic growth of NEA countries made the problem of

energy security more imperative political and policy agenda. Availability of energy at affordable price

and diversity is crucial issue for domestic and sub-regional energy security. NEA has quite abundant

energy reserves, of which mostly concentrated in China and Russian Federation. These two countries

combined accounts for 23% and 31% of world’s gas and coal reserves while they don’t have oil

reserve as much as gas and coal. Russia has 88.2 billion barrels of proved oil reserve which accounts

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for 5.3% of world total while China has relatively small oil reserve of 14.7 billion barrels, accounting

0.9% of world’s total. Russian Federation has huge natural gas reserve, 44.6 trillion cubic meters

(2011), which is 21.4% of world’s total. The development of unconventional gas—i.e. shale gas—

would add more volume of gas reserve in this region. Coal is most abundant fossil fuel in the NEA

region. Russian Federation alone has 157,000 million tons of coal proved reserve, which accounts for

18.2% of world’s total. China has substantial amount of coal resource of 114,500 million tons at the

end of 2011 (BP, 2012).

Two major countries in NEA sub-region, China and Russian Federation, are world’s main fossil fuel

producers. In 2011, Russian Federation was the second largest oil and gas producer in the world

following Saudi Arabia and United States by slight margin, accounting for 12.8% and 18.5%,

respectively. China is invincible top coal producer, producing almost half of world’s coal production

in 2011.

Figure 5. Conventional Energy Reserves (Proved)

Oil reserves Gas reserves Coal reserves

Source: BP, 2012

Figure 6. Production of Fossil Fuel

Oil production Gas production Coal production

Source: BP, 2012.

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Despite substantial energy reserves, the region is struggling to meet its rising energy demand driven

by recent fast economic growth. In 2010, energy self-sufficiency of NEA is 94.7% with significant

variances by country as shown in the table below. Republic of Korea and Japan that have virtually no

domestic energy reserves are heavily dependent upon energy imports of fossil fuels. The statistics

become even worse when considering nuclear as non-indigenous energy source (it is fair to treat as

such for those countries because uranium, nuclear fuel, is non-indigenous energy that must be

imported overseas anyway), lowering the energy self-sufficiency of Korea and Japan to 2.5% and

4.4%, respectively. DPRK and Mongolia are technically net energy exporter but the situation will

change as their economies take off. In this regard, Russian Federation would be the only country that

continues to be energy exporter in the NEA sub-region.

Table 3. Energy Self-Sufficiency of NEA Sub-region in 2010

Country Energy production

(MTOE)

Total primary energy

supply (MTOE) Self-sufficiency

China 2,209.0 2,417.1 91.4%

DPRK 20.7 18.5 111.7%

Japan 96.8 496.8 19.5%

Mongolia 15.0 3.3 457%

Republic of Korea 44.9 250.0 18%

Russian Federation 1,293.0 701.5 184%

Total 3,679.4 3,887.3 94.7%

Source: IEA 2012a, b Note: * Energy-self sufficiency is the ratio of total energy production over total primary energy supply (TPES).

** IEA statistics regards nuclear production is included in indigenous energy production, which substantially enhances the self-efficiency of the countries with that has large share of nuclear power in their energy mix.

With regard to the fuel types, oil shows highest dependency with some variances for the sub-region’s

largest energy importing countries, China, Japan, and Republic of Korea. According to the latest data

from IEA (2012a, b), China’s net oil import was 234Mtoe while Japan and Korea imported 185Mtoe

and 121Mtoe without any domestic production in 2010, respectively. Natural gas is main fuel

imported by Japan and Republic of Korea, which is 82.8Mtoe and 39.28Mtoe in 2010, respectively.

The net import of natural gas for China is relatively small, 9.2Mtoe.

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Table 4. Net Imports by Fuel, 2011

Country Coal &

peat

Crude Oil Oil

products

Natural

gas

Electricity Net

Imports

China (1000toe) 76,828 234,652 18,210 9,215 -1,162 337,743

DPRK (1000toe) -2,261 329 301 - - -1,631

Japan (Mtoe) 115 185 27 83 409

Mongolia

(1000toe)

-11,720 -286 846 - 21 -11,139

Republic of Korea

(Mtoe)

73 121 -12 39 221

Russian Federation

(1000toe)

-70,638 -247,161 -109,165 -150,634 -1,501 -579,099

Source: IEA 2012a,

NEA shows high dependency on Middle East region for its oil and natural gas. In 2011, China

imported 42% of crude oil from Middle East area and 15% from the former Soviet Union. Japan and

Republic of Korea’s dependency on Middle East for oil is even higher, importing 79% and 82%,

respectively.1 Japan and Republic of Korea is the world’s largest and second largest LNG importing

countries. Japan and Republic of Korea import 27% and 40% of LNG from Middle East in 2011,

respectively (KEEI, 2012; BP, 2012). With such high energy dependency and growing energy demand

expected, NEA is increasingly vulnerable to the instability of the global energy market.

Energy mix of the NEA sub-region is, however, expected to change in next decades as domestic

energy policies are moving toward less-carbon and efficient energy system in response to

environmental concerns, dependency on imported energy and inefficient use of energy. Notably,

China, in the 12th Five Year Energy Plan (2011-2015), revealed an ambitious plan to reduce energy

and carbon intensity substantially in relatively short period of time. Targets are set to reduce energy

intensity (energy consumption per GDP) by 16% by 2015 and carbon intensity (CO�emissions per

GDP) by 17%. China also plans to increase the share of non-fossil fuel energy in total energy supply

up to 15% by 2020 (IEA, 2011). Korea also has a national energy plan to increase the share of

renewable energy and nuclear to 11% and 28% of total primary energy by 2030 while reducing fossil

fuels. After Fukushima accidents, it is expected that nuclear power may not be important energy

source as it was in Japan, rather energy efficiency and renewable energy are expected to play more

important role is main tier for the country’s energy policy.

1 Middle East oil dependency of Republic of Korea is for year 2010.

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Chapter II: Major Challenges Relevant to Enhancing Energy Security and

the Sustainable Use of Energy

1. Major Sustainable Development Challenges

The concept of sustainable development is generally understood as an economic growth or

improvement without undermining environmental sustainability and social development. The concept

was developed out of a recognition that current pattern of economic growth has caused serious

environmental problems such as air and water pollution, soil and land degradation, loss of biodiversity

and unprecedented climate change. It is also recognized that social concerns, such as lack of energy

services, ill sanitation and healthcare, gender inequality in education and economic activities, have

been accompanied with the practice of growth-oriented development paradigm. Since its introduction

in 1987 by UN World Commission on Environment and Development (WCED), a number of

operational plans has been discussed and suggested in the UN conferences, notably Rio Summit in

1992, World Summit on Sustainable Development (WSSD) in 2002 and Rio+20 in 2022. The goals

that sustainable development aims to achieve include poverty eradication, health safety, gender equity,

education, environmental protection and so forth. This section will briefly discuss major sustainable

development challenges faced by NEA and further present the relations between energy and

sustainable development.

First of all, NEA has environmental issues that need to be addressed to advance sustainable

development goals, such as transboundary air pollution, desertification and climate change. With

extensive use of fossil fuels, aquatic and terrestrial contamination threatens the local ecosystem and

often pollutants travel to long distances, calling for multi-lateral cooperation. Desertification and land

degradation is serious environmental problems in China and Mongolia. It is estimated that more than

27% of the Chinese territory is covered by deserts and about 90% of the Mongolian pastureland is

subject to land degradation (Park, 2011). One of the most daunting environmental challenges is

climate change due to the sub-region’s anthropogenic greenhouse gas emissions by burning fossil

fuels. The NEA region accounts for 35% of world carbon dioxide emissions in 2009. China, world’s

largest CO�emission source, accounts for almost quarter of world’s total CO�emissions followed by

the Russian Federation, Japan and Republic of Korea.

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Figure 7. CO₂ emission by NEA countries in 2009

Source: ESCAP online database retrieved in September, 2012

At present, Japan and Russia listed in Annex I countries of Kyoto Protocol are subjected to mandatory

CO�reduction targets while other member states of NEA are exempted from such binding international

protocol. However, China and Republic of Korea, world’s first and ninth CO�emitting states, are

facing mounting international pressure to take a responsible action in reducing greenhouse gases in

the post-Kyoto Protocol era. In this regard, energy efficiency, conservation and renewable energy are

becoming an important agenda in domestic and intergovernmental energy cooperation dialogues in the

NEA.

In response to growing concerns about climate change, three countries of NEA, China, Japan, and

Republic of Korea, up to date have CO� emission targets as shown in the table below. China pledged

its CO�emission reduction target in Copenhagen COP in 2009. Japan has a target aiming to reduce CO�emissions by 25% by 2020. In 2008, Republic of Korea proclaimed “Low Carbon, Green Growth,”

as the country’s new development paradigm. One of the objectives of the country’s green growth

policy was to reduce greenhouse gases by 30% compared to BAU by 2020.

Table 5. CO₂ Emission Reduction Target in NEA

Countries Target Basis Remark

China 40~45% by 2020 2005 CO�emissions per GDP

Japan 25% by 2020 CO�emission

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Republic of Korea 4% by 2020 2005 CO�emission

Source: ESCAP, 2010.

With regard to social development, NEA has number of challenges to be tackled. Health issue is one

of the important sustainable development agenda repeatedly emphasized in many international

sustainable development initiatives and programs. Despite the progress in last few decades, infant

mortality rate (deaths per 1,000 live births) is still high in some NEA countries, particularly China,

DPR Korea, Mongolia, and Russian Federation with two digit rate in 2010. DPR Korea and Mongolia

also show high prevalence of Tuberculosis rate and very low public health expenditure (ESCAP,

2011). Access to water is relatively affordable for most of the countries but China (89%) and

Mongolia (76%) can be further improved (ESCAP, 2011). Access to sanitation shows similar situation,

calling for improvement in China and Mongolia with only 55% and 50% population having access to

sanitation, respectively.

Most prioritized goal of sustainable development is economic development, in particular poverty

eradication. In fact, underlying assumption behind sustainable development is that poverty reduction

is important to achieve social development goals but indispensable for preserving environment as the

poor might make adverse impacts on the environment by overusing natural resources (e.g.,

deforestation by collecting fuel woods and inefficient farming). The NEA sub-region still has

substantial number of people living in poverty (2005 PPP $1.25 a day): 200 million people in 2008

(ESCAP, 2011).

Energy is a key component in achieving sustainable development goals in a number of ways. As

shown schematically in figure below, the way in which energy is produced and used and what kind of

energy is used have profound impact on sustainability of natural environment and global climate

change. In particular, increasing energy efficiency and transition from carbon intensive fossil fuels to

less carbon energy sources is becoming each country’s important policy agenda as energy sector is the

largest GHG emission source. Reliable energy supply is an essential for economic growth, one of

main pillars of sustainable development goals. In particular, to secure energy supply is becoming

more important given unpredictable supply of fossil fuels and rising energy demand expected in the

region. Energy also plays an important role in enhancing social development in many different ways.

For example, access of modern energy sources can be an important instrument to reduce poverty and

health risks associated with unavailability and poor quality of energy sources. In 2005, 27.2 million

people in China, DPRK, and Mongolia combined have no access to electricity (ESCAP, 2008), which

is great challenges faced by those countries. Modern energy services also can reduce the burden of

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household works done by women and children.

Figure 8. Energy and Sustainable Development

Source: Modified from Najam and Cleveland, 2003

2. Major Energy Challenges

Energy security has been generally understood as securing stable energy supplies, often equivalently

used as oil security. Diversification of fuels and import sources, overseas energy development and

acquisition, increase of energy stockpile and strengthening energy diplomacy with resource-rich

countries are some examples of conventional energy security policy. On other hand, resource-rich

country sees energy security differently: it is more related with stability of energy demand and market.

However, the energy situation have been substantially changed for the past decades as concerns about

global environmental problems, notably climate change and social development are mounting. Energy

security is now comprehensive policy agenda, dealing with not only uninterrupted energy supplies but

also energy access, energy efficiency and renewable energy, health risks, energy safety and gender

inequality. The figure below shows the conceptual framework for multi-dimensional concept of

energy security. In addition to some issues the figure presents, there can be much more issues that

constitute energy security. Following section summarizes major challenges for energy security in the

NEA region:

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Figure 9. Multi-Dimensions of Energy Security

A. Access to energy services

Access to reliable and affordable energy services including modern cooing facilities is crucial for

improvement of livelihoods of people and a country’s economic development. Access to modern

energy can brought about a number of benefits, particularly for the poor in rural areas: it can reduce

health risks by replacing toxic energy source with clean and safe one; raise household income by

enhancing increasing productivity, and address gender inequality by reducing burden of household

drudgery mostly done by women in rural areas.

IEA estimated that in 2009 1.3 billion people are without access to electricity and almost 2.7 billion

people are without modern cooking facilities, relying on traditional use of biomass—fuel wood,

animal dung and crop wastes (IEA, 2011). More than 95% of people lacking modern energy services

are in either sub-Saharan Africa or developing Asia and 84% in rural areas (IEA, 2011).

The situation does not differ considerably in the NEA sub-region. Access to electricity particularly

matters for three countries in NEA sub-region: China, DPR Korea and Mongolia. In 2005, DPR Korea

provided for electricity for only 22% of its population, where 17.7 million people had no access to

electricity. China and Mongolia also has 8.5 million and 1.0 million people without access to

electricity.

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Table 6. Population without Access to Electricity in NEA, 2008

Country Electrification rate (%) Population without

electricity (millions) Total Urban Rural

China 99.4 100 99 8.0

DPR Korea 26.0 36.0 10.0 17.7

Mongolia 67.0 90.0 36.0 0.9

Source: IEA, World Energy Outlook, cited from ESCAP, 2010

There have been international efforts to address the energy access issue. For example, the United

Nations initiated “Sustainable Energy for All” in 2012 that aims to ensure universal access to modern

energy services. A number of countries also have taken action and made some progress in recent years

in improving energy access to the people disadvantaged. According to IEA (2011), China in 2009 still

has 8 million people without access to electricity, mostly in rural areas, but is expected to achieve

universal electrification by 2015. Lack of recent data for electrification for DRP Korea and Mongolia

makes difficult to how much energy access has been improved.

Many countries are concerned about rural electrification and implement different policies and funding

programs. Some argue that conventional electrification strategy based on large-scale power generation

and extension of grid system may not be economically feasible option for rural electrification.

Investment on the infrastructure for such centralized electricity system will be substantially high as

the rural energy demand is disperse. Furthermore, the poor in the rural areas simply would not afford

to pay for such expensive energy costs. It is surveyed that current energy access funding tends to be

directed primarily toward large-scale electricity infrastructure and this does not always reach the

poorest households (IEA, 2011). Hence, it is argued that more decentralized and small-scale energy

options based on locally available renewable sources, tailored to local energy needs, would have great

potential to provide more affordable and cleaner energy services to the poor in rural areas.

B. Energy efficiency

One of the indicators to measure the country’s energy efficiency is energy intensity expressed by total

energy consumption divided by GDP. Although energy intensity cannot reflect the variance in

economic and industrial structure of the each country, it is widely referred to provide an estimation of

how energy is productively used in the region or country. As shown in the table below, world average

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energy intensity is 0.3 (toe/1,000 USD) and 0.18 for OECD countries. Energy intensity in NEA shows

wide difference by country, ranging from 1.74 for DPR Korea to 0.1 for Japan. It can be assumed that

there is great potential to improve energy efficiency in DPRK, Russian Federation, Mongolia and

China. According to IEA’s World Energy Outlook 2011, if Russian Federation increased its energy

efficiency to the level of comparable OECD countries, it could save almost one-third of its annual

primary energy use. In particular, potential savings of natural gas alone are equivalent to the country’s

net export in 2010 (IEA, 2011).

Table 7. Energy Intensity of NEA countries

Region/economy/country TPES/GDP (toe/1,000 USD of 2000)

World 0.3 OECD 0.18 China 0.81

DPR Korea 1.74 Japan 0.1

Mongolia 1.62 Republic of Korea 0.3 Russian Federation 1.6

Source: IEA, 2010, Key World Energy Statistics

Efforts to improve energy efficiency are under way in some NEA countries. China pledged its

commitments on energy efficiency and the use of cleaner energy sources by setting a target to reduce

energy intensity by 16% by 2105 at its 12th Five-Year Plan (2011-2-15) (IEA, 2011). Republic of

Korea also set an efficiency improvement target that aims to reduce energy intensity to

0.185(toe/1,000USD) by 2030 in National Energy Basic Plan (2008).

Energy efficiency improvement is seen as most cost effective way of reducing CO�emissions .

According to IEA (2009), end-use energy efficiency improvement has single largest option to achieve

450 Climate Scenario. Further, it is quick to implement and can contribute to lower energy

dependency by reducing energy consumption. Moreover, as energy conservation through efficiency

improvement avoid the need for expensive energy supply infrastructure, a country will be able to gain

significant financial savings as well.

C. Renewable energy

According to IEA’s 2009 statistics on renewable energy, Renewable energy use for power generation

in NEA varies much country by country, ranging from 59.1% in DPR Korea to almost 0% in

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Mongolia.2 The largest renewable source in electricity generation is hydropower in most NEA

countries (Table). In particular, the shares of hydropower in renewable generation in DPR Korea,

Russian Federation, China are very high. Hydropower is virtually the only renewable source in

electricity generation in DPR Korea. For the countries like Russian Federation and China, hydropower

accounts for over 95% in total renewable based generation. The share of hydropower in total

renewable generated electricity in Japan and Republic of Korea is relatively lower: about 78% for

Japan and 76% for Republic of Korea.3 The two countries have diversified renewable energy sources

such as biofuels, geothermal, biogas, PV and wind in their renewable energy portfolio.

Table 8. Electricity from Renewable and Waste (GWh) in 2009

Country

Primary

solid

biofuels

Biogases Geothermal Hydro PV Wind Renewable

total

Share of final

electricity

consumption

China 2,351 153 615,640 321 26,900 645,365 21.1%

DPRK 12,464 12,464 59.1%

Japan 13,990 2,889 82,129 2,758 2,949 104,715 10.0%

Mongolia - 0%

Rep. Korea 46 469 5,641 566 685 7,407 1.6%

Rus. Fed. 33 464 176,118 4 176,619 18.1%

Source: IEA, Statistics and Balances, http://www.iea.org/stats/

It should be noted that the landscape of renewable energy use may be quite different today from year

2009 because worldwide renewable power capacity (not including hydro) has increased by more than

50% from 2009 to 2011(REN21) and the fastest growing marketplace was NEA, particularly China.

According to the recent statistics (REN21, 2012), China had nearly 62.4 GW of cumulative wind

capacity, which is more than one quarter of world total. It added 17.6 GW of wind in 2011 alone,

which is 44% of world wind market. China also had 3.1 GW of cumulative PV at the end of 2011,

being positioned in fifth place. It has added 2,140 MW of PV in 2011, jumping from 500 MW in the

previous year. Japan’s PV market shows steady growth for the last five years from 1.9 GW in 2007 to

4.9 GW in 2011 (REN21, 2012).

2 As energy use per capita of DPRK and Mongolia is quite low, the renewable shares of the countries may not have statistical importance at present. 3 Hydropower, except for small to micro-size ones, poses adverse environmental and social impacts, which includes involuntary resettlement and significant disturbance of riparian areas. For this reason, large hydropower is often treated separately from other more environmentally-friendly renewable sources in many statistics.

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Recognizing the importance of renewable energy in addressing climate change and energy security,

some countries in NEA have undertaken a number of policy drivers to increase the use of renewable

energy. China, Japan, and Republic of Korea in 2002 have relatively comprehensive renewable energy

policies while Mongolia and Russian Federation use Feed-in-tariff (FIT) and direct capital subsidy as

a main policy mechanisms for renewable energy development.

China, Japan, Mongolia, and Republic of Korea have either FIT or RPS (Renewable Portfolio

Standard), or both, renewable energy policies most commonly used worldwide. Japan recently

introduced FIT amid the uncertainty of nuclear power after Fukushima accident. FIT was first

introduced in Republic of Korea but was replaced with RPS in 2012 due to the government’s budget

constraints. In terms of national renewable energy target, five countries have set targets, which varies

in share of renewable and time frame.

Table 9. Renewable Energy Policies and Target in NEA Countries

Country

Regulatory Policies Fiscal Incentives Public

Financing

Targets

FIT

RPS

Net metering

Biofuels obligation

Heat obligation

Tradable RE

C

Capital subsidy, grant, or

rebate

Investm

ent or Production

tax credits

Reductions in sales, energy,

CO

� m VAT, or other taxes Energy production

paym

ent

Public investment, loans, or

grants

Public com

petitive bidding

China l l l l l l l l 15% by 2020 (final energy)

Japan l l l l l l 10% by 2020 (primary energy)

Mongolia l l 20-25% by 2020

(electricity)

Republic of Korea l l l l l l l l 11% by 2030 (primary energy)

Russian Federation

l 4.5% by 2020

(electricity) Source: REN21, 2012.

D. Energy trade

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Despite huge energy resource in Russian Federation and increasing energy demand in the NEA, the

intra-sub-region energy trade has been very limited to date. As discussed earlier, major countries—

China, Japan, Republic of Korea—relied mostly on the Middle East and other regions for their oil and

gas import. Russia began to accelerate energy export to Asia but it will take some time to become a

substantial alternative to existing oil and gas supplies.

Figure10. Oil Trade in the World

Source: BP (2012) Figure 11. Gas Trade in the World

Source: BP (2012) Current intra-sub-regional energy trade is mostly bilateral rather than multilateral, particularly

between China and Russian Federation. The milestone for energy cooperation between two countries

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was visit by President Putin to China in 2004.

Two countries’ energy cooperation would not be surprising considering their geographical proximity

and need for diversify supply and demand of each country. Since then, two countries expanded energy

cooperation and trade in many respects. One of the significant outcomes of their energy cooperation

was completion of Chinese branch of Transneft’s East Siberian-Pacific Ocean (ESPO) in 2010, a

pipeline stretching over 4,500 km from Tishet in east Siberia to Kozmino on the Pacific Coast of

Russian Federation. The first phase of 2,757km of ESPO pipeline from Tishet to Skovorodino has

been completed and the second phase of the project is planned to be operational in 2014.

Figure 12. Eastern Siberian Pacific Ocean Pipeline

The pipeline from Skovorodino to

Daqing in China officially started in

January 2011, with a contract of

delivery of 300,000b/d between

Rosneft, Russia’s state owned oil giant

and China’s CNPC (Platts, 2011).

This ESPO project is not limited to

China-Russian energy trade. Once

entire project completed, it will further

facilitate sub-regional oil trade. It is, in

fact, already taking place. The first

stage of the ESPO pipeline from Tishet

to Skovorodino has capacity of

600,000b/d. From Skovorodino,

300,000b/d is transported to China and rest of them is transported by rail to ESPO export facilities in

Kozmino (Platt, 2012). This Russian ESPO crude oil is exported to many Asia-Pacifica countries and

US. According to report by Platt (2012), 84% of ESPO crude oil was exported to Asian countries,

with 30% for Japan, 28% for Republic of Korea, and 8% for China. The other 16% of ESPO crude oil

was exported to US.

Inter-state power trade has been an important agenda for energy cooperation in NEA. In present,

Russia Far East (RFE) and nearby areas of China shows the most active cross-border power trading.

The first power trade between two countries took place in 2004 by singing a Framework Agreement

between the “InterRAO UES”, a Russian monopoly for electricity exports and imports and a Chinese

private firm, Sirius in 2003 (Hippel et al., 2009). With expectation of increasing demand in

Source: Vatansever, 2010.

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Northeastern area of China, both countries are investing on electricity infrastructure. In recent years,

Eastern Energy Co., a subsidiary of Inter RAO established for exports to China, installed 500 kV

power transmission line in addition to the existing 100-220kV one. China also recently completed a

new substation in Heihe, expanding capacity of 2.6 billion kilowatt hours a year. In February, 2012,

Eastern Energy Co. and State Grid Corp of China made a contract to supply 100 billion kilowatt hours

of electricity trade over the coming 25 years (Daisuke, 2012). Although electricity transmission from

RFE to Republic of Korea via DPRK has been discussed for years, it still remains largely suspended

for unfavorable political and economic conditions (Hippel, 2009).

Another possible area for sub-regional energy trade is Russia’s natural gas. There have been a number

of proposals on the pipeline routes and financing mechanisms for tapping and delivering Russian gas

but concrete plans have not been yet agreed upon among the stakeholders. Presently, China imports

pipelined natural gas from Turkmenistan and LNG from Qatar and Australia. Japan and Republic of

Korea, without interconnection to gas pipeline, imports LNG from the countries in Middle East, South

East Asia, and Australia.

Discussion for sub-regional energy cooperation is not limited to fossil fuel trade. There is great chance

for energy cooperation in the area of energy efficiency and renewable energy. As discussed previously,

the efficiency gains in Russian Federation and China may be substantial and it can be tapped by a

number of cooperative mechanisms with other NEA countries, notably Japan and Republic of Korea

that have the most and relatively more efficient energy system. Such cooperative works may include

efficiency projects using CDM mechanism and sharing policy experience for energy efficiency. The

NEA sub-region is not only endowed with fossil fuels but also with plentiful renewable resources. In

particular, Mongolia has great wind and solar potential, large enough to be fed to cross-border grids.

Wind power potential alone is estimated to be 1,113GW and most of the region of Mongolia has very

good insolation (solar radiation). Asia Super Grid (ASG) initiative is promoted by JREF (Japan

Renewable Energy Foundation) to facilitate a regional electricity grid system based on renewable

energy. It envisions interconnection of national grids of Japan, Korea, China, Mongolia and Russian

Federation with High Voltage Direct Current (HVDC) transmission lines (Osgonbaatar, 2012).

E. Energy pricing, subsidies, and taxation

Government subsidies and tax incentives have extensively been used to advance economic, social,

political and environmental goals. For example, energy subsidies are often used to assist producers so

that domestic industries to maintain economic competitiveness and to control national inflation. They

are also provided for the end users to assist the poor without or lack of access to modern energy

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services or to gain political supports. In response to the environmental problems, notably climate

change, energy subsidies are also used to shift fuel mixes from fossil fuels to non-fossil energy

sources. IEA’s 2011 World Energy Outlook estimates that fossil fuel consumption subsidies worldwide

amounted to $409 billion in 2010, up from $300 billion in 2009, almost half of which is for oil (IEA,

2011).4 On the other hand, subsidies for renewable energy were $66 billion, mainly spending on

biofuels and electricity produced from renewable energy sources.

Table 10. Estimated World’s Energy Subsidies, 2007-2010 ($billion, nominal)

2007 2008 2009 2010 Fossil fuels (consumption) 342 554 300 409

Oil 186 285 122 193 Gas 74 135 85 91 Coal 0 4 5 3

Electricity 81 130 88 122 Renewable energy 39 44 60 66

Biofuels 13 18 21 22 Electricity 26 26 39 44

Energy subsidies to fossil fuel in NEA countries are presented in the table 11 though 13 (IEA, 2011).

China spent $14.32 billion as energy subsidies to electricity, oil and coal in 2010, which accounts for

0.4% of the country’s GDP. Republic of Korea subsidized its coal consumption by spending $0.18

billion in 2010. Russian Federation spent $39.21 billion on gas and electricity consumption, which

accounts for 2.7% of the country’s GDP.

Table 11. Fossil Fuel Consumption Subsidy in China 2010 (billion dollars)

Fuel 2008 2009 2010 Oil 26.96 5.29 7.77 Gas 6.6 0.37 0 Coal 3.15 3.73 2.01

Electricity 7.19 7.13 11.54 Average subsidization rate: 3.8% Subsidy ($/person): 15.9 Total subsidy as share of GDP: 0.4% Source: IEA, http://www.worldenergyoutlook.org/ 4 Due to data limitation, IEA WEO (2011) does not provide comprehensive production subsidies. Although not addressed in the report, subsidies for nuclear are also deemed to be substantial. In many countries, subsides are provided to nuclear producer as a form of loan guarantee, tax incentives, R&D investment, or limitation of producer’s liability in the case of nuclear accidents (IEA, 2011).

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Table 12. Fossil Fuel Consumption Subsidy in Republic of Korea in 2010 (billion dollars)

Fuel 2008 2009 2010 Oil 0 0 0 Gas 0 0 0 Coal 0.21 0.18 0.18 Electricity 0 0 0 Average subsidization rate: 0.4% Subsidy ($/person); 3.7 Total subsidy as share of GDP: 0% Source: IEA, http://www.worldenergyoutlook.org/ Table 13. Fossil Fuel Consumption Subsidy in Russian Federation (billion dollars)

Fuel 2008 2009 2010 Oil 0 0 0 Gas 28.47 18.57 16.95 Coal 0 0 0 Electricity 23.03 14.4 22.26 Average subsidization rate: 22.6% Subsidy ($/person); 274.3 Total subsidy as share of GDP: 2.7% Source: IEA, http://www.worldenergyoutlook.org/

Well-designed energy subsides can be effective in addressing a number of energy policy agenda.

However, the current subsidy scheme to fossil fuels is problematic in many ways. First, subsidies to

fossil fuels are simply too costly. IEA (2011) noted that the costs of subsidies to fossil fuels generally

outweigh the benefits. In particular, the price of fossil fuel goes up, fossil fuel subsidies will become a

big financial burden for government. Second, they give wrong market signals to overuse exceeding

the socially optimal level, which consequently lead to excessive CO�emissions. Third, they preempt

the opportunities for the society to invest low-carbon technologies that will bring more economic and

environmental benefits. Forth, they have not been as effective as they are supposed to be in benefiting

the poor. According to IEA study (2011), only 8% of the $409 billion spent on fossil fuel reached the

poorest 20% of the population.

Recognizing those problems, inter-governmental organizations such as G20 and APEC pledged fossil

fuel subsidy reform. In September 2009, G-20 leaders committed to “rationalize and phase out

inefficient fossil fuel subsidies that encourage wasteful consumption” (IEA, 2011). In November 2009,

APEC leaders also made a similar pledge to broaden the international commitment to reform.

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F. Nuclear energy safety

Nuclear power security is one of the most challenging issues in NEA. In particular, after Fukushima

nuclear accident caused by Pacific Ocean Earthquake and ensuing tsunami, the nuclear safety became

the regional/global as well as domestic energy security issue. In NEA sub-region, there are substantial

variations in nuclear energy development and uncertainty in the future. In terms of nuclear

development so far, Japan, Republic of Korea and Russian Federation are leading countries. Not until

mid-2000s that China’s nuclear expansion started. Japan and Republic of Korea, having no

conventional energy reserves, have actively pursued nuclear development since 1980s while global

nuclear industry precipitously declined after the Three Mile Island and Chernobyl accidents. Japan

and Republic of Korea have 54 and 22 nuclear reactors, which supplied 27% and 31% at the end of

2010, respectively. However, as of October 2012, most nuclear reactors, 52 out of 54, in Japan are

currently off line because of public resistance after Fukushima accident. The safety concerns are also

mounting in Republic of Korea. In particular, after the recent serious accidents of power outage at

Kori-1 nuclear plant, the first nuclear plants in the country, there are increasing public demand to

reconsider life extension of old plants and the country’s nuclear development policy as a whole. As

with most countries, nuclear wastes (spent fuel) issue is another critical challenge for the country’s

continuing nuclear policy as no feasible option that is timely and secure has been found. While

Republic of Korean government reaffirmed its plan to continue nuclear development with all the

difficult technical and economic challenges associated with nuclear power expansion, the future of

Japan’s nuclear policy is still uncertain amid public resistance against nuclear power after Fukushima

accident. Japanese government is considering different energy paths options including nuclear phase-

out scenario at this point.

Russian Federation is one of the largest nuclear power countries, with being ranked fourth in terms of

number of reactors in operation. By the end of 2010, it has 32 nuclear reactors, which are mostly built

prior to Chernobyl accident in 1986, supplying 15% of total electricity generation. Even after the

Fukushima accident, the country re-affirmed its plan to double nuclear capacity by 2020 and already

has 11 reactors under construction.

China has 13 nuclear power plants till to date. Although China came relatively late to the nuclear

industry, the country has world’s most ambitious nuclear development plan, unveiled in the 12th Five-

Year Plan, to construct additional 40GW of nuclear capacity in 2011 to 2015 (IEA, 2011). The country

has 28 reactors being constructed, which accounts for more than half of the reactors currently building

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in Non-OECD countries.

Risks associated with civilian use of nuclear power are not just domestic but regional energy security

issue as was obvious in the wake of Fukushima and Chernobyl nuclear accidents. If China’s current

nuclear plan proceeds as scheduled, the NEA region would have more than 100 nuclear reactors that

are densely located across coastal lines of China, ROK and Japan. Such large number of nuclear

reactors in proximate area calls for cooperative mechanism in enhancing nuclear security of the sub-

region.

Table 14. Key Nuclear Power Statistics by Region (end-2010)

Operational reactors

Installed gross capacity (GW)

Average fleet age (years)

Share of total generation

Reactors under construction

OECD 343 326 27 21% 12 United States 104 106 31 19% 1

France 58 66 25 75% 1 Japan 54 49 25 27% 2

Germany 17 21 28 23% 0 Rep. of Korea 21 19 17 31% 5

Canada 18 13 26 15% 0 United Kingdom 19 11 29 16% 0

Other 52 40 28 24% 3 Non-OECD 98 68 21 4% 55 Russian Fed. 32 24 28 15% 11 Ukraine 15 14 22 48% 2 China 13 11 8 2% 28 India 19 5 17 3% 6 Other 19 14 24 9% 8 World 441 393 26 13% 67

Source: IEA, 2011. ** Germany currently has 9 reactors in operation, which is also planned to be phased out by 2020.

3. Linkages between Sustainable Development and Energy Challenges

Energy is crucial enabler to advance sustainable development goals. In particular, energy challenges

discussed in the proceeding section need special attentions in seeking more sustainable and

prosperous future of NEA sub-region.

In the developed countries, access to modern energy services may not be an important energy issue

vis-à-vis domestic energy supply, demand management and de-carbonization. However, it is great

challenges for some developing countries to provide universal access to affordable and reliable energy

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services. The linkages between energy access and sustainable development has been emphasized in

many studies and a number of platforms of international meetings and also briefly presented in this

report previously. To repeat the point, affordable energy can contribute to poverty reduction by

increasing productivity and extending work hours. It may also contribute to achieving social

development goals such as greater educational opportunities for women and children. One of the

major contributions of modern energy source may be reduced health risks, which is associated with

use of polluting solid fuels and shortage of drinking water. However, it should be stressed that types

of energy services and the way in which it is delivered are as much important as access to simply

providing modern energy services. As briefly discussed, benefits of large-scale energy development

are not necessarily trickled down to the poor in the rural areas. In this regard, the project of rural

electrification can be more effective to meet the sustainable development by considering social and

environmental context of rural livelihoods.

Energy efficiency and renewable energy is important to environmental sustainability, which is also

one of the fundamental goals of sustainable development. In fact, those sustainable options have

multi-faceted economic and social benefits. While fossil fuels are subject to unpredictable price

volatility and resource depletion, efficiency and renewable energy can alleviate such risks. As

sustainable energy options are relatively clean and evenly distributed, there is less probability of

social conflicts within society as often found in the construction of large-scale energy facilities such

as coal and nuclear power plants.

It is less straightforward to link energy trade and sustainable development. It is obvious that efficient

energy use by cross-border trade can contribute to economic development, which is another

fundamental goal of sustainable development. However, as observed so far, energy trade in upstream

projects in the NEA turned to be very difficult because there still remains political distrust among the

member countries and competition rather than cooperation over the scarce resources prevails in the

region (Lee, 2010). Instead of hard energy option, such as oil and gas, soft energy trade or cooperation

may be more practicable and compatible with the goals of sustainable development.

Government tax and subsidies are important instruments for sustainable development. Tax incentives

and subsidies for fossil fuel have been largely practiced in many countries for the purpose of

economic competitiveness. However, it is not financially durable in long term perspective and

environmentally unsustainable. A tax reform that discourages activities related to fossil fuel

production and consumption is introduced and proposed in many countries and international

institutions including Green Growth initiative by ESCAP. A useful way of tax reform is to adjust tax

rate that imposes more tax on fossil fuel related activities while reducing income tax. Tax shift from

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less carbon fuels to carbon-based fuels are important policy toward Green Economy, which was one

of the main theme of the Rio+20 Conference in 2012.

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Chapter III: Opportunities for the Sub-regional Energy Security and the

Sustainable Use of Energy

1. Existing Initiatives to Enhance Energy Cooperation in North-East Asia5

Despite the diversity in energy production and consumption patterns, the geographical proximity of

each other is expected to lead to collaboration on energy trade, investment and cooperation in North-

East Asia. Furthermore, the NEA region has the largest share of GHGs emissions in the world, which

also necessitates common response to climate change. A number of energy cooperative initiatives

have been proposed and designed for the purpose of improving energy security in the NEA.

A. Bilateral Energy Cooperation

Most of energy relations in North-East Asian countries have been made mainly at the bilateral level.

Table 15 summarizes selected bilateral projects and agreements between NEA countries based on the

survey of ECNEA, “Five Year Plan (FYP: 2009-2014).” In fact, many more projects are currently

being planned and implemented at the private sector level.

Table 15. Bilateral Energy Cooperation in North-East Asia

Oil Development Bilateral Agreements 1. Russian Federation - China

5 This part was partly drawn from Lee (2010).

Energy Development Bilateral Agreements 1. Russian Federation - Japan

ll The Basic Directions of Long-term Cooperation between the Government of the Russian

Federation and the Government of Japan in the Field of Energy 2. Mongolia - Republic of Korea l The Republic of Korea-Mongolia Committee for Energy and Mineral Resources Cooperation l Memorandums between Ø The Ministry of Fuel and Energy (now Ministry of Mineral Resources and Energy) of

Mongolia and the Ministry of Commerce, Industry and Energy (now Ministry of Knowledge Economy) of the Republic of Korea

Ø Mongolia's Energy Research and Development Center (ERDC, now Energy Authority) and the Korean Energy Corporation on further cooperation

Ø Mongolia's EDRC (now Energy Authority) and the KEEI on further cooperation Ø The consultant service contract between Hasbuu, a Mongolian company, and the Korean

Energy Corporation 3. Mongolia - Russian Federation l Bilateral cooperation between science and research institutions l The joint Russian-Mongolian enterprise for geological prospecting and uranium extraction. l Russian-Mongolian joint venture agreement for the training Mongolian experts in the area of

nuclear energy

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l The Siberian oil pipeline project l Cooperation between Rosneft and CNPC Ø Memorandum of cooperation expansion in up-stream and down-stream

Ø The joint civil engineering design of an oil refinery factory and networks of gasoline stations in China

Ø Joint construction in the Russian Federation an oil refinery factory designed to process 20 million of tons of oil per year

2. Russian Federation - Republic of Korea l Oil development projects including the West Kamchatka shelf exploration project 3. Russian Federation - Japan

l Cooperation between the Japan Oil, Gas, and Metals National Corporation (JOGMEC) and the Irkutsk Oil Company (IrOC)

Ø Establishment of INK-Zapad, a joint venture between Japanese and Russian parties to explore hydrocarbons at the territory of Irkutsk region

Ø Establishment of a joint venture INK-Server CJSC with the license giving the right to use subsoil at Severo-Mogdinsky Block in order to prospect and explore hydrocarbons

4. Mongolia - Russian Federation l Rosneft's exporting petroleum products to Mongolia since 2005 Projects

l The Eastern Siberia Pacific Ocean (ESPO) pipeline Gas Development

Bilateral Agreements 1. Russian Federation - Republic of Korea l An inter-governmental agreement for natural gas cooperation l A proposal to jointly undertake a $100-billion project to develop gas routes from Siberia to the

Republic of Korea and to expand a North-East Asian Electricity grid network l Agreement setting up a joint gas-chemical industrial zone in the Russian Federation's Far East 2. Russian Federation - China l A protocol on Deliveries of Natural Gas from the Russian Federation to China between

Gazprom and CNCP l Strategic Cooperation Agreement between Gazprom and CNPC to address the gas supplies and

joint project implementation in gas processing and gas chemical sectors in the eastern part of Russian Federation and in third-party countries

l Negotiations on the long-term contract for gas supply to China including gas supply volumes, directions and start-up dates, price formula and other terms and conditions

3. Russian Federation - Japan l Creation of a JV INK-North to implement projects in the northern part of the Irkutsk region l A memorandum of understanding to commence a gas-to-liquid (GTL) joint study Projects

l Development of the Sakhalin-2 Projects by a consortium Coal Development

Bilateral Agreements 1. Mongolia - China

l l A contract on the feasibility study of building a coal and energy complex in Mongolia and export of electricity to China

l l A feasibility study to build an advanced and more environment-friendly mining and energy complex

2. Mongolia - Russian Federation l An agreement on the creation of a joint venture between JSC RZhD and Mongolian state

companies Erdenes MGL and Mongolian Railway to implement a railway infrastructure project in Mongolia

Projects l Development of the Tavan Tolgoi coal mine l Infrastructure for transportation and handling facilities for Elga, a defined coal deposit

Electricity Interconnection Bilateral Agreements 1. Mongolia - Japan l Feasibility study of power plant and overhead power lines in Gobi region of Mongolia which is

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l Initiatives for cooperated works in the field of emission-free fuel, reducing air pollution of Ulaanbaatar city with Japanese Government and Japan's public management organization, the Department of the New Energy and industrial Technology Development Organization (NEDO)

l Initiatives and proposal of cooperation in Mongolia's power sector as a part of the Mongolia-Japan Comprehensive Partnership Programme

2. Mongolia - China l Mongolia-China coal and energy cooperation project plans to build a power plant (6X800 MW)

and a 660 kV DC power line with transmission capacity of 4,800 MW 3. Mongolia - Russian Federation l Interconnected electricity grid in the central and western regions of Mongolia, with the

involvement of Central Regional Electricity transmission grid and Western Regional Energy Systems companies of Mongolia and Inter RAO UES of the Russian Federation

Projects l Discussions on the North-East Asia, Regional Electricity System Tie (NEAREST) project

* Excerpt from FYP, pp.10-17 (UN ESCAP, 2010b)

B. Multilateral Energy Cooperation

The Intergovernmental Collaborative Mechanism on Energy Cooperation in North-East Asia

(ECNEA), officially established in 2005 after a series of United Nations Economic and Social

Commission for Asia and the Pacific (UNESCAP) meetings, is the only initiative targeting all six

member states of NEA. Since then, two working groups (WG-Energy Planning and Policy and WG-

Coal) were established and collaborative energy studies for information sharing and for feasible

project have been conducted.

To increase the supply of energy in North-East Asian region, ECNEA tries to 1) Lessen its

dependence on energy imports from outside the region; 2) Optimize the economy and efficiency of

supply and use of energy: 3) Minimize the environmental impact of energy production and

consumption through improved energy mix and greater energy efficiency. Through these measures,

ECNEA aims to achieve improved energy security in North-East Asian through energy cooperation in

a sustainable manner by 2020 (UN ESCAP 2010b)

Its Five Year Strategy focuses on contributing to an enabling policy and market environment for

regional energy cooperation and enriching cooperation activities. Major agenda for energy

cooperation includes: 1) Development of oil, gas and coal resources; 2) Development of policies and

regulations for energy trade through oil and gas pipelines and grid interconnection; 3) Investment

promotion and project development for a regional energy market; 4) Study on the use of renewable

energy and improvement of energy efficiency; 5) Evaluation of establishing a sub-regional strategic

oil reserve (UN ESCAP 2010b)

ECNEA has accumulated continuous discussion and researches among participating countries as well

as private companies in Government-Business Dialogue. These efforts will surely be the founding

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34

blocs for further NEA energy cooperation. However, ECNEA has a few limitations for effective

functioning: First of all, two major countries of the sub-region, China6 and Japan, do not officially

participate in the ECNEA. The Democratic People’s Republic of Korea (DPRK)’s participation is also

limited. With insufficient participation and contribution, available resources of ECNEA as well as its

political mandate was limited.

There are also a number of dialogues at the NEA level. In 2007, the Korea-China-Japan Trilateral

Energy Dialogue was suggested by ROK government, which is aimed at strengthening ties among the

countries and enhancing their bargaining power in the global energy meetings (Lee, 2010). The Five-

Party Energy Dialogue was suggested by United States in May 2005, which includes the United States,

Russia, China, Japan and ROK. This is aimed to build ties between energy suppliers and consumers in

the region, but China and Russia have not taken an active stance (Ibid).

The major North-East Asian countries, China, ROK and Japan, participate in the regional energy

security and cooperative institutions such as ASEAN+3, EAS and APEC. ASEAN established

ASEAN Center for Energy (ACE) in 1990 to facilitate sub-regional energy cooperation, which was

subsequently joined by China, ROK, and Japan. ACE is crucial vehicle for sub-regional energy

cooperation aiming to integrate energy policies of member states and to effectively cope with

instability of global energy market (Lee, 2007). ACE emphasizes also that the energy cooperation

should be in line with environmental sustainability and economic development in the sub-region. In

accordance with the policy principles, ministers on energy for ASEAN+3 agreed on common interests

in; emergency networks; expansion of oil stockpiling; joint research on ASEAN oil market;

development of natural gas; and energy efficiency and renewable energy at the International Energy

Forum in 2002. ASEAN+3 reaffirmed the commitment to improving energy security and enhancing

cooperation on renewable energy in 10th ASEAN summit in 2007.

Asia Pacific Economic Cooperation (APEC) is the region’s premier forum with an aim to facilitate

economic growth and cooperation through trade and investment. North-East Asian countries

participate in APEC’s energy forum such as Energy Working Group and Energy Ministers’ Meetings

to discuss energy issues in the region. Based on the Energy Security Initatives (ESI), APEC’s energy

dialogue has discussed both short-term responses to temporary energy market fluctuations and long-

term measures to address broader energy issues.

In particular, APEC recognized that energy security is closely linked with energy efficiency and use of

6 China is involved in most activities of the Collaborative Mechanism including joint researches but there is no official government endorsement yet.

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renewable energy. Energy Ministers’ Meeting in Darwin in 2007 concluded with the Declaration on

Achieving Energy Security and Sustainable Development Thorough Efficiency, Conservation, and

Diversity. In recent Energy Ministers’ Meeting in Japan 2010, “Declaration on Low Carbon Paths to

Energy Security: Cooperative Energy Solutions for a Sustainable APEC” was adopted, which

reaffirmed the importance of enhancing regional energy security by more efficient use of energy and

cleaner energy supply amid emerging concerns about global environment and world economy.

ESCAP initiated Trans-Asian Energy System (TAES) at sixty-second session of the Commission in

2006, which is aimed to establish Asia-wide integrated energy system to facilitate transboundary

energy transaction among the sub-regions. ESCAP recognized that collective cooperative framework

rather than competition would enhance national energy security by trading energy in the region, which

is abundant but unevenly distributed. The initiative was proposed in necessity of energy cooperation

across the pan-Asian region, which can be summed as follows. First, there is need for stable energy

supply for importing countries and market expansion for exporting countries in the region. In addition,

a firm established institutional mechanisms for regional energy cooperation may benefit from further

investment for energy infrastructure. Second, it is assumed that energy trade will enhance the overall

economic efficiency in the region with greater proximity among the countries. Third, regional energy

trade is expected to narrow the gap between developed and less-developed countries by enabling

developing countries to advance economic development. At the same time, it is also expected that

development for clean technologies can be facilitated under regional cooperative framework. Fourth,

pan-Asian energy cooperation is needed to cope with instability of the global energy market and

reduce energy dependency on Middle East (Lee, 2007). Table 16 and 17 summarizes these multilateral

initiatives on energy cooperation in NEA.7

7 It should be noted that the initiatives in the table below include intergovernmental platforms of the Asia Pacific region in which NEA member countries participate as well as initiatives for energy cooperation specifically focusing on NEA sub-region, such as ECNEA. Although there are substantial constituencies supporting energy cooperation in the NEA in each country, little discussions have actually been put into practice.

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36

Table 17. Energy Initiatives in East and North-East Asia

Initiative Acronym Type Energy subsector

ASEAN+3 through ACE ASEAN+3 Intergovernmental

Asia-Pacific Economic

Cooperation

APEC Intergovernmental

Asia-Pacific Partnership

on Clean Development

and Climate

APP-CDC Partnership

Central Asia Regional

Economic Cooperation

CAREC Programme Electric power, energy

efficiency

Energy Charter Treaty ECT Intergovernmental Electric power, energy

efficiency

Intergovernmental;

Collaborative Mechanism

on Energy Cooperation in

North-East Asia

ECNEA Intergovernmental

Eurasian Economic

Cooperation

EurAsEC Intergovernmental Electric power, fossil

fuels

Greater Mekong Sub-

region Programme

GMS Programme Programme

Greater Tumen Initiative GTI Programme Electric power

Mekong Programme Mekong Programme Intergovernmental Electric power

Partneship for Equitable

Growth

PEG Partnership Fossil fuels

Renewable Development

Initiative

RDI Programme Renewable energy

Shangai Cooperation

Organization

SCO Intergovernmental

Source: ESCAP, 2008

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37

Table 17. Multilateral Energy Cooperation in North-East Asia

Name of initiative Acronym

Eco

nom

ic

and

othe

rs

Ene

rgy

Pet

role

um

fuel

s E

lect

ric

pow

er

Ren

ewab

le

ener

gy

Ene

rgy

Effic

ienc

y C

orss

-bor

der

trad

e

Chi

na

DPR

Kor

ea

Japa

n

Mon

golia

RO

Kor

ea

Rus

sia

1.Asia Pacific Energy Research Centre APERC X X X X X X X X X X

2.Asia-Europe Meeting ASEAM X X X X X X X 3. Asian Cooperation Dialogue ACD X X X X X X X X X X X X

4. Asia-Pacific Economic Cooperation APEC X X X X X X X X X X X

5. Asia-Pacific Partnership on Clean Development and Climate APP-CDC X X X X X X X X

6.Association of Southeast Asian Nations+3 ASEAN+3 X X X X X

7.Baltic Ring Electricity Cooperation Committee BALTREL X X X

8.BoaoForum for Asia BFA X X X X X X 9.Central Asia Regional Economic Cooperation CAREC X X X X X

10.E8(Network of Expertise for the Global Environment) E8 X X X

11.East Asia Summit EAS X X X X X 12. Energy Charter Treaty ECT X X X X X O X O X*

13. Forum for Nuclear Cooperation in Asia FNCA X X X X X

14. Gas Exporting Countries Forum GECF X X

15. ADB Greater Mekong Sub-region Program

GMS Program X X X

16.UNDP/Greater Tumen Initiative GTI X X X X X X X X X X

17.Group of 8 G8 X X X X X X X 18. Intergovernmental Collaborative Mechanism on Energy Cooperation in North-East Asia

ECNEA X X X X X X X X X X

19.International Atomic Energy Agency IAEA X X X X X X

20.International Commission on Large Dams ICOLD X X X X X

21.International Energy Agency IEA X X X 22. International Energy Forum IEF X X X X X 23.International Renewable Energy Agency IRENA X X X X

24.Joint Oil Data Initiative JODI X X X X X

25.Northeast Asia Economic Forum NEAEF X X X X X X X X

26.Northeast Asia Gas and Pipeline Forum NAGPF X X X X X X X

27. Organization of the Black Sea Economic Cooperation BSEC X X X

28. Partnership for Equitable Growth PEG X X X X X

29. Renewable Development Initiative RDI X X

30.Shanghai Cooperation Organisation SCO X X X X X

31. Eurasian Economic Community EurAsEc X X X

32. World Association of Nuclear Operators WANO X X X X X

Note:*-the Russian Federation signed the Energy Charter Treaty and was applying it provisionally until 18 October 2009 inclusive; X-denotes membership;O-denotes observer status. ECNEA, Five Year Strategy, p.65, Annex 8.

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2. The Constraints of Effective Energy Cooperation in North-East Asia8

Despite the common challenge of energy security, regional attempts to build energy cooperation in

North-East Asia have often faced a number of economic and geopolitical constraints. First, potential

mutual benefits that could be derived from energy cooperation have not been clearly visualized, and

the sense of urgency has not been strong enough. Unseen mutual benefit led to a more neo-

mercantilist external energy policy among the NEA countries. Second, NEA energy cooperation is

likely to be influenced by the political and security environments in which the remnants of the Cold

War still hinder a full-scale cooperation. Despite the growing economic interdependence, there still

remain a number of potential sources of territorial and political disputes among North-East Asian

countries. Political trust is still uncertain, and historical antipathy still lingers in this region. Third, a

slow progress of regional economic and energy cooperation has been due to an insufficient level of

momentum for the achievement of active regional energy cooperation. Many obstacles to energy

security cooperation have originated from the lack of a strong political will of the governments

involved.

In fact, there has been a substantial gap between the number of initiatives and the level of coordinated

action in NEA energy cooperation. NEA countries have tried to address the energy supply problem by

strengthening their relationships with energy producing nations on their own, not through

collaborations with potential rivals. As well, NEA countries have had different scope and focus of

energy security and relied on the unilateral pursuit of energy supply and development, which

diminishes the necessity of regional energy cooperation.

Further energy cooperation in North-East Asia must address these challenges of energy security and

competitive regional politics. To avoid neo-mercantilist competition and promote mutual benefits in

North-East Asia, a careful agenda-setting supported by political and institutional support would be

critical.

3. Guiding Principles of Agenda-Setting for NEA Energy Cooperation

The case for regional energy cooperation could be guaranteed if participating countries were to move

together toward a virtuous circle of energy cooperation out of neo-mercantilist competition. Here, a

public-goods-oriented soft energy agenda will be useful. Providing public goods is crucial for

effective multilateral cooperation and should be based on inter-governmental commitment. Also, the

8 This part was partly drawn from Lee (2010).

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39

propulsion of politically non-sensitive projects is more achievable as a cooperation agenda at the

intergovernmental level.

In this regards, a series of soft energy agendas could facilitate the clarification and mobilization of

common interests and public goods, which in return could increase the feasibility of constructive

cooperation in the region. A soft energy agenda should be feasible with a relatively small investment.

Cooperation in soft energy issues can also be easily linked to sustainable development agenda.

The public-goods-oriented energy cooperation could include following agenda. Action-oriented

agenda selection will be discussed more in detail in Chapter V:

l Reducing transaction costs, l Building norms and rules of energy transaction and investment to increase transparency in

the energy market, l Enhancing energy efficiency, l Jointly managing strategic stockpiling, l Jointly conducting R&D projects, l Energy infrastructure safety (offshore, onshore), l Prevention and management of disaster-related energy security, l Coordinating climate change agendas such as GHGs mitigation, Clean Development

Measures (CDMs), l Capacity-building and technical assistance, l Energy welfare and energy service

In this sense, the principles for the development and implementation of the five year strategy

(ECNEA) are also relevant for future NEA energy cooperation (UNESCAP 2012b). It noted:

l Shall be acceptable to all member states l Set realistic goals and identify action-oriented programs /projects l Contribute to the creation of an enabling environment for energy trade, investment and sub-

regional cooperation at large l Be based on the accomplishments of activities implemented under the Collaborative

Mechanism.

NEA energy cooperation should have a reinforcing relation with other regional economic cooperation

initiatives. The progress of regional cooperation in general in North-East Asia would provide a more

favorable external environment that could reduce geopolitical risks arising from energy cooperation.

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Chapter IV: Political Commitments

Political commitment by the Member States of North-East Asia is vital for increasing energy

cooperation and for effective implementation of many of the ideas contained in this paper. The

success of future energy cooperation hinges heavily on political mandate. A ministerial level meeting

such as the one proposed at APEF could be the start of such cooperation. APEF could produce a new

ministerial declaration or agreement on sub-regional energy cooperation to further these goals. Once

a track record is established, a North-East Asian Energy Summit could be envisaged in due course.

Second, a renewed political momentum for energy cooperation in Northeast Asia will contribute to

sustainable development by emphasizing alternative energy issues including low-carbon growth,

capacity building and energy welfare. By doing so, NEA energy cooperation can accommodate the

interests of member countries in diverse economic and energy settings. Public-goods-oriented agenda-

setting would be relevant for enhancing more inclusive sustainable energy cooperation. Odd as it may

sound but North-East Asian energy cooperation, at least in the short- and medium-term, needs to be

devoid of unnecessary politics which has proven an obstacle for effective energy cooperation. But

this can only happen, however if the political leadership in the sub-region agrees to a politically

neutral approach to energy cooperation.

Third, NEA energy cooperation needs to be accompanied by a more effective institutional design

based on a renewed political momentum from member states. Upon the foundation of earlier efforts,

new energy cooperation architecture in NEA could either update and enlarge existing institutions or

create a new institution.

Fourth, it needs to be admitted that a constructive restoration of bilateral relationships would be a

political prerequisite to the achievement of effective multilateral energy cooperation. The internal

momentum of energy cooperation in North-East Asia is still weak, and the institutional framework has

not been clearly set. In this situation, proper networking with other regional multilateral institutions

such as APEC, ASEAN+3, and ADB would also be useful because overall regional cooperation could

eventually be a foundation for NEA energy cooperation.

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41

Chapter V: Proposed Actions

1. Institutional Modality

l Strengthening political back-up at the higher level by introducing North-East Asian Energy

Ministers’ Meeting (NEA-EMM), Senior Energy Officers’ Meeting (NEA-SEOM), Working

Group (NEA-EWG) with the participation of six NEA countries (Russia, China, Japan,

Republic of Korea, Democratic People’s Republic of Korea, Mongolia).

l Preparing for a Ministerial declaration which will bestow political mandate for NEA energy

cooperation initiatives. At a later stage, NEA-EMM could be advanced to NEA Energy

Summit (NEA-ES)

l Creation of North-East Asia Energy Fund (NEA-EF, tentatively titled) for project-oriented

activities. This fund can be used both for upstream/ interconnection projects and sustainable

energy projects, upon the agreement of participating NEA countries.

l Strengthening Secretariat function: (UNESCAP-SRO-ENEA + @, @=volunteering member

state). The involvement of UN ESCAP, especially in an earlier stage, will facilitate the

participation of all six member countries.

l Institutional networking with other regional economic / energy institutions to take full

advantage of earlier efforts of energy cooperation and to avoid possible duplication of

resources

Ø Networking partner institutions would include: IEA; The Renewable Energy & Energy

Efficiency Partnership (REEEP); The Energy Charter Secretariat; Asia-Pacific Network

for Energy Technology (APNet); APEC Peer Review Mechanism on Energy Efficiency

(PREE); International Atomic Energy Agency (IAEA) / Asian Nuclear Safety Network

(ANSN); OECD-Nuclear Energy Agency (NEA); International Renewable Energy

Agency (IRENA); Global Carbon Fund (GCF) and Global Green Growth Institute

(GGGI)

Ø APEC’s energy agenda would be useful for NEA energy cooperation. For example, the

St. Petersburg Declaration of APEC’s 10th Energy Ministers’ Meeting (June 24-25, 2012)

pointed out following key objectives:

- Enhance and balance the share of natural gas in the energy mix

- Develop renewable energy sources

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42

- Ensure the safe and secure use of nuclear energy

- Boost energy end-use efficiency

In fact, these APEC’s key energy objectives are very similar to those of Northeast Asian

energy cooperation noted by ECNEA’s Five Year Strategy.

2. Agenda-Setting

l Targeted agenda-setting: Instead of horizontal and comprehensive grand plan, a more

targeted agenda-setting is needed for future energy cooperation. Previous energy cooperation

initiatives often discussed too broad agenda with insufficient institutional capabilities.

l Re-balancing the agenda for NEA between upstream / interconnection projects and

sustainable energy projects (soft energy agenda) by giving more short-term focus on the

latter.

l Strengthening low-carbon growth mechanisms: CDMs, energy efficiency, renewable energy

projects. The reduction of energy intensity will also be a good barometer for this agenda.

l Strengthening project agenda for energy aid, energy welfare, capacity-building and technical

assistance to less-benefited population in NEA. These projects can be pursued together with

other international/regional institutions.

l Strengthening infrastructure safety (offshore oil, gas, renewable / power-grid / nuclear)

l Strengthening environment- and disaster-related energy security agenda

l Supporting energy development and interconnection (gas, oil, electricity) projects both at the

bilateral and multilateral level.

l Enhancing facilitation measures for energy trade in connection with other trade agenda: For

example, a series of FTA agreements and negotiations may increase economic

interdependence, which would enhance the feasibility of energy cooperation projects.

3. Implementation stage

l Preliminary stage (1-2 years)

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Major activities:

Ø Political mandate for NEA-EMM, NEA-SOM, NEA-WG (action-oriented)

Ø Agenda / project selection

Ø Funding commitment

Ø Secretariat: UNESCAP SRO-ENEA + @

l Stage I: (3-5 years)

Major activities:

Ø Regular NEA-EMM, SOM, WG

Ø Soft/Sustainable Energy Agenda > Upstream agenda

Ø Capacity-building, technical assistance & training

Ø Funding enlargement

Ø Introduction of low carbon growth mechanism (efficiency enhancement, etc)

Ø Secretariat: UNESCAP SRO-ENEA + @

l Stage II: (~ )

Major activities:

Ø NEA-EMM / NEA-Energy Summit

Ø Soft/Sustainable Energy Agenda = Upstream agenda

Ø Enhancing low-carbon growth mechanism

Ø More interconnection / co-development projects

Ø NEA power-grid

Ø Secretariat: Independent

4. Expected Outcomes

l Enhancing energy connectivity and interdependence in NEA

l More inclusive regional energy cooperation scheme

l Building a regional low-carbon growth mechanism

l Enhancing energy welfare and services

l Building foundation for future comprehensive energy cooperation in NEA

l Building capacity to deal with energy crisis in the region with:

Ø increased internal response mechanism

Ø increased intra-regional energy supply system

Ø lessened dependence on imported fossil fuels from outside the region.

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