Indo-Pacific Energy Update – March 21, 2023

Japan pursues deeper clean energy engagement with Australia, Canada

On March 7, the Japanese government’s Green Innovation Fund awarded $1.62 billion to a Japanese-Australian business venture to create Japan’s first hydrogen supply chain between Victoria State in Australia and Kawasaki, Japan. J-Power and Sumitomo will gasify coal and extract hydrogen using carbon capture and storage. The following day, Japan Australia Rare Earths B.V. agreed to contribute $133 million to rare-earths mining company Lynas to fund expansion projects. Japan’s Ministry of Economy, Trade and Industry also led a business mission to Canada to strengthen battery metal supply chains between the two countries.

Why it matters: Several of Japan’s top exports, including motor vehicles, electronics, and industrial machinery, are undergoing industry-wide transformations to adopt emerging technologies while trying to meet national and global climate goals. Under its ‘S + 3E’ energy policy, Japan must balance its national interest to become more energy self-sufficient and decrease emissions, while also mitigating its dependence on raw materials imports, such as importing 60% of its rare earths from China and being the second largest net importer of fossil fuels globally. By partnering with Canada and Australia, Japan hopes to solidify stabler, less politically fragile supply chains and decrease uncertainty as it works with national industries to bolster its energy security.

In Biden’s budget, U.S. development assistance increasingly focused on outcompeting China

The Biden Administration’s FY2024 budget request, released March 9, allocated USAID over $11.1 billion in mandatory programs to “invest, align, outcompete” China in the Indo-Pacific. This includes $2 billion infrastructure spending on energy diversification as well as $2 billion for strengthening supply chains to build common political, economic, and energy interests among U.S. Indo-Pacific allies. The administration argues that the funding will advance the U.S. Indo-Pacific Strategy and strengthen energy and critical minerals supply chains, both of which center on reducing Beijing’s economic and political influence. The budget’s release came as Japan’s Prime Minister and South Korea’s President met for the first time in twelve years, in Tokyo. The meeting followed South Korea’s proposal for Japan to compensate wartime victims of Japan’s occupation through a fund composed of voluntary contributions from Japanese firms.

Why it matters: USAID can be a powerful tool to support U.S. diplomacy in the Indo-Pacific region. During the Cold War, USAID’s support for the global agricultural ‘Green Revolution’ helped to save millions from starvation and served as a strong counterexample to communist China during its ill-fated Great Leap Forward. Likewise, USAID’s scholarship programs helped train thousands of future civil servants and business leaders from Asia in American universities, helping transform these countries into economically strong U.S. allies and partners. Today, creating economic alternatives to China’s massive but troubled Belt and Road Initiative in the Indo-Pacific and beyond will require sustained attention and significant investment from USAID, ideally in partnership with development authorities in allied nations. EIRP addressed these issues in its recent report, Toward an Indo-Pacific Clean Energy Framework.

EV makers look to reduce rare earth use faced with high costs, uncertain supply chains

On March 8, Nissan announced a new strategy to streamline use of rare earths in parts across models to slash development and manufacturing costs by 30% from 2019 levels by 2026. The company intends to decrease the contribution of rare earths to vehicle weight and is also working on solid-state EV batteries to decrease the cost of electrifying its models. Nissan’s announcement follows Tesla’s plan to remove all rare earth materials from motors in its next generation of electric vehicles.

Why it matters: While the two automakers’ moves may not immediately impact the rare earths market they illustrate the industry’s efforts to develop alternatives to permanent magnets in motors. Motors using permanent magnets dominate the market, comprising 84% of EV sales in 2021. Permanent magnets primarily utilize the rare earth alloy neodymium-praseodymium, or NdPr, which is predominantly mined and processed in China, and has experienced extreme market volatility, drifting from $31,000 per ton in mid-2021 to $184,000 per ton by early-2022. NdPr is also commonly used for wind turbines and miniaturized electronic devices. Rare earths are a moderately abundant subgroup of critical minerals that are difficult to extract cheaply because of their diffuse distribution in mineral deposits, and can be more costly than other critical minerals due to a lack of processing and refining capacity globally. With China’s strong hold on rare-earths supply chains, an ongoing race between China and the U.S. to dominate EV and clean technology development, and mounting pressure to capitalize on U.S. EV tax credits, automakers may continue to steer away from rare earths to reduce supply chain concerns for themselves and costs for their consumers.

Singapore turns to neighbors to import clean energy

A month after the suspension of the planned Australia-Asia PowerLink (AAPL) amid a dispute among its key business partners, AAPL’s destination country, Singapore, signed new agreements with Cambodia and Indonesia to help the city-state reach its clean power goals.

Indonesia and Singapore signed agreements to bolster cooperation on renewable energy, cross-border electricity trading, transmission infrastructure, and renewable component manufacturing. Cambodia agreed to provide Singapore with 1 GW of renewable energy from a collection of projects with 2.5 GW of installed capacity. The 1 GW contribution would meet one-quarter of Singapore’s goal to import low-carbon electricity to satisfy 30% of its power demand by 2035. The electricity would flow through a 620-mile subsea cable, over 170 miles longer than the current longest cable between the UK and Norway, but substantially shorter than the 2,600-mile AAPL.

Why it matters: As the fate of Sun Cable’s $20 billion project remains uncertain, Singapore has moved forward in its mission to secure a stable supply of clean electricity. Although Singapore officials were quick to announce they hadn’t invested in AAPL, its apparent failure hasn’t deterred the city-state from pursuing ambitious undersea cable projects. Such projects may be necessary if Singapore wants to achieve net-zero public sector emissions by 2045 and nationwide net-zero emissions by 2050. As of June 2022, 95% of Singapore’s electricity generation came from oil and LNG imports. Indonesia, along with its Southeast Asian neighbors, will be critical to Singapore’s decarbonization success as the region’s most populous country utilizes $20 billion in financing from the International Partners Group to facilitate its shift to renewable energy. Indonesian officials temporarily halted renewable energy exports in June 2022 to prioritize domestic needs.