Is America Ready for Great Power Energy Competition?

Is America Ready for Great Power Energy Competition?

Energy and energy technology are already elements of U.S. competition with both China and Russia. Competing effectively will require both new U.S. policies as well as more determined efforts to align America’s approaches with those of its closest friends.

While high prices are currently a constraint, natural gas, CCUS, and hydrogen could be critical to reducing and eventually eliminating greenhouse gas emissions—and should be a centerpiece of U.S. energy and technology engagement with Japan and South Korea.

The Biden administration has been reluctant to advance cooperation focused on natural gas and carbon capture. The reasons are partly political, as many progressive Democrats see no future role for gas, even with carbon capture, because they seek an end to fossil fuel production. But there are also some practical reasons, such as so-called fugitive emissions, leaks from pipelines or processing facilities that contribute to global warming and reduce the advantages of natural gas, even with CCUS. While methane breaks down more rapidly in the atmosphere, it is a much more potent greenhouse gas than CO2. The administration has concentrated on limiting methane emissions, including through the Global Methane Pledge, a joint U.S.-European Union effort to persuade other governments to commit to reducing emissions by 30 percent over the decade. The Inflation Reduction Act of 2022 includes a substantial fee on methane emissions. 

As experts from both nations noted during recent unofficial dialogue meetings, officials in Tokyo and Seoul are counting on abundant supplies of clean hydrogen to meet their climate goals. Hydrogen is attractive to Japan and South Korea because neither has easy and clean alternatives, something participants from each country acknowledged. Part of the problem, the experts observed, is that their geology is not well-suited for storing CO2 underground, a constraint on their future use of natural gas or fossil fuels with CCUS. Both also face political resistance to nuclear energy, an alternative source of baseload power (consistent or “firm” electricity supply necessary for electric grids) and heat. Variable solar and wind power cannot provide baseload power; existing storage (batteries) is helpful for short-term flexibility but inadequate to manage seasonal changes in sun and wind. Excluding the production of “energy carriers” like hydrogen with excess solar and wind power, the latter problem will be quite difficult to solve in a commercially viable manner, in that addressing seasonal variations would otherwise require building electricity storage infrastructure that grids might charge and discharge only one time per year. Or massively over-building solar and wind to ensure adequate supplies under the most adverse conditions.

Yet, the experts said, neither Japan nor South Korea possesses the domestic energy resources to produce sufficient hydrogen or the ready ability to store CO2 emitted during processing. In contrast, the United States has both plentiful natural gas feedstock and extensive carbon dioxide storage capacity. America has the world’s fifth largest natural gas reserves and, according to the U.S. Geological Service, has an estimated CO2 storage capacity of approximately 3,000 gigatons. This could store all current U.S. emissions for hundreds of years. According to Japanese and South Korean experts, their governments hope that the United States can emerge as an important hydrogen supplier.

Nuclear energy likewise can and should have higher priority in U.S. cooperation with Japan and South Korea. As one U.S. expert argued in recent discussions, America has fallen far behind Russia and China in international nuclear markets at precisely the time when many governments are increasingly interested in nuclear power as a source of zero-carbon baseload electricity. While the United States and South Korea have been nuclear competitors—at times with some acrimony—experts in all three countries saw common interests in preserving and strengthening nuclear supply chains and human capital, as well as in reducing emissions. In May 2021, the Biden administration and South Korea’s government agreed to expand cooperation in global civil nuclear markets, though the understanding suggested that Seoul would take a harder line on U.S. nonproliferation concerns as well. An American expert called for cooperative financing of nuclear projects among the three countries.

U.S. participants appeared more optimistic that emerging small modular reactors could win a larger role in domestic electricity generation, as well as a greater share of global markets. In Japan, one expert explained, officials expect that nuclear power will provide a declining fraction of the country’s electricity as existing reactors continue to operate but overall electricity demand grows. South Korea’s previous government sought to shut down reactors before their licenses expired, but experts saw looming adjustments in Seoul’s policy by the new president.

Solar and wind power offer opportunities for collaboration too. Notably, both Japanese and South Korean experts said that their governments are pursuing the two renewable technologies largely for energy security reasons—not strictly for their roles as zero-carbon energy sources. Because solar and wind do not require fuel imports, some see them as more secure than oil, gas, or coal. One American expert pointed out that, unlike fossil fuel exporters, solar panel or wind turbine manufacturers’ efforts to cut off exports might compromise future electricity generation but would not affect current power output. 

Nevertheless, a South Korean expert acknowledged, land constraints will limit the country’s construction of solar facilities and onshore wind. Consequently, one South Korean research priority is improving rooftop systems and developing other space-saving photovoltaic materials, such as power-generating windows for offices and large residential buildings. South Korean researchers are also pursuing offshore wind. While the United States has considerably more land, political opposition to such development has prevented some states from meeting their renewable power goals. Affordable technologies that sidestep this problem could be valuable to America as well.

In addition to concerns surrounding reliance on Chinese solar and, to a lesser degree, wind manufacturers, several experts noted China’s substantial role in extracting and processing critical minerals—specialized materials used in making solar cells, powerful magnets in wind turbines, and EV and other batteries. One American expert described significant continuity between the Trump and Biden administrations in focusing attention on diversifying and securing U.S. critical mineral supplies, as well as heightened activity on this issue in Congress. Another U.S. expert highlighted the Biden administration’s enthusiasm for American lithium production to support electric vehicle deployment. The latter expert welcomed the administration’s effort to promote not only extraction, but also processing—without which, U.S. supplies might well go to China anyway for this intermediate step.

A Japanese expert emphasized Tokyo’s determination to pursue critical mineral recycling and a wider “circular economy” to limit import dependence and environmental impacts. Indeed, this expert suggested, future governments might penalize imported goods that do not incorporate recycled materials. The expert compared this to the European Union’s planned carbon border adjustment mechanism, an emerging policy that would impose duties on energy-intensive goods from countries without emissions-limiting policies comparable to the EU’s. While expressing support for recycling research and policy, a U.S. expert urged skepticism about its long-term contribution to replacing new mining due to its costs and the scale of demand. Another expert argued that like the past evolution of solar and wind power, these technologies may transition from today’s expensive and inefficient projects to tomorrow’s commercial realities.

U.S.-Japan, U.S.-South Korea, and trilateral cooperation on clean energy could be even more important when oriented toward supporting energy transitions in developing nations. This could be especially fruitful in the Association of Southeast Asian Nations (ASEAN). The ten-nation group includes Indonesia, a global top-twenty economy, U.S. allies Thailand and the Philippines, the financial and shipping hub Singapore, as well as Vietnam, an emerging economy and leading beneficiary of others’ efforts to diversify manufacturing and trade away from China.

The stakes are high. As a group, ASEAN ranks as the world’s fifth largest economy. It is among the regions experiencing the fastest growth in electricity demand; as a U.S. expert pointed out, just four ASEAN members (Indonesia, Vietnam, Thailand, and Malaysia) could account for 13 percent of global power demand growth. The Biden administration has given greater attention to competition with China in the region, which President Biden has described as a “linchpin for maintaining the resilience, the prosperity, and security” of the wider Indo-Pacific zone.

U.S., Japanese, and South Korean experts generally agreed that one of ASEAN’s biggest energy challenges will be reducing its consumption of coal, which analysts currently expect to provide roughly 40 percent of the region’s power over the next two decades. In addition to facing diplomatic pressure to reduce CO2 emissions, ASEAN member governments are contending with pressure from multinational companies reluctant to continue investing in the region if it undermines their global efforts to cut corporate emissions, one U.S. expert said.

Particularly difficult is that China, Japan, and South Korea have invested heavily in building coal-fired power plants in ASEAN countries, a South Korean expert added, and that many of these plants are still under construction. Without significant financial support to switch these plants to other fuels such as natural gas, the expert continued, ASEAN will lock in its reliance on coal for years to come. Japanese experts suggested that the region’s coal-fired power plants could begin by co-firing coal with natural gas, hydrogen, or ammonia as a step toward hydrogen or ammonia-based power.

In unofficial dialogue meetings, experts debated the role that natural gas might play. One U.S. participant argued that natural gas would be essential in balancing variable solar and wind power in ASEAN countries, where nuclear power might develop too slowly to serve this function. However, another American noted that the Biden administration has been unwilling to engage ASEAN members in this area, as U.S. officials argue that new gas-fired power plants and infrastructure would require thirty years to recover initial investments, by which time they assert the projects would be obstacles to meeting net-zero emissions goals. Developing the plants could also be arduous, in that some U.S. experts suggested it could be hard for American firms to compete with Chinese state-owned enterprises on their own, while a South Korean expert argued that Japan and South Korea are competing with one another and reluctant to antagonize China in ASEAN.