Fuel for Thought: G7 Sapporo was breather for energy security, but headwinds ahead for decarbonization

The G7 Sapporo communique was a product of compromise after months of negotiations over sticking points in member states’ approaches to climate goals and energy security.

The pragmatic agreement that emerged could pave the way for future work, even though it may have looked like little progress to some.

The group acknowledged the need to pursue "various pathways" to reach their common goal of net zero, a strategy that could act as a guiding principle for members’ approach for energy security and climate goals.

The G7 Ministers’ Meeting on Climate, Energy and Environment took place in Sapporo, northern Japan over April 15-16 with a backdrop of Russia’s ongoing war in Ukraine, a series of energy security risks and looming challenges over critical mineral supply chains needed for the energy transition.

The differences were visible among G7 members over the role of natural gas and the phase-out of coal-fired power generation.

The G7 ministers agreed in the end that investment is "appropriate" in the gas sector in a manner in line with climate objectives and without creating lock-in effects to address potential shortages amid the ongoing war in Ukraine, and impacts of high energy prices and inflation, particularly in developing countries.

This was echoed by the US during an interview with S&P Global Commodity Insights on the sidelines, when Andrew Light, US assistant secretary of energy for international affairs, said that the world "absolutely" needs new gas investment in the context of Russia’s war in Ukraine and the tightening global market. He said the US sees a "phenomenal future for abated natural gas as a clean energy source in the world," although he said better frameworks are needed to define the true abatement of gas and decarbonization of the sector.

The current G7 presidency under Japan placed its outreach to Global South countries as among priorities for accelerating energy transition, with Asia playing a key role in achieving climate goals set in the Paris Agreement.

The G7 Sapporo ministerial meeting was attended by Indonesia as the chair of the Association of Southeast Asian Nations (ASEAN), along with India as the president of the G20, and the UAE as the host of the 28th Conference of the Parties to the UN Framework Convention on Climate Change (COP28).

Having energy and environment ministers from developing nations at the same table showed the need for different approaches.

"On transitions, the clear fact of the matter is that not every country can afford two energy transitions," DOE’s Light said. "The countries represented around the table here at the G7, the wealthiest developed countries in the world, can go from coal to gas, and then gas to other things, whether it’s abatement in the fossil sector or renewables or nuclear or the fuels of the future like hydrogen. But not every country can do that. Most can’t."

Light said the G7 wants to provide as much technical support, policy guidance and co-investment, so that the 10 ASEAN countries "can leapfrog from coal to a decarbonized energy future."

"We think that will also be the most secure energy future for them," he said. Jonathan Wilkinson, Canada’s natural resources minister, said in an interview with S&P Global on the sidelines that the group had a lot of conversations about how oil and gas producers "need to be more aggressive, need to actually be working together in a perhaps more coordinated way to figure out how to drive those emissions down aggressively."

"I say this every time I go to Alberta: It is in your economic interest to drive emissions down to the lowest possible level because there will either be a price premium or you will be the last producer standing because you’re the only one that can actually provide zero or near-zero carbon hydrocarbons," Wilkinson said.

Phasing out

In spite of calls for abolishing coal-fired power generation with a timeline, the ministers reaffirmed the 2022 G7 Leader’s communique to take steps toward the goal of accelerating the phase-out of domestic unabated coal-fired power generation in a manner in line with keeping a limit of 1.5 degree Celsius within reach.

In an apparent compromise, the ministers underlined their commitment for the first time to accelerate the phase-out of unabated fossil fuels to achieve net zero in energy systems by 2050 to be in line with the trajectories required to limit global average temperatures to 1.5 degrees Celsius above industrial levels.

Despite absence of a specific timeline, this was among key results for Europe, with Italy, the next president of the G7, welcoming the move.

"We express particular appreciation for the decision to accelerate the phase-out from unabated fossil fuels," Minister for Environment and Energy Security Gilberto Pichetto Fratin told a joint press conference in Sapporo.

The ministers agreed on specific steps for decarbonization, including boosting renewables with a collective increase in offshore wind capacity of 150 GW by 2030 based on each country’s existing targets; a collective increase of solar PV to more than 1 TW by 2030; and halving at least 50% CO2 emissions from G7 vehicles stock by 2035 from 2000 level.

The use of fossil fuels, however, could well be placed under pressure further when the UAE presidency-COP28 concludes the first global stocktake later this year, looking at where the world stands on climate action and identifying gaps on pathways toward 2030 and beyond.

Russian energy

Response to energy imports from Russia and moves for decarbonization and critical supply chains were also key topics on the sidelines in Sapporo.

The EU considers it "possible" that Russia will halt natural gas supplies in 2023 to Europe but the bloc is prepared with contingency plans, European Commissioner for Energy Kadri Simson told S&P Global, as it also sees no need for Russian LNG imports.

Simson said that the G7’s Russian oil price cap has cut Russia’s revenue. "We are monitoring very closely the agreed price caps," she said in an interview with S&P Global in Sapporo. "The next steps on the oil price cap [to] depend on developments in global market so that we do not want to create any deficit on global markets."

"We do understand that some third countries who are willing to buy oil at significant discounts but next steps and coordinated action will be based on developments in global markets."

The G7 has imposed price caps on Russian crude and refined products aimed at crimping Kremlin’s oil revenues while keeping Russian supplies on the market.

Critical minerals

The G7 ministers agreed to a joint plan for critical minerals security, stressing the growing importance of the materials to the clean energy transition and the need to prevent economic and security risks caused by vulnerable supply chains.

They pledged to boost diversification of suppliers while upholding strong environmental, social and governance standards.

Demand is expected to soar for lithium, nickel, cobalt and other metals needed for batteries and electrification technologies, but supply chains to bring the commodities to market face numerous challenges.

"We should not end up in a situation where we’re too dependent on one single supplier," Simson said. "That means that we need a network, a wider partnership of trusted partners."