Europe’s economy is beginning to show clear signs of strain as the Iran conflict drives higher energy prices, weaker growth, and rising inflation , threatening to derail the region’s fragile recovery. Growth Outlook Deteriorates Across Europe Governments across Europe are cutting economic growth forecasts , as the war disrupts energy markets and business sentiment weakens. Major economies like Germany and Italy are reassessing projections, while policymakers brace for a prolonged period of slower expansion . The shock comes just as the region was recovering from previous crises, raising concerns of a renewed economic slowdown . Inflation Pressures Resurface The surge in oil and gas prices is expected to reignite inflation , forcing policymakers into difficult trade-offs. Central banks, including the European Central Bank, may need to: Shift toward tighter monetary policy Delay or reverse rate-cut expectations Officials warn the...
Japan is temporarily reversing part of its clean energy strategy, allowing greater use of coal-fired power plants to safeguard energy supply amid disruptions caused by the Middle East conflict.
Policy Shift to Boost Energy Security
The government will permit less-efficient coal plants to participate in capacity market auctions, expanding available electricity supply.
Previously, these plants were excluded as part of efforts to reduce carbon emissions, but rising energy risks have forced policymakers to prioritise energy security over climate goals.
Energy Shock Drives Strategic Reversal
The shift comes as the closure of the Strait of Hormuz and disruptions at major LNG facilities strain global energy supply.
Japan remains highly exposed:
- Over 90% of oil imports come from the Middle East
- LNG supply risks are rising due to regional instability
Increasing coal usage is expected to offset around 500,000 tonnes of LNG demand, helping stabilise power generation.
Global Trend: Coal Back in Focus
Japan is not alone in this pivot:
- South Korea is considering similar measures
- Europe is also increasing coal usage amid soaring gas prices
This reflects a broader global trend where energy security concerns are temporarily outweighing decarbonisation targets.
Climate Goals Face Near-Term Trade-Offs
The move represents a short-term deviation from Japan’s long-term energy transition plans.
While Japan has:
- Reduced emissions by 2.8% in 2024
- Cut power sector emissions by 8% since 2005
Its current trajectory is still viewed as insufficient to meet net-zero targets by 2050.
Supply Diversification Offers Some Cushion
Japan’s coal imports are relatively diversified, with around 64% sourced from Australia, reducing dependence on the Middle East for this fuel.
Additionally, authorities are:
- Monitoring LNG inventories closely
- Preparing to coordinate fuel sharing between utilities if needed
Investor Takeaways
- Japan is increasing coal power usage to manage energy shortages from the Middle East conflict.
- The policy shift prioritises energy security over climate goals in the short term.
- Coal will help offset LNG shortages, reducing reliance on volatile gas markets.
- The move reflects a global trend of reverting to fossil fuels during energy shocks.
- Long-term implications include potential delays in decarbonisation and ESG-related concerns.
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