This summer, as a Growth Lab intern, I conducted research on decarbonization in the United States. To gain a better understanding of this topic, I worked with an economist at the Center for Business and Economic Analysis (CBEA) at the University of Wyoming in Laramie. CBEA's primary task is to work with other departments and state agencies to conduct economic assessments of industrial projects in Wyoming. Most recently, the University of Wyoming received funding from the U.S. Department of Energy for research focused on the use of coal to produce carbon ore, rare earth, and critical minerals1, and CBEA is studying this and other 'technologies' potential impacts on local industry. The University of Wyoming, as the 'state's only four-year university, provides critical research on economic and energy issues in Wyoming. Through my internship, I was able to deepen my understanding of Wyoming and U.S. energy policy.
The stay in Laramie was a fresh and valuable experience for me. What was particularly impressive to me was the strong attachment of the Wyomingites to nature. Here, nature means both natural resources and the landscape. In town, you can hear the sound of long freight trains carrying coal and other materials passing by regularly, reminding us that this is a resource-producing state. Also, just outside the city, great plains and mountains spread out, and people can easily enjoy hiking and fishing. In addition, every July, the city hosts a large rodeo festival, which is one of the liveliest events of the year. The locals living in this environment have a very strong sense of pride in nature, and it is completely different from that of Boston.
The global trend toward decarbonization, which has accelerated in recent years, may force a change in this identity. However, it is clear that overly simple strategies, such as replacing the shrinking coal industry with an increasing renewable energy, do not fully capture the complexities of economic geography and public opinion in Wyoming. According to a survey conducted by the University of Wyoming2, a high percentage of Wyomingites do not have strong resistance to new technologies such as small nuclear and renewable energy, but they do believe that they can be compatible with the old resource economy, including coal. Given that 'residents' views are reflected in policy through elections, local public opinion is as important a factor as economic rationality. This firsthand sense of local realities is what was meaningful I gained during my stay in Wyoming.
 The CBEA at the University of Wyoming conducts economic and business analytics. It also collaborates with other departments, such as the School of Energy Resources.
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 Adjacent to the downtown area, a freight railroad that carries coal and other materials runs day and night.
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 Wyoming's beautiful nature. For many locals, the outdoors is a part of their everyday life.
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 Rodeo festival held once a year in Laramie. During this week, the downtown area is crowded with people enjoying the food stalls and mobile amusement park.
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Lessons from the comparison of the industrial structure of Japan and the U.S.
What I have realized during the internship is the importance of considering both the common challenge of decarbonization and the differences in the political and economic structures of different countries. In the following, I will introduce some of the topics I worked on, including a comparison of the industrial structure of Japan and the U.S. from the perspective of decarbonization.
A major difference in the industrial structure between Japan and the U.S. is that the share of value added by the manufacturing industry in Japan is nearly twice that of the U.S. (Figure 1). While the share of service industries has gradually increased in Japan, the share of manufacturing has not changed significantly over the last 50 years. This relationship is also true in terms of the number of employees (Figure 2). The importance of the manufacturing sector to the Japanese economy is similar at the regional level. In Japan, where natural resources are scarce, the degree of the development of the manufacturing sector has been closely related to the development of each region (Figure 3). In the U.S., on the other hand, no such correlation exists. This indicates the existence of a variety of economic structures, such as states with a high share of service industries, such as California, and states with abundant natural resources, such as Wyoming. These differences in economic structure suggest that decarbonization is an urgent issue for Japan because it has a high proportion of energy-intensive sectors, such as heavy industry. However, it also highlights an urgent problem for U.S. states like Wyoming that have achieved a high standard of living based on an economic structure that will be unable to support the same level of wealth in the future.
Figure 1. Share of Value Added by Economic Activity
Note: The value added is at constant 2015 prices (US dollars). Source: United Nations
Figure 2: Share of Employment by Industry
Source: Ministry of Internal Affairs and Communications, BEA
Figure 3: The Relationship between Per Capita Income and Manufacturing Share by Prefecture/State
Notes: Japan is based on 2018 FY data. US is based on 2019 data.
The size of the bubbles indicates population size.
Source: Cabinet Office, BEA
The characteristics of energy transition in Japan and the U.S.
What are the characteristics of Japan's energy transition, with its manufacturing-dependent economic structure? A breakdown of Japan's CO2 emissions shows that in addition to the energy sector, which is highly dependent on coal- and natural gas-fired power generation, manufacturing industries such as steel and chemicals also account for a considerable share of CO2 emissions (Figure 4). Therefore, in order to promote decarbonization, it is important not only to introduce renewable energy in the power generation sector, but also to reduce emissions in the manufacturing sector.
In the U.S., on the other hand, the transportation sector accounts for a higher share of total emissions (Figure 5). However, since the energy efficiency of the country as a whole is ranked low among developed countries, the industrial sector is also expected to have a large room for emission reduction. Also, the U.S. has a diverse political and economic structure from state to state. For this reason, in understanding U.S. efforts to decarbonize, it is necessary to focus on state-by-state efforts in addition to industry-by-industry efforts.
Figure 4: Composition of CO2 Industry by Emissions in Japan
Notes: Based on 2019 data. Source: National Institute for Environmental Studies, Agency for Natural Resources and Energy
Figure 5: Composition of CO2 Industry by Emissions in the U.S.
Notes: Based on 2020 data. Source: EPA
Challenges of energy transition
(1) Employment
In Japan, large manufacturing companies are often the agents of change for the energy transition, and unlike in the U.S., layoffs are not common in these companies. Even when older factories are closed in the process of energy transition, employment is generally protected through reassignment within the same company. However, even if layoffs can be temporarily prevented, the sustainability of this response is uncertain, as decarbonization can slow the growth of existing industries. It could also have a negative impact on the country's overall productivity, as people are less likely to move to growth industries.
On the other hand, in the U.S., start-up activity in the energy sector is stronger due to high job mobility, which would be an advantage in promoting decarbonization. In fact, in Wyoming, start-ups are taking the lead in small nuclear power plants3and hydrogen production projects.4 There are also abundant examples of public policies that support labor migration from declining industries, such as coal, to other industries. For example, the U.S. government set up the "Just Transition Fund,"5 a nationwide effort, and the state of Colorado has extensive support for promoting the labor transition.6 Examining the effectiveness of these policies would be helpful for other regions and countries.
(2) Uncertainty of technological innovation
There are two types of technologies that can enable decarbonization: those that are able to scale today (e.g., wind power) and those that require more development if they are to be both technologically and economically viable at scale (e.g., carbon capture). Successful development of the latter technology would require the investment of a large number of resources to increase the potential for innovation, yet the economic challenges may still not be overcome. A state like Wyoming, which seeks to develop new industries with limited resources, is faced with the difficult decision of how far to invest resources in technological development that involves uncertainty. For example, Wyoming is seeking to host a small nuclear reactor,7 which is scheduled to complete construction around 2030, so long-term strategies are essential. Thus, the energy transition process requires the effective use of limited resources, given the uncertainties of technological innovation.
Personal lessons from the internship
(1) Understand the roles of diverse stakeholders
The implementation of new energy technologies requires coordination with a variety of actors, including federal and state governments, local universities, and the private sector. In the U.S., the stance on decarbonization varies widely from state to state due to the decentralized decision-making under the federal system. Such a U.S. system differs significantly from Japan, where the central government makes comprehensive energy policy decisions. While this decentralized nature has the advantage of allowing some states to quickly adopt progressive initiatives, it also means that the gap with reluctant states widens rapidly, and there is little the central government can do about it. In light of this, the search for appropriate solutions requires an understanding of the institutions and stakeholders that are unique to a country or region.
(2) Accurately identify various constraints
It is not easy to revitalize an economically stagnant region. In every project, the Growth Lab focuses on identifying constraints to growth in various aspects, including demographics, state finances, and transportation infrastructure. This analysis is an important basis for developing growth strategies in the later phases of a project. The process of understanding the historical growth path of a particular region was a useful opportunity to learn the concept of growth diagnosis in the field.
(3) Always looking for potential growth opportunities in the region
What was most impressive to me was that despite the numerous constraints, the Growth Lab researchers were never pessimistic and sought out the unique potential of the region that could be the key to future growth. By effectively combining statistical data with information from experts in various fields and local stakeholders, they were always trying to find clues to growth. I realized that this kind of professional attitude in the development field is important for everyone involved in the public sector.
[1] UW Receives DOE Funding for Carbon Ore, Rare Earth and Critical Minerals Initiatives in Wyoming | News | University of Wyoming (uwyo.edu)
[2] 2020 Wyoming's Energy Social License Report (uwyo.edu)
[3] Bill Gates' TerraPower to build its first nuclear reactor in Wyoming coal town (cnbc.com)
[4] Awardees for the Hydrogen Pilot Project – Wyoming Energy Authority (wyoenergy.org)
[6] The Office of Just Transition | Department of Labor & Employment (colorado.gov)
[7] Kemmerer’s locals, leaders eye transition to nuclear-power boom town - WyoFile