Data Source: IEA
Today after three decades, energy security is once again at the center of attention among Japanese policy-makers and the general public. However, unlike in the 1970s when the focus was on affordability and security of oil supplies, the current challenge is multidimensional. While the renewed interest in energy security issues was triggered by record oil prices in 2008, it was brought to the forefront of public discourse in the aftermath of March 11, 2011 (hitherto referred to as 3/11) earthquake and tsunami, which caused a nuclear catastrophe in Tokyo's Electric Power Company's (TEPCO’s) Fukushima Daiichi nuclear power plant. By October 2011, only 11 out of 54 of Japan’s commercial nuclear reactors are operating.
Consequently, largely absent since the two oil crises in the 1970s, the energy security debate in Japan has been revived in the aftermath of the 3/11 disaster. Some analysts have suggested that Japan should move away from nuclear energy citing safety concerns in an earthquake prone country which lies on several fault lines. For example, the Japanese government claims it is scrapping plans to build as many as 14 new nuclear reactors over the next two decades. It is worth recalling that the government-stated plans were to increase nuclear’s share of total electricity generation from 24% in 2008 to 40-50% by 2030, according to the Ministry of Economy, Trade and Industry (METI). The former Prime Minister Naoto Kan announced that the government would have to “start from scratch” in devising a new energy policy for the country. He has announced a major energy policy review that would promote solar and other alternative energies, stating that Japan should increase the share of renewable energy in power generation to 20% by the early 2020s. This is a considerable challenge given Japan’s current electricity generation profile, in which renewable sources start from a low base.
Scholarship on energy transitions suggests that they have been both gradual and complex. Decades are required for the diffusion of significant innovation, and even longer time spans are needed to develop infrastructure. Coal had been in use for thousands of years, but it was not until growing urbanization led to a shortage of wood that the use of coal became more commonplace. Similarly, oil derivatives were used in lamps throughout the nineteenth century, decades before they became the world’s dominant source of energy.
An examination of historical energy demand trends in Japan (Figure 1) and globally (Figure 2) reveals that substantial changes in proportions of energy use from various sources take decades. Having said this, the discovery of superior sources of energy has sometimes resulted in a relatively rapid transition to a new energy source, as in the case of coal and oil. Occasional supply shocks, such as the 1970s oil crises, only marginally affect the historical pattern, with return to pre-shock levels within two decades. Currently, fossil fuels make up 87% of global and 82% of Japan’s energy demand, with no serious competitors on the horizon.
Japan is the world’s largest importer of liquefied natural gas and coal and the third-largest importer of oil. As Japan is heavily dependent on energy imports, the government has been promoting nuclear energy as a means to diversify its energy sources. The re-evaluation of energy policy in the aftermath of the 1973 oil crisis resulted in diversification and in particular a major nuclear construction program. A high priority was given to reducing the country’s dependence on oil imports and more broadly curbing oil demand. Consequently, with improvements in energy efficiency and substituting oil for natural gas and nuclear power in electricity generation, Japan’s fuel oil demand dropped significantly by the mid-1980s, only to return to pre-crisis levels by the mid-1990s. The Japanese government has treated nuclear power as a semi-indigenous form of energy supply. As a country with virtually no natural resources, it perceived nuclear power as a central pillar in reducing dependence on imported fuel oil for power generation and enhancing energy security. Since the 1980s, nuclear energy has been an integral part of Japan’s energy supply system (Figure 1). It provides 25-30% of electricity and 13% of primary energy supply.
Beliefs and perceptions
There is a strong commitment in Japan that a move from nuclear power and towards other sources of energy is desired, both in terms of public opinion and government policy. While public opposition to nuclear energy is not a new phenomenon, the change of government policy is. Driven by a high dependency on imported fossil fuels and the negative impact of two oil crises, the government has been committed to nuclear power as a preferable energy source because it is domestically produced, and thereby more secure. As outlined in Japan’s New National Energy Strategy of 2006, the aim was to increase the share of nuclear to at least 40% by 2030.
At the same time, the Japanese public has been opposed to nuclear power since a series of nuclear accidents occurred over the 1990s. The 3/11 nuclear disaster, although the most severe, has not been the only nuclear accident in Japan. In fact, several reactor accidents occurred during the 1990s, the most serious of which was the 1999 accident in Tokaimura, which killed two workers. These accidents have contributed greatly to negative public confidence in government and corporate nuclear oversight. The share of Japanese people feeling “very uneasy” about nuclear power grew from 21% before the 1999 Tokaimura accident to 52% afterwards. In a survey released in March 2000, 64% of energy experts surveyed expressed strong concerns about the risk to energy security posed by limitations to securing sites for nuclear power plants; and 49% about risks posed by large accidents at nuclear power facilities. This survey data shows that both the public and experts did not accept the government’s argument that nuclear power is safe well before 3/11.
However, after 3/11, this opposition has become even more pronounced. In the Asahi Shimbun poll in June 2011, 74% of Japanese respondents favored a gradual phase-out of nuclear energy and only 14% were against such a gradual reduction. The poll also showed 64% of respondents believed “natural energy” such as wind and solar power would replace nuclear power in the future. Mirroring public opinion, in early July 2011, PM Kan urged a nuclear-free future for Japan, stating that the country should aim to develop alternative energy sources such as solar, wind and biomass fueled electricity. This is a significant policy shift and a clear indication that the Japanese government and key policy-makers are starting to judge the future of nuclear energy in Japan dispassionately, rather than primarily on supply security grounds.
Institutions and organizations
Japanese energy policy and its future direction are embedded in the country’s institutional and organizational structure, in the METI, with the utility monopolies at the center. However, as argued post-3/11 societal pressure to move away from nuclear power has translated into a significant force for change. Traditionally, energy policy has been the purview of the METI, which has close ties to the business community. Among METI’s chief private-sector allies are the ten regional utility monopolies. These utilities monopolize control over Japan’s major electricity-usage regions and collectively produce more than 85% of Japan’s electricity. Given their regional monopoly status, these utilities charge much higher electricity prices than those in the US and Europe. Nuclear energy generation differs with each of the ten utilities in Japan, but ranges between 21% and 45%. However, nuclear power is one of their preferred sources in the energy mix as it is relatively cheap (discussed below). Consequently, they are unlikely to simply give in to societal pressure to move away from nuclear power. These deep-pocketed monopolies and industrial energy users have cultivated salubrious ties with influential politicians through generous campaign contributions. Lobbyists from large power utilities have in the past opposed more ambitious renewable energy goals. They have substantial influence at the local and national governmental levels. The plan to downsize or eliminate nuclear energy is also certain to face considerable opposition from companies such as Toshiba Corp., which generates about 10% of its revenue from building and servicing reactors.
Japan’s nuclear regulators are also not independent of industry influence. In the aftermath of 3/11, the government largely left the response up to the plant’s operator, TEPCO, which demonstrates a cozy relationship between government and the utilities. TEPCO, the largest of the regional monopolies, supplies over one-third of Japan’s electricity. Some of Japan’s most densely populated and economically important regions get their power supply from TEPCO. Yet, the company has lost much credibility and trust from the Japanese public in its handling of the nuclear crises following the 3/11 disaster. It has a track record of safety cover-ups, helped by soft regulation by a government organization tasked with promoting nuclear power. From autumn 2002 to the middle of 2003, TEPCO closed all seventeen of its nuclear reactors as a consequence of falsified reports in which the company concealed scars on the shrouds or supporting devices of fuel rods inside the reactor. This situation suggested negligence in safety and security by TEPCO.
In fact, the string of nuclear accidents in Japan in the 1990s revealed a lack of regulatory oversight and preparedness. Over a decade ago experts have called for an adversarial regulatory culture with appropriate laws and institutions. They called for an effective nuclear safety and regulatory commission, which is independent, transparent and encourages public participation. Yet the Nuclear & Industrial Safety Agency (NISA) within the METI remained responsible for nuclear power regulation, licensing and safety. The fact that the Japanese government did not restructure its nuclear regulatory framework in the aftermath of accidents in the 1990s shows the strength of nuclear lobby in the country.
As of October 2011 close to 80% of Japan’s nuclear reactors were offline. In what mirrors public opinion, after 3/11 many local governments have been vehemently opposed to nuclear power. Before reactors can restart, METI needs agreements from local governments, even after routine inspections. In any case, and regardless of societal and local opposition to nuclear power, it is hard to imagine that the powerful nuclear lobby and its allies will relinquish their cause. The structural adjustment in the coal industry in Japan serves as an important precedent. In 1968 a decision was made to gradually phase out Japan’s inefficient coal industry in response to the increased costs of domestic coal. Yet two decades later, for its Eighth Coal Program (1986-91), the government had only agreed to some minor adjustments and decided to maintain price differentials and protect the industry more heavily with subsidies for domestic producers and tariffs on imported coal. It was only in 2002 that Japan stopped domestic coal mining because it was no longer economically viable.
Relative prices and technology
A glance at Table 1 reveals that nuclear power is the cheapest source of electricity in Japan, followed by coal and LNG. Renewable alternatives are considerably more expensive. This is a clear indication that there is little economic incentive for utilities to move away from traditional energy sources.
Sources: Craig Dale, ‘Energy angst: Japan’s Post-Tsunami Power Crisis’, Ministry of Economy, Trade and Industry, Japan, Paul Scalise, ‘Rethinking national energy policy: Japan’s electricity crisis, nuclear power, and the fate of TEPCO
Besides high direct costs, renewable energy faces other significant hurdles in Japan, all of which add to indirect costs related with the uptake of these sources of energy. Geothermal power would appear to be an attractive option given that there are more than 100 active volcanoes and thousands of hot springs. But some of the best locations are in national parks and host springs are attractive for tourists. Consequently, exploring that option could be problematic for the green lobby and tourism industry in particular. Offshore wind farms also seem worthy of consideration, but they are likely to draw the ire of fishermen. In addition, the most productive sites for wind power are located far from where the electricity is needed, necessitating the construction of new power lines often in the face of local resistance. In terms of solar power, the existing power system could accommodate enough photovoltaic generating capacity to provide only about 6% to 8% of the electricity supply. Japan’s hydroelectric potential is largely exploited. Finally, given the intermittent nature of many renewables, the amount of capacity that must be built to produce every kWh of electricity will be several times greater than for other sources, greatly reducing their cost-effectiveness. According to one estimate, even 100 GW of installed photovoltaic capacity, or the equivalent of nearly 40% of current power generating capacity, would meet only 12% of Japan’s electricity demand. For all these reasons, METI predicted in 2009 that the share of the primary energy supply provided by renewables in 2030 would reach only 11.6%, even with a “maximum introduction of technology”.
The government has also been promoting energy efficiency since the 1970s oil crises. Further increases in energy efficiency in order to reduce dependence on fossil fuels are desirable, yet unrealistic. Japan is the most energy-efficient country in the world. The energy consumption per unit of output in America and Europe is around twice that of Japan’s and China’s is eight times as much. In fact, Japanese industry uses a similar amount of energy as it did during the oil shock of 1973. From the 1990s, Japan has also attained the highest level of efficiency in thermal power generation, a level it still maintains. Without a doubt, while minor efficiency gains are possible, any significant gains are highly unlikely in all sectors.
Consequences and future directions
If we are to define energy security as indicated earlier, Japan’s is facing a serious predicament and a dilemma regarding the direction of its future nuclear energy policy. The Japanese people will be paying more for energy, the supply of which will be less secure and diversified. Moreover, the higher cost of the future electricity mix, which is likely to be heavier on the fossil fuel side, will have an adverse effect on both the economy and the environment.
During the coming decade, Japan will face supply shortages and higher electricity prices, and general political and economic uncertainties, particularly if the country decides to move away from nuclear power. On the one hand, the commitment to emissions-intensive fossil fuels in the electricity sector will result in an increase in greenhouse gas emissions which may be difficult to accept for Japan’s environmental interests groups. On the other hand, the commitment to prohibitively expensive renewable electricity will result in severe consequences for an already struggling economy. In any case, rising electricity prices are likely to make Japanese corporations less competitive and fuel the movement of jobs offshore.
When considering relative costs, the feasibility of increased production and availability of fuels, Japan is bound to increase consumption of fossil fuels to make up for lost nuclear power. The most feasible option for Japan to remain economically competitive is that a significant part of any future short-to-medium term expansion in power production capacity comes from more imported fuel oil, coal, and LNG. However, the increased use of thermal plants to make up for the loss of nuclear output will result in higher electricity and fuel import costs, negatively affecting the trade surplus. According to data from the Institute of Energy Economics, Japan (IEEJ), a regular household’s electricity bill is likely to increase by ¥1,049 per month (US$13.44) on average due to a rise in fuel costs. Residential and industrial electricity prices are already considerably higher in Japan than in most G-20 economies. The economic burden associated with these higher electricity costs is increasing for Japan as the competitiveness of other countries is enhanced due to deregulation of their electricity sectors.
Early results of the impact of down-scaled nuclear power generation is that Japan has been paying substantially more overall for fossil fuels. Consumption of LNG rose 31% in June 2011 from a year earlier and imports rose to a record 4.46 million tons for the month. LNG prices have also risen as Japan buys more, with spot prices reaching $14 per million Btu, up 40% from before 3/11. LNG use in FY2012 is likely to rise by over 10% of the nation’s annual demand. Japanese demand for coal is expected to increase by 7 million tons (or close to 6% on an annual basis) in 2011 as the country adjusts its energy mix in response to the nuclear shutdown. According to Morgan Stanley, in order to make up for the loss in nuclear power, Japan will need to boost its fuel oil consumption to be used for power generation by 8%, or about 350,000. Their assessment is for a total of 540,000 bpd of oil demand for power generation between June and December in the worst case if all reactors are closed down, compared to an average of 192,000 bpd in 2010. The IEEJ estimates are less conservative. They estimate that if nuclear reactors shut for maintenance (2/3 of capacity) are not allowed to resume due to safety concerns, demand from utilities for fuel oil and crude oil would soar to 706,000 bpd in 2011/12, over triple that for fiscal 2010/11. The price of fuel oil has risen as Japan boosted consumption by 25% in June 2011 from a year earlier. It is not difficult to imagine how additional demand would further boost prices, adding to the costs that must be borne by Japanese consumers and industries. The IEEJ estimated that the increase in use of thermal power to cover the loss of nuclear power would push up the nation’s annual fuel costs by ¥3.5 trillion (US$44.8 billion) in FY2012.
It is unrealistic to expect that the renewables take up nuclear’s share of power generation. Renewables can contribute, but to make up for most of lost nuclear power would take massive investment, probably too much for a country where government net debt is close to 200% of GDP. In fact, removing up to 30% of Japan’s electricity generating capacity is not possible without inflicting serious harm to Japan’s already vulnerable economy. If industries continue to be required to cut electricity, some Japanese companies may relocate their operations overseas, where electricity is in stable supply and cheaper, ushering in higher unemployment and further squeezing public funds. If nuclear power was scrapped altogether, Japan would face costs from changing its power generation mix, from buying more carbon pollution allowances and from the inevitable movement of manufacturing offshore.
There are also severe consequences for Japan’s environmental policy following a reduction in nuclear output. According to the EIA, nuclear power reduces Japan’s CO2 emissions by 14% per year. Replacing nuclear power with fossil fuels will boost annual emissions by as much as 210 million tons, potentially costing as much as $3.4 billion to buy permits. Moreover, this would make it virtually impossible for Japan to reach the Kyoto Protocol 2020 target of reducing CO2 emissions by 25% of 1990 levels. If Japan is to achieve its Kyoto targets, it will have to make even greater reductions in the future than it did before the earthquake. In the case where Japan achieves this target, the reduction cost would be $239.3/ton CO2, which is extremely expensive when compared with the current price of emissions rights in Europe (approx. $20/ton CO2). Paying such high costs would result in Japan’s GDP dropping by 1.9%. If Japan remains committed to its Kyoto targets and four-fifths of nuclear power plants remain shut down, this will severely damage Japan’s post-3/11 economic recovery.
Where to from here for Japan?
There is now an energy policy rethink in Japan. Japanese policy-makers are faced with the difficult task of building a new energy policy that can appease growing anti-nuclear public sentiment without adverse effects to the powerful nuclear lobby, regional utility monopolies and industry. Energy security, the environment and the economy have long been the three pillars of Japanese energy policy. The new energy policy cannot overlook any of these three pillars. Yet, there are significant challenges associated with each of the pillars, and the government is in an extremely difficult position of finding the best policy with which to tackle a multitude of interconnected challenges. Although former PM Kan spoke of replacing cancelled reactors with renewable energy systems such as wind and solar, this policy option will remain wishful thinking unless Japan is ready to forgo economic growth for the foreseeable future. This has been recognized by new PM Yoshihiko Noda, who just over six months after the earthquake, acknowledged that while public safety concerns will make it tough to build new reactors, decisions on operational reactors and those already under constructions will be made on a “case-by-case” basis.
One of the origins of Japan’s ambitious nuclear policy lies in the concerns of Japanese leaders who have interpreted history as a series of unreasonable assaults on an island nearly devoid of natural resources. They perceive Japan as exposed to inexplicable supply disruptions and argue that Japan would be too weak without recourse to an independent energy supply. Nuclear energy has been an integral part of Japan’s energy supply system. The benefits of nuclear energy for Japan have been manifold. Nuclear energy adds to energy diversification, reduces dependency on fuel oil, can be produced at a stable price, and is a clean fuel in terms of emissions. The future of nuclear energy must be weighted wisely if Japan is to remain an economic power.
The energy transition will be slow and needs to be managed with extreme caution in order to minimize economic dislocation. If any lessons are to be taken from previous energy transitions, as witnessed by economic depression in former major coal-mining regions, severe socioeconomic dislocations are likely to occur in Japan and elsewhere. Consequently, energy policy is too salient to be relegated to swings in public opinion. Japan now needs an integrated energy policy that is grounded in a new post-Fukushima reality. Such an energy policy will require a reassessment of priorities for Japan. Even if public opposition to nuclear power could be overcome, the scale of the Fukushima crisis will undoubtedly delay the expansion of existing nuclear plant capacities and the construction of new plants. The 1999 Tokaimura nuclear accident slowed down the rate of subsequent nuclear development. Various projects were delayed or cancelled.
Yet, energy policy cannot be relegated to industry either. A firewall needs to be created between regulators, government and industry. Only when regulators are independent from government and industry-capture will Japan’s nuclear industry receive proper oversight, which will likely prevent future accidents. The Japanese government should also reassess the value of preserving Japan’s regional state-regulated and privately-owned electricity monopolies, who some have blamed for relatively high electricity prices. The government should engage in a comprehensive reassessment of the structure and the future operations of its power industry while developing its new energy policy.
Contributor Dr. Vlado Vivoda is a Research Fellow at the Griffith Asia Institute, Griffith University, Brisbane, Australia.
In a significant boost for Australian exports, five Japanese power companies have committed to buying $70 billion of liquefied natural gas (LNG) ahead of a final investment decision on the Ichthys project in the Northern Territory.
Australia’s Resources Minister Martin Ferguson said Japan’s INPEX and Total of France secured 15-year sales and purchase agreements with five power companies to supply LNG from the proposed offshore project.
AAP newsagency says the project is poised to create more than 2000 jobs during its five-year construction and 300 jobs onshore once fully operational.
There will be a further 1000 jobs offshore during construction and 400 during operations.
“These agreements are a great step forward for the Ichthys project and for the Australian LNG industry,” Mr Ferguson said.
“With expected LNG output of 8.4 million tonnes a year, the Ichthys project has the potential to significantly boost Australia’s standing as a major energy supplier,” he said.
“It will create jobs, particularly in the Northern Territory, significantly boost export revenues and help meet the energy needs of one of our oldest, largest and most valuable LNG trading partners, Japan.”
Japan is the world’s largest LNG importer, accounting for a third of the world’s imports in 2010, with demand growing substantially since the Fukushima nuclear disaster in March.
“Australia is a proven, reliable LNG supplier and this year became the largest supplier of LNG to Japan,” Mr Ferguson said.
If it goes ahead, Ichthys would represent Japan’s biggest single financial investment in Australia and be the first Japanese-operated LNG project.
It would have the capacity to produce 8.4 million tonnes of LNG each year, about 1.6 million tonnes of liquefied petroleum gas (LPG) a year, and 100,000 barrels of condensate a day.
In 2010-11 Australia exported 20 million tonnes of LNG worth $10.5 billion.
There are currently more than $140 billion of LNG projects under construction in Australia that, when combined with the Ichthys project, have the potential to quadruple Australia’s existing export capacity....