Tue.
Oct 20
2020
Will Japan’s New PM Bring Energy Policy Change?

Image: Manuel Cosentino on Unsplash

Japan welcomed a new premier on Sept 16. Prime Minister Suga Yoshihide was the No. 3 in his predecessor Abe Shinzo’s cabinet and served him throughout the latter’s seven-and-a-half-year reign. As such, one would expect Japan’s energy policy to follow the same course. Except, there’s a twist.

In a bombshell announcement at the end of August, Shinzo Abe, Japan’s longest-ever serving prime minister and architect of the Abenomics reforms, said he would resign for health reasons. Given the impact of Abe’s leadership on Japan’s economic and political landscape, it bares outlining the course of his strategy in energy before noting how PM Suga may be different.

Abe’s legacy

Abe took office in late 2012, a year and a half after the Great Tohoku Earthquake that also devastated a nuclear power plant in Fukushima. The event soon led to the closure of the entire nuclear fleet in Japan, and crippled the global nuclear power industry in its aftermath.

While Abe and the ruling Liberal Democratic Party has steadfastly supported the nuclear industry, the Fukushima event precipitated a significant overhaul of Japan’s energy policy.

With no nuclear power, which had accounted for a third of electricity supply prior to the Fukushima accident, Japan lurched towards greater purchase of LNG and coal. Additional spending on fossil fuels for thermal power plants jumped to $90 billion and led to an increase in local power tariffs to 30% for industry and 20% for households.

Japan needed to lower its power costs and finally moved to deregulate its electricity and gas markets to bolster competition. This was also seen as a way to stimulate the growth of renewable energy to ease the country’s reliance on energy imports.

The results have been mixed. Japan tripled its renewables capacity in the last decade and installed around 56 GW of solar power, the world’s third-largest volume in solar. But without nuclear reactors, Japan continues to rely on the Middle East, Russia, Australia, and the U.S., among others, for over 90% of its primary energy inputs – mainly oil, natural gas and coal.

Growth in other renewables technologies has been anemic. Under Abe, Japan signed the Paris Agreement to combat climate change in 2015, but the country’s carbon emissions have stagnated due to its higher reliance on fossil fuels compared to pre-Fukushima times. Only nine of the country’s reactors have even received permission to restart, while 27 nuclear units are due to be decommissioned.

Without nuclear or an adequate renewables capacity to fill the gap, Japan has not yet committed to carbon neutrality by 2050 unlike some of its peer countries in the developed world. Its position on coal power stations is still ambiguous.

Japan’s critically important automobile industry is still trying to carve out a global leadership position in electric and fuel cell vehicles as EV and FCV developments in other geographies power ahead. Japan continues to be an energy island with no pipeline or power links with its neighbors, unlike the EU, where energy transfers across national boundaries are commonplace.

Ministers vs. politicians

Of course, much of Japan’s energy policy is driven not by politicians but by bureaucrats. The Ministry of Economy, Trade and Industry (METI) is the influential power organ in charge of all energy matters, as well as other portfolios.

Unlike the Western legislative model, where politicians (and their backers) draft bills that are then debated in parliament, in Japan it is the ministry staff that both make policy recommendations and write them into the legislation.

This partly makes sense in a country where an average minister’s tenure is around 10 months. Ministerial staff, on the other hand, are career bureaucrats who come to specialize in their field and in many ways dictate the direction of national policy.

The strength of the Abenomics package – and Abe’s own longevity – partly restored the power balance in favour of politicians. However, the new prime minister Suga reportedly went a step further when he announced plans to lessen the remits and responsibilities of METI and rotate key personnel there.

Although Suga retained the METI minister who served under Abe’s cabinet, this subtle change in the power dynamic indicates that the new prime minister plans to move more assertively in terms of reforms – especially in areas supervised by METI, which include energy.

A shifting balance

What will Suga seek to drive forward? In the few energy-related comments he has made so far, he mentioned the need to move Japan to a carbon-free society and to maintain a steady supply of energy. That would fit with his predecessor’s goals of reducing Japan’s imports of energy resources and a stronger commitment to the goals of the Paris Agreement.

One likely scenario of how this will happen is a broader restart of nuclear reactors in Japan. There are 33 units currently accepted as operable. Japan must restart another 10 to 15 nuclear units to reach the government’s 2030 energy mix target, in which nuclear power is supposed to account for 22% of electricity.

This may also be a boon for certain types of renewable energy, especially offshore wind. A recent METI price guidance for offshore wind projects in Japan offered a ceiling of ¥ 29 /kWh. That’s two to three time higher than the tariffs on offer in Europe, even if industry backers say that setting up wind stations in Japan is more costly at this stage.

Hydrogen development would be another area to watch under prime minister Suga. Japan has set up the world’s biggest renewable energy-powered hydrogen production facility. The 10 MW unit is located in Fukushima as the prefecture seeks to promote renewable power development.

Ultimately, it’s hard to see Suga completely moving Japan away from oil and gas. The country is likely to remain the world’s largest LNG importer for a while longer. It’s also the 4th largest consumer of oil in the world. However, the overall energy balance will shift. And it looks like Suga wants to make sure that it is he – not the bureaucrats – who is driving the change.

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Yuriy Humber

By Yuriy Humber

Yuriy Humber is the Publisher of the Japan NRG Weekly publication and President of Tokyo-based Yuri Group.

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