Policy Under Pressure - Energy Policy: Powering the Future of Japan

Introduction

The current LDP/Komeito government is trying to walk over a narrowing tightrope of political and policy machinations. With Prime Minister Ishiba stating that there needs to be “broad consensus building” during his policy overture at the beginning of the extraordinary session, and the CDP and DPP agreeing to collaborate on certain policy initiatives, the power of minority parties has never been stronger, nor evident, in the Japanese House of Representatives. In this edition of ‘Policy Under Pressure,’ where we explore the dynamics of the various policy positions the opposition parties (the CDP, DPP, and Nippon Ishin), we will be focusing on what literally, and figuratively, powers Japan: the nation’s energy policy and its GX, or Green Transformation. The Japanese government is looking to unveil its triennial Basic Energy Strategy, the seventh of its incarnation, which will set the tone for years to come. A draft of the Seventh Basic Energy Strategy has been made public, and the general thrust of increasing the composition of renewable energies, especially nuclear, are key stratagems for Japan’s energy needs. One crucial element in this development, however, is novel: that of the minority government composition and the rise in importance of seeking agreement with opposition parties. The major opposition parties share common goals around meeting carbon neutrality targets and expanding the share of renewables that comprise Japan’s energy stew, but one ingredient in this resource goulash may be unpalatable to Japan’s main opposition party, the CDP: the proliferation of nuclear energy as seen in the draft Seventh Basic Energy Strategy.

Targets and Funding Schemes

All parties see the need to adopt renewable and green sources of energy to mitigate the impacts of climate change. The CDP has some lofty goals; aiming for 50% renewable energy power generation by 2030 and 100% by 2050. Their ultimate outcome is to become a carbon neutral nation as early as possible before 2050 without the use of fossil fuels or nuclear power. Integral to the CDP’s vision of a decarbonized Japan is promoting a ‘regionally distributed energy society centered on renewable energy’. The CDP’s grander vision on energy policy is centralized on including mechanisms to better reflect public opinion on climate change measures and energy policy while transitioning to smart communities aimed at a distributed energy society powered by local renewable energy production molded to local conditions. The DPP has a less ambitious 2030 target (seeking to achieve a renewable energy usage target of 40%) and are seeking to leverage technological innovations (e.g. advancements in electrification, electric vehicle adoption, development & production of C02-free hydrogen and synthetic fuels, etc.) to help meet carbon neutrality without incurring onerous burdens on industry. Nippon Ishin finds themselves in between the CDP and DPP; purposing a 46% reduction in greenhouse gases (GHGs) by 2030 with the caveat, akin to the DPP, that this does not create undue hardships for industry stakeholders. Aiming for Japan to be a ‘resource powerhouse’ resilient to crises, Nippon Ishin wants to develop a system that pushes forward on green energy projects that mirror the perspectives of businesses, local and regional governments, and citizens writ large.

How do these parties envision using government resources to meet these decarbonization targets? The promotion of green bonds/funds and carbon pricing methods are common solutions that are championed by all parties. The CDP purports that the economy cannot grow effectively without protecting the environment. Holistically, the CDP wants to further build out green infrastructure to marry growth in green energy sectors with larger societal change. In their campaign platform, the CDP noted that they would invest 200 trillion yen (with 50 trillion yen in public funds) for energy conservation and renewable energy projects with the aim to create 2.5 million jobs annually and achieve 50 trillion yen in annual economic benefits. What is interesting to note is that the CDP would also cap resource imports exceeding 20 trillion yen annually. This seemingly protectionist policy, designed to incent more domestic production of renewable energy to bolster Japanese economic growth, may result in an unintended consequence of increasing energy costs to Japanese consumers. This is seemingly at odds with their professed welfare-oriented energy transition policies to support low-income households.

The largest opposition party would promote the usage of renewable energy funds, green bonds, and further subsidies to attract further investment into this space. The CDP is somewhat vague on their position around carbon pricing; only stating that they would continue the conversation around carbon pricing and carbon tax approaches within the context of an overall tax system reform. The DPP, meanwhile, sees an opportunity to further advance the utilization of J-Credits, Japan’s primary domestic carbon offset program through a cap-and-trade model, to promote decarbonization in all sectors. Ever the party that promotes the use of technology and DX (digital transformation) in all aspects, the DPP would review the Green Innovation Fund Project and simultaneously establish a DCN (digitalization and carbon neutrality) Fund to integrate carbon neutrality schemes with digitalization in a holistic manner. Nippon Ishin, like the DPP, sees the value of promoting the emissions trading scheme (i.e. through expanding the GX (Green Transformation) League, the government’s joint venture with companies on transitioning to carbon neutrality) based on market principles and international norms. They are vaguer in their broader schema around funding green energy projects; noting that they would ‘introduce further regulatory reforms and investment promotion streams’ to achieve economic growth and develop a decarbonized society. All in all, the major opposition parties are willing to use the fiscal heft of the Japanese government to reimagine Japan’s energy needs.

The Renewable and Green Energy Ingredients in Japan’s Energy Soup

Renewable and green energy sources such as geothermal, hydrogen, solar, and wind (both on and offshore) are all in some way or another supported by the opposition parties. Out of all of the parties, the CDP has the most comprehensive plan to leverage these various renewable energy streams, but this does not discount the policy work undertaken by the DPP and Nippon Ishin. Continuing along with the cooking metaphor, the opposition parties all have differing ratios in their menus on the usage of renewable and green energy ingredients to stand out as prominent flavours in Japan’s energy soup.

Geothermal

Given that Japan sits on the ring of fire and is the land of hot springs (and earthquakes), it’s no surprise that all parties wish to utilize geothermal energy to power the nation. Enacting a “Ground Source Heat Utilization Promotion Law”, the CDP would plan to accelerate the usage of geothermal heat energy in conjunction with maintaining hot springs; a policy objective shared by the Nippon Ishin through their proposed review of the Hot Spring Act and Natural Parks Act. DPP is the party with the least amount of attention focused on geothermal energy, but they are proponents of the renewable energy source and also wish to engage in geoengineering.

Hydrogen

Hydrogen, specifically green hydrogen, is a critical piece of the CDP’s decarbonization plan for the transportation sector. They support the use of the clean energy source as fuel for buses, trucks, and ships, along with e-fuels, such as methane, for aviation. Hydrogen usage is also allocated to manufacture green steel (i.e. steel made without GHGs). The DPP and Nippon Ishin both support the development of CO2-free hydrogen and synthetic fuels to move away from fossil fuels but are less descriptive in their actual policy framework.

Wind

Offshore wind is one of the unifying renewable energy sources that echoes through all opposition parties. The DPP states that they will particularly focus on utilizing offshore wind to meet Japan’s energy needs (albeit they are otherwise mum on how to accomplish this objective) with the CDP and Nippon Ishin only being a little more specific; noting that Japan needs to set clear installation targets, accelerate development, and clarify policies for the utilization of the EEZ. Japan has the 8th largest EEZ in the world and taking advantage of that space for offshore wind production behooves the island nation.

Solar

All parties want to invest in solar energy, with the CDP being the most descriptive about their policies. The CDP takes a holistic approach in proliferation of solar panels. They promote solar panel adoption on rooftops for new homes and buildings, mandate solar panel installation on publicly owned property, and want to deliberate on how to temporarily convert farmland for solar use by enacting a so-called “Solar Sharing Promotion Act”. The CDP and the DPP both purport leveraging and increasing battery power and storage technologies with a focus on reducing costs for consumers. Domestic production of solar panels is not just crucial for the CDP, but for Nippon Ishin as well, especially in the wake of China’s market dominance. Securing supply chains to reduce the impact of foreign actors on Japan’s energy supply, along with revitalizing regional economies, are major themes within the solar energy realm shared across by all opposition parties.

Nuclear: A Bad Taste in the CDP’s Mouth

If there is one contentious issue that divides the parties, like cilantro or pineapple on pizza, it’s the use of nuclear power. The CDP is vehemently against the usage and expansion of nuclear power plants in Japan while the DPP and Nippon Ishin see the energy source as an indispensable part of meeting Japan’s electricity needs. The CDP aims to build a decentralized energy society that is based on renewable energy tailored to regional characteristics; centralized on the premise of achieving a nuclear-free society as quickly as possible. They will not approve nor expand any new nuclear power plant capacity while simultaneously working to shut down all active power plants. Regional and local governments would be consulted on how to adapt to this new nuclear-free reality to, in CDP’s perspective, promote economic revitalization, fair employment transition, and local development through amending the Special Measures Law for Nuclear Power Plant Host Regions. In their policy platform, the CDP mentions a subsidy package to workers within the nuclear energy supply chain who would be required to transition into new roles and the power companies themselves to ensure they can handle the loss of revenue. How much this would cost, however, is not elucidated in the CDP’s platform. One can imagine that this would be a hefty cost for the Japanese government and would face pushback from all parties.

Contrary to the anti-nuclear stance of the CDP, both the DPP and Nippon Ishin want to further expand the usage of nuclear power plants in a safe and responsible manner. With energy security in mind, and the potential for nuclear power to be a stable source of electricity, the DPP wants to position nuclear energy as one of the bastions of Japan’s power supply infrastructure. Their principles around nuclear are threefold: to apply strict restrictions around operating the power plants based on scientific and technical evidence, operate power plants that meet legal safety standards and have obtained local consent, and utilize all pathways to develop a carbon-neutral society. The DPP wants to pursue the development of the next generation of nuclear power plants, such as small modular reactors (SMRs) and floating nuclear power plants, to meet Japan’s electrical needs by streamlining the regulatory process without infringing on safety measures. For Nippon Ishin, taking lessons learned from the TEPCO Fukushima Daiichi nuclear disaster, the Osaka-based party take a more measured approach; ensuring that all responsibilities between stakeholders (national & local governments, power plant operators) are legally clarified when extending existing nuclear plant operating periods or replacing them with next-generation reactors. Nippon Ishin is not above, interesting enough, limiting private sector responsibility through measures up to nationalizing nuclear power plants to make sure that their operations are reliable and secure. All in all, Nippon Ishin sees a more heavy-handed governance approach to nuclear power plants, but ultimately still sees the value and need for Japan to leverage the renewable energy source.

The world is struggling to find ways to address the paradigm shifting nature of climate change and the need to move to a carbon neutral society. Renewable energies such as those expanded upon here will all play an important role in the energy stew that will change Japan’s appetite for fossil fuels. The opposition parties are more aligned than not, but an expanded role of nuclear energy, as championed by not only the LDP, but the DPP and Nippon Ishin, may leave a sour taste the mouth of CDP lawmakers. How Japan decides to throw these different resource ingredients into the energy stew pot, and the various jockeying of oppositional parties’ tastes on this matter, will influence how Japan meets its voracious appetite for energy for years to come.

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