IEEJ: June 2011

Special Bulletin
A Japanese Perspective on the International Energy Landscape (44)

May 26, 2011

A thought on “Energy Policy”
Ken Koyama, PhD
Director
Strategy and Industry Research Unit
The Institute of Energy Economics, Japan

Given the Great East Japan Earthquake and the ensuing Fukushima Daiichi Nuclear Power
Plant accident, reconsideration of Japan’s energy policy has become one of its top priorities. The
disaster and accident have unleashed energy policy debate on a global scale as well. Energy policies
have thus become one of the most talked about issues. But “energy policy” can be defined variously
and discussed from various angles. In the following, I would like to discuss concept of “energypolicy” based on my viewpoint.
Energy is indispensable for economic and industrial activities and civil life, andoccasionally for military and strategic operations. At the same time, energy is usually developed,produced, transported and consumed under the market system in principle. If these processes arecompletely left to market forces, however, market externalities and other problems may prevent thebest results from being secured for a national economy or the world. Therefore, the government may
work on or intervene in the energy market through some means in a bid to prevent, improve or
mitigate such problems. Such government actions may be viewed as “energy policy”.
Then, we can divide “energy policy” into such components as “problem perception,”“policy purposes or objectives,” “policy measures,” “policy effect assessment and responses.” These
components are all important and closely linked to each other. Since “energy policy” is intended tobring about changes in a situation where the energy industry is left completely to market forces,
extra costs are required in addition to those under such situation. This point is a key to a properinterpretation of the linkage between the above mentioned “energy policy” components. For
example, additional costs may be required for measures to prevent a situation where a nation’s
dependence on the Middle East increases under market forces. Then, the key point of “energypolicy” is that whether or not individual economic agents and the national economy as a whole
accept such additional costs.
In this respect, the “problem perception” is decisively important. This means that “energypolicy” (particularly fundamental, powerful energy policy) must be based on the widely sharedperception of serious or grave energy problems, threats or risks. Only under such problem perception
may society tolerate additional costs that would be required to conduct more fundamental energy

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policy. For example, Japan has conducted one of the world’s most powerful energy policies since the1970s. One reason why Japan has been able to implement such powerful energy policy is that thefirst oil crisis (the Arab oil embargo and oil price spikes) in 1973 was recognized as a grave problem
that could affect Japan’s survival. Since then, Japan has implemented comprehensive energy policy
including energy conservation, alternative energy development, emergency measures and resources
diplomacy, and also established its present energy supply/demand structure with massive efforts andcosts under close cooperation between the government and private sectors. In this sense, the March
11 Great East Japan Earthquake and the ensuing nuclear power plant crisis might have beenrecognized as a problem that is as grave as (or more grave than) the past oil crisis. Therefore, there is
the ground for Japan’s future implementation of powerful energy policy.
Coming next are “policy purposes or objectives” and “policy measures.” The problems here
are the level of appropriateness for policy objectives or how reasonable and feasible policy measures
should be. Policy objectives are important for the government to specify a vision indicating a target
direction and to share the vision with the society and people. The degree or strength of policy
objective can determine the cost size for implementing a policy. At the same time, it is important thatthe policy objectives may become a yardstick for assessing policy effects. The degree to which thepolicy objectives have been achieved may be significant. But the reasonableness of the objectives
themselves may be questioned. If an inappropriate objective is set and achieved, it may not bedesirable for a national economy.
As for “policy measures,” the selection and prioritization of multiple, various options isimportant. This is because the policy mesures holds the key to the achievement of the policyobjectives and determines the overall cost size. Since energy problem solutions may frequently
include long-term measures, policy measures for developing and diffusing advanced technology may
often become important. In such case, uncertainties about technological progress may make theselection of policy measures difficult. If some policy measures that heavily depends on futuretechnological progress is adopted, the achievement of the policy objectives may also decisively
depend on technological progress.
Based on this viewpoint, we must take note of the fact that large-scale and ambitious energy
policies have not necessarily been successful as indicated by the history of “energy policy”. Whenthe first oil crisis hit the United States, for example, the then Nixon administration came up with theProject Independence initiative seeking to achieve energy self-sufficiency of the country. But theinitiative has been viewed as having brought about little effect. This is because larger-scale and more
ambitious policies tend to resist prevailing market forces and are more difficult to implement due totheir limited feasibility or enormous costs incurred.
In the wake of the Great East Japan Earthquake, challenges that Japan must resolve throughits energy policy are unprecedentedly great, complicated and difficult. Specific visions, appropriate
policy objectives, reasonable policy measures and a check-and-review process for policy assessment

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are indispensable for Japan’s energy policy to resolve the challenges. Japan will be required tocollect all of its wisdom and power to implement appropriate energy policy.
Contact: report@tky.ieej.or.jp

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