IEEJ: June 2006

Japan Long-Term Energy Outlook
A Projection up to 2030 under Environmental Constraints and Changing Energy Markets
The Institute of Energy Economics, Japan

Summary:[Outline of the outlook]
Major assumptions:
In spite of the decreasing population and aging society, technological development andother factors will improve labor productivity. Therefore, even though the economic growthrate is expected to decelerate gradually, we assume stable growth with an annual average
growth rate of 1.5% for the period between 2004 and 2030. The industrial structure, with thematuring of society and economy, will become increasingly oriented toward services,information and higher added values. Regarding the oil price, we assume that the very highprice of today will be corrected in the period up to 2010, but will then gradually rise again to a
substantial price of $45 (nominal price of $75) per barrel in 2030. Nuclear power is expected
to be introduced consistently, becoming a major source of electricity (ten new reactors being
constructed by 2030). As for energy-saving, we assume that ongoing energy-saving programs
will be successful and that there will be changes along with the trend of times. Regarding newenergy, we attempt to predict their scale of implementation based on the general trend ofintroduction and the evaluation of their economic rationality, taking technology development
into account.
Adding to the reference case, we postulated the “technology development case” and thefollowing two cases for sensitivity analyses: the “high economic growth case” (assuming agrowth rate 0.5% higher) and the “high oil price case” (assuming a real oil price of $60
instead of $45 (nominal oil price of $100 instead of $75), both for 2030).
Final energy consumption:
The final energy consumption will decrease even as the economy grows at a stable rate.
The figure in 2030 will be 4% less than in 2004 (per annum decrease of 0.1%), suggestingthat the energy consumption peaked in 2000.
(If the economic growth rate rises by 0.5% annually, the energy consumption will show aslight increase.)
The electricity demand will continue to increase in future due to stronger emphasis on
amenity and convenience, accompanied by a shift to higher process-assembled manufacturing
in industries. The demand growth, however, will gradually decline. The demand for city gas isexpected to grow steadily, particularly in the industrial and commercial sectors, with growing
emphasis on environmental cleanliness and convenience. The demand for petroleum products
has been sustained in the past by the increasing demand for transport fuels in spite of the drop
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IEEJ: June 2006

in demand caused by the fuel switching in the industrial and electric power generation sectors.
In future, however, the demand is expected to fall continuously as the demand for transport
fuels will also start to fall, because the growth in transport demand will be inhibited by theshrinking population, shift in industrial structure, and improving fuel efficiency ofautomobiles.
The primary energy supply structure (less dependency on oil):The proportion of oil in the primary energy supply (i.e. oil dependency) is expected todecrease, but oil will still maintain a major share of 37% in 2030. Nuclear, which will greatly
help improve the energy self-sufficiency and reduce the emission of greenhouse gases, willcontinue to serve as a major source of electricity. In 2030, it is expected to produce 41% of
the total generated electricity and in terms of the primary energy supply, its share is expected
to grow from 11% (in 2004) to 20% (forecast for 2030). The share of natural gas is also
expected to increase from 14% to 18%, contributing to the less-carbon emitting structure of
the energy supply. Regarding new energy, there are high expectations for photovoltaic andwind power. Even though their contributions will roughly triple during the projected period,
the share of these new energy will remain at only about 2%. Even the technology
development case assumes the share as 5%. Thus, greater use of these new energy sources isexpected only after 2030.
CO2 emission
After reaching the current peak, the CO2 emission from fuel combustion is expected todecrease in line with the falling energy demand and expanding share of non-fossil fuel. The
level in 2030 will be 14% less than that in 2004. With the reference case, which only assumes
the set of present-day systematized technologies and the results from various programs
already in effect, the CO2 emission in 2010 is expected to be 8.5% greater than in 1990,exceeding the reduction goal for this year (0.6% increase from the 1990 level). To achieve thereduction goal, it is important that various additional measures, currently being prepared by
the Government, are implemented steadily.

[Implications]
Even though the demand for oil will decrease, oil will remain the dominant energy
source. Considering that currently 90% of the oil imported by Japan comes from theMiddle East, it is feared that Japan will remain highly dependent on the region. Whilecontinuing to hold rights over the outputs from the oil fields developed with the supportof Japan and to strengthen cooperative relationships with oil-producing countries of theMiddle East, Japan will need to work hard to diversify supply sources and to consider
unconventional oil resources (such as oil sands from Canada), ethanol and so on.
Coal enjoys a stable supply and is economical. Therefore, rather than rejecting the use ofcoal due to its high environmental impact, we should look for ways to use coal efficiently.
Particularly for Asian countries where energy demand is surging, it will be crucial to beable to use abundant coal resources efficiently in an environmentally sustainable manner.
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Japan, with its accumulated know-how, will play an important role in addressing thischallenge.
Among all types of fossil fuels, natural gas will see the largest growth in use. However,since the natural gas price has risen recently with the soaring oil price, a major challenge
will be achieving its economical use. We should develop strong bargaining power throughcoordination between the electric and gas sectors in Japan, as well as throughcoordination with other LNG importing countries, to achieve a lower LNG price andflexible supply structures.
In any case, Japan needs a wide range of options concerning the supply of fossil fuels.
This will not only increase Japan’s bargaining power but also contribute to stable supply.
Another important task is the energy security of the Asian region as a whole. Even thougheach Asian country should make its own efforts, the excessive pursuit of profit by a single
country may adversely affect the energy security of the Asian region as a whole. It will
become increasingly important for countries in the region sharing the same interests totackle the issue from the larger perspective of the Asian region as a whole.
Against the backdrop of the globalization of economy and the deregulation of energy
markets, there arises the issue of tradeoffs between stable supply and economicefficiency. The treatment of nuclear power in the context of deregulation is a particularly
important issue requiring discussions. Nuclear power has been playing a key role inJapan’s efforts to improve energy security and to make progress in environmental efforts,and its importance will surely grow. Clarifications will have to be made, with emphasis
on fairness, concerning how social costs such as environmental protection and stablesupply should be reflected on markets that are difficult to be evaluated on markets, andhow such costs should be shared by the Government, energy suppliers and public.
In view of the scale of environmental efforts required on a global level, Japan’s efforts
within its territory can have only a limited impact. Environmental strategies that address
the whole Asian region, where energy demand is expected to grow, will be far more
effective when looked at from a holistic point of view. Japan leads the world with its
state-of-the-art energy-saving and environmental technologies, and should continue tosupport the economy using its technological resources.
To achieve the Kyoto Protocol goals, Japan should combine maximum domestic efforts
with active implementation of international programs based on the Kyoto mechanisms
such as CDM and JI. Japan should also make early preparations and arrangements forlong-term efforts in view of the Second Commitment Period and subsequent periods.
Japan is expected to demonstrate leadership as an environmentally advanced nation.
Contact: report@tky.ieej.or.jp

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