IEEJ: January 2013 All Right Reserved
Special Bulletin
A Japanese Perspective on the International Energy Landscape (116)January 7, 2013

Japan’s Energy Policy Challenges for 2013
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanThe Liberal Democratic Party's overwhelming victory in the House of Representatives
election in late 2012 led its president, Shinzo Abe, to form a new Japanese government. Under thenew government, progress is expected to come in addressing and solving mounting challenges athome and abroad. As if celebrating the inauguration of the new government, the Nikkei stock
average has soared remarkably. On the first trading day of 2013, the average closed at 10,688,
exceeding the level just before the March 2011 Great East Japan Earthquake. Expectations havegrown on full-fledged economic recovery and the end of deflation. But the stock market is now
supported primarily by "expectations." Real efforts for economic recovery will have to be made fromnow on. In the same way, the new government is launching full-fledged efforts to address energy
policy and other key challenges from the beginning of this year. In this regard, I would like to pay
attention to the following energy policy challenges for Japan in 2013.
First, there is the problem of whether or how to restart nuclear power plants that have beenmostly offline due to safety concerns. The new government gives top priority to economic measuresand recovery and cannot ignore the problems of wealth outflow and rising energy costs that haveemerged from the expansion of fossil fuels for electricity generation to cover the loss of nuclear
power generation. How to address the nuclear plant restart problem on the basic premise ofthoroughly enhanced safety may be one of the most important challenges for the new government.
The Nuclear Regulation Authority is expected to establish new safety standards for nuclear plants by
next summer and build on the standards to indicate whether each plant should be restarted. Later, thegovernment will play a very important role in leading nuclear plant locations and their surrounding
communities to accept the restart of plants. The alleged presence of active earthquake faults below
some nuclear plant sites has led the nuclear plant restart problem to attract attention anew. I would
like to closely watch how the government will simultaneously address the so-called three Es (energy
security, environmental protection and economic efficiency) plus safety and the macro economy.
Second, the government must work out a policy on the “best energy mix”. Discussions on
the best energy mix continued from the second half of 2011 through late 2012 while failing to
produce any final conclusion, being taken over by the new government. The LDP’s manifesto for theelection stated that the party would seek to establish the best mix within 10 years while refraining
from delaying decisions. The government should recognize the absence of all-purpose or quick1

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remedies regarding the best energy mix and diversify energy sources while overcoming problems foreach energy option.
The third challenge is the electricity (market) system reform. The previous government
considered the challenge and came up with a basic policy guideline of pursuing a comprehensive
reform in July 2012. But it didn’t have sufficient time for detailed discussions on the basic policy
guideline, which have also been taken over by the new government. It may be needless to say that itis important for Japan to promote an appropriate market system reform to pursue greater stabilityand efficiency of electricity supply as the premise for Japan’s stable energy supply and economicactivity. The new government must acknowledge this point and consider the reform coolly based on
the present electricity supply/demand situation. In this respect, the government should fully consider
specific countries experiencing advanced system reforms, and their pros and cons. Britain, which isknown for it’s one of the most advanced deregulation and liberalization of the electricity market, isnow trying to work out some specific institutional measures to secure appropriate buffer/surplus
supply capacity and introduce renewable and nuclear energy. In this sense, Britain may beconsidered a case that is interesting and useful for Japan’s consideration of the electricity system
reform as well as the abovementioned best energy mix.
Fourth, the government must enhance efforts to secure stable procurement of fossil energy.
All fossil energy sources from oil, coal and natural gas (LNG) will remain important for Japan overthe short, medium and long term. The new government should enhance the strategy for stableprocurement of fossil energy sources in consideration of the new global situation including the U.S.
shale revolution. Particularly, the government will have to promote talks with and approaches to theUnited States on Japan’s stable procurement of liquefied natural gas at competitive prices that isattracting attention. The government will also have to step up energy diplomacy with oil producing
Middle Eastern countries, Russia and other resource-rich countries and pursue cooperation amongAsian energy consuming countries. Growing geopolitical tensions have become a difficult problem
involving Asian cooperation. In this sense, the new government’s diplomatic steering will be put tothe test.
The fifth challenge involves renewable energy and energy conservation policies. As
specified in the LDP’s manifesto, the new LDP-led government will enhance the promotion ofrenewable energy and energy conservation in 2013. Through such process, the government will try
to find how far Japan could expand renewable energy use in its energy portfolio and deepen energy
conservation efforts and what costs or burdens could be required to these ends. This point may also
be closely linked to the abovementioned issue of the best energy mix. As for the renewable energy
policy, the government may be required to analyze advanced renewable energy promotion cases in
Europe, the United States and China, to learn lessons from the advantages and disadvantages in thesecases and to reflect these lessons in Japan’s policy. Meanwhile, Japan is known globally as being a“Top Runner” of energy conservation. In this respect, it may be important for the government to use
Japan’s energy conservation technology as an effective tool for its external energy strategy in dealing
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IEEJ: January 2013 All Right Reservedwith resource-rich countries and Asian energy-consuming nations.
The sixth challenge involves the relationship of energy measures with economic,infrastructure development and national land resilience strengthening measures. As noted above,
economic stimulation, recovery and sustainable growth are the top priority for the new government.
It has also been recognized that Japan should make economic and other infrastructure stronger andmore resilient based on its earthquake disaster experiences. In this respect, how to develop energy
infrastructure and related energy supply chains may become a major challenge in 2013.
Including global warming measures and policy targets under the new energy-economic
situation in Japan, there are a large number of energy challenges for the new government. I hope thatthe new government will successfully surmount the first step to address energy challenges toward
the revitalization and sustainable development of the Japanese economy.

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