A Proposal for Future Energy Policy
October 15, 2013
KEIDANREN
In January this year, Prime Minister Shinzo Abe announced instructions to conduct
a zero-based review of the previous administration’s Innovative Strategy for Energy andthe Environment and to establish a responsible energy policy from the perspective ofensuring both a stable energy supply and reduced energy costs. Based on these
instructions, the government has been formulating a new Basic Energy Plan, which is tobe completed by the end of the year.
Since the Great East Japan Earthquake, Japan has been faced with manydifficulties regarding its energy supply, which is fundamental to national livelihood andcorporate activities. Industry welcomes the developments recently observed in thegovernment and holds high expectations towards the forthcoming Basic Energy Plan.
Seeking to fully overcome deflation and pursue growth, the Cabinet adopted the“Japan Revitalization Strategy – Japan is Back –“ in June. The strategy aims to achieve
an nominal GDP growth of 3% and a real GDP growth of 2% on average in thefollowing decade, but this will only be possible if a stable energy supply can be ensured
at an economically efficient price so that corporate activities can be sustained and newinvestments can be made.
Keidanren has continuously called for the establishment of a well-balanced energy
policy that is premised on ensuring safety, based on the lessons learned in the nuclear
accident at Fukushima Daiichi Nuclear Plant1. In light of the new Basic Energy Plan tobe formulated, we would like to reiterate our proposals as follows:
1. Critical issues in the near-term(1) The fundamental resolution of the radiation-tainted water issue at Fukushima
Daiichi Nuclear Plant is essential to the reconstruction and revitalization of1

Further reference is provided in:“First Proposal on Energy Policy”(www.keidanren.or.jp/en/policy/2011/078outline.pdf);“Second Proposal on Energy Policy” (www.keidanren.or.jp/en/policy/2011/107.html);“KEIDANREN’s Views on the “Options for Energy and the Environment” (www.keidanren.or.jp/en/policy/2012/057.html);“A Demand for the Reconstruction of Energy Policy” (www.keidanren.or.jp/en/policy/2012/088.html)

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Fukushima Prefecture. We highly appreciate the government’s adoption of a basic
policy under which it will come to the fore and take the initiative in achieving afundamental solution for the radiation-tainted water leaking from the Fukushima
Daiichi Nuclear Power Station2. The government is required to firmly implement
the policy with particularly enhanced efforts in dispelling not only domestic but alsointernational concerns and in preventing the spread of harmful rumors through themonitoring of radioactive substances in the marine environment and the complete
disclosure of information. The government is also expected to assume a moreproactive role in the decontamination of surrounding areas which is vital to thereconstruction of Fukushima Prefecture.
Nuclear decommissioning measures are also an important agenda that must be
consistently addressed based on full public-private partnership and through continued
reviewing of the middle- to long-term roadmap3 which provides for the promotion ofresearch and development and enhanced dialog with the general public.
(2) The anxiety over the energy supply and the rising electricity prices associated with
the Great East Japan Earthquake and nuclear shutdown are yet far from being
resolved. Although we have managed to prevent major blackouts through thecommitted efforts of relevant parties, the unstable circumstances in which power
supply-demand forecasts need to be reviewed every summer and winter to verify
whether or not power-saving requirements should be announced have undermined
corporate willingness to make investments. Furthermore, the cost of replacing
suspended nuclear power stations with thermal power stations is estimated to reach
3.6 trillion yen for this fiscal year. The resulting increase in electricity prices andaggravatedtradebalancearehinderingtheenhancementofindustrial

competitiveness and economic growth.
Securing an inexpensive and stable energy supply is indispensible to steering theJapanese economy which is on a recovery path towards full-scale growth. A firm
timeline covering the next three to five years for securing a stable supply of electricity
2

Nuclear Emergency Response Headquarters “Basic Policy for the Contaminated Water Issue at theTEPCO's Fukushima Daiichi Nuclear Power Station” (September 3, 2013)（http://www.meti.go.jp/english/earthquake/nuclear/decommissioning/pdf/20130904_01a.pdf）
3Council for the Decommissioning of TEPCO’s Fukushima Daiichi Nuclear Power Plant, Nuclear
Accident Response Office “Announcement of the Revised Version of the Mid-and-Long-Term Roadmap
towards the Decommissioning of TEPCO's Fukushima Daiichi Nuclear Power Station Units 1-4” (June27, 2013) (http://www.meti.go.jp/english/press/2013/pdf/0627_01.pdf)

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at an economically efficient price should be promptly presented and implemented inorder to enable companies to formulate plans for production and investment4 without
undue anxiety.
Therefore, the process of restarting nuclear power plants must be accelerated to a
maximum extent, with safety as an indispensable prerequisite. In addition to efficient
safety inspections conducted by the Nuclear Regulation Authority (NRA) 5 , thegovernment and the NRA must offer thorough explanations to local governments inorder to gain their understanding.
(3) The tax against global warming6, being one of the factors raising energy prices,
should undergo fundamental review, including consideration of its abolishment. The
second tax hike scheduled in April 2014 should at least be suspended.
2. Basic concept for future energy policy(1) Japan has historically confronted the following energy-related issues:a) In addition to a low energy self-sufficiency rate 7 , Japan struggles withsignificant geopolitical risks, including its dependency on the Middle East for
approximately 80% of its crude oil. Furthermore, being an island country, Japanis faced with difficulties in mutually trading with neighboring countries.
b) As emerging economies strive to catch up and global competition intensifies,
equal footing of locational competitiveness in terms of both energy prices and4

In an urgent questionnaire survey conducted in April this year on electricity-related issues, themanufacturing industry responded that if an unpredictable outlook for electricity supply and demands
for power savings coincides with higher electricity prices, 81.7% would reduce or drastically reduce
production and 55.0% would reduce or drastically reduce domestic capacity investment.
(www.keidanren.or.jp/policy/2013/031.pdf; available only in Japanese)5“Keidanren “Our Opinion on the ‘Draft Rules on the Establishment of Relevant Rules Concerning thePartial Implementation of the Act for Establishment of the Nuclear Regulation Authority’(May 10,2013)（www.keidanren.or.jp/policy/2013/043.html; available only in Japanese）
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Under current circumstances, (i) as a result of changes due to the Great East Japan Earthquake, thegovernment tax revenue is larger than original estimates (under the initial budget for fiscal 2013, 102
billion yen (18.6%) of the total petroleum and coal tax revenue of 650 billion yen is estimated to be a
result of increased fossil fuel consumption); (ii) some of the tax revenue is retained in the generalbudget and is therefore not used for global warming countermeasures; (130.4 billion yen (20.0%) of theabovementioned 650 billion yen tax revenue is retained in the general budget); and (iii) part of the tax
revenue allocated to the Special Account for Energy Policy remains unused and carried forward to thenext year (under the fiscal 2013 budget, a surplus of 171.7 billion yen (24.5% of total for accounts for
supply and demand of energy) was generated in the Accounts for Supply and Demand of Energy under
the Special Account for Energy Policy);. Therefore, the need for a tax raise is questionable.
7
As a result of the Great East Japan Earthquake and the shutdown of nuclear power plants Japan’s
energy self-sufficiency rate dropped further from 19.5% (nuclear power 15.1%) (CY 2010) to 6.0%
(nuclear power 0.6%) (CY 2012 estimates).

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stable supply is imperative.
c) With a view to the COP21 meeting at which a new international framework for2020 and onwards will be determined, proactive efforts in combating global
warming are called for.
In addition to these issues, the accident at Fukushima Daiichi Nuclear Power Plant
has greatly shaken public confidence in the safety of nuclear power plants.
(2) Each energy source has advantages and disadvantages. Given the challenges facedby our country, it is important for Japan to maintain a diversity of energy choices inorder to achieve an energy mix that ensures an appropriate balance among energy
security (stable supply), economic efficiency, environmental suitability based on thepremises of ensured safety (“S+3E”).
Technological innovation from a middle- to long-term perspective is also essential.
By further enhancing Japan’s advanced environmental and energy technologies, we canbuild on the strengths and supplement the flaws of each energy source, thereby
improving their potential.
The new Basic Energy Plan will be required to establish a reinforced energy supply
structure and a highly efficient energy demand structure as well as to stipulate concrete
steps to promote technological innovation.
3. Reinforcement of the energy supply structure(1) Fossil fuels
In light of their relative advantages in terms of economic efficiency and stable
output, fossil fuels including coal should continue to be efficiently utilized, despite theirdrawbacks which include challenges in securing resources and CO2 emissions.
We welcome the government’s decision at the end of April this year to deal
flexibly with environmental assessment for coal-fired thermal power plants8 and expectthat assessments will be consistently conducted in accordance with this policy.
Japan relies on imports for most of its fossil energy resources; and therefore,public-private collaboration is essential in acquiring interests in natural resources andenhancing price negotiation power. We highly appreciate the developments in resource
8

Ministry of Economy, Trade and Industry and Ministry of the Environment “Summary of a meeting by
relevant directors on TEPCO’s bid for thermal power” (April 25, 2013)（www.meti.go.jp/press/2013/04/20130426003/20130426003-3.pdf; available only in Japanese）

4diplomacy which has been proactively taken forward by Prime Minister Abe and othergovernment leaders.
In the middle- and long-term, the exploitation and commercialization of marine
resources, including methane hydrate, lying in Japan’s coastal waters is anotherimportant agenda which needs to be addressed. Industry will pursue the development
and practical application of mining technologies and requests continued government
support.
Despite its cost-related shortcomings as fuel for power generation, oil continues tosupport national livelihood as a key energy source, especially for transport and heating
fuel uses and is expected to play an important role in the future optimal energy mix.
Further use of natural gas is desirable from the perspectives of stable supply andoutstanding environmental suitability. Deliberation on setting the environment for its
less costly and more stable use, including the harnessing of unconventional natural gas
resources whose production have recently been on the increase, is called for.
In order to reduce the environmental burden accompanied by the use of fossil fuels,
public-private partnership is also required in the research and development and practicalapplication of technologies to further the high efficiency and low-carbonization ofthermal power plants9.
(2) Nuclear power
Nuclear power is an extremely important energy source in terms of energy security
and economic efficiency for a country like Japan with limited natural resources.
Furthermore, using nuclear energy will not only contribute to the advancement ofdomestic global warming countermeasures but also to the resolution of global energy
and climate change issues10.
Therefore, the Basic Energy Plan should stipulate the basic concept that Japan willcontinue to use nuclear power as its base load power source on the premises of assured
safety. It is essential that the national government present a firm nuclear policy in light9

For detailed descriptions of individual technologies, refer to:
Keidanren “Outline of the Questionnaire Survey on Energy and Low-Carbon Technologies” (July 22,2013) (www.keidanren.or.jp/policy/2013/069_kekka.pdf; available only in Japanese) An English
summary can be obtained at www.keidanren.or.jp/en/policy/2013/069.html.
10 CO2 emissions are estimated to increase by 6.1 – 6.5 millions tons annually when a nuclear power
plant (1.2 million kW) is replaced by a thermal (coal-fired) power plant.

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of maintaining and enhancing the human resources and technologies that support
nuclear safety.
Drawing on the experiences of the Great East Japan Earthquake and the accident at
Fukushima Daiichi Nuclear Power Plant, the following efforts are indispensible:a) Enhancing and fully developing the nuclear safety system
In accordance with the Supplementary Provisions Article 6 Paragraph 4 of the Act
for Establishment of the Nuclear Regulation Authority, the Japan Nuclear Energy Safety
Organization (JNES) must be promptly integrated with the NRA in order to support its
measures to restore public confidence in nuclear regulation administration and thesafety inspections of nuclear power plants by NRA on a technical level.
Furthermore, the NRA should seek to further improve safety levels and public
reassurance through (i) enhanced dialog with local governments that host nuclear power
plants; and (ii) facilitated communication and knowledge-sharing with experts,
including electric power companies and manufacturers that have accumulated practicalexperiences in designing and operating nuclear power plants, on the premises of
independence and transparency.
Electric power companies and manufacturers should not confine themselves tomeeting the safety standards required by relevant regulations but should also very
importantly engage in untiring and autonomous efforts towards achieving further safety
improvements, including promoting the Japan Nuclear Safety Institute (JANSI)’s
activities.11b) Rebuilding the compensation system for nuclear damage
Based on torts of civil law framework, the current Act on Compensation for
Nuclear Damage holds companies, as private individuals, responsible for directlycompensating each victim for individual damages. However, as the accident at the
Fukushima Daiichi Nuclear Power Plant revealed, a system that leaves companies liable
for the damages incurred in a nuclear disaster, which involves multiple, wide-spread anddiversified damages, has limited capacity for prompt redress.
Although one of the legislative purposes is to “contribute to the sounddevelopment of the nuclear industry,” the law fails to guarantee companies the11

In November 2012, electric power companies and manufacturers established the Japan Nuclear Safety
Institute (JANSI) in order to provide assessment, proposals / recommendations and support nuclear
safety improvement measures and operation management at nuclear power facilities.

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predictability of business risks. While it imposes unlimited and strict liability uponcompanies, it does not clarify the extent to which the exceptional clause of Article 3,
which stipulates immunity “in the case where the damage is caused by a grave natural
disaster of an exceptional character,” can be applied.
Given the abovementioned issues which were brought to light in the recent
accident, from the perspectives of enhancing the protection of victims and promoting
the sound future development of the nuclear industry, the government should review thecompensation system, including clarifying the State’s role in nuclear accidents, on theearliest occasion possible, in accordance with the Supplementary Provisions to the
Nuclear Damage Compensation Facilitation Corporation Act 12 , and take necessary
measures, including the amendments of the law, based on the results of these reviews.
c) Establishing a nuclear fuel cycle
The establishment of a nuclear fuel cycle is essential to the efficient use of uranium
resources and the reduction of high-level radioactive waste.
From this perspective, we hold high expectations for the early operation of thenuclear reprocessing plant and MOX fuel fabrication plant located in the village ofRokkasho in Aomori Prefecture which are preparing for commercial operation, as wellas the interim storage facility for spent fuel which is under construction in Mutsu City,
Aomori Prefecture.
Further efforts should also be made in deciding on a high-level radioactive-waste(vitrified waste) site after reprocessing.
In addition, research and development for fast-breeder nuclear reactors should besteadily enhanced, based on the premise that a fundamental reform of the Japan Atomic
Energy Agency (JAEA) will be conducted based on the recently decided Basic
Direction for JAEA Reform.
The nuclear fuel cycle is a privilege granted only to Japan outside the nuclear
powers13. Japan must secure this right in order to contribute to the peaceful use of
nuclear power.
12

The Supplementary Provisions Article 6 provides that “As soon as possible after the enforcement of
this Act, the government …shall take the necessary measures based on the results of these reviews,
including a fundamental re-examination of the amendment, etc. of the Act on Compensation.”
According to a collateral resolution to the draft law, “as soon as possible” means “within approximately
one year.”
13 Japan is granted the privilege under the Japan-US Nuclear Cooperation Agreement. The current
agreement which entered into force in 1988 will expire after 30 years in July 20187

(3) Renewable energy
Renewable energy is important for its high potential in terms of energy security fora country as Japan with very limited natural resources, and global warming
countermeasures. However, at present, we have yet to find solutions to its challenges,
such as low efficiency, instability and high costs14; and industry is determined to focus
on its further research and development, demonstration and practical application. We
look to the government for support from a middle- and long-term viewpoint such asenhancing research and development tax incentives.
Important innovative technology advances that require special focus include thesophistication of high-precision exploration technologies for geothermal reservoirs, theemployment of nanostructure solar cells to achieve higher efficiency in photovoltaic
power generation, the development of production, transportation and storage
technologies for hydrogen as an energy carrier for solar and wind power, thetechnological development and practical application of wave and tidal power generation,and the achievement of higher performance in storage batteries15.
Deregulation measures for agricultural land and the simplification ofenvironmental assessment procedures are also called for.
The current feed-in-tariff program embraces many shortcomings, such as forecastsof drastic increases in future public burden as well as its risks of hindering the wider
introduction of relatively low cost renewable energy and inhibiting innovation16. The

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In addition to power generation costs, grid stabilization costs and backup power costs will be required.
For detailed descriptions of individual technologies refer to:
Keidanren “Outline of the Questionnaire Survey on Energy and Low-Carbon Technologies” (July 22,2013) (www.keidanren.or.jp/policy/2013/069_kekka.pdf; available only in Japanese). An English
summary can be obtained at www.keidanren.or.jp/en/policy/2013/069.html.
16 For example, i) the fixed purchase price under the program is much higher than that of other countries;ii) solar power, which is purchased for a particularly high price, represents a major portion of generation
facilities certificated under the program (solar power (non-residential) and solar power (residential)
covers 87% and 7%, respectively, of all the facilities certificated as of the end of May 2013).
Furthermore, because the given purchase price at the time of certification of generation facilities isapplied under the Japanese program, unlike in other countries, the construction of facilities is sometimes
intentionally delayed in order to await a decline in solar panel prices. In such cases, not only will
electricity be purchased at a price that is substantially profitable compared to actual generation costs,
aspiring companies that desire to operate early may consequently fail to gain grid connection rights andtherefore be exclude from the system. Furthermore, under a FIT program, a certain profit derived fromexiting technologies will be guaranteed over a long period and cost reduction efforts will lead to lower
purchased prices in the future, therefore leaving little incentive to improve business efficiency andtechnological innovation.
15

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government should promptly correct the current program. It, also, should conduct a
fundamental review of the feed-in-tariff program as it renews the Basic Energy Plan,
including whether it is a truly appropriate and sustainable program from the perspectiveof the efficient deployment of renewable energy, based on Article 10 Paragraph 1 and 2of the Supplementary Provisions of the Act on Special Measures Concerning
Procurement of Renewable Electric Energy by Operators of Electric Utilities.
(4) Electricity system reforms
A stable and economically efficient supply of high-quality electricity is
indispensible for national livelihood and corporate activities. From this perspective, it isimportant for Japan to make an effort to boost the efficiency of its electricity system bydeveloping a competitive market environment and creating a new market in theelectricity field.
Many countries have been struggling in pursuit of the ideal electricity system.
Given the constant shortage of the electricity supply after the Great East Japan
Earthquake, Japan must be especially careful not to expose the various risk factors17
that have been identified regarding the direction of future system reforms. In order tofulfill the major aim of energy policy to secure a stable and economically efficient
supply of high-quality electricity, Japan is required to carefully deliberate on its reforms,
drawing on the experiences of other countries. Detailed analysis should be conducted on
the impacts that electricity system reforms such as unbundling power generation andtransmission will have on the efficiency of the electricity system and electricity rates.
17

For example, the following issues have been suggested regarding the unbundling of power generationand transmission:a) Since decisions on investments in power sources (power plant construction) are made by electric
power companies based on their economic viability, investments may no longer be secured for powersources such as nuclear power which require costly long-term investments or for power plants which
promise only a low operation rate such as peak load power plants and backup power plants forrenewable energy.
b) The legal unbundling of power generation, power transmission and distribution and retail may
complicate mutual cooperation among individual sectors, therefore undermining grid stability. In theevent of emergencies, including natural disasters, in particular, the stable supply of electricity andstable procurement of electricity from the market may be put at stake.
c) The unbundling of power generation and transmission has not resulted in the reduction of electricity
prices in other countries but has rather induced higher prices in many countries.
d) Given the excessively reduced creditability of electric power companies and confusion in thefinancial market, electric power generation companies may encounter difficulties in procuring funds.
e) Energy security (securing diverse energy sources) and environmental suitability, which have beenpromoted under national policy, may no longer be secured.

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The results of such studies should be communicated to the public and industry in acomprehensible manner.
4. Enhancing the efficiency of energy demand structure
It is important to enhance the efficiency of the energy demand structure such as
promoting energy conservation, as well as reinforcing the energy supply structure.
Industry is also determined to make maximum efforts to develop and disseminate
energy-saving technologies18.
The government should promote policies to encourage corporate efforts instead of
imposing regulations and burdens which will undermine corporate vitality – forexample, investment tax reductions to advance the dissemination of energy-saving
equipment and facilities, enhanced research and development tax program and support
for empirical research. The establishment of appropriate technology-based energy
conservation standards and the development of a national campaign for the promotionof power saving and replacing old appliances with energy-saving models are also calledfor.
A detailed forecast of future energy demand is required in formulating the new
Basic Energy Plan. This should involve securing consistency with the national growthstrategy and careful verification of the feasibility of energy conservation efforts,
including those which will impose public burden19. Furthermore, the detailed disclosureof information which will leave room for third-party verification is indispensible.
5. Development of innovative technologies and domestic and overseas
diffusion of best available technologies
From a middle- to long-term perspective, uninterrupted efforts to develop
innovative technologies are indispensable in resolving the three critical issues shared by
Japan and the world, namely, energy security (stable supply), economic growth and18

For detailed descriptions of individual technologies refer to:
Keidanren “Outline of the Questionnaire Survey on Energy and Low-Carbon Technologies” (July 22,2013) (www.keidanren.or.jp/policy/2013/069_kekka.pdf; available only in Japanese). An English
summary can be obtained at www.keidanren.or.jp/en/policy/2013/069.html.
19
Verification on feasibility should also involve taking into consideration that an economic environmentthat promises to maintain or expand domestic projects is a premises for companies to make large
energy-saving investments and the labor costs and opportunity costs required in implementing measures
but have not conventionally been included in energy-saving costs.

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reduction of greenhouse gas emissions.
Industry is determined to contribute to the development of innovative technologies
built on the world-leading technologies that Japan has developed and introduced to theworld. The domestic and overseas diffusion of Japanese best available technologies will
not only help resolve challenges at the global level but will also benefit Japan’s growth.
The government is required to formulate and share with the private sector aconcrete roadmap based on the Innovation Plan for Environmental Energy Technology
and to promote innovative technology development in focal areas along with humanresources development through concentrated public and private resources.
Furthermore, the bilateral offset mechanism is an effective means to contribute to
the world20 by harnessing Japanese technology. Therefore, we expect the government tocontinue its efforts in promoting the mechanism through close opinion exchange withindustry. 21

20Technologies in the energy field include: thermal power plant operation and management technologies,
production of biodiesel fuel, cogeneration equipment, combined use of diesel generators and solar
power, harnessing solar power and storage batteries to cell towers, and use of LNG technologies.
Details can be found in Keidanren “Outcome of Questionnaire Survey on the Bilateral Offset
Mechanism” (April 6, 2013) (www.keidanren.or.jp/policy/2013/036.pdf; available only in Japanese)
21
Keidanren “Proposal for Assertive Diplomatic Strategies to Tackle Climate Change” (July 16, 2013)(www.keidanren.or.jp/en/policy/2013/065.html)

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