IEEJ： May ©IEEJ 2024
Special Bulletin
A Japanese Perspective on the International Energy Landscape (686)

April 25, 2024

Reviewing Japan’s Energy Policy History (3): Energy Policy Overhaul
Ken Koyama, PhD
Chief Economist, Senior Managing Director
The Institute of Energy Economics, Japan
In this third essay in the "Reviewing Japan’s Energy Policy History " series, I would like totake up energy policy initiatives seen since the beginning of the 2000s. While discussing theimportance of the Strategic Energy Plan formulated under the Basic Act on Energy Policy, I wouldlike to focus on the overhaul of energy policy under the enormous impact of the Great East Japan
Earthquake and the Fukushima nuclear power station accident that occurred in 2011.
In the first two essays of this series, I argued that energy security policy was positioned as
the most important basic issue for Japan based on the experiences with the oil crises and that energy
market liberalization and responses to global environmental problems emerged as new important
issues in the 1980s. In the 1990s, when crude oil prices in the international energy market remained
low and the view that energy prices would not rise in the future became widespread as a paradigm,interest in energy security declined relatively.
In the 2000s, however, the international energy situation changed significantly. The averageannual price of the benchmark West Texas Intermediate crude oil rose from less than $14 per barrel in1998 to more than $19/bbl in 1999 and topped $30/bbl in 2000. Later, the price gradually rose while
repeating fluctuations, reaching $41/bbl in 2004, $56/bbl in 2005, $66/bbl in 2006, and $72/bbl in2007, before surpassing $100/bbl in 2008. There was a complex interplay of various factors behindthese price hikes, including the spreading market view that the global energy demand would continue
to increase significantly due to China’s explosive energy consumption. In addition, there was a viewthat an oil supply peak would come due to the limits of oil resources. Under these circumstances, thevalue of resources rose significantly, enhancing the positions of resource-rich, oil-producing, andenergy-exporting countries and intensifying resource nationalism. Then, there was a growing
recognition that structural factors to tighten the supply-demand balance in the international energy
market had become apparent.
Against this backdrop, Japan gave priority to energy security again. In 2002, the Basic Act
on Energy Policy was enacted, setting out the basic policy of “utilizing market principles” while giving
due consideration to “securing a stable energy supply” and “environmental protection.” The threepolicy objectives were interpreted as energy security, environment, and economic efficiency and called
the 3Es. Energy security, which had originally been the most important objective and became
important again under the new situation since the beginning of the 2000s, was positioned ahead of theenvironment and economic efficiency, which had become important in the 1980s. An energy policythat pursues the three objectives simultaneously became Japan's basic policy.
The Basic Act on Energy Policy called for formulating the Strategic Energy Plan as Japan’slong-term energy vision every three years. The first Strategic Energy Plan was formulated in 2003,
followed by the second plan in 2007 and the third plan in 2010. Taking into account the domestic and1

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overseas energy situation, Japan thus implemented the strategic energy plan to pursue the 3Essimultaneously.
In 2006, the New National Energy Strategy was formulated as a policy to specificallyaddress the issue of energy security, which emerged as an important global issue again in the 2000s.
The strategy called for energy conservation and energy efficiency, the transportation sector’s reductionof dependence on oil, and the promotion of nuclear power and overseas resource development.
However, the Great East Japan Earthquake and the accident at Tokyo Electric Power
Company’s Fukushima Daiichi nuclear power station on March 11, 2011, forced Japan's energy policy
to be revised from the ground up. Japan's energy security or stable energy supply was shaken to thecore by the unprecedented disaster and nuclear power station accident. CO2 emissions increased
dramatically due to heavier reliance on fossil-fueled power generation, which increased significantly
to cover a decline in power supply due to the shutdown of nuclear power plants. A significant increasein energy costs and a huge outflow of national wealth came due to crude oil price hikes from 2011 to2014. Japan's 3Es suffered an unprecedented blow.
Under these circumstances, national discussions on the formulation of the Strategic Energy
Plan were extremely difficult. How to ensure the stable and affordable procurement of fossil fuels suchas oil, LNG, and coal became a serious issue that affects the Japanese economy. With nuclear power
plants shut down, hopes placed on solar and other renewable energy as a new non-fossil energy source
grew rapidly. How to substantially spread renewable energy in an economically rational mannerbecame an urgent issue. Furthermore, Japan was forced to accelerate energy conservation andefficiency even after becoming a global top runner in energy efficiency thanks to its efforts since theoil crises.
While overhauling energy policy from the ground up, Japan chose to promote theliberalization and deregulation of the energy market again. In particular, the government strongly
implemented an electricity and gas system reform including the full liberalization of the electricity
and gas retail market and the legal unbundling of the power transmission and distribution sector fromthe power generation and retail sector. The introduction of competition and the promotion of market
principles changed Japan's electricity and gas market structurally and significantly, leading market
players to adapt their behaviors and strategies to the new market structure.
However, the most difficult energy policy issue was how to position nuclear energy. Thiswas because nuclear energy, which had been supposed to significantly spread to achieve the 3Es
simultaneously under the then Strategic Energy Plan, faced strong safety concerns and a significant
decline in social acceptance due to the unprecedented Fukushima accident. Undoubtedly, national
discussions on how to position nuclear energy for Japan's 3Es while facing this "reality" were the mostpolitically and socially difficult and sensitive for the formulation of a new Strategic Energy Plan.
After long, difficult discussions, the Fourth Strategic Energy Plan was approved by thecabinet in April 2014. The important point of the new Strategic Energy Plan was that it clarified a newbasic policy of pursuing the 3Es simultaneously based on the basic premise of "safety" in line withsincere remorse regarding the Fukushima accident. This means that Japan’s energy policy sloganchanged from the "3Es" to the "S+3Es." However, the decision on the future target energy mix for thenew Strategic Energy plan was postponed. While opinions on the energy mix clashed with each otherin a complex way, the government took more than a year to formulate the target energy mix for 2030.
The new target energy mix presented in July 2015 featured a 22-24% share for renewable energy and2

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a 20-22% share for nuclear, seeking to raise Japan’s energy self-sufficiency rate from 6% to 25%, cutelectricity costs, and achieve a greenhouse gas emission cut of 26% from 2013 to achieve the 3Es. TheGHG emission reduction target was regarded as comparable to European and U.S. levels. This energy
mix became the backbone of energy policy before the 2020s.

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