IEEJ： April ©IEEJ 2024
Special Bulletin
A Japanese Perspective on the International Energy Landscape (684)

April 12, 2024

Reviewing Japan’s Energy Policy History (1): From High Growth to Oil Crises
Ken Koyama, PhD
Chief Economist, Senior Managing Director
The Institute of Energy Economics, Japan
When Japan’s energy policy is considered, the Strategic Energy Plan is positioned as themost important and basic policy with the highest level of significance today. Since the First Strategic
Energy Plan was formulated in 2003 based on the Basic Act on Energy Policy in 2002, it has been
repeatedly updated to respond to the international energy situation and domestic challenges from time
to time.As for the next or Seventh Strategic Energy Plan, the government is required to make policies
that respond to the new situation including the enhancement of energy security based on theinternational situation after the outbreak of the Ukraine crisis, the formulation of an ambitious
greenhouse gas emission reduction target for 2035 and a path to carbon neutrality in 2050, and themanagement of economic security amid the deepening division of the world.
The formulation and implementation of Japan's important energy policies, represented by
the Strategic Energy Plan, have always been in line with the demands of the times. In light of this, I
would like to launch a series of essays titled "Reviewing Japan's Energy Policy History" to provide a
useful perspective on future policy challenges based on historical perspectives. In the first essay, I
would like to examine energy policies for the period of between high growth and the oil crises.
After the post-war reconstruction period, Japan experienced rapid economic growththroughout the 1960s. Japan's real gross national product grew from 69.9 trillion yen (in 2015 prices)in 1960 to 182.9 trillion yen in 1970 with an average annual growth rate of 10.1% indicating doubledigit growth over the decade. To support the high growth of the Japanese economy, primary energy
consumption increased significantly with an average annual increase of 12.2% over the same period,a tremendous pace that exceeded economic growth. Behind this significant increase in energy
consumption were the rapid development of energy-intensive industries and industrialization.
The key point of energy policies during this period was how to provide a stable, low-costenergy supply to the ever-expanding Japanese economy. With mass production and consumption
becoming a prerequisite for the economy and society, there was demand at the time for the supply ofas large an amount of cheap energy as possible. As a result, Japan's energy supply and demand structurechanged dramatically. For postwar Japanese energy supply, the development of hydroelectric power
as a domestic energy source and the utilization of domestic coal was extremely important. Then,hydropower and coal played a central role in Japan's energy supply. In 1955, coal accounted for 47%
of Japan’s primary energy supply and hydropower for 27%. Coal and hydropower thus commanded
74% of Japan's primary energy supply. In order to continue to meet the enormous increase in energy
demand, Japan needed cheaper and more abundant energy sources. Among them was oil, particularly
from the Middle East.
Then, crude oil production continued to increase significantly in the Middle East, withefforts made to find sales channels in the international market for abundant, inexpensive oil. The1IEEJ： April ©IEEJ 2024
combination of Japan's demand for cheap, abundant energy supply and the expansion of crude oil
supply in the Middle East led to a sharp increase in oil consumption in Japan. Oil accounted for lessthan 10% of Japan’s primary energy supply at the beginning of the 1950s, but overtook coal to become
the largest energy source at the beginning of the 1960s due to an astonishing increase in consumption.
In the first half of the 1970s, oil’s share of Japan’s primary energy supply topped 70%. The averageannual growth rate of oil consumption between 1960 and 1970 reached as high as 19.7%.
In Japan, the rapid shift from coal to oil, a liquid fuel, as the main source of energy supply
is sometimes referred to as the fluid energy revolution. This may be interpreted as an example of theenergy transition in which Japan's energy supply and demand structure changed dramatically in some
20 years up to the first half of the 1970s. It should be noted here that this energy transition indicatesthat an economic demand for cheap, abundant energy sources naturally brought about therevolutionary change. From a policy perspective, it was extremely important to promote the expansionof domestic supply facilities and infrastructure to meet this rapid, significant increase in energy
demand.
However, the rapid growth of energy demand and the fluid energy revolution supported byhigh economic growth came to an end due to the oil crises. As Japan was overly dependent on Middle
Eastern or Arab oil-producing countries for the supply of oil as the main artery that supported theJapanese economy and was important as a strategic commodity, it was directly hit by the Arab oil
embargo and the quadruple increase in crude oil prices during the first oil crisis. Japan was hit hardagain by the outbreak of revolution in Iran, then the largest source of crude oil for Japan, and thesuspension of crude oil production there and the subsequent further rise in crude oil prices during thesecond oil crisis.
The oil crises exposed the fragility of Japan's destined energy supply and demand structurefeaturing the remarkably low energy self-sufficiency rate and high dependence on the Middle East. In
1974, Japan recorded negative economic growth for the first time since the end of World War II andhad an extremely strong sense of crisis that its high economic growth would end or even that theJapanese economy would sink. This sense of crisis shared throughout Japan became a springboard,leading to the implementation of a strong, comprehensive energy security policy.
The word "comprehensive" means that an all-round national policy was implemented. Inorder to improve the energy self-sufficiency rate, it was important to develop and promote domesticenergy sources and curb energy consumption. For the energy consumption curb, thorough efforts weremade to enhance energy efficiency and conservation, leading Japan to become the world’s top runnerin energy efficiency and conservation. Such efforts contributed to the development of the automobile
industry through improvements in automobile fuel efficiency. For the development and promotion ofdomestic energy sources, Japan promoted the development of new energy sources and accelerated theuse of nuclear power. In particular, nuclear power became the main substitute for oil in the power
generation sector, making an important contribution to the diversification of energy sources as well as
the improvement of the energy self-sufficiency rate.
In order to diversify risks and ensure a stable energy supply, multifaceted efforts were made,including the diversification of energy sources and the reduction of dependence on the Middle East
through the promotion of non-oil energy sources such as nuclear power, liquefied natural gas, and coal.
Furthermore, priority was given to the diversification of import sources to reduce the dependence on
the Middle East for crude oil imports. Until the mid-1980s, the dependence on the Middle East in total
crude oil import decreased. As securing oil supply from other regions than the Middle East reached its2

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limit in terms of economic efficiency and other aspects later, however, the dependence on the Middle
East for crude oil imports rose again. The development of overseas energy resources by Japanesecompanies was promoted from the perspective of securing a stable supply, leading to Japanese firms’
development of overseas crude oil and natural gas resources. At the same time, multifaceted resource
diplomacy, including economic and technical support, was promoted to strengthen Japan’s relations
with resource-rich countries. In addition to these efforts, the development and enhancement of oilstockpile was promoted to strengthen Japan’s capabilities to respond to situations such as emergency
supply disruptions. On the international front, Japan deepened its cooperation with the International
Energy Agency to develop arrangements for international cooperation in responding to emergencies.
In the wake of the oil crises, as explained above, Japan positioned the enhancement of energy
security as a top energy policy priority and implemented comprehensive initiatives. It can be seen thatstrong policies to promote the energy transition achieved some substantial effects. Behind theachievement might have been a national consensus on the importance of enhancing energy security,
backed by a strong sense of crisis. It can be said that the common national awareness that this importantnational challenge must be tackled at all costs, even at the expense of huge investment, supported theenergy transition after the oil crises.

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