Hitotsubashi University
Institute of Innovation Research

A Pitfall of Environmental Policy: An analysis of
Eco-point Program in Japan and its application
to the renewable energy policy

Yaichi Aoshima
Hiroshi Shimizu
IIR Working Paper WP#12-12

May 2012

Institute of Innovation Research
Hitotsubashi University
Tokyo, Japan
http://www.iir.hit-u.ac.jp

A Pitfall of Environmental Policy: An analysis of “Eco-point Program” in Japanand its application to the renewable energy policy

Yaichi Aoshima*
Institute of Innovation Research, Hitotsubashi University
2-1 Naka Kunitachi Tokyo 186-8603, Japan
Fax:81-42-580-8411
Tel:81-42-580-8424
Email: aoshima@iir.hit-u.ac.jp
Yaichi Aoshima is Professor of Institute of Innovation Research at Hitotsubashi University. His researchinterests include the management issues related to innovation and new product development. He holds
Ph.D. in Management from MIT Sloan School.

Hiroshi Shimizu**
Institute of Innovation Research, Hitotsubashi University
2-1 Naka Kunitachi Tokyo 186-8603, Japan
Fax:81-42-580-8411
Tel:81-42-580-8433
Email: shimizu@iir.hit-u.ac.jp
Hiroshi Shimizu is Associate Professor of Institute of Innovation Research at Hitotsubashi University. He
got Ph.D (Economic History) from London School of Economics and Political Sciences in 2007. His
areas of expertise are History of Innovation, Innovation Management, and Historical Comparative
Institutional Analysis.

1

Abstract

By analyzing the policy making process and the policy effects of “the Program to
Promote the Spread of Green Home Appliances (Eco-point Program)” implemented inJapan during May 2009 to March 2011, and examining the current Japanese renewableenergy policy (especially Feed-in Tariff), this paper aims to illustrate pitfalls that agreen policy is likely to fall in.
Eco-point Program was promoted by Ministry of Environment to reduce GHG,
Ministry of Economic, Trade and Industry (METI) to stimulate economic activities, andMinistry of Internal Affairs and Communications (MIC) to disseminate digital terrestrial
broadcasting. This was a kind of policy that aimed at “killing three birds with one
stone.” 690 billion yen was spent for these objectives, out of which more than 80% wasdevoted to promote purchases of flat-panel TVs.
Our analysis indicates that environmental effects of Eco-point Program wereconsiderably smaller than expected. Eco-point Program also seemed to induce many
imported TVs, which might cause sharp declines of Japanese electronics companies.
Japan is currently confronted with three serious issues: “GHG reduction,” “stableenergy supply,” and “economic development,” which tend to be mutually contradicted.
One “seemingly” simple way to solve these problems simultaneously is to promote new
green industries associated with renewable energies or energy saving technologies.
However, as our analysis on Eco-point Program suggests, mere expansion of green
markets through government spending does not guarantee long-term economic growthof the country. When technology is widely available due to standardization andcommoditization, expansion of domestic markets may just deteriorate long-termcompetitiveness of domestic firms and industries.
An environmental policy often encompasses different issues such as an energy
policy and an economic policy; the same policy is possibly implemented with different
objectives. Our analysis illustrates that such a structure, though it is often inevitable,
may have a risk of that nothing is solved. Especially the words of “eco” and “energy”
may sometimes be too powerful to deliberately consider long-term economic effects.

2

1. Introduction

1.1 Complex problems faced by Japan

Former Democratic Party of Japan Prime Minister Hatoyama’s declaration at the2009 United Nations Climate Change Conference of Japan’s intention to reducegreenhouse gases (GHG) by 25% by 2020 compared with 1990 is still a fresh memory.
The speech was received with thunderous applause in the hall. Domestically, however,
his remarks were also subjected to various criticisms as naive words that disregarded theadverse effects on Japan’s economy. Most of these opinions noted that unless Japanenvisages purchasing a significant number of emissions rights when emissions are
actually slashed by 25% by 2020 compared with 1990, there is no specific scenario laidout to realize this goal. It was provisionally calculated that just to reach the target of an
8% reduction compared with 1990 set out under former Liberal-Democratic Party Prime
Minister Aso, Japan would have to construct nine new nuclear plants and boost plant
operating rates from the 60% level up to 81%. Even when combined with measures toincrease solar power generation by a factor of 20, encourage the adoption of
next-generation automobiles and various other energy-saving initiatives, it was still
uncertain whether Japan could ultimately achieve this goal (Kaneko, 2010). So whenthe 25% reduction goal was laid out suddenly, it wasn’t unreasonable for the proposal tobe met with critical opinions.
To make matters worse, the Great East Japan Earthquake in March 2011 resulted in3the accident at the Fukushima Nuclear Power Station, and a situation now exists where
even the continued use of existing facilities, let alone the construction of new nuclear
plants, is being questioned. In 2009 the government was planning to raise the percent of
the power supply by nuclear power from 30% to nearly 50% by 20301. Althoughportions of Japan’s nuclear energy policy remain in flux, with voices advocating a breakaway from dependence on nuclear power plants, it seems impossible to think Japan canproceed with an energy policy that relies on nuclear power in the future as assumed inconventional planning.
Along with being a major energy policy shift, the movement to break with nuclear
power generation points to an even more serious issue for environmental policy. Japan
probably can cover the immediate electricity shortage resulting from the shutdown ofnuclear power plants by restarting thermal power plants2. It is also clear to anyone wholooks, however, that if Japan continues to generate CO2 at the current level it will not beable to maintain even the status quo, let alone achieve a reduction of 25% comparedwith 1990.
The problems do not stop with the environment and energy. There is a possibility
that global warming measures and energy countermeasures both might become shackles
on the growth of Japan’s economy. Although there are various arguments concerning thepower generation cost of nuclear power, most opinions concur that as long as thecurrent price of oil continues, the cost to generate electricity using oil-fired thermal
power plants will be greater than the cost to generate electricity using nuclear power.
According to a comparison of power generation costs from fiscal 2006 through fiscal

4year 2010 prepared by The Institute of Energy Economics, Japan, the cost per kWh fornuclear power generation is estimated at 7.2 yen, while the cost for thermal power
generation is 10.2 yen (The Institute of Energy Economics, Japan, 2011)3. In fact, a trial
calculation indicated that Japan’s nine electric power companies incurred a total
additional fuel expense of 1.7 trillion yen in fiscal 2011 alone4. If Japan continues tosupplement the shortfall in nuclear power generation with oil-fired thermal power, thefurther rise in Japan’s cost of electricity, which is already high compared with othernations, will have a negative effect on Japan’s industrial infrastructure5.
Nor can the effect of global warming countermeasures on industry be ignored. Not
only will the reduction of greenhouse gases put a damper on domestic business
operations, if Japan is unable to reach its objective the result will be an outflow of
wealth to other countries in the form of emissions rights purchases. With Japan’s
economic recovery being delayed because of the earthquake and the prolonged
appreciation of the yen, many firms might have no choice but to relocate their base ofoperations from Japan if, to add insult to injury, the industrial sector is compelled toadopt energy and environmental countermeasures.
As this highlights, Japan currently is confronted with many mutual contradictions
and three serious issues, in terms of its “energy problem (stable energy supply),”“environmental problem (reduction of greenhouse gases)” and “industrial problem(long-term economic development)” (See Figure 1). The situation is like a complex
simultaneous equation that at first glance appears to have no solution.

5

Figure 1: Three intertwined problems

6

1.2

Naïve policies promoting green industries

There is one way for looking at this complex equation as if it might be solved
instantly. That is the promotion of new green industries that take advantage ofinnovations in energy conservation and new energy. The three problems of“environment,” “energy” and “economic development” would likely be solved if, forexample, it becomes possible to cover electric power supply using renewable energythat does not emit CO2 and extensive industry can be created on that base, or if new
groundbreaking energy-saving technologies stimulate industrial development. Therefore
the government is searching for various policies that will promote the growth of new
green industries.
One such policy in Japan was the Program to Promote the Spread of Green Home
Appliances (referred to below as Eco-Point Program), which we will later analyze indetail, implemented from April 2009 through March 2011. By this policy, thegovernment tried to solve the environmental problem and energy problem while also
simultaneously attempting to stimulate the growth of electronics-related industries anddomestic employment.
In addition, The Act on Special Measures concerning the Procurement ofRenewable Energy Sourced Electricity by Electric Utilities was enacted in August 2011,
and a feed-in tariff purchase system for the total volume of renewable energy will be
implemented in Japan as well. The spread of renewable energy, exemplified by solar
power, will be promoted rapidly as a result, and along with achieving a move away7

from nuclear power generation and a reduction in CO2, the recovery of Japan’s
economy based on the growth of new energy industries is anticipated. This is anotherpolicy of killing two birds with one stone.
Things are unlikely to work out so smoothly, however. The problem is this: even if
environmental problems and the energy supply issue are solved by using a hefty amountof tax revenues, will the expansion of green industry really spur growth of theeconomy? The worldwide new energy industry is projected to grow from a scale of 30
trillion yen in 2010 to 86 trillion yen in 20306. Certainly the industry will grow. If firms
are unable to internalize values created in that growing industry, however, economy will
not achieve the expected growth. The growth of a new energy industry does notguarantee development of economy.
The solutions to both the energy supply problem and environmental problem will
require capital. Scenarios in which the invested capital can be properly recovered mustbe outlined. For that, the nature of the technological progress that shapes the industry,
and the best approach to the accompanying corporate competition, will have to beunderstood.
The point we really must understand, however, is whether firms have the ability tocompete internationally in the newly-growing green industry, and whether they candrive the growth of the economy over the long haul. Any assessment of energy policy
and environmental policy can be greatly influenced by the answers to this question.
However, in the formulation of green policies, much of this will slip between thecracks. Why? To answer this question, below we first analyses a process of8

implementing Eco-point Program and its results, and then examines the recently-settled
Feed-in Tariff Scheme for Renewable Energy in Japan.

2. Results of Eco-point Program

Eco-Point Program was an economic and environmental policy enacted in the
supplementary budget for fiscal 2009. The program, which granted eco-points forpurchases of highly energy-efficient air conditioners, refrigerators and televisions that
consumers could accumulate and use for purchases of gift certificates, prepaid cards ordesignated goods, was a program intended to prevent global warming, revitalize theeconomy and popularize televisions capable of receiving terrestrial digital broadcasts.
The program was launched on May 15, 2009, and designated products purchased byMarch 31, 2010 were eligible for the point grants. The deadline for point grants was
extended while gradually improving the conditions, first to December 31, 2010 and thento March 31, 2011.
The budget appropriated for Eco-point Program was 690 billion yen; as of August
31, 2011, the number of eco-points issued totaled 639 billion yen, of which 521.7 billion
yen or roughly 82% had been issued for purchases energy-efficient televisions.
Substantively, the program could have been called a “program to promote purchases offlat-panel TVs.” Therefore we analyze the program below by turning our focus toflat-panel televisions.

9

2.1

Envisaged and realized energy-saving results
Although no primary resources remain concerning the extent to which theachievement of energy-saving results from Eco-point Program was initially envisagedby the Ministry of the Environment, according to Asahi Shimbun, a 50% reduction in
annual power consumption from 250kWh to 125kWh per television was projected7. As
shown in Figure 2, however, according to an estimate by the authors, annual power
consumption per television was actually reduced by only about 16%, from 130kWh to
109kWh8 (for the estimation method see Footnote 89). Such divergence between theplan and actual numbers is thought to have originated from the fact that 1995 models
were used as the standard before replacement purchases even though the average yearsof use for televisions is 10 years or less, and the fact replacement purchases wereaccompanied by rapid advances in the enlargement of television size. Thus if Eco-point
Program is considered only as an environmental countermeasure, it has not delivered
the envisaged result10.

10Figure 2: Projected and Realized Energy-saving Effects of Eco-point Program (kwh/year)

2.2 Realized economic results
As for economic results, the Ministry of Economy, Trade and Industry (METI)
released a report in June 2011, claiming that this program generated an economic effectof five trillion yen, an amount that was seven times the budget amount, and createdemployment for 320,000 people11.
Caution must be exercised, however, when interpreting the results of an analysis ofmacroeconomic effects utilizing inter-industry relations tables. The five trillion yen
economic effect is the increase in the amount of production on a nominal basis, which
totals the production inducement amount and counts the amount of intermediate goods
production more than once. With regard to employment as well, the result appears tohave been calculated by multiplying the employment coefficient computed for eachindustry segment by the volume of increased production, and there is a question of

11whether it is valid to apply the employment coefficient “as is” to the extremelycompetitive television business.
Moreover, even if there was a temporary increase in employment, this growth was
not necessarily continued after the program was completed. The typical privatecompany could forecast a falloff in demand once the program ended and would want tocontrol its increase in hiring as much as possible.
To confirm such conjectures, Figure 3 shows the sales and the number of
employees for the top seven Japanese electric appliance retailers, whose sales values
account for approximately 70% in electric appliance retail sales in the Japanese market.
During March 2009 to March 2011, the period covered by Eco-point Program, sales
grew by more than 600 million yen. The number of employees was however stable
during this period: only temporary employees were increased. Figure 4 illustrates thismore clearly. There seems no relationship between the sales and the number of
employees in the period covered by Eco-point Program. Retailers certainly enjoyedboosted sales thanks to Eco-point Program, but seemed to handle them only withtemporary employees hired.

12Figure 3: Sales and the number of employees in Japanese top seven electric applianceretailers

Source: annual reports

13Figure 4: Relationships between sales and the number of employees in Japanese top
seven electric appliance retailers

2010
2009

2011
2008

Source: annual reports

The long-term economic effects from Eco-point Program should be reflected on
the enhanced international competitiveness of firms related to the television industry.
Judging from this aspect, however, a question mark has to be attached to this program.
Figure 5 shows the percentage of imports in the total domestic shipments of flat-panel
TVs. Note, however, that the import ratio calculated has been estimated higher than theactual because the number of domestic shipments is an independent statistic fromJEITA, while the number of units imported is based on Ministry of Finance customs
statistics, which have broader scope of coverage.

14

Figure 5: The percentage of imports in the domestic TV shipments in Japan

Eco-Point

Source: JEITA and Ministry of Finance

As is evident from Figure 5, the import rate rose rapidly from the time theeco-points were introduced. Since globalization of the electronics industry has
progressed rapidly in recent years, we cannot attribute the jump in imports solely to theintroduction of the eco-points. The economic downturn caused by the Lehman Brothers
bankruptcy in 2008 and the subsequent progress of the appreciation of the yen inparticular both probably gave impetus to this trend. It is, however, not plausible that
Eco-Point has little effect on increased imports since increase in imports did progress
rapidly exactly during the eco-point eligibility period.
The import rate, which was about 30% prior to introduction of Eco-point Program,exceeded 100% immediately before eco-points were terminated. It appears the imports

15

were a response to expected urgent demand. While there are no statistics that showwhether these imports were from the overseas production plants of Japanese firms orwere supplied from overseas ODM firms, according to a survey by the author, Japanesefirms such as Toshiba and Sony relied on Taiwanese ODM firms for a considerable
percentage of products, particularly low-priced goods.
Such a condition can be easily envisaged if the advances in the technologies that
go into televisions and the structure of competition in the industry are examined. Fromthe consumer’s viewpoint, introduction of eco-points substantively means a reduction of
the purchase price. Even individuals who previously had put off making a replacement
purchase will head to their local shop, because TVs become cheaper to buy. Since such
shoppers are presumably sensitive to prices, the market competition will develop mainly
on price. Because it is impossible to prevail with domestically produced high-costgoods as price competition takes hold, firms come to rely on imports from overseas.
ODM firms that can inexpensively supply TVs that offer sufficient performance
abound in other countries. Many of the technologies that comprise a television are
general-purpose and standardized. In 2008, before eco-points were introduced, fablessoverseas semiconductor firms that supplied standard chipsets already accounted forabout 70% of the world’s semiconductor chipsets for TVs12. Even liquid crystal panels,a core device, can be procured easily from Taiwanese such as CMO and AUO. In
industries where the technology has been generalized and production globalized,
expansion of the domestic market is a blessing, but production won’t be kept at home
and is moved easily to other countries.

16

An additional negative point is that as a result of severe price competition, thetelevision business of Japanese firms was placed in a dire situation where it might bedifficult to maintain competitiveness13.
For fiscal year 2011, top three Japanese TV producers, Sony, Sharp, and Panasonic,
together incurred over 1.5 trillion loss after tax, as indicated in Table 1 below, most ofwhich came from their TV businesses. Panasonic announced that it would restructure its
television business by cutting 1,000 workers and soliciting early retirement requests in
its related semiconductor operations. Sony announced the operating loss in its TV
business for the fiscal year ending in March 2012 would amount to about 175 billion
yen14. Hitachi also planned to withdraw from domestic television production and shift
to outsourcing manufacturing to a foreign firm15.

Table 1: Sales and Net Profit after tax for major Japanese electronics makers(Fiscal year 2011, in billion yen)

17

These successive cutbacks in the television business can be attributed directly tothe march of Korean firms into the international market, supported by the benefits of thestrong yen and weak won, and Japanese firms probably would have found themselves indifficulty regardless of whether eco-points had been introduced or not. In that respect,
eco-points might even have helped in a small way to prolong the life of Japan’s TV
business. Just how much significance was there, however, in such an extension of thebusiness’s life? Companies expecting market expansion as a result of eco-points mightinvest in domestic plants. When the eco-points end, however, they will shutter the plants
and restructure. In an industry that can satisfy customer needs sufficiently withgeneral-purpose technology, growth of the domestic market will not enrich the economy
over the long-term.
It may be that the introduction of eco-points did have an effect from the standpointof a smooth shift to terrestrial digital broadcasting. One must question, however,whether the shift to terrestrial digital broadcasting would not have really progressed if
there had been no eco-point system. If it was just a shift, wouldn’t purchase subsidies
for terrestrial digital broadcasting tuners have been more effective?

3. Process of Eco-Point Program being designed and implemented, and pitfalls of
the environmental policy

Why was Eco-point Program implemented despite doubts about its overall results? If18

deliberately considering consumer behaviors, a state of TV technology, and acompetitive situation in the global market, a policy maker could have easily understoodthat the program would not have expected energy-saving and economic effects. Then
why?
Below we describe a process that Eco-point Program had been designed, and thenexplore an answer to this question, which will highlight the pitfall that environmental
policy tend to fall in.16

3.1

A process of implementing Eco-point Program
The Eco-Point Program originally had been envisaged as Ministry of theEnvironment sought to achieve the goals of the Kyoto Protocol.

In 2007 when the

Eco-point Program was envisaged, the Ministry of the Environment was conducting areview of the Kyoto Protocol Target Achievement Plan. Under the Kyoto Protocol,
countries were to be subject to penalties when their targeted reduction could not be
achieved. Although the total volume of Japan’s greenhouse gas (GHG) emissions infiscal 2006 had declined from the previous year, still further reductions were needed. In
fiscal 2007, there were concerns that Japan’s emissions volume would be greatly higher
than the reduction target, and that Japan would be compelled to purchase emissions
rights in order to accomplish its goal17.
Consequently the Ministry of the Environment shifted toward a policy to reducegreenhouse gas emissions by not only enlightening the public about environmental
issues but also by granting economic incentives for behavior (eco-action) that took the19environment into consideration. The ministry introduced an Eco-Action Points Program
to grant points that can be exchanged for various products, including the purchase anduse of environmentally-aware products and services, and in 2008 began offering support
for firms to implement corporate and local government eco-points as a model project.
The major characteristic of this Eco-Action Points Program is that it grants aneconomic incentive for environmentally-conscious behavior by consumers. The
objective of these economic incentives, however, was always the solution ofenvironmental problems, including a contribution to the achievement of environmental
goals such as a 25% reduction of greenhouse gases (GHG) compared with 1990, andmarket expansion or the development of firms’ competitiveness were not among thegoals18.
The Ministry of the Environment gradually began putting greater emphasis on the
reduction of CO2 emissions from households. With households, the problem is reducing
electricity consumption by home electrical appliances such as refrigerators and air
conditioners. This led to the concept of achieving a reduction in CO2 by promoting
replacement of home electrical appliances with products offering excellent power
consumption efficiency.
Ministry of the Environment began collaborating with the METI in order todisseminate energy-saving home appliances. On October 18, 2007, it established theEnergy-Efficient Household Appliance Promotion Forum in cooperation with the METI.
This forum was established with the objective of promoting energy-saving homeelectrical appliances as a national movement together with appliance manufacturers,

20

retail businesses, consumer organizations, industry groups and other entities. The
positions of chairman and vice-chairman of the Forum were filled by directors from
corporations such as Matsushita Electric Industrial Co., Ltd., Hitachi, Ltd., Mitsubishi
Electric Corporation and Sharp.
Although the Ministry of the Environment strengthened its ties with the METI in
this manner, the policy intent was always achievement of the targeted reductions under
the Kyoto Protocol. At the House of Councillors Research Committee on International
Affairs and Global Warming Issues on October 31, 2007, the director of the Ministry of
the Environment's Global Environment Bureau referred to his ministry’s efforts with the
METI to promote replacement purchases of energy-efficient products, and declared thisshould be able to achieve a 6% reduction under the Kyoto Protocol by giving eco-points
and CO2 greater visibility19. There was no reference any to economic policy aspects.
Since the global financial crisis in 2008, however, aspects of economic policy have
gradually been added to the environmental policy because the METI has begun taking
part in the commercialization of the Eco-point Program. The METI had long envisaged
tying Japan’s energy conservation technologies to industry competitiveness. Ties
between the METI and the Ministry of the Environment have been strengthened as they
have worked to closely link environmental problems to economic issues such as tradingof CO2 emissions rights.
Just as at the Ministry of the Environment, the Eco-point program was originallyconsidered by the METI as well to be aimed at cutting CO2 emissions volume20. The
economic policy aspects have appeared strongly in METI policies since 2008, however.

21

On April 1, 2009, for example, the head of the METI’s Commerce and Information
Policy Bureau told the House of Councillors Committee on Economy and Industry that
“Japan’s electric machinery and electronics industries possess extremely superior
environmental capabilities and technological skills, even when compared internationally.
Broadly spreading so-called green household electrical appliances – energy-saving
home electrical appliance models that make use of these environmental and technicalcapabilities – will contribute to overcoming global environmental concerns, andsimultaneously lead to strengthening the international competitiveness of the electricmachinery and electronics industries21”. In addition, on April 14, 2009 the director of
the METI Economic and Industrial Policy Bureau described the goal of the Eco-point
Program to the House of Councillors Committee on Economy and Industry by noting,“Although under this countermeasure we’ve established the eco-point system for green
high energy-saving home electrical appliance products and established a policy urging
purchase promotions in the consumer sector, we also expect this to function like twowheels of an automobile in that it’s a policy to expand the market by encouraging
buying intent if we talk about this from the consumer side, and it’s to stimulateenergy-saving investments on the producer side if we talk about the Resource
Productivity Innovation Plan and about plans to strengthen the management base”22.
One can now see that the goal of strengthening the competitiveness of Japan’s
electronics industry had now been incorporated into the Eco-point Program. On April 10,
2009, then-Prime Minister Aso announced “emergency economic measures”, which
included as one of the policy items “accelerating the spread of green home electrical22

appliances by means such as eco-points.” An aspect as industrial policy was clearly
added.
Moreover, in addition to its objectives as a CO2 reduction and economic measure,the Eco-point Program also came to be positioned in relationship to terrestrial digital
broadcasting in Japan. In April 2009, for example, the Vice Minister of the METI
described the Eco-points Program as an effort whose goals are addressing global
warming, revitalizing the economy and promoting the spread of terrestrial digital
broadcasting TVs23.
The spread of terrestrial digital broadcasting televisions was not included among
the original purposes of the Eco-point Program. The organ that appended this terrestrial
digital broadcasting objective to the policy goals was the Ministry of Internal Affairs
and Communications (MIC). The ministry had been formally studying the digitalizationof terrestrial broadcasting since 1997, and had decided to end terrestrial analog
television broadcasting by July 24, 2011. However, as of the spring of 2009 terrestrial
digital broadcasting television penetration was only about 40%, and more than 60
million TVs still needed to be replaced24. The MIC therefore planned to use theEco-point Program to facilitate the penetration of TVs capable of terrestrial digital
broadcasting reception. Consequently the standards for eco-point grants were revised,
and in addition to products offering energy-saving performance, products capable ofreceiving terrestrial digital broadcasting were included25.
By adding a policy target for diffusion of televisions for terrestrial digital
broadcasting, however, the importance of such TVs rose substantially. The household

23sector was noted, however, and the Ministry of the Environment’s policy objective of
CO2 reduction was not the only reason the focus of administration policy was placed on
televisions.
As a result, the goal became one of killing three birds – measures for controlling
global warming, economic revitalization measures and the program to promote thespread of terrestrial digital broadcasting – with one stone, through the Ministry of theEnvironment, the METI and the MIC26. Then, through the process of multiplying thejustifications for resource mobilization, the focus shifted little by little from the original
policy objective of each organization.

3.2 Strange bedfellows
The Eco-point Program can be understood to have been a program mutually
supported by the different respective objectives of the Ministry of the Environment, the
METI and the MIC. The result can be called a policy of “strange bedfellows.” Inevitably,
environmental and energy policies always have to be related to other policies including
economic policy. Thus the fact a policy is executed under the “strange bedfellows”
approach might be natural. Moving a policy forward by incorporating various reasons
using the “strange bedfellows” technique becomes especially necessary when a policy’s
effects are uncertain27. “Strange bedfellows” is also a double-edged sword, however.
Difficult policies can be achieved if the approach is used skillfully and with focused
intent. Depending on the circumstances, however, different policies become mutuallyinterdependent and, as a result, a situation could arise in which none of the outcomes24that should be achieved is realized.
Looking at the eco-points example, the program was realized as an environmental
policy by borrowing the rationales that it was an economic measure and it promoted thetransition to terrestrial digital broadcasting. The original purpose as a countermeasure to
global warming, however, has not been sufficiently achieved. On the other hand, eventhough the program was accomplished as an economic measure by borrowing therationale of a global warming countermeasure, it did not lead to the revitalization ofJapanese firms. So although it might be necessary to pursue policies using a structure inwhich the policies mutually in this manner rely on each other’s raison d’être, the danger
is conceived that the programs will run on autopilot without necessarily sufficiently
achieving their respective goals.

3.3 The magic words “environment” and “energy”
Another lesson to be learned from the eco-points example is the power of thewords “environment” and “energy.” Just as the ring of the word “eco-points” has left an
impression, the word “environment” exerts a strong pull on people. The words “newenergy” also have rapidly gained a strong appeal today, now that public awareness ofconserving electricity has been heightened as a result of Japan’s nuclear power plant
disaster. Very few people can come right out and repudiate policies to “solve
environmental problems” or “solve the energy problem.” Isn’t this the reason why the
introduction of eco-points also could be accomplished easily by slapping the prefix“eco” on it, even though the effect as economic policy was not necessarily clear? It

25

would be all the more difficult to oppose now, because it would revitalize the domestic
market and consumers at least would receive a substantial benefit28.
Global warming countermeasures and the promotion of new energy, however,entail a substantial cost. Lightly advancing such policies without outlining the scenarios
by which that cost can be recovered over the long-term might push the country’s
economy toward bankruptcy. The complex problems shown in Figure 1 can be solvedby the new industries created through global warming countermeasures and thedevelopment of new energy only after Japanese firms have achieved the virtuous cycleof creating added value, internalizing that value and creating further innovations. Aslong as this point is forgotten, the words “environment” and “energy” will retain theirstrong appeal.

3.4 The illusion that “market expansion leads to economic development”
One more reason Eco-point Program was implemented despite ineffective overall
performance seems to reside in a shared concept that the domestic market expansion
leads to nation’s economic development. But this becomes an illusion in an industry
where technological progress has slowed, technology has been generalized andcompetition is international in scope, expansion of the market in a specific country does
not necessarily bestow sufficient benefits on that country’s economy. Indeed it might
have the effect of providing customers to foreign companies, just as Eco-point Programinduced rushing imports of TV sets from East Asian countries. Still, because it isimportant for “the environment” and “energy,” the magic words appear again.

26

4．Examining an example of the Feed-in Tariff scheme for solar power in Japan

Lessons learned from the example of Eco-point Program are not particular to thisprogram. They can be applied more or less to any green policy. Since an environmental
policy is related to different issues such as energy and economic issues, different policy
objectives may often be attached to the same policy, which give rise to “strange
bedfellows” situation. The words of “eco” and “energy” are globally getting a strong
power to persuade various people. Since expansion of domestic markets creates at least
temporal jobs, subsidizing purchase of green products is welcome for most people.
However, without understanding the characteristics of the technology comprising
an industry, and the structure of the competition among firms that originates in thosecharacteristics, and then incorporating the long-term economic effects from
improvement of the international competitiveness into the scenario, the result could end
up being a stiff bill in the future. If everyone is dazzled merely by the early diffusion ofgreen products, the public will have to bear the costs incurred for spreading thetechnology for many years.
Below we examine the policy promoting renewable energy in Japan, especially
focusing the policy for solar power, and illustrate a possibility that the same trap as the
Eco-point Program fell in may take place.

4.1

The possibilities for solar power generation
Among all sources of renewable energy, solar power is the alternative currently

27expected to gain the most popularity as well as the technology given the most
preferential public sector support. In Japan, the Excess Electricity Purchasing Scheme
for homes, which was launched in November 2009, initially paid 48 yen/kWh, and forphotovoltaic power facilities installed in fiscal 2011, purchases of surplus electricity at
42 yen/kWh are guaranteed for ten years. Because the electricity rate for a normalhousehold is about 20 yen/kWh, surplus electricity will be purchased at a price morethan double the current rate.
In addition, the Act on Special Measures concerning the Procurement ofRenewable Energy Sourced Electricity by Electric Utilities was enacted in August 2011,
and the full-volume feed-in tariff system for renewable energy will be implemented inJuly 2012. Purchase price applied to commercial facilities was set to 42 yen/kWh for 20
years (See Table 2 below for the purchase price and the purchase period for selected
renewable energies including solar power).

Table 2: Selected figures for 2012 FIT scheme for renewable energies in Japan
Solar power
SizeWind Power

Geothermal

>10KW

<10KW

>20KW

<20KW

>15MW

<15MW

42

42

23.1

57.75

27.3

42

20

10

20

20

15

15

Purchase Price(yen/kWh)
Purchase Period(year)

Source: METI

28

Purchase price of 42 yen/kWh for 20 years is far from the current international
price. Even in Germany that has led the world in PV system installation withsophisticated Feed-in Tariff, purchase price for 2012 is now being considered to be
13.5c/kWh to 19.5 c/kW reflecting reduction of imported PV production cost. Purchaseprice in China is currently 1 RMB/kWh.

Purchase price in Japan is two to three times

higher than these countries. How can it is justified?
The reasons why solar power particularly has garnered the greatest expectations
among all types of renewable energy and is being given preferential treatment havebeen explained as follows.
Solar power is a distributed power generation system, with which everyone cancooperate, and except for the immediate cost problem there are relatively few technicaland social factors hindering installation of the equipment compared with other power
generating systems, and the technology is expected to spread quickly. Diffusion of thetechnology will be accompanied by many benefits that will be enjoyed not only by
manufacturing but also by industries such as distributors and equipment installers,
which will contribute to domestic industrial development and help ensure employment.
The technology also does not generate CO2, and once installed will continue to generate
electricity without the need for fuels. While the fact the technology can only generate
electricity during the daytime is a problem, at least it will contribute to a power gridelectric power generation peak shift, and even this problem can be solved if combinedwith batteries. Moreover, solar power is a power generation system that is being mass
produced, and the cost can be expected to drop in the future. According to a rough rule29

of thumb, the cost has been shown to decline by 20% when accumulated production
volume doubles 29 . Moreover, in its road map, the New Energy and Industrial
Technology Development Organization (NEDO) projects the cost to generate power,
which exceeded 40 yen/kWh in 2007, will drop to 14 yen/kWh in 2020 and 7 yen/kWh
in 203030. If the cost can be brought below the price of electric power for industry,
replacing nuclear power plants will become sufficiently feasible. Therefore a purchaseprice of 42 yen/kWh is said to be justified31.
Another reason behind the expectations for photovoltaic generation in Japan is thefact that for over 40 years Japan has led the world in this technology. If Japanese firms
possess leading technologies, Japanese firms will benefit from expansion of thedomestic market and be able to develop globally using their technological capabilities.
In fact, rough calculations have been released that show Japan’s GDP will not decrease
even if all nuclear power generation is replaced by solar power32.
There is agreement on the point that early diffusion of photovoltaic generation
holds the key to “phasing out nuclear power,” and no opposition to initially giving
preferential treatment to solar power, for which a mass production effect can be
anticipated, among all types of renewable energy. Where there are misgivings, however,is on the point of whether Japanese firms will acquire international competitiveness inthis new industry, and be able to enrich the economy over the long term, as a result ofexpending a substantial amount of funds and moving ahead with the full-volume feed-in
tariff purchase system.
As the analysis of the effect of the Eco-point Program illustrated, policies to spread30

the technology basically will result in price competition. Of course this is one of theobjectives, because lowering the price is necessary in order to popularize the technology.
As was seen in the case of flat-panel televisions, however, in industries where thetechnology has been standardized and generalized, there is a high probability this will
work toward promoting the inflow of imports from other countries and putting pressure
on the domestic activities of Japanese firms. While various companies will be enrichedby expansion of the domestic market, and employment will be created over the shortterm, over the longer term it is likely to act as a drag on economic development if it
encourages a decline in the international competitiveness of Japanese firms.

4.2

Competition in solar power generation systems
For a long time Japanese firms led the world in the technological development ofphotovoltaic cells, but their share of global solar cell production now amounts to lessthan 20%. Japanese firms have seen their share erode rapidly since 2006, and today themarket is controlled by Chinese companies, which have captured a market shareexceeding 50%. The reason upstart ventures have gained strength so rapidly lies in thefact solar cell manufacturing technology has become a commodity. Today mostphotovoltaic cells for homes are made of crystalline silicon (monocrystalline andpolycrystalline). Although cadmium telluride (CdTe) thin-film solar cells produced by
the U.S. company First Solar for the electricity business rival crystallization silicon-type
photovoltaics, as a whole the main market is overwhelmingly in crystalline silicon cells.
Crystalline silicon photovoltaic cell manufacturing technology has been generalized,

31and by relying on a turnkey solution firm in Europe or the U.S., a cell or module
production plant can be set up quickly. Compared with semiconductor chips, which aresimilarly fabricated on a silicon substrate, the purity of the silicon and degree ofminiaturization required for today’s crystalline silicon photovoltaic cells are low, andthe number of production processes also is small. The number of production steps andintermediate materials are also fewer than those needed to produce liquid crystal panels.
The theoretical energy conversion efficiency value for crystalline silicon
photovoltaic cells is estimated to be about 29%; with cell energy conversion efficiencyof 25% already being achieved at the research level, performance gains are nearing theirlimit. This development has been accompanied by a shift in the focus of competition tocost. It is against this backdrop that Chinese firms have moved to the forefront soquickly. Despite nearing their limit technologically, crystalline silicon photovoltaic cells
account for the majority of the market because in terms of the per-watt price33 at themass production level, crystalline silicon solar cells have the highest economic
efficiency.

4.3

Merits and demerits of technology diffusion policies
Given these circumstances, if the full-volume feed-in tariff purchase system isstarted in Japan and the rapid diffusion of photovoltaic cell is promoted, a large numberof crystalline silicon solar cells that provide high economic efficiency would probably
be introduced at this time. Assuming that solar cells offering high economic efficiency
directly would tend to be selected because photovoltaic cells are not a luxury product,32the possibility that installations of inexpensively produced foreign panels will increaseis high.
Of course, in the sales of photovoltaic cell for homes there are various barriers toentry for foreign companies, such as certification processes, ensuring domestic
distributors and installation contractors. Many overseas photovoltaic cell firms are
already taking aim at the start of the feed-in tariff purchase system in Japan, however,and continue to establish sales offices in Japan34. In photovoltaic cells, which areevaluated by per-watt price, even if its product performance is excellent a company
cannot compete and win if its cost is high. A flood of cheap photovoltaic cells is easy to
imagine. In fact, in the United States, existing firms that have found themselves indifficulty amidst the onslaught of sales of inexpensive solar cells manufactured in China
have filed a suit charging dumping35.
Even if cells and modules are manufactured in other countries, there is still a
sufficient possibility for expansion of the market in Japan to have a long-term economic
effect if, as in the LCD panel industry, Japanese firms control the manufacturing devices
and materials. However, most of the market for manufacturing devices for photovoltaic
cells is controlled by European and American firms. With regard to materials, although
Japanese firms have large market shares in cover glass, backing sheets and sealants36,
crystalline silicon photovoltaic cells use few intermediate materials to begin with andmost of the cost is for the silicon raw material.
If the full-volume feed-in tariff purchase system is begun, photovoltaic cells will
surely spread rapidly in a short span of time, perhaps even as seen in the former

33

examples of Germany and Spain. For resolution of energy and environmental problems,
this is highly preferable. Moreover, if nothing else, domestic industries such as logistics,
retailing and construction are likely to benefit by the spread of solar power. However
policies to encourage the rapid spread of solar power in the domestic market will
promote the spread of existing general-purpose technologies and an accompanying
influx of low-cost items, and cause the international competitiveness of domestic
photovoltaic cell manufacturers to decline even further. At the risk of being repetitive, it
is not a case where “diffusion = economic growth.”
Worse, purchase price of 42 yen/kWh, far from international prices, will incur heavy
burdens for electricity users. This high price may save domestic PV module producers
for a couple of years, but have little effect for enhancing their international
competitiveness under the highly standardized technologies.
We see the same

5

Conclusion

A green policy inevitably involves complex issues. It must simultaneously address
not only the energy problem but also the environmental and economic problems. Aslong as these three problems are not balanced, any green policy will not last long.
Various political responses are therefore being considered.
Many of the measures envisaged, however, seem to not sufficiently consider thecontribution to long-term economic development through improvement of the34international competitiveness of firms in the anticipated new industries. In a word, they
are poorly balanced even though they are drafted with the aim of solving the threeproblems simultaneously. Why is it thus? As reasons, the following three points havebeen identified in this paper.

(1) The “strange bedfellows” trap
(2) The power of the magic words “energy” and “environment”(3) The illusion that “market expansion leads to economic growth”

Although it is sometimes necessary to attempt to solve the three different objectivesof energy, the environment and the economy with a single political response, the“strange bedfellows” strategy is likely to become a problem. From the respective
viewpoints of the environmental, energy and economic goals, a specific policy might
not have sufficient validity. Sometimes it becomes possible to move forward with apolicy simply because the policy is able to solve all three issues simultaneously. As too
often happens, however, a situation may occur in which, even though the economic
objective (or the energy or environmental objective) cannot be sufficiently
accomplished, this is deemed acceptable with the excuse that the other two goals can beachieved. This is the strange bedfellows trap. When thinking about green policy, apolitical response that extends across many ministries and agencies is by all means
necessary. If the ministries and agencies do not work closely together in a proper
manner, however, the danger of falling into the “strange bedfellows” trap is high.

35

When the power of the magic words “energy” and “environment” is added to thismix, consideration of the long-term effects on the economy based on an industry level
analysis becomes even more superficial. When something is claimed to be for the
purpose of a stable energy supply and environmental protection, few are the individuals
who can object.
That is not to say, of course, that the impact on the economy is not considered. Whatconsequently becomes a problem, however, is the illusion that “diffusion (market
expansion) leads economic growth.” In an industry where technological progress has
slowed, technology has been generalized and competition is international in scope,
expansion of the market in a specific country does not necessarily bestow sufficient
benefits on that country’s economy. Indeed it might have the effect of providing
customers to foreign companies. Still, because it is important for “the environment” and“energy,” the magic words appear again. Because such a mechanism can be glimpsed, it
can be seen as dangerous.
There is no doubt the development and spread of renewable energy holds the key tosolve environmental problems. It must not, however, be carried out in a manner thatharms economy over the long term and leaves behind a huge bill to be paid by future
generations. To move forward in a new energy industry, where to place the focus andthe timing will be probably critical. As a nation, it will be especially important to judge
what to invest resources in, and with what timing, through an industry or firm-level
analysis that looks at the nature of the technologies that constitute the new energy
industry, the technologies’ lifecycles, the degree to which the technologies have been36

standardized, the international competitive conditions, comparative advantage, thesources of competitive advantage and the possibility of maintaining that competitive
advantage. Of course, each firm’s strategy will also be important.
What we are thought to need now is a scenario that clarifies the targets in our sights
and timing in order to move ahead with conversion of the energy mix, based on a deep
understanding of the realities of the technology and industry.

1

Target value envisaged in the case of maximum introduction in the August 2009 Outlook for Long-term

Energy Supply and Demand (Recalculation) from the Ministry of Economy, Trade and Industry’s Agency
for Natural Resources and Energy
2

In fact, most of the power supply to cover the shutdown of nuclear plants after the earthquake was

supplied by restarting operations at shuttered oil-fired power plants. According to actual results for power
generated and purchased, nuclear power generation, which accounted for more than 30% of all powerwith 21.7 billion kWh in February 2011, had fallen to just 2.1 billion kWh one year later in February
2012. On the other hand, over the same timeframe thermal power generation increased from 40.9 billion
kWh to 62.9 billion kWh and now accounts for 74% of all power2.
3

Thermal power also includes coal and LNG, and the cost for thermal power generation rises evenfurther if only oil-fired thermal power is considered.
4

Sankei News, September 14, 2011

http://sankei.jp.msn.com/life/news/110914/trd11091400320000-n1.htm
5

According to the 2011 IEA Key World Energy Statistics, in the first quarter of 2011 Japan had the third

highest electricity rate for industry among 23 countries, and the sixth highest rate for households among
27 countries.
6

Taken from the Agency for Natural Resources and Energy’s New Energy Industry Study Group Interim

Report released in March 2012
7

“Slapdash Trial Calculation of CO2 Reduction From Home Appliance Eco-Points: Replacement

Purchase Setting, All ‘95 Models of Same Size,” Asahi Shimbun, February 5, 2011, evening edition, p.1.
8

The number of TVs shipped domestically during the eco-point program period was approximately 40

million units; assuming the annual power consumption per unit was reduced by 21kWh, the total

37

reduction in power consumed comes to 840 million kWh. Assuming a household electricity rate of
20yen/kWh, the total savings comes to 16.8 billion yen. This entire 16.8 billion yen amount cannot becalled the result of the eco-point program, however, because even without the introduction of eco-points,
replacement purchases would likely have been made in conjunction with the transition to terrestrial digital
broadcasting, and energy-saving measures conceivably would have been introduced in the competitive
television market.
9

The average years of use was assumed to be 9.5, the average for the figures from the Consumer

Confidence Survey category “Trend in Replacement Purchases of Main Durable Consumer Goods(Normal Household)” for March 2010 (9.3 years) and March 2011 (9.7 years). Next, the number ofdomestic units shipped during the eco-point period and the number of domestic units shipped nine years
and six months earlier were determined by television size based on JEITA data. The weighted average
was then calculated by multiplying the number of units shipped each year by the power consumption by
the size of the televisions sold each year, which was obtained from the Ministry of the Environment's“Shinkyusan” on-line energy efficiency website.
10

Of course, our purpose is not to assert the program was indiscriminately ineffectual, because it did

achieve various results; these include the fact development of energy-saving technologies was accelerated,and consumers’ energy conservation awareness was heightened, as a result of this program.
11

Ministry of Economy, Trade and Industry Economic and Industrial Policy Bureau, Research andStatistics Department; The Analysis of all Industrial Activities (The First Quarter of 2011): “[ Topics ]Influence of the Eco-Point System for Home Appliances on Production and Consumption” June 14, 201112

According to a survey by DigiTimes.

13

Of course this is not to assert that all of these problems are because of eco-points. Developments suchas the continuing strength of the yen, and especially the depreciation of the won, which has boosted theexport competitiveness of rival Korean firms, have been directly critical factors.
14“Sony Cuts TV Sales Target by Half Business Loss Up to 175 Billion Yen Will Seek to Shrink Panel

Procurement Costs” Nihon Keizai Shimbun, November 3, 2011 morning edition p. 9.
15“Hitachi to Withdraw from TVs

Price Competition with Korea

LimitsShrinking Domestic

Market Each Company Reviewing its Business” Tokyo Yomiuri Shimbun, August 4, 2011 morning
edition, p. 8.
16The purpose here is not to criticize Eco-Point Program. We present no materials here simply to judge

the worth of the program as a whole, and do not plan to pass judgment, because the program probably hadvarious effects indirectly. Nevertheless, the reason this example has been introduced is that it illustrates a38

trap into which policies concerning the environment and energy seem to fall.
17“Notification Concerning Greenhouse Gases Emissions Volume in Fiscal 2007 (Final Figures),”

Ministry of the Environment press release materials, April 30, 2008.
18“Eco-Action Points Guidelines,” Ministry of the Environment, March 2011.

19

Remarks by Hideki Minamikawa on October 31, 2007 to the House of Councillors ResearchCommittee on International Affairs and Global Warming Issues.
20

Remarks by Kenji Kondo (then-director of the Ministry of Economy, Trade and Industry Commerceand Information Policy Bureau) on April 14, 2009 to the House of Councillors Committee on Economy
and Industry.
21

Remarks by Kenji Kondo (then-director of the Ministry of Economy, Trade and Industry Commerceand Information Policy Bureau) on April 1, 2009 to the House of Councillors Committee on Economy
and Industry.
22

For example, remarks by Kazuo Matsunaga (then-director of the Ministry of Economy, Trade andIndustry Policy Bureau) on April 14, 2009 to the House of Councillors Committee on Economy andIndustry.
23

Remarks by Masaaki Taniai (then-Vice Minister) on April 22, 2009 to the House of Councillors

Committee on Economy and Industry.
24

Remarks by Kazuyoshi Akaba on March 13, 2009 to the House of Councillors Committee on Economy

and Industry.
25

Remarks by Masaaki Kobayashi (then-Councillor, Minister of the Environment Secretariat) on March24, 2009 to the House of Councillors Committee on Economy and Industry.
26

Remarks by Kunio Hatoyama (then-Minister of Internal Affairs and Communications) on April 16,

2009 to the House of Councillors General Affairs Committee.
27

Takeishi, Aoshima and Karube (2012) highlighted the “strange bedfellows” strategy as one method ofproceeding with innovation activities that are highly uncertain. It has been shown that when investment in
uncertain innovation is not easily justified, parties promoting an innovation can appeal to various
individuals and reasons and obtain support for the innovation from various viewpoints.
28

The consumer surplus was unmistakably increased by the introduction of eco-points.

29

Cost of Photovoltaic Power Generation National Institute of Advanced Industrial Science andTechnology (AIST) Research Center for Photovoltaic Technology, November 8,
2009;http://unit.aist.go.jp/rcpvt/ci/about_pv/economics/cost.html
30

In a trial calculation in 2007, the power generation cost for photovoltaic power was 46 yen/kWh.

39

One-third of this amount, however, was financial expense (20-year loan, 4% annual interest rate). The
cost excluding interest is thought to be about 30 yen/kWh. When considered this way, it’s believed that aselectricity for the home solar power will certainly reach grid parity in the near future. Another problem,
however, is that a large proportion of the photovoltaic generation module cost is the cost for raw materials(70% or more), a variable cost, which makes it difficult to achieve a mass production effect. Unlike liquid
crystal panel, which have seen rapidly falling prices in recent years, solar panels have few intermediatematerials and there is a high probability that mass production will not necessarily lead directly to a dropin cost. In fact it has been pointed out that many of the cost reductions to date have been achieved in the
power module and installation costs (Kono et al., 2004), and it is thought that realizing cost reductions
through extensions of existing technology that will achieve the road map will be difficult.
31

Preferential treatment for photovoltaic generation is not confined to Japan but is a global trend.

32“Phasing Out Nuclear Power: Achievable in 50 Years With No Negative Economic Effect

Employment From Solar Power – Trial Calculations by University of Tokyo Associate Professor,”
Mainichi Shimbun, July 3, 2011 morning edition, p. 2.
33

The cost to produce 1W of electric power.

34“Overseas Leaders in Photovoltaic Cells Follow Each Other into Japan – Taiwan’s Motech Industries

to Build Plant in Hokkaido” Nihon Keizai Shimbun, August 6, 2011 morning edition, p. 11.
35“7 U.S. Firms Bring Suit Against Chinese Solar Cell Manufacturers Charging ‘Dumping”; Case Likely

to Affect Sino-U.S. Ties” Nihon Keizai Shimbun, October 20, 2011, evening edition p. 3.
36

Ministry of Economy, Trade and Industry, Agency for Natural Resources and Energy Interim Report of

the Study Group on New Energy Industry March 2012.

40

References

Agency for Natural Resources and Energy. Outlook for Long-Term Energy Supply and
Demand (Recalculation) August 2009
Agency for Natural Resources and Energy. New Energy Industry Study Group Interim
Report March 2012
Institute of Energy Economics, Japan An Evaluation of Thermal Power and Nuclear
Energy Costs Using Annual Securities Reports August 31, 2011
Akira Takeishi, Yaichi Aoshima and Masaru Karube (2012) Reasons for Innovation
Yuhikaku Publishing Co., Ltd.
ABS Energy Research (2010). The Geothermal Energy Report 2010: Direct Use andPower Generation
International Energy Agency (2011). 2011 IEA Key World Energy Statistics

41