IEEJ:January 2003

December 2002

Japan's Long-Term Energy Demand and Supply Outlook- A projection up to 2020 assuming environmental constraints
and market liberalization Kokichi Ito, Director
Director for Research Directorate-General
General Manager, Energy Data and Modeling Center
Institute of Energy Economics, Japan

PurposeGiven the need to simultaneously secure a stable energy supply, preserve the environment, andachieve efficiency (i.e., market liberalization), the purpose of this study is to systematically andquantitatively describe realistic energy futures while paying due attention to changes in socialand economic structures. This study assumes three cases: "reference," "low growth," and"enhanced environmental measures." In view of current economic and social situations andpolicies, the reference case presents a future under more realistic assumptions. On the other
hand, the low-growth case assumes a prolonged structural recession and stagnant economy until
2010. The enhanced environmental measures case assumes, in addition to current policy
measures, that energy conservation and increased use of new energy sources will be further
promoted successfully (roughly the goal set by the government).

1. Assumptions for Economy and Society
Population peaks at 128 million in 2006, and gradually declines thereafter. In other words,
aging will progress in a rate unprecedented in the world. Under the reference case, theeconomy's annual average growth rate will be 1.5% and 1.1% during the periods of 2000-2010
and 2010-2020, respectively. Under the low-growth case, the economic growth rate will be
0.5% and 0.9%, respectively.
Advances toward the service economy and the dissemination of information technology, coupledwith a decline in materials exports to Asian countries, will transform the industrial structure froma material industry orientation to an assembly orientation.
It is assumed that Asian economies will lead the world economy, which is expected to growsteadily as a whole, by 2.8% during the period of 2000-2020. This figure corresponds to theapproximate average of the long-term economic forecasts released by major institutions including
the OECD.

1IEEJ:January 2003

The international oil market is assumed to remain relatively smooth until 2010, after which themarket will gradually firm and bring real crude oil prices (CIF, 2001 prices) up from US$21/bbl
in 2010 to US$25/bbl in 2020. CIF prices for coal and LNG are assumed to be lower than thosefor crude oil. All three cases share these assumptions for the world economy and primaryenergy prices.

2. Outlook for Primary Energy Supply and CO2 emissions
Total primary energy supply under the reference case will grow by 0.3% and 0.2% per year on
the average during the periods of 2000-2010 and 2010-2020, respectively. Such low growth isdue to low economic growth and population decline. In addition, energy-GDP intensity, definedas the total primary energy supply per unit GDP, will decline by 1.2% and 0.9% during the same
periods due to drastic industrial restructuring and accelerated energy conservation.
Oil's share of Japan's total energy sources will decline from 51.8% in 2000 to 48.4% in 2010 and
45.4% in 2020, which is still a major share. Natural gas will increase from 13.1% (2000) to
15.8% (2020), which is attributable to the growing demand for natural gas for power generationand final use. Lower coal demand by the material industries will be more than offset bycoal-fired power generation, and its share will grow from 17.9% (2000) to 18.9% (2020).
Though nuclear plant construction will lag behind the planned level, nuclear's share will increase
from 12.4% (2000) to 14.8% (2020). Overall, energy sources will diversify somewhat but
dependency on fossil fuels will still be extremely high (more than 80%).
On the other hand, the low-growth case predicts a minor decline in total primary energy supply:-0.3% and 0.0% for 2000-2010 and 2010-2020, respectively, a trend reflecting the stagnant
economy up to 2010. Under the enhanced environmental measures case, efforts directed atenergy conservation and promoting new energy sources will gradually progress and result inminor growth of 0.2% in total primary energy during the period of 2000-2010, and negative
growth of 0.0% during the period of 2010-2020. Compared with the other two cases, clean
energy sources such as new energy and natural gas will have the highest shares.
CO2 emissions in 2010 will be 325 MtC (million tons carbon equivalent) in the reference case,
301 MtC in the low-growth case, and 310 MtC in the enhanced environmental measures case.
All cases forecasted that future CO2 emissions will exceed those in 1990 (287 MtC), indicating
significant difficulties in achieving the emission reduction target. However, emissions in 2020
will fall short of those in 2010 in all cases. By sector, industrial sector emissions will fall shortof those in 1990 in all cases. On the other hand, residential and commercial sector emissions willrise. Transport sector emissions will peak in 2000, and thereafter decline. In addition,
increasing nuclear capacity by five units (equivalent to 6,500 MW) in 2010 would have asignificant impact on emissions, which would be 7 MtC under those of the reference case.
Likewise, if increasing nuclear capacity by seven units would make emissions 6.8 MtC lower
than those of the reference case in 2020.

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IEEJ:January 2003

3. Outlook for Final Energy Consumption
Final energy consumption under the reference case will grow 0.2% per year during the period of
2000-2010, and 0.1% per year during the period of 2010-2020. In terms of energy conservation,
currently considered measures (the Keidanren Voluntary Action Plan, the Top Runner standards
scheme, and the like) will make substantial progress.
By sector, the commercial and the industrial sectors show contrasting trends: the former's demand
will continue to grow whereas the latter's demand will decrease. Industrial sector energy demand
to 2020 will level off as a result of the 0.3% annual decrease during the period of 2000-2010, andthe 0.2% annual increase during the 2010-2020 period. Presumably, the increase in production
will be set off by the progress to be made through energy conservation measures such as the
Keidanren Voluntary Action Plan, as well as by the shift towards high-value-added industrial
structure (increased share for assembly industries). Consequently, there will be considerable
electrification (meaning a trend where a larger proportion of primary energy will be used for
power production).
Energy consumption growth in both the residential and the commercial sub-sectors (these twocompose the residential and commercial sector) will remain stronger than in other sectors. In
particular, due to the trend toward the service economy, increasing commercial floor space, andother factors, commercial sub-sector energy consumption will grow by 1.7% per year during theperiod of 2000-2010, and 0.9% in 2010-2020. Accelerated use of information technologies will
increase demand for lighting and space cooling, and accelerate trends towards electrification andgasification (a trend where a larger proportion of primary energy will be used for end-use gas).
Reflecting such factors as the accelerated use of information technologies, and the higher densityof electric home appliances with more sophisticated functions, the residential sub-sector's energy
consumption will also increase. However, owing to the energy conservation effects of the Top
Runner standards scheme and slower growth in the number of households, the sub-sector's energy
demand will be quite modest, 0.9% and 0.2% during the periods of 2000-2010 and 2010-2020,
respectively.
Transport sector energy consumption will decrease after years of growth due to the improvementin mileage and transport efficiency. Passenger sub-sector energy consumption will show amodest 0.1% per year growth for 2000-2010, and thereafter a 0.5% decline for 2010-2020.
Causes for such trends are: the saturation of automobile ownership; the shift of motor vehicle
stock towards smaller cars in line with the rising environmental consciousness and the increased
number of aged and female drivers; and increased mileage due to the implementation of Top
Runner standards. The freight sub-sector's energy consumption will decline by 0.4% and 0.7%
per year during the periods of 2000-2010 and 2010-2020, respectively, due to improved truck
mileage, the shift towards smaller vehicles for small-cargo delivery, and improvement intransport efficiency.
In terms of energy source, the shares of electricity and gas in total final energy consumption willcontinue increasing due to the shift towards the high-value-added economy and the residential
and commercial sector's increased energy demand.

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IEEJ:January 2003

4. Summary and Implications
We have thus far delineated outlooks for the future based on certain assumptions for thesocioeconomic structure, rate of progress in energy conservation and new energy technologies,
energy price trends, and the delays in implementing nuclear power plant siting plans.
To summarize:(1) Growth in energy demand will be extremely low, due to:- Low economic growth- Population decline- Energy conservation measures such as the Keidanren Voluntary Action Plan and Top
Runner standards scheme(2) Attainment of CO2 emissions target for Japan will be fairly difficult, even under a stagnant
economy.
(3) The energy mix will further diversify, but the high dependency on fossil fuels will continue(more than 80%).

•

The Best Fossil Fuel Mix

Currently oil accounts for the largest share of entire fossil consumption and this will remainunchanged. Reliance on Middle East oil could increase. Given that possibility, it is important
to continue securing self-developed crude oil and enhancing cooperation with Middle Easterncountries, and the government has a major role (in diplomacy and funding). In addition, oil
demand is expected to grow in Asia, and solidarity among Asian countries will have desirable
impacts.
Coal should not be excluded from the fuel mix simply because of its large environmental burden.
Since coal has the advantages of stable supply and low cost, its effective and efficient utilization
should be promoted. This is important not only for Japan but also for all of Asia with its
abundant coal resources, and Japan as a technology-savvy nation can play a pivotal role in thisarena.
Utilization of gas is expected to grow most rapidly among fossil fuels (in terms of relative sharein total primary energy supply, it will increase from 13% in 2000 to 16% in 2020; thegovernment-set target for gas share is 20% in 2020). To realize this expectation, the economic
efficiency of gas should be improved in such respects as reduced LNG import costs based onJapan's bargaining power, transition to a flexible supply system, and reduced domestic sales costs
through further streamlining. Since gas has been competing against oil, its prices have been
linked to crude oil prices. However, coal will emerge as an important competitor for gas in the
future.
In any case, having various fossil fuel mix options is important because Japan can increase
pricing power for competing fuels and therefore enhance energy supply stability.

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IEEJ:January 2003•

Liberalization, Supply Stability, and Environmental Preservation

In the midst of globalization and increasing structural reform pressure on the Japanese economy,
the liberalization of energy markets is necessary and unavoidable.
To begin with, the market mechanism tends to seek economic rationality for the relatively shortterm, but energy matters require a long-term view. For this reason, some aspects of the market
mechanism do not perfectly fit into Japan's energy situations (and if a market has defects,
speculation will be accelerated, benefiting only a few and harming many).
Should stability or efficiency be considered more important? We have to contemplate a system
suitable for each country. An extreme ideology regarding the market mechanism as a general
panacea is no solution. How should one reconcile efficiency with environmental constraints andenergy supply stability? There should be a Japanese way of solving the problem (Japan differsfrom resource-rich America in that the market mechanism might be a tool for the "haves").
Especially in need of investigation is the question of nuclear power's role in the midst ofliberalization. Nuclear power has played an important role in reducing oil dependency andincreasing energy security. This role will remain in future and become all the more important(nuclear power is a vital means of achieving energy security and solving global environmental
problems at the same time).
It is difficult for the market mechanism to properly incorporate social costs for environmental
preservation and securing a stable energy supply. The ways in which such costs areincorporated should be clarified, along with the associated burden-sharing mechanism among thegovernment, suppliers, and populace.
Promoting nuclear power development makes it necessary to assure transparency and safety
while endeavoring to further improve its economic efficiency. Further, nuclear must be given a
suitable role in national energy policy, and it is necessary to show how the government and theprivate sector can cooperate, including how they should share the burden.

•

Global Perspective for Tackling Environmental Problems and Stabilizing Energy
SupplyJapan's domestic policy measures have limitations in overcoming environmental obstacles.
Energy demand is expected to glow globally, particularly in Asia. Technology transfer and othermeasures could reduce the environmental burden much more.
Assuming a global perspective is not equivalent to the simple-minded view that Japan shouldtake responsibility for developing countries. International cooperation can be viewed as major
business opportunities made available by environmental constraints. Japan is on the cutting

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IEEJ:January 2003

edge in energy conservation and environmental technology. It is important for resource-poor
Japan to support its economy with its inexhaustible supply of technology.
Many new technologies require vast amounts of money and a long time to penetrate the market,
and the private sector alone would not be able to bear the burden. Therefore cooperation between
the government and the private sector is essential.
In addition, cooperation among Asian countries as a whole may lead to enhanced bargaining
power, joint energy resource development, and a cooperative response to energy security, thereby
benefiting not only Japan, but also the region as a whole.

•

Kyoto Protocol

The Kyoto Protocol is not the only measure of global warming, and we should not misunderstandthe essence of the issue. However, we cannot breach our commitments. If we stick to the ideathat commitments made under the Kyoto Protocol should be attained only though domestic
measures, it will be dangerous and unrealistic.
To begin with, economic realities do not guarantee that numerical targets will be attained mainly
through domestic policies. In addition to flexibility mechanisms under the protocol, thegovernment should prepare measures that have a long-term view and that look ahead to thesecond commitment period.

5. Nature of This Projection
While maintaining logical and quantitative consistency, this projection presents calculation
results obtained with certain assumptions. Given various future uncertainties, projected figures
are sensitive to assumptions. To give readers supplementary information, we have conducted asensitivity analysis on parameters for "economic growth," "energy technology" and "enhanced
nuclear development." It is hoped that this projection will serve as a reference for consideringand discussing future energy demand.
(Hiroyuki Ishida, Manager, Demand Forecasting Group, EMDC/IEEJ, and Shigeru Suehiro,
Researcher, EMDC/IEEJ contributed to this study. See the IEEJ homepage for study details.)
contact: ieej-info@tky.ieej.or.jp

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IEEJ:January 2003

List of Assumptions
Socioeconomic Indicators
Population

Peaks at 128 million in 2006, thereafter declines (medium variant by
the National Institute of Population and Social Security
Research)

GDP growth rate

Recovers to 2% mark after structural adjustment (by 2010)
FY 2000 to FY 2010: 1.5% per year
FY 2010 to FY 2020: 1.1% per year

Industrial structure Shift from materials industries to assembly industries will progress
Crude steel production: -11 million tons (FY 2010: 96 million tons)
Ethylene production: -0.9 million tons (FY 2010: 6.7 million tons)
Cement production: -9.8 million tons (FY 2010: 70.3 million tons)
Paperboard production:+420 million tons (FY 2010: 36 million tons)
Machinery production index: 2.0% growth per year
(2010: 138, 1990=100)
Real crude oil prices
Modestly increase after 2010 (see IEA and USDOE outlooks)
US$21/bbl (FY 2010)
US$25/bbl (FY 2020)
Energy Conservation
Currently considered energy conservation measures will progress
Industrial sector: Reduced energy conservation by each category(Keidanren Voluntary Action)
Residential and commercial sector: Improved appliance efficiency(Top Runner standard scheme)
Transport sector: Improved car and truck mileage(Top Runner standard scheme)
Nuclear Generation Capacity
Calculated from FY 2002 Electric Power Supply Plan (delays in realizing the plan
are incorporated)
End of March 2002:
FY 2010:
FY 2020:
New Energy Use

45,910 MW (52 units)
Electric Power Supply Plan
51,900 MW (five more units)(about 12 more units)
61,500 MW (seven more units) (about 7 more units)

FY 2010: 4 million kl oil equivalent (accounts for slightly less than 1% of the total
primary energy supply)
FY 2020: 5 million kl oil equivalent (same as above)PV:
2,540 MW (12 times the FY 1999 amount, 210 MW)
Wind:
780 MW (9 times the FY 1999 amount, 80 MW)
Waste: 1,750 MW (twice the FY 1999 amount, 900 MW)

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IEEJ:January 2003

Table 1. Outlook for Macro Economy (Reference Case)(billion yen, 1995 prices)

ActualAnnual average
growth rates (%)

Forecast

2000

2010

2020

/1990

/2000

/2010

696,995

1.3

1.5

1.1

476,775

533,322

0.8

1.8

1.1

290,139

342,530

375,913

1.5

1.7

0.9

26,93020,232

18,53921,623

-2.8

-0.9

1.6

90,71189,300114,694

134,924

-0.2

2.5

1.6

93,876125,049

128,918

131,188

2.9

0.3

0.2

Government final consumption expenditures

64,14087,497

98,383

103,414

3.2

1.2

0.5

Government fixed capital formation

29,67137,45630,43527,674

2.4

-2.1

-0.9

Net exports of goods and services

6,949

12,72918,55432,485

6.2

3.8

5.8

Exports of goods and services

39,302

59,82576,16995,476

4.3

2.4

2.3

Imports of goods and services

32,35347,096

57,61562,991

3.8

2.0

0.9

Consumer price index (1995=100)

92.9

99.9

106.7

112.6

0.7

0.7

0.5

Wholesale price index (1995=100)

108.6

96.8

97.3

98.5

-1.1

0.1

0.1

Foreign exchange rate (yen/US$)

141.5

110.5

130.0

130.0

-2.4

1.6

0.0

Crude oil price (US$/bbl)

22.8

28.4

25.6

37.1

2.2

-1.0

3.8

Manufacturing production index (1995=100)

105.9

104.7

119.0

133.0

-0.1

1.3

1.1

Crude steel production (1,000 tons)

111,710

106,901

95,91790,431

-0.4

-1.1

-0.6

Ethylene production (1,000 tons)

5,966

7,566

6,679

6,678

2.4

-1.2

-0.0

Cement production (1,000 tons)

86,89380,06870,28468,020

-0.8

-1.3

-0.3

Paper and paperboard production (1,000 tons

28,53831,74235,95539,863

1.1

1.3

1.0

Pulp production (1,000 tons)

11,50911,266

11,78912,443

-0.2

0.5

0.5

Electric machinery production index

106.3

113.3

138.3

161.3

0.6

2.0

1.6

1990FY

2000FY

2010FY

2020FYGross domestic product (GDP)469,781535,690624,248

Private demand

368,956

399,537

Private final consumption expenditures

248,840

Private residential investment
Private investment in plant equipment
Public demand

Sources: Actual figures are from Cabinet Office, Preliminary Estimates for National Accounts, etc.
Projections are by the Institute of Energy Economics, Japan.

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IEEJ:January 2003

T able 2. O utlook for T otal P rimary E nergy Supply (R eference C ase)
(10 10 k c al= 1,000 TOE )Ac tual
1990FY

C oal
OilNatural gas
Hydro
NuclearGeothermal
New energy
Total
R eal GD P
(b illio n s o f d o lla rs , 1 9 9 5 p rice s )En e rg y in p u t p e r u n it re a l GD P

Forecas t

2000FY

2010FY

2020FY

Annual averagegrow th rates (%)
2000
2010
2020
/1990
/2000
/2010

2.2

0.7

0.3

0.2

-0.4

-0.5

4.1

1.6

0.8

-0.6

0.0

0.0

4.3

0.9

1.4

7.6

0.6

0.4

0.4

2.0

1.8

1.4

0.3

0.2

696,995

1.3

1.5

1.1

89.1

81.3

0.1

-1.2

-0.9

325
113

323
112

1.0

0.3

-0.1

80,752(16.6)
283,559(58.3)
49,284(10.1)
20,512(4.2)
45,511
(9.4)
465
(0.1)
6,226
(1.3)
486,310(100.0)100,223(17.9)
289,205(51.8)
73,398(13.1)
19,253(3.4)
69,241(12.4)
964
(0.2)
6,491
(1.2)
558,651(100.0)107,786(18.7)
278,652(48.4)
85,618(14.9)
19,314(3.4)
75,444(13.1)
1,023
(0.2)
7,909
(1.4)
575,747(100.0)110,871(18.9)
265,943(45.4)
92,747(15.8)
19,360(3.3)
86,818(14.8)
1,059
(0.2)
9,498
(1.6)
586,296(100.0)469,781535,690624,248

100.0

100.7

287
100

316
110

(1990= 100)

C O 2 em iss ions
(MtC )(FY1 9 9 0 =1 0 0 )S ourc es : Res ourc es and E nergy A dm inis tration, ed., with the c ooperation of IE E J, Com prehens ive E nergy S tatis tic s , etc .
Note 1: Num bers in parenthes is () indic ate perc entage s hare.
Note 2: "New energy " c ons is ts of photovoltaic , wind, blac k liquor, etc .

Figure 1. CO2 emissions estimates
340(M tC )

R e fe re nce

325
316

320

323
310

E nha nce d
295

300

301

287

287
G o rv e rnme nt T a rg e t
Case

280

260

291
Low G D P

240

220

200
1970

1980

1990

2000

9

2010

2020

IEEJ:January 2003

Table 3. Outlook for Final Energy Consumption (Reference Case)(1010 kcal=1,000 TOE)

Actual1990FY

Forecast

2000FY

2010FY

2020FY

Annual average
growth rates (%)
2000
2010
2020
/1990 /2000 /2010

Sectors
Industry
Residential andcommercial
Residential
Commercial
Transport
Passenger
Freight
Non-energy

160,787(49.8)
78,925(24.4)
42,913(13.3)
36,011(11.2)
74,386(23.0)
44,303(13.7)
30,083
(9.3)
8,772
(2.7)

178,091(47.4)
99,745(26.5)
53,392(14.2)
46,352(12.3)
90,740(24.1)
58,079(15.5)
32,661
(8.7)
7,164
(1.9)

172,627(45.1)
113,238(29.6)
58,638(15.3)
54,600(14.3)
89,988(23.5)
58,609(15.3)
31,379
(8.2)
7,093
(1.9)

176,065(45.4)
119,164(30.7)
59,666(15.4)
59,499(15.4)
85,292(22.0)
55,945(14.4)
29,347
(7.6)
7,022
(1.8)

41,907(13.0)
195,507(60.6)
15,256(4.7)
65,076(20.2)
4,324
(1.3)
781
(0.2)
322,870(100.0)41,360(11.0)
221,914(59.1)
24,658(6.6)
83,227(22.2)
3,869
(1.0)
713
(0.2)
375,740(100.0)37,651(9.8)
215,832(56.4)
28,965(7.6)
95,375(24.9)
3,926
(1.0)
636
(0.2)
382,945(100.0)35,669(9.2)
209,260(54.0)
32,349(8.3)
104,445(27.0)
4,246
(1.1)
640
(0.2)
387,543(100.0)

1.0

-0.3

0.2

2.4

1.3

0.5

2.2

0.9

0.2

2.6

1.7

0.9

2.0

-0.1

-0.5

2.7

0.1

-0.5

0.8

-0.4

-0.7

-2.0

-0.1

-0.1

-0.1

-0.9

-0.5

1.3

-0.3

-0.3

4.9

1.6

1.1

2.5

1.4

0.9

-1.1

0.1

0.8

-0.9

-1.1

0.1

1.5

0.2

0.1

Energy sources
Coal, etc.
Oil
Gas
Electricity
New energy
Others
Total

Sources: Resources and Energy Administration, ed., with the cooperation of the Institute of Energy Economics,
Comprehensive Energy Statistics, etc. Forecast figures are by the Institute of Energy Economics.
Note 1: Figures in parenthesis () indicate percentage share.
Note 2: Figures for "coal, etc." include coke, coke oven gas, blast furnace gas, and briquettes.
Note 3: Figures for gas include automobile fuel demand for natural gas.
Note 4: Figures for "new energy" include black liquor and solar thermal.
Note 5: Figures for "others" include natural gas and geothermal.

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IEEJ:January 2003

Table 4. Comparison of Cases
ActualCO2 emissions(MtC)

Primary Energy(MTOE)

Case
Reference
Low GDPEnhanced
Adding Nuclear

Reference
Low GDPEnhanced
Final Energy Demand
Reference(MTOE)
Low GDPEnhanced
Oil Demand
Reference(Million KL)
Low GDPEnhancedElectric Power Demand Reference(Billion kWh)
Low GDPEnhanced
Town Gas Demand
Reference(100 Million m3)
Low GDPEnhanced

2000

Forecast
2010

2020

Rate of Divergencefrom Reference
2010

2020

316

325
301
310
318

323
291
295
316

-7.3
-4.6
-2.2

-9.7
-8.7
-2.1

559

576
542
567
383
360
380
233
219
221
953
885
937
328
304
358

586
542
565
388
358
378
223
204
201
1,038
947
991
379
345
435

-5.8
-1.5
-6.0
-0.8
-6.0
-5.1
-7.1
-1.7
-7.3
9.0

-7.5
-3.6
-7.7
-2.4
-8.3
-9.6
-8.7
-4.5
-8.9
14.8

376

243

838

250

11

Annual Growth Rate(%)
2000
/1990
1.0

2010
/2000
0.3
-0.5
-0.2
0.1

2020
/2010
-0.1
-0.3
-0.5
-0.1

1.4

0.3
-0.3
0.2
0.2
-0.4
0.1
-0.4
-1.0
-0.9
1.3
0.6
1.1
2.7
2.0
3.6

0.2
0.0
-0.0
0.1
-0.1
-0.0
-0.4
-0.7
-0.9
0.9
0.7
0.6
1.4
1.3
2.0

1.5

1.1

2.4

5.0