Carbon Diox ide Emiss ions Redu ction
Potential in Japan’s Pow er Sector —Estimating Carbon Emissions Avoided b y a
Fuel-Switch Scen ario
Prepared by:
Masami Nakata, Junichiro Oda, Charles Heaps and David Von Hippel
For WWF-Japan

October, 2003

1

Executive Summary
In Japan, carbon dioxide (CO2 ) emissions associated with the energy transformation sectors
are estimated to account for over 30 percent (includ ing indirect emissions) of the total CO2
emitted by the national economy. Substantial efforts to reduce the emissions in the power
sector—which produces over half of energy transformation emissions—could have asignificant impact on climate change mitigation in Japan.
This report explores the potential for CO2 emissions reductions from Japan’s power sector bycomparing the estimated quantitative impacts on CO2 emissions, and the overall costs toJapanese society, of providing energy services through two energy pathways: a "Business As
Usual" (BAU) scenario, in which current trends in the Japanese economy and power sector
continue, and a "Power Switch" (PS) scenario, in which more aggressive transitions to nonfossil and low-carbon fuels are carried out in the Japanese power sector, accompanied bycomplementary aggressive implementation of energy efficiency measures geared to reduce
electricity requirements. The Power Switch scenario is not a projection, but is meant tosuggest the “potential” reduction of an “aggressive” but “realistic and achievable” approach.
Major differences between the PS and BAU scenarios include 1) stronger emphasis on
substitution of natural gas for coal, 2) explicit emphasis on renewable energy implementation,
natural gas- fired cogeneration and high efficiency natural gas- fired combined cycle
generation, 3) a gradual nuclear phase-out (with "early" retirement of some nuclear units),
and 4) the implementation of energy efficiency and energy conservation measures, mostly
targeted at reducing electricity use, on a broad scale in the residential, commercial andindustrial energy demand sectors.
This report demonstrates the environmental merits of these changes in the energy sector.
Compared with power sector CO2 emissions in the BAU scenario, overall emissions in the PS
scenario are markedly lower, with year 2020 emissions in the PS scenario 20 percent
reduced relative to year 2000 emissions. Year 2020 emissions in the PS case are some 31
percent lower than 2020 emissions in the BAU case. Relative to the BAU scenario, the PS
scenario reduces Japan's GHG emissions by 94 million tonnes of CO2 equivalent per year by
2010, and by 190 million tonnes per year by 2020. Overall GHG reductions in the PS
scenario, relative to the BAU scenario, total nearly 2.0 billion tonnes of CO2 equivalent
between 2000 and 2020.
The Power Switch scenario requires larger capital investments, overall, in the electricity
supply and demand sectors, but these outlays are nearly totally offset by savings in fuel costs
to Japan. In the power sector itself, in fact, the PS scenario avoids so much future capacity,that even with the addition of significant amounts of renewable generation, power sector
capital and operating costs are reduced by some 14 trillion Yen between 2000 and 2020
relative to the BAU scenario. Another 0.5 trillion Yen is saved due to reduced capital andO&M costs in other energy transformation sectors. In the energy demand sector, theincremental capital costs of energy efficiency measures and of cogeneration and renewableenergy (photovoltaic) generation installed in residences and businesses increase demand
sector costs in the PS scenario by nearly 20 trillion Yen (2000 to 2020), but savings of 4.4

2

trillion Yen in imported fuel costs relative to the BAU scenario means that the net cost of the
PS scenario to Japan is only about 1.1 trillion Yen over the period from 2000 to 2020.
Overall, under the Power Switch scenario, Japan could achieve 31 percent reduction in
annual GHG emissions relative to the BAU scenario by 2020, at a net cost—factoring in both
required additional investments and reductions in fuel import costs—of about 1.1 trillion yen
over the study period, or about 57 billion yen per year.
Expressed per unit of GHG
emissions reduction, the net cost is 850 JPY/ tonne of CO2 equivalent. Put in perspective,
this cost is roughly equivalent, for example, to a 0.3 percent tax on electricity consumption.
The net investment required, therefore, is extremely minor relative to the benefits to begained.

3

Table of Contents
EXECUTIVE SUMMARY .....................................................................................................2
TABLE OF CONTENTS ........................................................................................................4
ACKNOWLEDGEMENTS ....................................................................................................51.

INTRODUCTION............................................................................................................6
1.1. GLOBAL CLIMATE CHANGE AND THE ROLE OF CARBON EMISSIONS ...............................6
1.2. THE K YOTO PROTOCOL AND CHARACTERISTICS OF JAPAN’S GHG EMISSIONS ..............7
1.3. POWER GENERATION SECTOR .......................................................................................10

2.

WWF JAPAN POWER SWITCH PROJECT ............................................................122.1. PROJECT OUTLINE.........................................................................................................122.2. RESEARCH M ETHODOLOGY AND TOOLS .......................................................................13

3.

BUSINESS AS USUAL SCENARIO ...........................................................................143.1. BAU SCENARIO ASSUMPTIONS ....................................................................................143.1.1. Electricity Demand ..............................................................................................15
3.1.2. BAU Electricity Demand Projections ..................................................................18
3.1.3. Electricity Supply and Other Fuel Transformation: BAU Scenario ....................18
3.1.4. BAU Scenario Results: Electricity Sector............................................................22

4.

POWER SWITCH SCEN ARIO ...................................................................................25
4.1. POWER SWITCH SCENARIO ASSUMPTIONS ....................................................................25
4.1.1. Demand-side Energy Efficient Technologies (Tsuchiya Study) ...........................26
4.1.2. Power Sector Scenario Assumptions ...................................................................29
4.1.3. Results and Discussion of the Power Switch Scenario ........................................39

5.

THE POWER SWITCH SCENARIO, BENEFITS AND BARRIERS ....................425.1. COMPARISON OF SCENARIOS .........................................................................................425.1.1. Greenhouse Gas Emissions..................................................................................43
5.1.2. Energy Security and Fuel Diversity.....................................................................45
5.1.3. Relative Benefits and Costs of the BAU and Power Switch Scenarios ................47
5.2. BARRIERS AND LIMITATIONS OF POWER SWITCH SCENARIOS .......................................52

6.

CONCLUSION AND RAMIFICATIONS OF RESULTS.........................................52

4

Acknowledgements
The authors would like to tha nk Professors Tatsujiro Suzuki, Dr. Haruki Tsuchiya, and Dr.
Tetsunari Iida for their invaluable input to and comments in review of this study. Thanks
also are due to Yurika Ayukawa, Naoyuki Yamagishi, Liam Salter, Stephan Singer, Sible
Schone, Katherine Silverthorne, Lara Hansen, Mark Kenber and other WWF colleagues fortheir guidance and careful reviews, as well as for allowing us the opportunity to work on thisimportant topic. Finally, David Von Hippel and Charlie Heaps would like to offer a
dedication in memory of the late Dr. Steven Bernow of Tellus Institute, a major author of the
WWF US Power Switch study that is a companion work to this one. Dr. Bernow was amentor and an inspiration to all who had the opportunity to be touched by his intellect, humor,
and unquenchable curiosity.

51. Introduction
Recent global temperature measurements indicate that the world's average temperature has
increased at much greater than historical rates in recent decades 1 . Further, research strongly
indicates that anthropogenic (human-caused) emissions of pollutants that help to trap heatwithin the earth's atmosphere are at least in part to blame for these temperature increases. A
substantial portion of these pollutant emissions have their origin in the combustion of fossil
fuels. As the world's need for energy services (services provided by the use of forms ofenergy) increase, and in the absence of an abrupt shift to non- fossil energy sources, global
temperature rise, and its attendant impacts, are expected to become increasingly problematicover the coming decades. As one of the world's leading industrial economies, Japan
contributes a significant share, and has accounted for a significant historical share, of theemissions that have led to global temperature increases. As such, it is imperative that Japan,
as well as other industrial countries, adopt aggressive policies to reduce so called"greenhouse gas" emissions.
This report provides a quantitative comparison of medium-term (2000 to 2020) energy"scenarios" for Japan, with a focus on scenarios for the electric power generation sector.
This report compares the estimated impacts on pollutant emissions, and the overall costs toJapanese society, of providing energy services through a "Business As Usual" scenario, in
which current trends in the Japanese economy and power sector continue, and in a "Power
Switch" scenario in which more aggressive transitions to non-fossil and low-carbon fuels arecarried out in the Japanese power sector. The goal of this comparison is to indicate thechanges that will need to be made to move the Japanese power sector toward environmentally
sustainability, and to estimate the impacts of those changes.

1.1. Global Climate Change and the Role of Carbon Emissions
The entire global climate and ecosystem has been altered by the accumulation of gases
including carbon dioxide, methane, nitrous oxide, chlorofluorocarbons, and ozone in theatmosphere. These so-called green house gases (GHGs) are produced by various humanactivities, including as agricultural and industrial practices, deforestation, as well as theburning of fossil fuels.
"Global warming", “climate change”, and the "greenhouse effect" are common expressions
used to describe the threat to human and natural systems resulting from continued emissionsof heat-trapping or “greenhouse” gases (GHGs) from human activities. These emissions arechanging the composition of the atmosphere at an unprecedented rate. While the complexityof the global climate system makes it difficult to accurately predict the impacts of thesechanges, the evidence from modeling studies, as interpreted by the world’s leading scientists
assembled by the Intergovernmental Panel on Climate Change (IPCC), indicates that global
mean temperature will increase by 1.4 to 5.8º C with a doubling of carbon dioxide1“Northern Hemisphere Temperatures During the Past Millennium: Inferences, Uncertainties, and Limitations,”
Michael E. Mann and Raymond S. Bradley, and Malcolm K. Hughes, Geophysical Research Letters, Vol. 26,
No. 6, p.759, 1999.

6

concentrations, relative to pre-industrial levels 2 , with the temperature increase occurring
within 40-100 years. Given current trends in emissions of greenhouse gases, this doubling—with its attendant increase in global temperatures—would likely happen in the middle of the
21st century. For reference, a global increase of 2º C from today’s levels would yield global
average temperatures exceeding any the earth has experienced in the last 10,000 years, and anincrease of 5º C would exceed anything experienced in the last 3,000,000 years. Moreover,
it is not simply the magnitude of the potential climate change, but the rate of this change thatposes serious risks for human and ecosystem adaptation, with potentially large environmental
and socioeconomic consequences 3 .
The combustion of all carbon-based fuels, including coal, oil, natural gas, and biomass,
release carbon dioxide (CO2 ) and other "greenhouse gases" to the atmosphere. Over the past
century, emissions of greenhouse gases from a combination of fossil fuel use, deforestation,and other sources have increased the effective "thickness" of the atmospheric blanket byincreasing the concentration of greenhouse gases (or GHGs) in the troposphere, or lower partof the atmosphere (ground level to about 10-12 km). It is this "thicker blanket" that isthought to be triggering changes in the global climate.
Warming of the earth may, in turn, have numerous secondary effects, some of which havepotentially serious impacts of the well being of both humans and the plants and animals withwhich we share our planet. These effects include an increase in sea levels due to melting ofpolar ice, changes in precipitation patterns, and changes in vegetation. The timing andspatial distribution of these effects around the globe are as yet extremely uncertain.

1.2. The Kyoto Protocol and Characteristics of Japan’s GHG
Emissions
A milestone in the international effort to address the anthropogenic causes of clime change
was the "Kyoto Protocol to the United Nations Framework Convention on Climate Change”;
an agreement among the industrialized nations of the world to reduce emissions of six
greenhouse gases over a specific period of time. The Protocol was adopted at COP3 (theThird Conference of the Parties to the United Nations Framework Convention on Climate
Change), which was held in Kyoto, Japan in 1997. The Kyoto Protocol requires
industrialized countries agreeing to it (including Japan) to cut their greenhouse gas emissions
by an average of 5.2 percent relative to 1990 levels. These emissions reductions are to becompleted by a target year ranging from 2008 to 2012.
Japan ratified the Kyoto Protocol in 2002. Under the terms of the Protocol, Japan has agreed
to reduce its GHG emissions by 6 percent relative to 1990 levels. Japan’s GHG emissions in2001 stood at 1,299 million tonnes of carbon dioxide equivalent 4 , which was already 5.2
percent higher than Japan's 1990 emission levels of 1,235 million tonnes. More than 90
percent of the total GHG emissions in Japan, measured in carbon equivalents, are accounted

2

Third Assessment Report of the Intergovernmental Panel on Climate Change, 2001.

3

Portions of the general discussion provided here were taken from M. Lazarus, D. Von Hippel, D. Hill, and R.
Margolis (1995), A Guide to Environmental Analysis for Energy Planners, Stockholm Environment Institute-Boston Center. Many excellent recent compendia of climate change issues and impacts are available for thereader wishing additional details. A good starting point is http://www.gcrio.org/ipcc_docs.html.
4

Greenhouse Gas Inventory Office of Japan, http://www-gio.nies.go.jp.

7CO2 Emissions (million tonnes)

for by carbon dioxide emissions. 5 Figure 1-1 shows the pattern of carbon dioxide emissions
by fuel type in Japan since 1950, showing both the substantial growth in emissions during the1970s and 1980s (in particular), and a transition in fuels use from coal to oil to gas. Figure 12 shows Japanese CO2 emissions by sector during the 1990s. As shown in Figure 1-2, themain CO2 emissions sources in 2000 were the energy industries including the power sector(31 percent), other industries (33 percent), and the transportation sector (21 percent ) 6 . As of
2000, Japan was fourth among nations in CO2 emissions, behind only the United States,
China and Russia. On a per-capita basis, Japan ranked 37th in the world as of 2000, withapproximately 9.35 tonnes of CO2 emissions per person. 7

800
700

Gas
Solid

600

Liquid

500
400
300
200
100
0
1950

1955

1960 1965

1970

1975

1980

1985

1990

1995

Year
Figure 1-1: Historical CO2 Emissions in Japan by Fuel, 1950 to 2000 8

5In this report, we express carbon dioxide emissions based on the full molecular weight of CO2 . Carbon
dioxide emissions are often also expressed in units of "carbon equivalents", which measures the carbon content
of a quantity of CO2 . For example, 1000 tonnes of CO2 is the same as 1000 * 12 (the atomic weight ofcarbon)/44 (the molecular weight of CO2 ), or about 270 tonnes of carbon equivalent (TCE).
6

Note that data shown here are those of UNFCCC. Some of the definitions, calculation methods, and otherparameters used by UNFCCC are different fro m those used by Japanese government organizations providing
similar data.
7

See, for example, http://cdiac.esd.ornl.gov/trends/emis/tre_coun.htm.

8

Historical CO2 Emissions in Japan by Fuel, 1970 to 2000, Gregg Marland and Tom Boden, Carbon Dioxide
Information Analysis Center, Oak Ridge National Laboratory.

8

CO2 Emissions (million tonnes)

Energy Industries

Other industries

Transport

Others

1,400
1,200
1,000
800
600
400
200
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Year
Figure 1-2: CO2 Emissions in Japan by Sector, 1990 to 2000 9
According to the Japanese Government’s "Guideline for Measures to Prevent Global
Warming", the GHG reduction targets relative to 1990's emissions levels for the sectors of
the Japanese economy and specific GHG sources and sinks are as follows:CO2 from energy
sources (0%), CO2 from non-energy sources, CH4 and N2 O (-0.5%), development ofinnovative technologies and further extensive efforts by the public (-2%), HFCs, PFCs andSF6 (+2%), and sinks (-3.9%). Additional cuts necessary to meet the overall emissions
reduction target (1.6%) will be covered by Japan's share of savings achieved elsewhere asallowed through Kyoto mechanism initiatives such as Emissions Trading, the Clean
Development Mechanism and Joint Implementation. 10 This plan suggests that Japan’s CO2
emissions could be reduced most by energy conservation efforts of all sectors and by theaggressive adoption of energy efficient technologies. In fact, analyses of GHG emissions
reduction potential prepared by WWF US as well as WWF Europe also demonstrate thatenergy conservation could most effectively reduce GHG gas emissions. Given, however, thatthe efficiency with which energy is used in Japan is already relatively high —as an indicator,
annual electricity consumption per capita in Japan as of 2000 was 8.3 MWh, versus 13.8
MWh per person-year in the US 11 —it is likely that the level of national GHG reductions
required by the Kyoto protocol will be difficult to achieve by relying solely on energy
efficiency improvements and other forms of energy conservation.

9

UNFCCC Greenhouse Gases Inventory Data Base http://ghg.unfccc.int.

10

Guideline for Measures to Prevent Global Warming,
http://www.kantei.go.jp/foreign/policy/ondanka/020319summary_e.html.
11International Energy Agency, http://www.iea.org.

9

1.3. Power Generation Sector

CO2 Emissions (million tonnes)

Emissions associated with the energy transformation sectors alone are estimated to be over 30
percent (including indirect emissions) of Japan's total national CO2 emissions. As aconsequence, substantial efforts to reduce GHG emissio ns in the power sector—which
accounts for over half of energy transformation emissions—could have a significant impact
on climate change mitigation in Japan. It is therefore imperative for Japan’s power sector toconsider switching to less carbon- intensive fuels and energy resources. As shown in Figure 13, carbon dioxide emissions from electricity generation in Japan increased by 16.5 percent
between 1990 and 2000. This increase is largely the result of an overall increase in electricity
production in Japan (27.8 percent between 1990 and 2000), and has occurred even though
there has been a small overall reduction in the fraction of total generation produced inthermal power plants. Figure 1-4 shows how the composition of electricity production haschanged between 1990 and 2000.

400
390
380
370
360
350
340
330
320
310
300
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Year
Figure 1-3: Carbon Dioxide Emissions from Electricity Generation in Japan 12

12

Handbook of Energy and Economic Statistics in Japan, Edited by the Energy Data and Modeling Center(EDMC) and the Institute of Energy Economics, Japan (IEEJ), and published by the Energy Conservation
Center, Tokyo, Japan, 2002.

10

Electricity Generation by Fuel Type

Coal

Oil

Gas

Nuclear

Others

1999

2000

100%
80%
60%
40%
20%
0%
1990

1993

1995
Year

Figure 1-4: Electricity Generations in Japan by Fuel Type, 1990 to 200013
The major fuel-switching options for electricity generation that are currently underconsideration by the Japanese government to reduce GHG emissions reduction, as evidenced
by the recent Long-term Energy Outlook, are a large increase in the use of nuclear power, an
increase of utilization of coal- fired power plants using high thermal efficiency generation
technologies, an increase in the use of natural gas and gas- fired technologies for generation,
and a variety of technologies for the expanded generation of electricity using renewable fuels
and resources. Among these options, governmental and also semi- governmental researchgroups have focused most extensively on the emissions reduction potential of increased
nuclear power development.
The most recent Long-term Energy Outlook 14 for Japan published by METI (Ministry of
Economy, Trade and Industry) includes the assumption that Japan's GDP (Gross Domestic
Product) growth rate will be 2 percent annually through 2010. This assumption implies
continued increase of energy consumption and necessity of emphasis on nuclear and fossil
fuel use—especially coal—and modest increases in the use of renewable energy. In the
METI outlook, although oil consumption as a primary energy input to the Japanese economy
is projected to decrease from 52% in 1999 to 45% in 2010, coal use and the use of nuclear
power (despite extreme difficulties related to the siting of new coal and nuclear facilities inJapan) will increase. Non-conventional energy (new energy) including renewable sources
will account for only 1.6 percent of Japan’s primary energy by 2010 in the METI’s business

13

Japan Energy Statistics 2001, Agency for Natural Resources and Energy, 2001.

14

Japan’s Energy Policy in the Future, Ministry of Economy, Trade and Industry (METI), Committee for
Natural Resources and Energy, July 2001.

11

as usual case, increasing to 3 percent by 2010 in a "fully implemented" case. All other CO2
emission reduction scenarios that comply with the government energy outlook unsurprisingly
conclude that it is difficult for Japan to meet the national target for greenhouse gas emissions
reduction set at the Kyoto Conference.
In addition to the difficulties described above, global liberalization of energy markets mightalso negatively affect Japan's progress toward its CO2 emissions reduction target. Japan has
little indigenous fossil fuel energy resources. Japan stringently regulated all domestic energy
markets, and put its strongest energy policy emphasis on securing a stable energy supply. The
government had been protecting Japan’s energy markets from the risks associated withcompetition through the use of large energy subsidies and centralized implementation ofnational energy policy. The global trend of energy market liberalization, however, cannot be
avoided. METI realizes tha t to some degree Japanese domestic energy markets must
ultimately open up to fair competition and now promotes market liberalization. The Japanesepublic has in recent years become aware of the real costs—including social andenvironmental costs—of energy, and especially of nuclear power generation, and partially asa result, along with increasingly severe difficulties in siting facilities, there has been lessprivate investment in what is perceived as a risky, inflexible, large, centralized power system.
If, as a result, nuclear power plant development does not occur on the time scale projected by
METI, the reduction of Japan's CO2 emissions to meet the target set by the Kyoto protocol
will be even harder to achieve.
Market liberalization will likely increase the use of coal for power generation in Japan; in fact,
the METI projects high growth in coal usage in the coming years. Under liberalized,
competitive market conditions, the power sector would tend to avoid high-risk investments
such as nuclear power stations, and would also try to improve efficiency and cut costs byusing cheap fossil fuels such as coal. World wide reserves of coal are also greater than thoseof any other fossil fuel, and stable supplies of coal are available from a number of exporting
countries. The availability of cost reduction measures such as these could also, in acompetitive environment (and in the absence of additional incentives to pursue
environmentally- friendly generation options), cause power sector investors to avoid
investments in more costly hydroelectric and other renewable energy power facilities. Low
energy prices would also reduce the economic attractiveness of energy efficiency
improvements and energy conservation efforts. These trends, taken together, will likely cause
an increase in CO2 emissions from the Japanese power sector. In addition and in the absenceof targeted policies to the contrary, market liberalization could lead to less government
control through policies over environmental issues.

2. WWF Japan Power Switch Project2.1. Project Outline
The WWF launched the Power Switch Campaign in 2003. In the Power Switch Campaign,
the WWF challenges one of the major GHG emitters, the power sector, to take action to makesignificant emission reductions and to make a rapid transition from coal- fired power stations
to clean power sources.
In order to implement the campaign, WWF Japan launched Japan’s Power Switch Energy
Scenario Project to explore the maximum potential for CO2 emissions reductions from12

Japan’s power sector, and to create a "Power Switch" alternative scenario that offers asignificant, but achievable and realistic, departure from the official Japanese energy outlook.
The major goal of this study is to demonstrate and evaluate an achievable "power switch"
proposal for consideration by decision- makers in Japan. The study will be used to influence
decision makers in the Japanese power sector and in the Japanese government, and to informthe public that an effective, practical lower-carbon alternative to "business as usual" does
exist. It is hoped that this increased awareness will create demand for new policies andmeasures to be implemented. This study also incorporates the results of related studies done
previously for WWF Japan:WWF Scenario for solving the Global Warming Problem, Index
for 2010 and 2020, prepared by Dr. Haruki Tuchiya of the Institute for System Technology, 15
and the Renewable Energy 10% Potential in Japan done by the Institute for Sustainable
Energy Policy (ISEP). 16

2.2. Research Methodology and Tools
The preparation of an energy-sector model for Japan, and the analysis of the Power Switch
scenario for the power sector, was carried out within the LEAP (Long-range Energyenvironment Alternatives Planning) software framework. LEAP, developed by the
Stockholm Environment Institute—Boston Center, is a scenario-based energy-environment
modeling tool. Scenarios in LEAP are based on a comprehensive accounting of how energy
is consumed, transformed and produced in a given region or economy under a range ofalternative assumptions for future changes in population, economic development, technology,
prices and other parameters. With its flexible data structures, LEAP allows for analysis asrich in technological specification and end-use detail as the user chooses. LEAP is not an
optimizing model, rather it is a "bottom- up" (demand-driven) model in which users create
quantitative descriptions of current and future energy demand and supply—energy andenvironmental scenarios—and evaluate the degree to which those scenarios meet specificcriteria (such as cost, fuel diversity, or environmental constraints). Other software, such as
MS Excel™, was used to supplement and document the elaboration of LEAP databases andthe analysis of different energy scenarios.
The Project Team gathered and assembled as much energy data as possible on energy supply
and demand in Japan, with a special focus on the energy transformation sector in general, andthe power sector in particular. We also collected data on activities affecting energy demand,
including data on historical, current, and (when available) projected industrial output,
demographics, transport infrastructure, agricultural production, and other similar "drivers" ofenergy requirements. The Project Team then developed quantitative descriptions of the "baseyear" (2000, the most recent year for which complete data were available) energy demandand supply situation, of a Business as Usual energy scenario (based in part on existing
projections by Japanese government agencies), and of a "Power Switch" scenario in which
aggressive measures are applied to reduce power sector CO2 emissions in Japan. Note that the
PS scenario is not a projection, but one of the “achievable” alternative energy pathways that

15

WWF Scenario for Solving the Global Warming Problem, Index for 2010 and 2020, Haruki Tsuchiya,
Institute of System Technology, July 2001.
16“Renewable energy 10% potential in 2010 in Japan,” Institute for Sustainable Energy Policies (ISEP), March
2003.

13

Japan could take. Excel wo rkbooks that include much of the base year and projections data
used to prepare the Japan LEAP model is attached as Annex17 to this report.
Once the Business as Usual and Power Switch scenarios were complete, LEAP was used toestimate the GHG (and other pollutant) emissions implied by each of the scenarios, and was
also used to determine the relative costs of the two scenarios. Further details of how thesescenarios were formulated, and a summary of scenario results, are provided in sections 3 and
4 of this report.

3. Business as Usual Scenario
3.1. BAU Scenario Assumptions
The Business as Usual (BAU) scenario represents the energy pathway that is implied if
current energy policies and supply and demand trends in Japan persist. We developed the
BAU scenario to match as closely as possible the BAU scenarios outlined by the Ministry of
Economy, Trade and Industry (METI) and the Institute of Energy Economics, Japan (IEEJ).
The projection period for the scenario is 20 years and starts from a 2000, the "base year"—the most recent year for which reasonably complete energy data are available. Base year
energy data were obtained from various sources, with the principle source being the EDMC
Energy Handbook 18 and Japan Energy Statistics, both published by IEEJ 19 . Assumptions andenergy data projections for the Business As Usual scenario were for the most part obtained
from the METI and IEEJ publications 20 . Projections through 2010 were based on projections
and policies adapted from those assembled by METI. 21
Both METI and IEEJ outlined two scenarios, "BAU" scenarios and "Target" scenarios. In
this study, we use the METI and IEEJ BAU forecasts, with minor modifications, as the "basecase" for analyzing future trends. The METI and IEEJ "Target" scenarios were used to informthe Power Switch scenarios, in combination with the ISEP study 22 , WWF Scenario for
Solving the Global Warming Problem, prepared by Prof. H. Tsuchiya for WWF Japan, 23
other work by WWF Japan and other research groups, as well as the Project Team's own
assumptions as to future trends in Japan's energy sector.

17

The Annex will be published separately later and will be made available on the WWF Japan’s website(http://www.wwf.or.jp).
18

Handbook of Energy and Economic Statistics in Japan, Edited by the Energy Data and Modeling Center(EDMC) and the Institute of Energy Economics, Japan (IEEJ), and published by the Energy Conservation
Center, Tokyo, Japan, 2002.
19

Japan Energy Statistics, 2001, Agency for Natural Resources and Energy, 2002.

20

Long-Term Energy Outlook in Japan - Energy Outlook by 2020 under the Environmental and Market
Constraints, Koukichi Ito, IEEJ Nov. 20, 2002.
21

We have used the latest METI projection. However, Japan’s official government scenario does not follow thecurrent trend and actually posits a higher growth projection in terms of energy consumption and CO2 emissions.
The official scenario will likely be revised soon. Therefore the current trend may result in lower CO2 emissions
than the government scenario would.
22

ISEP, op.cit.

23

Tsuchiya, op.cit.

14

For overall projections of economic and demographic trends, the Project Team relied largelyon the publication Long-term Energy Supply/Demand Outlook (hereafter referred to as"Energy Outlook"), by the Ministry of Economy, Trade and Industry (METI) Advisory
Committee for Energy and Resources, July 2001. METI publishes reviews of Japan’s energy
policy every several years. The 2001 version of the Energy Outlook is the latest edition
available of METI's review as of this writing. The METI outlook includes some projections
that appear to run counter to trends over the last decade or more. The METI assumptions thatappear questionable include 1) economic growth will continue at an annual growth rate of
2.0% until 2020, but energy consumption and CO2 emissions will stay at very low levels, 2)energy conservation will be accelerated drastically, (recent trends show minimal if any
improvement in energy efficiency in most sectors 24 ), 3) there will be no or little siting
difficulties for nuclear power plant constructio n, 4) domestic energy prices will be stable atvery high levels, and 5) agriculture and the construction materials industry will grow steadily.
IEEJ modified METI’s energy outlook with by modifying several assumptions. For instance,in the IEEJ report, GDP annual growth rate is 1.5 percent per year until the year 2010, and is
1.1 percent annually from 2010 to 2020. These rates are lower than METI’s projections, but
are still higher than the current trend (Japan's GDP grew by an average of 0.7 percent/yr
between 1997 and 2002 25 ).
Given the current situation (the annual GDP growth rate 0.4 percent in 2001, and 0.2 percent
in 2002), we modified the GDP assumption in this report taking into account other researchgroups’ projections. 26 In the report, GDP growth is 0.5 percent annually until 2005 reflecting
recent economic trends in Japan, and 1.5 percent after 2005, so that overall GDP growth from2000 to 2020 is similar to the GDP growth projected by IEEJ. It is highly likely that the real
GDP by 2020 would be lower than that reflected in the BAU scenario as modified for thecurrent study. In order to avoid the underestimation of future energy consumption by
estimating too low a rate of GDP growth, however, in this study we used figures as close as
possible to those in IEEJ’s report for GDP growth and for other economic assumptions.

3.1.1. Electricity Demand
Key assumptions in the electricity demand sectors for the BAU scenario include 1) current
trends in electricity consumption continue, 2) no extensive additional energy conservation
measures are imposed, and 3) no drastic policy changes are implemented. As a consequence,even though the energy efficiency of electricity-using technologies will continue to improve
incrementally, overall energy consumption will continue to increase due to a combination ofhigher activity levels, increases in ownership rates for appliances, increase in the size of
appliances, increases in the average number of hours that an appliance is used annually, andother factors. This trend in increasing consumption continued since 1986, a year in whichenergy prices declined significantly.

Residential Sector

24

The Energy Conservation Center, Japan, http://www.eccj.or.jp.

25

Economic and Social Research Institute, Cabinet Office, Government of Japan,
http://www.esri.cao.go.jp/en/sna/menu.html.
26

Handbook of Energy & Economic Statistics in Japan, The Energy Data and Modeling Center, IEEJ. Also theCentral Research Institute of Electric Power Industry published their own projection at
http://criepi.denken.or.jp/eng.

15

The key underlying activity in the residential sector is the number of households. Though
population in the BAU scenario reaches its peak in 2007 (at just under 128 million people),declining slowly thereafter to slightly over 124 million by 2020, total households increase
until 2010. The number of households are assumed to remain stable after 2010 (at 50.3
million), as declines in population are made up for by decreases in the number of people perhousehold (continuing a trend of decreasing household size).
Energy efficiency improvements in the residential sector are assumed to continue at t roughly
the same rate as during the 1990s. Large home appliances such as refrigerators andtelevisions tend to be larger in size, and the number of appliances per household (theownership ratio) will increase, but at the same time the per- unit electricity consumption ofthese home appliances will decrease as they will become more energy efficient throughtechnological innovation. Multiplying these countervailing factors together, the overall
energy consumption for refrigerators and televisions will decrease on a per household basis.
Conversely, the number of air conditioners, electronic high-tech toilets, dishwashers/dryers,
clothes dryers, and personal computers per household will increase much faster than the rateof efficiency improvement, meaning that total energy consumption per household for theseappliances will continue to increase.

Commercial Sector
The commercial sector has been and will be the fastest growth sector in Japan, both in termsof economic performance and in terms of energy consumption. An increase in retail andother commercial floor space, in the use of air conditioning per unit space, and an increase in
the use of office appliances such as computers and copy machines contribute to giving thecommercial sector the fastest growth of electricity consumption among the Japaneseelectricity demand sectors. In the BAU case, commercial floor space is assumed to increaseby over 40 percent between 2000 and 2020 (to 2.35 billion square meters), an average annual
growth rate of 1.77 percent. Of the major end-uses of energy in the commercial sector, theenergy intensity of cooling and cooking (measured per unit of total commercial floor space)
are assumed to increase during the modeling period, while the energy intensity of space heat
and water heat decline. Electricity used for "motive energy and other", including, forexample, pumps, fans, refrigeration, lighting, and electronics, increases to 2005, remains
stable through 2010, then declines slowly through 2020.

Industrial Sector
In the industrial sector, physical output in the paper and chemicals sub sectors is assumed toincrease between 2000 and 2020, while output in the ceramics (including cement) and steel
sectors continue to decline slowly. Output in the non- ferrous metals and metals finishingindustries is assumed to rise throughout the modeling period, while output in "othermanufacturing" declines, and output in the food processing and textile industries rise for a
few years after 2000, then slowly decline through 2020. Output in the agriculture andforestry, mining, and fishing industries declines considerably between 2000 and 2020, but
output in the construction sector, after declining slowly until 2005, is assumed to increase
very modestly thereafter (at an average of 0.2 percent annually).
Fuel use in the industrial sector is assumed to continue to shift from coal, cokes, and oil
products (particularly heavy fuel oils) to electricity, resulting in an increase in industrial
electricity consumption. The industrial sector arguably has the potential to improve its energy
efficiency and to conserve energy more than other sectors of the Japanese economy, in part
because METI could impose energy-efficiency policies on the Industrial sector more easily

16

than similar policies could be imposed on other sectors. In addition, in the next two decades
the trend of lower-energy intensity industries becoming more dominant in the economy
relative to more traditional "heavy" industries will likely continue. Both of these factors
argue for an overall decrease in the use of most fuels in the industrial sector. Historically, in
the Japanese industrial sector, energy consumption per unit of activity decreased dramaticallythrough 1986 as the energy efficiency of manufacturing technology was improved. Since
1986, however, energy consumption in the industrial sector has been slightly increasing until
1997, and there have not been significant improvements in industrial energy intensities sincethat time.
In the BAU case for industrial energy demand, assumptions as to future changes in energy
intensity vary for different fuels and different sub sectors, but in general the intensity of coaland heavy oil use tends to decline fairly rapidly, while the use of natural and municipal gas
increases, and the use of electricity either declines modestly or increases (on a per unit ofoutput basis).

Transportation Sector
The main transport sector activities that drive energy demand are passenger kilometers
traveled, which is assumed, in the BAU scenario, to increase at an average of 0.8 percent
annually from 2000 to 2020, and freight (portage) tonne-km transported, which increases at a
slower 0.5 percent per year.
Transportation sector energy consumption in Japan was relatively stable until 1986, but has
been increasing ever since. Though the fu el economy of family cars has been improving
significantly27 , other factors that increase fuel consumption have become dominant, and as aresult fuel consumption per vehicle has increased very substantially 28 .
In the BAU scenario, the fraction of passenger transport using private vehicles, and thepassenger-km of air travel, are assumed to increase gradually between 2000 and 2020, with areduction in the fraction of passengers transported by other modes, particularly by train. Theenergy intensity per passenger-km of most passenger transport modes is assumed to remain
the same or increase slightly over the modeling period, with the exception being "Eco-type"private vehicles (with more twice the fuel economy of standard ve hicles by 2020) and jet
transport, both of which are assumed to have substantial efficiency improvements over time.
BAU scenario freight transport is assumed to shift toward road transport and away from shiptransport. The energy intensity (per tonne-km transported) of freight transport is assumed todecrease for road and air freight, remaining the same for rail and water-borne freight.
In 2000, electricity consumption in the transport sector was dominated by rail transportation(electric trains). The railway sector will continue to gradually shift from diesel to electric
locomotives, and the energy intensity of both types of passenger trains is assumed to also
slowly increase (0.5 percent annually). The energy intensity of freight trains is assumed toremain constant. Despite the development of electric car technology, the total population ofelectric vehicles is assumed to remain insignificant throughout the study period in the BAU
scenario, and as a result the amount of electricity consumed by electric cars is assumed to27

Japan Automobile Manufacturers Association, Inc. http://www.jama.or.jp/lib/jamagazine/200208/05.html

28

Some of the factors that increase transport sector fuel consumption are an increase of activity (number ofpeople x km), an increase in vehicle weight and size, an increase in the use of private vehicles, a decrease in thenumber of passenger per vehicle.

17remain negligible. As a result of these assumptions about electricity use in the rail and roadsub sectors, electricity use in the transportation sector, which is modest in the base year (asshown below) grows over the forecast period, but does so relatively slowly.

3.1.2. BAU Electricity Demand Projections
Figure 3-1 shows business-as-usual electricity demand simulated by LEAP using the METI
and IEEJ assumptions described above. Electricity consumption in the BAU scenario isprojected to increase from 968 TWh in 2000 to 1168 TWh in 2020. This result indicates that
if current trends continue as modeled, electricity consumption will grow by an average rate of
0.9% annually over the study period, though growth in the 2000 to 2010 period is somewhat
more rapid than in the 2010 to 2020 period. Among the different sectors of the Japanese
economy, electricity consumption in the services (commercial) sector shows the strongest
growth (averaging 1.7 percent/yr over the study period), followed by the households(residential) sector, at 0.9 percent annually, the industrial sector at an average of 0.5
percent/yr, and the transport sector at 0.3 percent/yr.

Electricity Demand (TWh)Electricity demand grows faster than overall fuels demand in Japan in the BAU scenario.
Overall demand for end-use fuels increases by an average of 0.56 percent annually over the
study period, and the fraction of end- use fuels demand provided by electricity increases from
22.6 percent in 2000 to 24.4 percent by 2020. Of the other major fuels used in the Japanese
economy, the use of municipal gas grows the fastest, at an average annual rate of 1.8
percent/yr.

1400

Transport
Commercial

1200

Industry
Residential

1000
800
600
400
200
0
2000

2005

2010

2015

2020

Projection Year
Figure 3-1: BAU Electricity Demand Projection

3.1.3. Electricity Supply and Other Fuel Transformation: BAU
Scenario
In addition to the simulation of demand for electricity and other fuels described above, theLEAP model for Japan includes a rough model of the system for transforming resources(domestic and imported) into end-use fuels. Different transformation "modules" simulate the18equipment and operations necessary to produce different fuels or move them from one place
to another. The modules used in the LEAP model for Japan include:•

Electricity and municipal gas transmission and distribution•

District Heat production•

Electricity generation•

Municipal gas production•

Oil refining•

Coke production•

LNG imports•

Coal mining•

Natural gas extraction•

Oil extraction

Where appropriate, additions to production capacity are modeled over time so that theamount of fuel produced matches the amount of fuel consumed in the demand sectors. As
this report focuses primarily on electricity, details on the assumptions underlying BAU
changes in electric generation capacity are described below. Additional detail onassumptions used in modeling BAU electricity generation, as well as on assumptions used tomodel other transformation processes, can be found in the Annex to this report.

METI and IEEJ Assumptions
In preparing a LEAP simulation for an electricity supply scenario meeting the Business As
Usual scenario electricity demand calculated as described above, the Project Team started
with electricity generation fuel portfolio for assumptions based in part on reports by METI
(which provided scenarios through 2010) 29 and IEEJ (scenarios through 2020)30 . Table 3-1
shows IEEJ historical data and future projections for electricity output by fuel for public
utilities. Discussions of specific policies and BAU scenario assumptions for nuclear power
and for electricity generated using renewable resources are provided below.

29

Japan’s Energy Policy in the Future, Ministry of Economy, Trade and Industry (METI), Committee for
Natural Resources and Energy, July 2001.
30

Long-Term Energy Outlook in Japan - Energy Outlook by 2020 under the Environmental and Market
Constraints, Koukichi Ito, IEEJ Nov. 20, 2002.

19

Table 3-1: IEEJ Projection of Electricity Generation by Public Utilities
(TWh)

1980

1990

2000

2010

2020

Coal

25 (5%)

75 (10 %)

170 (18%)213 (20%)246 (22%)LNG

78 (15%)165 (22 %)

246 (26%)301 (29%)319 (28%)

Oil

231 (45%)203 (27 %)84 (9%)

64 (6%)

50 (4 %)

Others16 (3%)

21 (3%)

23 (2%)

23 (2%)

23 (2%)

Nuclear82 (16%)201 (27 %)

321 (34%)351 (34)404 (35%)

Hydro, Geothermal, etc.

86 (17%)87 (12 %)

90 (10%)95 (9%)

98 (9%)

Total

518

753

936

1047

1139

These numbers show only the electricity generation by the Public Utilities. Electricity is also
generated by auto-producers (non-public utilities) — industries and other consumers who
generate their own electricity on-site. In METI’s report, current trends of increases inelectricity generation and ge neration capacity by auto-producers are assumed to continue into
the future. Total thermal generation capacity used by auto-producers in 2000 was 28 GW, andthe fuel types used to power of thermal auto-producer generation capacity were oil (18 GW),
coal (10 GW), municipal solid waste (or MSW 1 GW), and NG (0 GW). Total electricity
generation is 151 TWh in 2000.
NuclearNational policy with respect to nuclear power development has the most significant impact
on Japan’s potential to reduce CO2 emissions from the power sector. Nuclear plants in Japan
have historically been used to provide base load power, and have been run at annual averagecapacity factors of sometimes more than 80 percent. 31 32 The addition of one nuclear power
plant of about 1 GW capacity therefore increases annual nuclear output by almost 6-8 TWh,and as a consequence the number of nuclear power plants placed in service in coming years
really has a marked bearing on how much GHG reduction can be expected in the power
sector. Table 3-2 shows three projections of future nuclear capacity compiled by different
governmental and semi- governmental organizations in Japan. Since it is uncertain how tosolve the increasingly contentious problem of siting new nuclear capacity, even in a BAU
scenario (let alone in a scenario where nuclear capacity additions are accelerated), there arewide variations in the projections.

31

http://www.atom.meti.go.jp/siraberu/atom/05/index01s.html, or www.nisa.meti.go.jp/text/kokusai/030404c.pdf.
32

The "capacity factor" of a power plant is a measure of fraction of time that the plant operates at full capacity.
Thus a capacity factor of 80 percent indicates that a plant annually generates power equal to its rated capacity
times the number of hours in a year (8760) times 0.80.

20

Table 3-2: Projected Business as Usual nuclear capacity
Year

2002

METI
IEEJ
Ministry of Environment 33

2010 (# of new units)2020

61.85 GW (+13)
45.91 GW

51.90 GW (+5)

61.50 GW (+7)

53.25-59.7 GW (+7-13)

In this report, for the BAU scenario, no nuclear plant retirement is planned, although someexisting plants should be retired before 2020 if the operating lifetime of nuclear plants is
assumed to be 40 years. We assume, for the BAU scenario, that the Japanese government will
use a target operating lifetime for existing of nuclear power plants that could be extended up
to 60 years. 34 As a consequence, none of the 45.91GW of nuclear capacity currently
operating will be retired, in the BAU scenario, until the year 2020 or later (Japan's oldest
commercial nuclear power plants were put into service in the late 1960s and early 1970s). In
IEEJ’s scenario of business-as-usual nuclear power development, three nuclear power units
now under construction are completed, and the scenario includes two additional units, which
would be built by the year 2010. Installed nuclear capacity would therefore rise to be 51.90
GW by 2010 in IEEJ's scenario. IEEJ projects that seven more nuclear units could be built
between 2010 and 2020, raising total operating nuclear capacity to 61.50 GW. METI projects
the addition of 10-13 plants by 2010, leaving generation capacity in that year at 61.85 GW(23.2 percent of total national capacity) by the end of that year. In this study we largely adopt
IEEJ’s assumptions about future increases in nuclear capacity.
Renewables
The CO2 reduction potential of switching to renewable fuels and renewable energy
technologies in the power sector in Japan has tended to be neglected in spite of theconsiderable technical, environmental, social, and political difficulties associated with further
development of nuclear, and even fossil- fueled, power options in Japan. The lack ofcredibility of renewable energy technologies among power sector decision makers in Japan
stems from the belief that renewables-based power systems cannot cost-effectively provide
enough power to support Japan’s projected high economic growth.
In contrast with the case of future nuclear power capacity estimates, there are few
discrepancies among the projections of the output of renewable energy systems among
various groups. In IEEJ’s projection of future energy supply, energy generated fromrenewable sources estimates to total 4,000,000 kl of crude oil equivalent by 2010 and
5,000,000 kl by 2020. Projections by METI and NEDO (New Energy Development

33

Report of GHG reduction scenario meeting in 2000, Reduction potential from the energy transformation
sector, Ministry of the Environment, March 2001 March http://www.env.go.jp/earth/report/h12-03/6-1.pdf
34

Nuclear power plants originally had a design lifetime of up to 40 years, but recent engineering assessments ofnuclear plants has established that many can operate longer. Therefore, the operating lifetime of nuclear plants
would likely be extended in Japan. http://www.world-nuclear.org/info/inf17.htm.

21Organization) are on the same order of magnitude. Table 3-4 provides a summary of renewablebased electricity generation capacity included in IEEJ's business-as-usual projections 35 .
Table 3-3: Renewable Electricity Generation Capacity Projections
GW of:

1999

2010

2020

PV36

0.21

2.54

3.65

Wind

0.08

0.78

1.23

MSW37

0.90

1.75

2.19

Other assumptions
The cogeneration capacity is projected to grow at a rate of 2.3 percent annually through 2010
and 1.5 percent/yr between 2010 and 2020. Both IEEJ and METI project the use of fuel cell
technologies grow at a relatively high rate of 10.1 percent annually, which we use as thegrowth rate of fuel cell capacity addition through 2020.

3.1.4. BAU Scenario Results: Electricity Sector
The growth in electricity demand projected in the BAU scenario requires a corresponding
increase in electricity generation, and in generation capacity. The following paragraphs show
the implications of demand growth and of BAU assumptions as to the types of power plants
likely to be added, on the mix of electricity generation capacity and output over the study
period, and summarize the implications of BAU-case electricity sector development on theemissions of greenhouse gases from the electricity sector.

Generation Capacity and Electricity Output
Figure 3-2 shows the trends in generation capacity by type of power plant in the BAU
scenario. The bulk of the total new capacity added between 2000 and 2020 (a total of about
69 GW) is made up by a combination of coal- fired, nuclear, and natural gas-fired power
plants. About 19 GW of existing oil- fired capacity is retired, resulting in a net capacity
addition of about 50 GW between 2000 and 2010. More modest additions of pumped-storagehydroelectric power plants (to provide peak power) and small amounts of renewable energybased electricity are also added. Because the year 2000 capacity of fuel cell generatio n isonly 12 MW, even the growth rate of over 10 percent annually assumed as above leaves total
year 2020 fuel cell capacity at less than 100 MW, which is a small fraction of a percent ofyear 2020 total national BAU generation capacity of nearly 310 GW.

35

Long-Term Energy Outlook in Japan - Energy Outlook by 2020 under the Environmental and Market
Constraints, Koukichi Ito, IEEJ Nov. 20, 2002.
36"PV" denotes solar photovoltaic power systems.

37

MSW is not considered to be a renewable energy source in the Power Switch Scenario. MSW is discussed
more in the later section.

22

Generation Capacity (GW)

350

Coal
NuclearRenewables

300

Oil
Hydro
OthersNatural Gas
Cogen&Fuel Cells

250
200
150
100
50
0
2000

2005

2010

2015

2020

Projection Year

Figure 3-2: Generation Capacity in Business as Usual Scenario
Figure 3-3 presents the distribution of electricity output by different plant types in the BAU
scenario. The pattern of output does not change radically over time, but the fractions of total
electricity output provided by coal- fired, gas-fired, and nuclear plants each increase between
2000 and 2020.

23

1600

Electricity Generation (TWh)

1400

Coal
Natural Gas
Hydro
Renewables

Oil
NuclearCogen&Fuel Cells
Others

1200
1000
800
600
400
200
0
2000

2005

2010
Projection Year

2015

2020

Figure 3-3: Generation Output in Business as Usual Scenario
In the BAU scenario, electricity generation must rise to 1320 TWh by 2020 in order to meet
BAU electricity demand (plus transmission and distribution losses), implying an averageannual growth rate of just under 1.0 percent per year from 2000 to 2020. Primary energy
consumption (all fuels) in the electricity sector was 2667TWh (9596 PJ) in 1999, and is
projected to rise, under the BAU scenario to 3430 TWh (12340 PJ) by 2020. By 2020, thegeneration fuel mix in Japan under the BAU scenario will be 36 percent nuclear, 22 percent
natural gas, 24 percent coal, 10 percent oil, and about 8 percent fuel for generation based onother indigenous resources, including hydro, geothermal, and biomass wastes.

Greenhouse Gas Emissions Projections
Greenhouse gas emissions, expressed in CO2 equivalents, from the electricity generation
sector are projected to increase to 480 million tonnes of CO2 by 2020, as shown in Figure 34,38 an increase of 21 percent from the level in 2000. Of the total power sector emissions inJapan as of 2020, nearly 47 percent of the GHG emissions come from coal combustion,although electricity from coal fired plants accounts for only 24 percent of electricity
generated.

38

The coefficients used to convert fuel use in the electricity sector to estimates of greenhouse gas emissions aretaken from a database of IPCC (Intergovernmental Panel on Climate Change) emissions factors. The Japanese
government uses a different calorie calculation for some fuels, and thus uses slightly different emissions
coefficients.

24

CO2 Emissions (million tonnes)

600

Coal
Natural Gas
Renewables

500

Oil
Cogen&Fuel Cells

400
300
200
100
0
2000

2005

2010

2015

2020

Projection Year
Figure 3-4: Greenhouse Gas Emissions in the BAU Scenario

4. Power Switch Scenario
The Power Switch (PS) Scenario demonstrates the savings in greenhouse gas emissions thatJapan could achieve through a program of switching power generation technologies or fuels
to low- or no-carbon resources, coupled with a timely and aggressive program of increasingenergy-efficiency and demand-side generation.

4.1. Power Switch Scenario Assumptions
The PS scenario differs from the BAU scenario in that it incorporates the following aspects:
1) stronger emphasis on substitution of natural gas for coal, 2) a gradual nuclear phase out("early" retirement of some nuclear units), 3) explicit emphasis on renewable energy
implementation, natural gas- fired cogeneration and highly efficient natural gas- fired
combined cycle generation, 39 and 4) the implementation of energy efficiency and energy
conservation measures, mostly targeted at reducing electricity use, on a broad scale in theresidential, commercial and industrial energy demand sectors.

39

Combined-cycle capacity is used in the Power Switch scenario as "endogenous capacity", a term related to thespecification of the LEAP model that means that the model is set so that when more generation capacity isneeded, LEAP adds gas-fired combined-cycle capacity.

25

In addition to the general overall characteristics just described, the Power Switch Scenario
also incorporates the results of two WWF Japan studies conducted, respectively, by Dr.
Haruki Tuchiya of the Institute of System Technology, 40 and by the Institute of Sustainable
Energy Policies (ISEP). 41 Tsuchiya’s study provides estimates of the CO2 reduction potentialof adopting energy-efficient technologies in the demand sector. The ISEP study assesses how
much renewable energy implementation would be plausible by 2010. The Power Switch
scenario in this study incorporates major elements of both studies. The goal of this scenario
is to combine, describe and quantitatively evaluate WWF Japan’s major perspectives
regarding sustainable, clean and feasible energy scenarios. In so doing, the scenario projects
a future that, WWF believes, is achievable through a combination of national will andaggressive policy measures designed to bring about changes in how energy consumed andsupplied in Japan.

4.1.1. Demand-side Energy Efficient Technologies (Tsuchiya
Study)For the purposes of the Power Switch scenario, we on the one hand focus on the energy
transformation sector, and, in particular, on how the power sector could reduce its emissionsof GHGs and other pollutants by switching fuels and changing technologies. Given the longlife of power sector infrastructure, however, it is clear that the biggest potential reductions ofgreenhouse gas emissions from the power sector is to reduce the demand for power throughenergy conservation and efficiency improvement. Carbon dioxide emissions from the power
generation sector in Japan increased 16.5 percent between 1990 and 2000 while electricity
consumption increased from 766 TWh to 978 TWh, or 27.8 percent.42 Given this rate of
growth, and Japan's relatively limited energy resources, it clearly will not be easy to reducegreenhouse gas emissions by relying on electricity supply-side changes alone.
In fact, energy conservation has been shown to have very significant potential to cut CO2 andother GHG emissions in other countries. In a study of the potential for GHG emissions
reductions in the United States (the "WWF US study"43 ), energy efficiency measures entirely
displace growth in electricity demand after 2005, and supply a similar reduction in CO2emissions from the electricity sector. Using a similar approach, a WWF-Europe report showsthat electricity demand reductions of 27 percent could be achieved. 44 WWF-Japan also
commissioned an extensive study (the "Tsuchiya study") that assessed the carbon dioxide
emissions reduction potential available from measures in the demand sector that promoteenergy conservation and accelerate the adoption of energy-efficient technologies. Given that
overall electricity cons umption per capita in Japan is already half of that of the United

40

Tsuchiya, op.cit. .

41

ISEP, op.cit.

42

Handbook of Energy and Economic Statistics in Japan 2002, The Energy Data and Modeling Center, The
Institute of Energy Economics, Japan (IEEJ).
43

The Path to Carbon Dioxide-Free Power: Switching to Clean Energy in the Utility Sector, A study for World
Wildlife Fund, prepared by Tellus Institute and The Center for Energy and Climate Solutions, April 2003. The
results of the analysis showed the potential to decrease US emissions to 60 percent below current levels by 2020
without the per ton price going above $15 US.
44

Low Carbon Electricity Systems – Methodology and Results for the EU , Mirjam Harmelink, Wina Graus,
Kornelis Blok, and Monique Voogt, ECOFYS, March 2003.

26

States, 45 one might think that energy conservation and energy efficiency might not be aseffective a means to cut CO2 emissions in Japan as it would be in the United States, but the
Tsuchiya study demonstrates that there still are significant CO2 emissions that could be
reduced by adopting technologies that require less electricity.
Key energy-efficient technologies described in the Tsuchiya study are as follows:•

Transformation sector; amorphous-type transformers (improved pole transformers forelectricity distribution).

•

Industrial sector; inverter-controlled motors, improved factory transformers, introductionof high-efficiency motors, introduction of high-efficiency luminous lights, introduction of
LED (Light-emitting diode) lighting.

•Commercial sector; high-efficiency transformers, cogeneration, introduction of nonfilament street lights, LED traffic lights, replacement of incandescent lamps with LEDs,
replacement of fluorescent lights with LEDs, replacement of emergency lights with LEDs,
LCD (liquid crystal display) personal computer monitors (replacing cathode ray tube
displays), reduction of standby electricity losses in office electronic equipment,
digitalization of paper-based documents through IT (information technology) measures(reducing the use of paper, printing machines, and printing supplies), improvement ofvending machine energy efficiency, energy-saving elevators, promotion of energy
management systems for buildings,•

Household sector: LCD televisions, LCD personal computer monitors, high-performance
refrigerators, fuel cell co-generation, reduction of standby electricity losses in homeelectronics.

To this list of technologies, the authors of this report have added an increase in householdand commercial-sector solar water heater use.
In addition, the Tsuchiya report includes, and the authors include in the Power Switch
scenario, gas- fired cogeneration (internal combustion engine and combustion turbine) in thecommercial sector, and gas-fired fuel-cell cogeneration in the household sector. Distributed
solar photovoltaic generation in the industrial, commercial, and household sectors is also
included. Cogeneration and distributed generation reduce the amount of electricity thatutilities are required to generate both by supplying demand on-site and by reducing overall
transmission and distribution losses, as less electricity needs to be transported from central
power plants to consumers.
The estimated reduction of electricity demand based on the authors' interpretation of
CO2 emissions reduction results from the Tsuchiya study is summarized in Table 4-1

45

8.3 MWh and 13.8 MWh in 2000, International Energy Agency, http://www.iea.org.

27

Table 4-1: CO2 Emissions and Estimated Electricity Demand Reduction by Adopting
Energy Efficient Technologies
CO2 reduction (Million
tonnes CO2 )Year/sector
2010
2020
Transformation
4.84
9.50
Industrial
20.2
43.1
Transportation
62.0
91.5
Commercial
26.7
55.6
Household
21.4
41.1
Total
135.1
240.8

Electricity demand
reduction (TWh)
2010
2020
7.0
13.8
46
27.1
59.3
0
0
46.6
93.9
30.8
58.1
111.5
225.1

Overall, the reduction in electricity demand obtained by adoption of the electricity-efficientand cogeneration/distributed generation technologies included in the Tsuchiya report (andadditional demand-side technologies as noted above) is estimated at 114 TWh by 2010 and
238 TWh by 2020. 47 As a result, net electricity consumption in the PS scenario is 930 TWh in
2020, which is a 20 percent reduction relative to the BAU scenario. Relative to electricity
demand in the year 2000, net electricity demand in the PS scenario increases virtually not at
all through 2010, and then drops so that by 2020 net electricity demand about three percent
lower than in 2000. Figure 4-1 shows the pattern of net electricity demand in the Power
Switch scenario. An additional savings of about 7 TWh in 2010 and nearly 14 TWh in 2020is achieved by the accelerated implementation of amorphous transformers (improved "pole"electricity distribution transformers). When these savings are factored in, the result is that therequirements for electricity generation in the PS scenario are less, by a bit more than four
percent, in 2020 than they were in 2000.
It should be noted that neither the Tsuchiya report nor the PS scenario even begins to exhaust
the potential for electricity demand reductions through energy efficiency measures. For
example, no industrial process improvements (other than motor and motor system
improvements) are included in the Tsuchiya report, nor is commercial air conditioning
equipment or refrigeration equipment (except vending machines). In the household sector,
improved-efficiency air conditioning, home insulation improvements, and lighting measures,among othe rs, are not explicitly included in either the Tsuchiya report or in the PS scenario
considered here. This suggests that there remains considerable untapped energy-efficiency
potential even beyond the substantial potential savings noted above.

46

Industrial estimates do not include modest electricity savings from reduction of paper and cement
manufacture achieved through the "digitalization of paper" and "house renovation rather than replacement"
measures.
47

These numbers of the total demand-side savings include distributed generation – both cogeneration and PV,
which is why they are higher than in Table 4-1.

28

Electricity Demand (TWh)

1200
1000

Transport
Commercial

Industry
Residential

800
600
400
200
0
2000

2005

2010

2015

2020

Projection Year

Figure 4-1: Net Electricity Demand in the Power Switch Scenario

4.1.2. Power Sector Scenario Assumptions
Although demand-side energy efficiency and distributed generation measures are crucial
elements to the reduction of electricity-sector greenhouse gas emissions, particularly in themedium term, a key focus of this study is on changes that can be made in the Japanese power
sector to markedly reduce greenhouse gas emissions. Below, we discuss several central
elements on the "supply side" of the PS scenario. These include a shift away from coal use
in the power sector, a similar shift away from the use of oil, an aggressive effort to implement
renewable energy technologies for electricity generation, a gradual nuclear phase-out, an
increase in the use and efficiency of gas- fired power plants, and an increase in the use of
distributed generation and cogeneration (in addition to that noted above).

Fuel Switch Away from Coal
Coal- fired power plants arguably represent the most carbon- intensive generation option
among those available to Japan. In the BAU scenario, electricity generation from coal in2020 produces 46 percent of total CO2 emissions from the power sector, even though coalaccounts for only 24 percent of the electricity generated. Switching fuel from coal to natural
gas and other cleaner fuels, and making a transition from polluting and inefficient coal- fired
plants to efficient and cleaner plants, are steps that are necessary in order to significantly
reduce power sector GHG emissions. The recent trend of coal use in the power sector,
however, has been the reverse. Coal imports to Japan have increased dramatically in recent
years, rising by over 50 percent in just the last decade (see Figure 4-2) as domestic coal needs
have increased and the domestic coal production industry has been phased out. A large
fraction of the coal imported to Japan is used for energy transformation and particularly forelectricity generation. 149 million tonnes of coal was imported to Japan in 2000, of which29

130 million tonnes were used in the energy transformation sector, including the 67.6 million
tonnes (45 percent of total imports) used for electricity generation. Domestic coal production
in 2000 same year represented only 2 percent of total coal consumption in Japan. 48

Figure 4-2: Volume of Japanese Coal Imports, 1905 to 200049
Historically, Japan’s major energy policy priority has been to maintain a secure supply of thefuels that its economy needs. From the perspective of the energy supply security of animporting nation like Japan, coal is an attractive natural resource. In terms of global reserves,coal is the most abundant of fossil fuels, and unlike crude oil, where most of the world's
reserves are located in the politically volatile Middle East, the major coal exporters that sell
to Japan are located in relatively politically stable regions. As of 2000, 60 percent of Japan's
coal was imported from Australia, followed by China and Indonesia. 50
While it would be ideal, from the perspective of domestic energy security, for Japan to rely
on indigenous energy resources such as hydro and other renewable forms of energy as muchas possible, the abundance and low price of imported coal compared to the costs ofharnessing indigenous energy resources make coal- fired power hard to beat from a purely
economic perspective.
The Power Switch scenario, however, includes a marked reduction in coal- fired generation
capacity, and thus in coal use in the power sector. Power sector coal use must be reduced if
CO2 emissions from the power sector are to be reduced significantly. If, as in the BAU
scenario, more coal- fired plants, it will be far more difficult to achieve Japan's reduction
targets under the Kyoto Protocol. Reducing coal use in the power sector also yields
reductions in the emissions of other important air pollutants. Reducing Japan's reliance on
coal for power generation is likely to be beneficial from an energy security point of view as48

Handbook of Energy and Economic Statistics in Japan, Edited by the Energy Data and Modeling Center(EDMC) and the Institute of Energy Economics, Japan (IEEJ), and published by the Energy Conservation
Center, Tokyo, Japan, 2002.
49

Japan Coal Energy Center, http://www.jcoal.or.jp/graph/graphjp04.html.

50Japan Coal Energy Center.

30

well, in that reducing coal usage will provide an additional incentive to use indigenous
energy sources such as renewable energy.
In order to reduce CO2 emissions from coal- fired power plants relative to the BAU scenario,
in addition to not adding new coal- fired plants, choices for the PS scenario are retiringexisting plants, re-powering existing plants to combined-cycle operation, or adding new highefficiency plants that use stringent air pollution control technologies.
Retiring or re -powering of existing plants
Power generation using older coal- fired power plants is generally inefficient. CO2 emissions
per unit electricity produced are greater than that of newer and more efficient power plants.
Older plants also produce more of other types of air pollutants, including particulate matter,
than newer plants, unless older plants are "re-powered" or refurbished. In general, repowering integrates new power generating systems to the existing steam generation system(coal, oil, or natural gas- fired) in order to increase generation capacity and improve
efficiency. 51 Typical re-powering is to add extra gas turbines and/or fluidized bed combustion
facilities to old coal- fired boiler units; these modifications typically improve thermal
efficiency by 14 to 28 percent while boosting output power by 20-40 percent, and reducing
air pollutant emissions (but often with an increase in solid waste production).52 Since repowering builds onto an already existing facility, it can be completed on a shorter time frame
than building new power plants. In addition, infrastructure such as transmission lines
surrounding the plants already exists, and the intrinsic value of existing sites, which are
already permitted and have established infrastructure such as power line and fuel access ismaintained. As a consequence, re-powering can help to avo id the severe siting problems
often faced by large new generation facilities.
The major problem with re-powering of power plants in Japan, and particularly of coal- fired
power plants, however, is high cost. Re-powering costs are estimated 250,000 JPY per 1kW
addition of gas turbine to convert a coal- fired power plant to Fully Fired Combined Cycle
operation, and 150,000-200,000 JPY/kW for re-powering to Heat Recovery Steam Generator
Combined Cycle. 53 54
There have been several cases in which LNG (natural gas)-fired power plant s in Japan havebeen re-powered, but no case as yet in which coal or oil- fired power plants have been repowered. Re-powering of coal- fired plants doesn’t seem to be an option that is favored inJapan. First of all, most re-powering that is contemplated involves that the addition of gasfired combustion turbine units, not (for example) coal- fired fluidized bed units feeding gas
turbines, so that even re-powering of coal power plants could effectively be consideredadditions to natural gas-fired capacity. Second, Japan's Ministry of Environment has
evaluated the potential to add re-powered generation capacity to those power plants that have51

Research Report on Technologies of Greenhouse Gas Emission Reduction. Reduction Potential in the Energy
Transformation Sector, Ministry of the Environment, March, 2001.
52

See also, for example, US DOE, FBC Repowering Project Overview,
http://www.netl.doe.gov/coalpower/combustion/FBC/APFBC/APFBCprojects.html.
53

Ministry of the Environment, March 2001, op.cit.

54

Re-powering costs in the report seems to be about 2 times higher than US cost quoted by DOE. See alsofootnote 37.

31enough physical space to add re-powering units on-site. 55 Without regard to the cost of repowering the Ministry of Environment estimated that there were 10 GW of potential repowering capacity additions at existing oil- fired power plants, and an additional 8 GW atnatural gas- fired plants. No opportunities for re-powering of coal- fired plants were identified.
Third, since the cost of re-powering is high, and since re-powering begins with an inefficient,
relatively old power plant, re-powering has no compelling economic or environmental
advantage over building new natural gas- fired power plants. Re-powered plants do notnecessarily emit less CO2 per unit output than the average of emission rates of the old plantand of a new plant with capacity equivalent to the capacity added through re-powering.
Fourth, since electricity consumption doesn’t seem likely, under any scenario, to growrapidly in Japan, re-powering is not likely to be necessary to increase generation capacity.
The final important factor is that new technologies are being developed in Japan andelsewhere. More sophisticated options than re-powering with greater pay-offs in efficiency
and capacity include Pressurized Fluidized Bed Combustion, Gasification Combined Cycle,
Advanced Turbines, and Indirectly Fired High Performance Power Systems. 56
Given the considerations above, the Power Switch scenario does not consider the re-powering
option for coal- fired power plants. Old coal- fired plants are retired in the PS scenario. A totalof 24 GW of coal- fired capacity is retired by 2020, with two-thirds of those retirements, orabout 16 GW, taking place between 2010 and 2020. This rate of retirement is roughly
consistent with retiring coal- fired power plants once their lifetime reaches about 40 years, andmeans that by 2020 the coal plants operating in Japan will all be relatively more efficient,
relatively cleaner plants built after 1990. The capacity of coal- fired plants in last 30 years
increased by roughly 1GW capacity annually 57 , on average, between about 1970 and 1990, so
the rate of retirement included in the PS scenario occurs at similar rate to the rate at which
older plants were constructed. As a result of the accelerated retirement of coal- fired power
plants, the efficiency of coal- fired power is assumed to increase (from a gross efficiency of
about 40 percent in 2000 to 41 percent in 2010 and 43 percent in 2020), and the fraction of
sulfur dioxide emissions captured by control equipment is assumed to increase to 90
percent. 58 The PS scenario includes no additions of new conventional coal- fired plants.
High conversion efficiency technologies
Advanced coal- fired power generation systems such as IGCC (Integrated Gasification
Combined Cycle) and PFBC (Pressurized Fluidized Bed Combustion) have been researchedand developed extensively, both in Japan and in other countries. These systems emit less CO2
55

Ministry of the Environment, March 2001, op.cit.

56

See, for example, “Integrated coal Gasification Combined Cycle; Technology development history andcurrent status,” Inumaru et. al, Central Research Institute of Electric Power Industry,
http://criepi.denken.or.jp/jpn/PR/Review/No44/
57

Data sources are the Ministry of Economy, Trade and Industry, and the Citizen’s Alliance for Saving the
Atmosphere and the Earth, http://www.netplus.ne.jp/~casa/index2.html.
58

Note that the efficiencies provided here are gross generation efficiencies, and have therefore not beenadjusted to take into account the approximately 6 percent of plant output that is used for in-plant use. Data inExperience Curves For Environmental Technology And Their Relationship To Government Actions, preparedin 2002 by E.S. Rubin, M.R. Taylor, S. Yeh and D.A. Hounshell for (apparently) the "Sixth International
Conference on Greenhouse Gas Control Technologies", suggests that more than 20 GW of the 36 GW of coalfired power plants in operation in Japan as of 2000 were equipped with SO2 scrubbers. See
http://www.rite.or.jp/GHGT6/pdf/C2-1.pdf.

32

per kWh of output than standard coal- fired power plants because of their higher thermal
efficiency. In modeling coal plant energy efficiency in LEAP, we have assumed that the grossefficiency of existing coal- fired power plants stays at 40% until 2020 in the BAU scenario,
and increases slightly over time as described above in the PS scenario. The thermal
efficiency of new advanced coal- fired power plants will reach 45 to 50 percent by 2020.
These technologies, however, may not ultimately play a significant role in reducing CO2
within the next 20 years in Japan. These advanced technologies are still in the testing stage.
Several experimental pilot plants are now being operated. High capital cost is another reason
to suspect that these technologies will not be widely used in the near future. In addition, whilethese technologies provide immediate benefit in the reduction of pollutants such as SOx andNOx relative to standard coal- fired plants, they do not reduce CO2 emissions as effectively asswitching to cleaner fuels. 59 Due to their cost and technological uncertainty, no plants ofthese types have been added in the BAU case. In the PS case, demand-side measures andCO2-emissions consideration make additional coal capacity of any kind unnecessary andundesirable, respectively.

Oil
The capacity of oil- fired plants is projected to decrease in the BAU scenario. Existing oil
fired generation capacity in 2000 was 63.95 GW, and is assumed, based on retirement of oldunits, to decrease by 2.8 percent annually through 2010, and at 1.0 percent annually thereafter.
The Power Switch scenario calls for a somewhat more rapid phase-out of oil- fired generation,with capacity decreasing by 2.5 percent annually after 2010. The capacity of combustion
turbine plants fueled with residual oil is assumed to stay at its 2000 level of 0.72 GW in bothscenarios. The capacity of diesel oil- fueled engine-driven cogeneration plants are assumed,in the PS scenario, to increase following IEEJ's cogeneration projection in their target
scenario, namely growth of 6.2 percent annually to 2010, with growth of 1.5 percent/yr
between 2010 and 2020. Growth of diesel engine cogeneration capacity is thus more than
twice as rapid as in the BAU scenario (2.3 percent/yr) between 2000 and 2010.

Accelerate Renewable Energy Implementation
Some argue that as other advanced generation technologies such as combined cycle gas
power plants are improved, and as their capital costs decline, it will be more difficult for
renewable energy sources to be economically competitive as "clean technology" options in
the future. Given, however, the substantial uncertainties involved in fossil fuel markets, andthe environmental and energy security benefits for Japan of boosting the fraction of its energy
needs supplied by domestic and renewable resources, it is very important to explore fully thetechnological potential to reduce CO2 emissions through the aggressive deployment of
renewable energy technologies such as wind power, solar-thermal and -photovoltaic
electricity, geothermal, small or medium hydro-electric power plants, and firing ofsustainable-harvested biomass in new or existing power plant s. Given the environmental andenergy security benefits of renewable energy technologies, as well as their potent ial impacts

59

Though there are several methods of "scrubbing" CO2 from power plant stack emissions (capture andindefinite storage of CO2 as carbon or in another form) under discussion and development, these technologies
result in very substantial losses in net power plant efficiency, and are likely to be very costly. As a result, theCO2 scrubbing option has not been considered in this study.

33

on local employment, it is a mistake to judge "renewables" solely on the basis of narrowlydefined "market competitiveness".
ISEP StudyWWF Japan commissioned the Institute of Sustainable Energy Policies (ISEP) to evaluate theextent to which Japan could adopt and use renewable fuels as primary energy sources by
2010. 60 The study group, led by Dr. Tetsunari Iida of ISEP, estimated that the share of
renewable fuel resources could potentially be increased to 10 percent of the total primaryenergy in Japan by 2010 if Japan would adopt alternative renewable energy policies andmeasures. 61 In the ISEP study, "renewables" means wind, PV, geothermal, and small hydro(<10MW) power, biomass- fired electricity generation excluding generation using Municipal
Solid Waste (MSW), and black liquor (a by-production of paper manufacturing). In the ISEP
study, MSW is excluded because MSW can contain petroleum-derived products such as
plastic bottles that, when burned to generated power in waste-burning plants, can potentiallyemit toxic gases such as dioxins. The ISEP study estimated the maximum renewable energy
resources in Japan; its results are summarized in Table 4-2.
Table 4-2: Renewable energy resources in Japan62
Geothermal &
Area
Wind
PV
Biomass Small hydroHokkaido
11.80
5.34
3.54
8.59
Tohoku
4.17
10.99
6.51
17.98
Kantou
4.43
25.66
6.26
8.02
Hokuriku
1.05
2.89
0.86
9.84
Chuubu
1.53
10.83
2.36
20.93
Kansai
0.35
9.49
1.88
5.18
Chuugoku
1.52
6.40
2.32
5.27
Shikoku
3.11
3.40
1.18
3.54
Kyuushuu
2.43
11.61
4.24
9.26
Total
30.30
86.60
29.13
88.60
Unit: TWhThe ISEP study does not explicitly describe how much electricity could be generated fromrenewable resources. Therefore, for the Power Switch scenario, we have effectively applied a
Renewable Portfolio Standard (RPS) that starts at 11.2 percent of total supply-side electricity
generation in 2000, 63 increasing to 13.5 percent in 2010 and 18.1 percent in 2020.

60

ISEP, op.cit.

61

Based on the results of the ISEP study, WWF Japan recommended at the UN World Summit on Sustainable
Development in 2002 that Japan could adopt a numerical target of 10% as the fraction of primary energy
supplied by renewable fuels by 2010.
62

Units are converted to TWh from PJ, figures shown here are rounded.

63

For the purpose of counting generation as "renewable" or not in this report, we consider power generated fromhydro resources (not counting pumped-storage hydro), wind, solar energy, and biomass including "black liquor"
to be generation from renewable resources. Note that this definition is slightly different than that used in the34

Renewable Portfolio Standard, a policy concept that is currently being used or contemplated
in a number of countries, establishes a minimum amount of renewables-based power as afraction of total electricity generation. The implementation of a RPS is designed to speed theintroduction of renewable technologies into the electricity sector. In the PS scenario,
additional generation from distributed PV systems accounted for on the demand side raises
total renewable generation to 13.9 percent of total electricity output by 2010, and 18.9
percent by 2020 64 .
In the electricity generation sector, the PS scenario builds on IEEJ’s "Target scenario", which
includes the renewable energy capacity. The PS scenario uses IEEJ's figures for generation
capacity in 2010 and 2020 for supply-side PV systems (additional PV capacity is included on
the demand side as well based on the scenario described in the Tsuchiya study). The Power
Switch scenario, however, adds considerably more wind power capacity after 2010 than does
IEEJ's Target scenario (to a total of 11.5 GW), reflecting the recent boom in worldwide windenergy capacity construction, and improvements in technology for capturing wind energy inoffshore wind farms. Still, when the renewable capacities used in the PS scenario arecalculated relative to the maximum potential resources estimated by ISEP in Table 4-2, only
a fraction of total PV and wind potential is tapped by 2020.
In the Power Switch scenario, MSW is not explicitly considered as a renewable energy
source, as some fraction of MSW is plastics, and thus not ultimately derived from renewablesources. We do, however, adopt IEEJ’s "Target Scenario" projections regarding MSW
capacity, but do not add MSW capacity beyond those levels. The WWF and majority ofother renewable energy advocate groups do not count MSW as renewables. First of all, fuelfor MSW contains many non-renewable components such as plastics, metal, and ashes.
Second, the combustion of MSW generates toxic gases that are not necessarily removed byeven the best pollution control equipment. In fact, although the METI’s BAU projection
includes MSW as a renewable energy source, the Renewable Portfolio Standard Law, which
was enacted in 2002, excludes most industrial waste from renewables, and only the organic
biomass component of MSW is currently counted as a renewable fuel. The government isscheduled to revisit this issue of the designation of MSW in three years.
Photovoltaic Technology
The total generation capacity of photovoltaic (PV) power systems in Japan increased by afactor of four in recent years, rising from 55 MW in 1996 to 209 MW in 1999. The Japanese
government has provided R&D (research and development) funding to the PV industry formany years. Despite substantial progress in the development of photovoltaic technologies, thedomestic market for PV is not as strong as the PV industry had expected.
The biggest obstacle to the wider acceptance of PV power systems is high system capitalcosts. ISEP projected a cost reduction for PV systems from 900,000 yen/kW in 1998 to
300,000 yen/kW in 2010.
Figure 4-5 shows the ISEP estimate of past and future (asprojected by ISEP) trends in PV system capital costs.

ISEP report. Note that the vast bulk (80 percent) of renewable generation in 2000 is from existing hydroelectricfacilities.
64

Note that this calculation includes both demand- and supply-side generation in both renewable generation andin total electricity output. Total electricity output therefore includes gas -fired demand-side (residential andcommercial) cogeneration.

35

Figure 4-3: Declining Price Trajectory for PV System Capital Costs (ISEP)Wind energy potential
Wind power is the most promising renewable energy prospect for commercial success. The
main stumbling block for Wind energy’s commercial success in Japan is likely to be energy
policy and power transmission system-related issues rather than capital cost or technologicalmaturity.
Other renewables
Conventional hydroelectric generation and geothermal generation capacities are assumed tostay at the current levels, largely because Japan has already developed water and geothermal
resources to nearly the maximum extent practicable, and at least partially because additional
development of these resources is likely to be politically difficult. The capacity of generation
using most biomass fuels, including by-products produced during the pulping process ("spentliquor" or "black liquor"), digester gas from sewage or animal waste treatment, and industry
waste would stay the same. The use of other biomass, including biomass grown onplantations but mainly using existing agricultural wastes is assumed to increase to 1 GW by2010, 2 GW by 2015, and 4 GW by 2020.

Nuclear Phase Out
Nuclear power generation has been considered by many policymakers in Japan to be the mostimportant technological option Japan has had available to reduce national green house gas
emissions. Although the international community still debates whether nuclear energy could
be the solution to global warming, Japan has strongly promoted nuclear power as a cleansource of energy which could help to reduce not only CO2 emissions. Government plans toachieve the Kyoto protocol target have seemed impossible without relying more heavily on
nuclear power. In addition to the benefits for GHG emissions reduction, nuclear power
development has been considered a key to improving Japan’s energy security. Both Japan’s
energy security policy and its climate change mitigation policy thus have tended to rely
almost solely on the promise of nuclear power development.
Recent nuclear plant shutdowns, however, have caused new doubts in the mind of theJapanese public about nuclear reliability. It has long been argued whether Japan could
significantly increase nuclear power capacity without solving technical and social problems
36

associated with siting new power plants, as well as nuclear waste isolation/disposal issues. In
recent years, however, the Japanese public has become increasingly aware of and educatedabout not only nuclear safety issues but also energy security and fuel diversity issues. In
April 2003, Tokyo Electric Power Company (TEPCO) was forced to shut down all of its
nuclear reactors for emergency inspections after admitting to a pattern of falsifying safety
records at nuclear plants since the late 1980s. For the period of this inspection, TEPCO has
been obliged to take 17.38 GW, or about 30 percent of its power generating capacity off- line.
Although TEPCO promised to carry out its inspection program as quickly as possible, there
was a fear of a supply shortage all summer, which was scrutinized as a "power crisis". The
Japanese public has become aware of the urgent necessity for Japan to develop technologies
to use alternative energy sources other than nuclear power to help address energy security andglobal warming issues.
Considering the numerous problematic issues regarding nuclear power development, thePower Switch scenario is based on a non-aggressive nuclear phase-out scenario. This implies
that the use of non-renewable energy resources such as fossil fuels and uranium have to“eventually” be reduced to zero—a phase out of fossil fuel and nuclear power. The Power
Switch scenario includes the beginnings of a gradual nuclear phase out pathway. In the PS
scenario, the lifetime of nuclear power plants is considered to be 40 years, so that 10 GW ofexisting nuclear generation capacity will be retired by 2020, with most of the 10 GW retired
after 2010. This implies that most of the plants built in the 1970s or before will be retired by
2020. Only those few plants currently being constructed or well into the planning phase, a
total of 6.9 GW 65 , will be added during the next 20 years under the PS scenario.

Natural Gas
Natural gas is the cleanest-burning of fossil fuels, and its utilization has increased
dramatically in many parts of the world during the last two decades. In spite of uncertainties
about future natural gas supply and price, the United States and Europe are also rapidly
increasing their reliance on natural gas for electricity generation. Japan’s power generation
sector has also been shifting toward greater use of natural gas.
There are obstacles to the markedly expanded utilization of natural gas in Japan. These
include:•The relatively high cost of imported LNG (Liquefied Natural Gas) relative to other fuels(notably coal).

•

The lack of natural gas infrastructure, including both LNG import terminals and, perhaps
most importantly, the lack of natural gas transmission and distribution systems that aresubstantially interconnected between gas company service territories.

•

High retail natural gas prices in Japan. Gas prices in Japan in 2000 were $450 per 10
billion calories for gas for industrial use, and $1300 per 10 billion calories for residentialuse. These prices were many times higher than those experienced in the United States—$170 for industrial and $300 for gas for residential use—and were over twice as high as

65

The plants under construction or highly likely to be built include the Hamaoka5 ABWR, at 1,380 MW; theHigashidori1 BWR, 1,100 MW; the Onagawa3 BWR, 825 MW, the Shika2 ABWR, 1,358 MW; the Shimane3
ABWR, 1,373 MW; and the Tomari3 PWR, 912 MW.

37

gas prices in any other OECD country66 . To the extent that gas supply does not keep up
with demand (or grows more costly), the recent rapid increase in natural gas demand will
likely help to bring about a large and continuous increase in the gas prices, which could inturn have a serious negative impact on the competitiveness of gas relative to other fuels.
If natural gas prices stay high (and possibly become more volatile) in Japan, other energy
forms, including renewable energy, will be seen as more economically attractive options,which will spur Japanese consumers and policymakers to seek those options.
Natural gas will play a significantly important role in the reduction of national CO2 emissions
for at least the next 20 years, but also considers natural gas, as well as nuclear power andother fossil fuels, to be only an interim means of addressing the problem of global climatechange. In the long run, fuel shifts toward a newer generation of clean energy technologies
based on renewable resources, and incorporating the use clean fuels such as hydrogen, will be
required. Natural gas could also serve as a transition fuel in that it could be a source forhydrogen manufacture in the beginning of a switch from carbon-based fuels to hydrogen, but
the primary energy resources used should ultimately be switched almost entirely away fromfossil fuels to biomass and other renewable sources of energy.
In the Power Switch scenario, natural gas- fired combined cycle and natural gas- fired
cogeneration, as well as renewable sources of electricity, are used to meet overall demand forelectricity through 2020 as coal- fired, oil- fired, and nuclear generation capacities decline. The
Power Switch scenario assumes that a fraction of existing natural-gas-fired steam-cycle
plants (19 of about 56 GW) will be either retired or converted to combined-cycle operation(through re-powering), and that any new gas-fired power plants (other than cogeneration or
fuel cell plants) will be high-efficiency combined-cycle plants to cost-effectively make themost of (mostly) imported gas resources while producing minimal pollutant emissions.

Cogeneration and Other Distributed Generation Systems
Cogeneration can nearly double the efficiency with which energy in fuel provides usefulproducts by generating both steam (or, in some cases, hot water) and electricity.
Cogeneration is useful in cases where the heat produced by a cogeneration system can bedelivered and utilized efficiently, which usually means that the cogeneration system must be
located at or near the site of heat demand. Heat demand in Japan, including process heat inindustry and space and water heat in the commercial sector, is currently supplied in large partby combustion of residual oil and other oil products—as well as, in some industrial subsectors solid wastes and coal—in boilers and furnaces. If a substantial fraction of this demand
could be provided through cogeneration, the reduction of overall GHG emissions by utilizing
cogeneration heat would be large.
In addition, as cogeneration systems are typically located close to or on commercial andindustrial sites where electricity and heat are consumed, the more cogeneration and other
distributed electricity generation systems are implemented, the lower the requirements fortransmission and distribution of electricity, and the lower transmission and distribution losses
will be. This in turn reduces the net requirements for electricity generation.

66

Gas price data from the US Department of Energy's Energy Information Administration (EIA) WWW site,
web pages http://www.eia.doe.gov/emeu/international/ngasprih.html andhttp://www.eia.doe.gov/emeu/international/ngasprii.html.

38

At present less than 2 percent of all Japanese electricity is generated in cogeneration systems,
but this fraction is expected to grow rapidly. In the IEEJ Target scenario, a growth rate ofcogeneration capacity is set at 6.2 percent annually through 2010, and 1.5 percent between
2010 and 2020. For the Power Switch scenario, we assume this same level of growth forlarger cogeneration systems (gas and diesel- fired engines, and gas- fired turbines) modeled on
the supply (energy transformation) side. On the demand side, in the PS scenario, heat fromcogeneration systems modeled on the electricity supply side displace some industrial heatrequirements that would be (and are in the BAU scenario) provided by residual fuel oil
consumption, and displace some combustion of oil fuels in commercial space heating andwater heating end-uses.
Fuel cells are a promising on-site clean electricity generation technology. The thermal
efficiency with which fuel cells and fuel cells coupled with gas turbines are expected to bevery high. In the Power Switch scenario, we assume that fuel cell generation capacity for
utility systems (or in large commercial or industrial applications) total 300 MW by 2010, and
2 GW by 2020. These fuel cells are modeled on the supply side, on the assumption that theywould represent dispatchable capacity—utilities might, in fact, use them as reliable
distributed generation systems and thereby help avoid costs of distribution infrastructure
additions. These capacity figures are significantly less than the fuel cell capacity growth
assumptions of IEEJ. IEEJ’s Target scenario projections for fuel cell capacity both theresidential and commercial sectors are 2.1GW in 2010 and 10.1 GW in 2020. NEDO’s target
is 2.2 GW in 2010. These capacities do not include the power of fuel cells used in
automobiles in the future. As noted above, however, the PS scenario does include significant
numbers of residential-sector fuel cell systems (derived from the results of the Tsuchiya
study), which offset the need for utility grid power.

4.1.3. Results and Discussion of the Power Switch Scenario
Based on the assumptions described above, the WWF-Japan Power Switch scenario wassimulated using LEAP. Wind, PV, Biomass, natural gas cogeneration and natural gas
combined cycle generation are entered into LEAP as "exogenous" (externally specified)capacity in quantities such that electric energy demands are met, and capacity remains highenough to meet a reserve margin target of 20 percent (the same as used in the BAU scenario)
by 2020. 67 Figures 4-6 and 4-7 present, respectively, the electricity outputs and generation
capacity by type of power plant in the Power Switch scenario between 2000 and 2020.
Striking features of these figures, relative to results for the BAU scenario, include aconsiderable reduction of coal- fired generation and capacity, an increase in natural gas
combined-cycle output, and increases in wind, cogeneration, and photovoltaics capacity andoutput. In addition to the 16 TWh of utility PV generation, though not visible in theseelectricity supply- focused figures, there are 22 TWh of generation from PVs located on thepremises of residential, commercial, and industrial customers, and over 50 TWh ofgeneration from smaller demand-side (commercial and residential) cogeneration systems.

67

The goal here is to model the BAU and PS scenarios on an even footing. As a consequence, both scenarios
meet the same reserve margin target for 2020, and in both scenarios reserve margins fall from 2000 levels of
about 24 percent to the 20 percent level by 2020. As PV and wind power, which have significantly higher
capacity in the PS scenario than in the BAU scenario, are intermittent resources, their contributions toward thetotal capacity needed to meet peak demand plus reserve margin is discounted substantially relative to thermal
power plants (which can theoretically be available to meet peak needs at virtually any time).

39

Electricity Generation (TWh)

1400
1200

Coal
NuclearRenewables

Oil
Hydro
OthersNatural Gas
Cogen&Fuel Cells

1000
800
600
400
200
0
2000

2005

2010

2015

Projection Year

Figure 4-4: Electricity Generation in Power Switch Scenario

40

2020

Coal
NuclearRenewables

Generation Capacity (GW)

300

Oil
Hydro
OthersNatural Gas
Cogen&Fuel Cells

250
200
150
100
50
0
2000

2005

2010

2015

2020

Projection Year

Capacity (GW) or Output ( TWh)Figure 4-5: Generation Capacity in Power Switch Scenario
9080

OutputCapacity

70
60
50
40
30
20
10
0
2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

Projection Year
Figure 4-6: Generation Capacity and Output by Renewables in Power Switch Scenario

41

Figure 4-7 shows the heat output from "supply-side" cogeneration in the Power Switch
scenario. Diesel- fueled engine-drive n cogeneration and natural gas turbine cogeneration
dominate the output of heat from the power sector. Overall, production of heat fromcogeneration in the PS scenario is over 150 percent higher by 2020, than in the BAU scenario,
when the additional production of co- generated heat counted in the demand sector is also
considered.

Heat Generation (TWh)

60
50
40

Cogen Natural Gas Engine
Cogen Natural Gas Turbine
Cogen Diesel Engine
Digestor Gas
Fuel Cells

30
20
10
0
2000

2005

2010

2015

2020

Projection Year
Figure 4-7: Heat production by Cogeneration Systems in the Power Switch Scenario(supply-side only)

5. The Power Switch Scenario, Benefits and Barriers
The Power Switch scenario outlined above offers a number of benefits relative to the BAU
scenario. At the same time, the Power Switch scenario poses costs to portions of the Japanese
economy that need to be taken into account, and there are barriers to implementation of the
PS scenario that are not insignificant. Policy levers and approaches that might be used tohelp make the PS scenario, or one like it, a reality in Japan are also discussed below.

5.1. Comparison of Scenarios
The BAU and Power Switch scenarios offer markedly different results, by 2020, both interms of energy demand and supply, as noted above, but also in terms of their net greenhousegas emissions, energy security and fuel diversity, and economic benefits and costs. In eachcase, comparisons of the BAU and PS scenarios are presented below.

425.1.1. Greenhouse Gas Emissions
The evolution of power sector greenhouse gas emissions, measured as CO2 equivalents, isshown in Figure 5-1 for the Power Switch scenario. Compared with power sector GHG
emissions in the BAU scenario (as shown in Figure 3-4), overall emissions are markedly
lower, declining by 20 percent relative to year 2000 emissions. Year 2020 emissions in the
PS case are some 31 percent lower than they are in the BAU case. Figure 5-2 summarizes thedivergence in GHG emissions between the two cases over time. Major differences between
scenarios include markedly reduced emissions from coal- fired, and to a lesser extent oil- fired
power in the PS case, as well as slightly reduced emissions from gas-fired power plants (theCO2 emissions output of the sum of all of the different types of gas- fired power plants,
including gas-fired cogeneration is about 1 percent lower by 2020 than in the BAU case).
In addition to differences between the BAU case and the PS case in power sector GHG
emissions, there are differences between the scenarios on the demand side. Reductions inboiler fuel use in the industrial and commercial sectors due to use of heat from cogeneration,plus reductions in fuel use in the residential and commercial sectors due to expanded use ofsolar water heat, are offset somewhat by higher fuel use due to expanded demand-side(smaller-scale) cogeneration in the household and commercial sectors. The net impact ofthese changes is that PS case GHG emissions from the demand sector by 2020 are
approximately 5 million tonnes of CO2 less than in the BAU case.
Overall, relative to the BAU scenario, the PS scenario reduces Japan's GHG emissions by 94
million tonnes of CO2 equivalent per year by 2010, and 190 million tonnes per year by 2020.
Overall GHG reductions from the PS scenario, relative to the BAU scenario, total nearly 2.0
billion tonnes of CO2 equivalent between 2000 and 2020. Even more importantly, most of
the infrastructure investments—as well as the industrial investments undertaken to produce
the Power Switch infrastructure—will continue to provide GHG reduction benefits wellbeyond the time frame covered by this study.

43

CO2 Emissions (million tonnes)

500
450
400

Coal
Natural Gas
Renewables

Oil
Cogen&Fuel Cells

350
300
250
200
150
100
50
0
2000

2005

2010

2015

2020

Projection Year

Figure 5-1: Power Sector GHG Emissions in the Power Switch Scenario

700
600
500
400
300

Business as Usual Case

200

Power Switch Case

100
0
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20

Million Tonnes CO2 EquivalentPower Sector GHG Emissions Comparison: Power
Switch and BAU Cases

Figure 5-2: Scenario Comparison, Power Sector GHG Emissions44

5.1.2. Energy Security and Fuel Diversity
Although a simple shift away from coal- fired to natural gas- fired power generation in Japan's
power sector could reduce CO2 emissions to some degree without major changes in energy
infrastructure (for example, existing coal- fired power plants could be "re-powered" to usegas), or drastic energy policy changes, doing so arguably reduces fuel supply diversity.
Leaning even more heavily on natural gas—the vast bulk of which, by 2020, would still need
to be imported LNG—increases dependence on a single imported fuel, and does nothing to
reduce overall fuel imports. Relying on imported fuels, including natural gas and uranium,
reduces energy security in that an over-dependence on fossil fuels, natural gas in particular,
leaves Japan vulnerable to fluctuations of fuel prices and supply availability. An increase in
the use of indigenous energy resources, and especially of renewable sources of energy, would
help to improve Japan's energy supply security. Although natural gas is the cleanest fossil
fuel, it is important to move away from a heavy reliance on coal without an excessive
increase of natural gas or nuclear generation.
Although the Power Switch scenario changes overall gas use for electricity generation very
little relative to the BAU scenario, its marked increase in the use of power generation fromrenewable, domestic sources relative to the BAU scenario makes it improved in terms of fuelsupply diversity.
In addition, the Power Switch scenario results, by 2020, in a reduction in coal imports ofnearly 70 percent relative to the BAU scenario, and also results in decreases in annual
imports of crude oil (3 percent), and nuclear fuel (20 percent). LNG imports increase, but
only modestly (less than 2 percent). This means lowered vulnerability to supply disruptions,less reliance of Japan on imports and on imports from a particular region, and more relianceon domestic energy, including renewable generation at the point of end-use. Table 5-1 andFigure 5-3 provide comparisons of the electricity output by fuel type in the BAU and Power
Switch scenarios in 2020. Note that although natural gas accounts for a greater share ofelectricity output by 2020 in the PS case relative to the BAU case, the quantity of natural gas
used differs very little between the scenarios as shown in Table 5-1. Numbers in the tablereflect only supply-side electricity generation. In the PS scenario, additional generation from
distributed PV systems accounted for on the demand side raises total renewable generation toover 100 TWh in 2020.
Table 5-1: Electricity Output by Type of Generating Plant in 2000 and 2020 for the
BAU and Power Switch Scenarios
TWh2000 (Base Year)

Coal

237.8

327.1

75.4

Oil

152.2

146

134.5

Hydro

103.2

103.2

106.4

Nuclear

319.5

379.5

267.8

Natural Gas

253.2

324.6

346.1

Renewables

19.6

27.7

80.7

MSW and others

5.2

10.7

24.4

1090.71318.81035.3Total

2020 (BAU)

45

2020 (Power Switch)

100%1320 TWh1035 TWh

MSW and otherindigenous
Renewables

80%

Natural Gas

60%

Nuclear

40%

Hydro

20%

Oil
Coal

0%
BAU

Power Switch

Figure 5-3: Electricity Output by Type of Generating Plant in 2020 for the BAU andPower Switch Scenarios
One quantitative measure of the relative diversity of fuel supply offered by different
scenarios is a "diversification index", which can be applied to a pattern of fuel use, imports,
or geographical source of imports within a fuel type to show the relative dependence of acountry on sources of fuel supply. We applied an index described by Dr. Thomas Neff68 to
the fuels and resources supply for power generation in the Power Switch and BAU scenarios.
The result, summarized in Figure 5-4, shows that while the diversification index changes
little over time in the BAU scenario, the index decreases in the PS scenario, showing a morediversified fuel supply portfolio over time.

68

T.L. Neff (1998), Improving Energy Security: Diversification And Risk Reduction, Fossil And Nuclear Fuels.
Prepared for Nautilus Institute as a part of the study described in the footnote following this one, and available
as http://www.nautilus.org/papers/energy/NeffPARES.pdf.

46

Electricity Generation Fuel Supply Diversification Index
by Scenario
0.260
0.240
0.220
0.200

Business as Usual Scenario

0.180Power Switch Scenario

20
19
20
20

20
17
20
18

20
14
20
15
20
16

20
12
20
13

20
10
20
11

20
08
20
09

20
05
20
06
20
07

20
03
20
04

20
01
20
02

20
00

0.160

Figure 5-4: Electricity Fuel Supply Diversification Index over the Study Period for the
BAU and Power Switch Scenarios

5.1.3. Relative Benefits and Costs of the BAU and Power
Switch Scenarios
Historically, Japan’s energy policy has tended to put less emphasis on cost effectiveness thanon "energy security." Energy security as a concept in Japan has typically been narrowly
focused on fuel supply security. 69 The priority of energy policy has always been to secure astable and continuous fuel supply for the Japanese economy, as there are few indigenous
fossil fuel resources in Japan. This energy security goal also provided the main reason forJapan’s heavy investment in nuclear power development. Although uranium supplies andprices are stable compared to those of fossil fuels, however, nuclear development has otherfactors (as noted above) that influence nuclear policy, including domestic public opposition
to nuclear technologies and the generally unfavorable international climate for nuclear power
development. Over- investment in nuclear power and the distortion of real energy costs(through excessive government support for nuclear power) could become hugely risky interms of energy security, particularly in the event of additional incidents involving thenuclear sector. It is therefore, and particularly now as the Japanese economy moves to amore competition-oriented approach to energy supplies, important to conduct “fair”
comparisons of the costs of providing energy services.

69

A broader definition of "energy security" would include elements of economic, environmental, and military
security, as well as incorporation of consideration of a number of different types of risk. For a definition andapplication of energy security in the broader sense, see T. Suzuki, D. F. Von Hippel, K. Wilkening, and J.
Nickum (1998), Pacific Asian Regional Energy Security: Frameworks for Analysis and Japan Case Study.
Synthesis Report for Pacific Asian Regional Energy Security (PARES) Project, Phase I (available as
http://www.nautilus.org/pares/PARES_Synthesis_Report.PDF.

47

In this section of this report, we compare the overall costs of BAU and PS scenarios. These
costs include the cumulative capital costs of the different power sector and othertransformation sector investments, the variable operating costs of energy infrastructure, andthe fuel costs (focusing on the costs of fuel imports). On the demand side, incremental
capital and/or operating and maintenance costs of the measures included in the PS scenario
are also included in order to present a complete picture of all relevant costs that are different
between the two scenarios. The relative non-monetary costs and benefits of the two scenarios,
and those monetary costs and benefits that cannot be estimated in quantitative terms, are also
discussed in this section.

Cost Assumptions
In the energy demand sectors, costs were entered for all of the electricity end-use and otherrelevant devices where changes were made between the BAU and PSE scenarios. Cost,
expressed either as costs of saved energy or costs per device, were entered for those measures(energy-efficienc y, distributed generation, and other measures) described in section 4.1.1,
above. In most cases, the costs for these devices were either derived from available Japanesedata or, more frequently, estimated based on US costs for similar measures, but includ ing a"mark- up" of 50 percent over US costs to account for generally higher costs in Japan. A fullrecounting of all of the cost assumptions used on the supply side is too lengthy to provide
here, but some key assumptions are as follows.
•

In the Residentia l sector, the Cost of Saved Energy (CSE) used for measures that saveelectricity varied from 6 to about 35 Yen per kWh, depending on the measure.

•

Annualized cost for residential cogeneration (fuel-cell cogeneration) installations wereassumed to fall from about 50,000 Yen/kW- yr in 2000 to about 20,000 Yen/kW- yr in
2020, taking into account the different vintages (ages) of systems present in any given
year.

•

Annualized costs for residential solar PV installations were assumed to fall from about
100,000 Yen/kW- yr in 2000 to about 38,000 Yen/kW- yr in 2020, again taking into
account the different vintages (ages) of systems present in any given year.

•

In the Commercial sector, the CSE estimates used for measures that save electricity
varied from -2.5 (these measures result in net saving through their reduction in operating
and maintenance costs) to about 18 Yen per kWh, depending on the measure.

•

Generation costs for commercial cogeneration (using engine- and turbine-driven systems)
installations were estimated at 5 to 6.5 Yen per kWh, exclusive of fuel costs.

•

Annualized costs for commercial solar PV installations were assumed to fall from about
95,000 Yen/kW- yr in 2000 to about 35,000 Yen/kW-yr in 2020, again taking into accountthe different vintages (ages) of systems present in any given year.

•

In the Industrial sector, the CSE estimates used for measures that save electricity varied
from 0 to 4.3 Yen per kWh, depending on the measure.

•

Annualized costs for industrial solar PV installations were assumed to fall from about
80,000 Yen/kW-yr in 2000 to about 30,000 Yen/kW-yr in 2020, taking into account thedifferent vintages (ages) of systems present in any given year.

In the Transformation sector, costs were estimated for improved electricity transmission anddistribution (through use of amorphous transformers), for power plant capital and operating
and maintenance costs, for refining costs, and for LNG terminal capital and operating costs.

48

In general, transformation costs were assumed to remain fixed over the study period, with the
exception of costs for utility solar PV power plants, which decline in cost from 870,000
Yen/kW (total installed capital cost, not annualized cost) in 2000 to 150,000 Yen/kW in 2020,
wind power costs which decline at 2 percent annually for the study period, and fuel cell costs,
which decline by somewhat less than a factor of two between 2000 and 2020. LNG terminal
capital costs were estimated using a combination of Japanese data to be about 360 Yen per GJ
of gas handled annually, or about 20,000 Yen per tonne of annual LNG handling capacity.
The major assumptions as to resource costs have to do with the import prices of coal, crudeoil, and natural gas (LNG). Starting with reported average Japanese import prices for"steam" and coking coal (4730 and 5360 Yen/tonne, respectively), we applied a priceprojection from the US Department of Energy's Energy Information Administration thatshows coal prices declining by 0.71 percent annually through 2025. 70 Based on International
Energy Agency (IEA) price projections and recent Japanese oil import costs (about 3200
Yen/bbl in 2002), we projected crude oil prices to fall at 5.6 percent annually through 2005,
remain constant until 2015, and rise thereafter at 3.5 percent annually. LNG prices, startingat about 520 Yen/GJ, are assumed to follow the same trajectory as oil prices. Nuclear fuel isassumed to cost approximately 120 Yen per thermal GJ produced throughout the study period.

Cost Comparison
Because less power (both energy and capacity) is required in the Power Switch scenario,
overall transformation infrastructure costs are lower than in the BAU scenario, even whenrelatively high capital costs for expanded renewable generation capacity is included. The
Power Switch scenario's transformation costs over the period 2000 to 2020 are 14.5 trillion
Yen less than the costs of the BAU scenario 71 . Considerable additional costs are required forenergy-efficiency measures and on-site generation in the Demand-side, however. These costs
total about 20 trillion Yen over the 2000 to 2020 period, of which more than half are costs of
distributed photovoltaic and cogeneration systems. On the other hand, fuel costs are
considerably lower, overall, in the PS case than in the BAU scenario. Japan avoids 4.4
trillion yen in import fuel costs by 2020 in the PS scenario, relative to the BAU scenario.
Overall, under the Power Switch scenario, Japan could achieve 31 percent reduction in
annual GHG emissions relative to the BAU scenario by 2020, at a net cost—including
required additional investments and reduction in fuel import costs—of about 1.1 trillion yen
over the study period, or about 57 billion yen per year. Figure 5-5 shows these overall costand savings results.

70

USDOE EIA (2003), Annual Energy Outlook 2003 with Projections to 2025. Data from Table 1.from
http://www.eia.doe.gov/oiaf/aeo/tbl1.html.
71

Total costs as presented are discounted at a rate of 3 percent per year, and are denominated in year 2000 Yen.

49

Trillion Yen (NPV, 2000 to 2020)

25

Costs for Power Switch Scenario Relative to
BAU Scenario

20
15
10
5
0
-5
-10
-15
-20
Demand Costs Transformation
Costs

Resource
Costs

Total Net
Costs

Figure 5-5: Overall Net Present Value (NPV) Cost Comparison--Power Switch versus
BAU Scenario
Expressed per unit of GHG emissions reduction, the net cost is 850JPY/ tonne of CO2
equivalent, which is equivalent, for example, to a 0.3 percent tax on electricity consumption.
The net investment required, therefore, is extremely minor relative to the benefits to begained.
Note that the above cost/benefit analysis does not ascribe or take into account any particularvalue to the 2.0 billion tonnes of CO2 equivalent avoided by the Power Switch scenario
relative to the BAU scenario. If a cost per tonne of carbon dioxide equivalent is included-perhaps as a stand- in for a carbon tax, the Power Switch scenario quickly becomes the lessexpensive of the two options. Figure 5-6 presents an exploration of what happens when an"environmental adder" for avoided GHG emissions is included in the analysis of the overall
net costs of the Power Switch scenario. After the CO2 value rises above 850 Yen per tonne,
the Power Switch scenario quickly becomes the less expensive of the two scenarios
considered.
Similarly, if fuel prices rise higher than the forecasts used in this analysis
indicate, or technical breakthroughs cause the costs for renewable power systems to be lower
than we have estimated in the future, the Power Switch scenario also quickly becomes morecost-effective than the BAU scenario.

50

Variation of Net Cost of PSE Scenario with
Emissions Value
Trillion Yen Net Present
Value

2.00
1.00
0.00
-1.00
-2.00
-3.00
-4.00
-5.00
-6.00
0

1000

2000

3000

4000

5000

Emissions Value: Yen per Tonne CO2

Figure 5-6: Sensitivity of Net Cost of Power Switch to GHG Emissions Value

Additional Benefits of the Power Switch Scenario to Japan's Economy
Some benefits and costs of the Power Switch scenario, considered relative to the BAU
scenario, cannot be easily converted to monetary values. For instance, one of the major
benefits of renewable energy in terms of cost and energy security is that the use of renewable
power sources protect electricity consumers from fuel price (especially natural gas and oil)instability and volatility. Most renewable power sources—particularly solar and wind
power—have zero fuel costs, thus once the infrastructure is purchased, the cost of generation(averaged over time) is essentially fixed. Other probable advantages of the PS scenario
include:•Improvements in domestic investment through reduction of money spent on imported fuel.

•A boost to the renewable energy industry in Japan, resulting (in all probability) in a
reduction in the costs of renewable energy systems manufactured in Japan, and anincrease in the competitiveness of Japanese firms in the global renewable energy business.

•

An overall increase in domestic employment, as the use of renewable energy systems andenergy-efficiency measures is likely to create more jobs than the number of jobs lost
through reduced use of other power sources. 72•

A reduction in coal ash and nuclear waste to be disposed of.

•

A reduction in the emissions of nitrogen oxides and other air pollutants.

72

Will Ratification of the Kyoto Protocol Result in Economic Loss?, Yasuhiro Murota and Kae Takase, WWF
Japan and Shonan Environmental Research Force, 2001. The paper is available at
http://www.wwf.or.jp/scripts/download/dfile/climate/motarasukaji.pdf.

51

The Power Switch scenario implies slightly higher energy costs for Japanese citizens. This
could result in the most modest of reductions in overall economic growth and income,although the investments required on the demand side, displacing exports of funds to pay forfuel imports, may help to spur economic growth in the Power Switch scenario relative to the
BAU scenario. The Power Switch scenario may also imply additional aesthetic impacts,
mainly due to aggressive addition of wind generation capacity (though these impacts will be
offset somewhat nationally, if not locally, by the reduction in construction of coal and nuclear
capacity).

5.2. Barriers and Limitations of Power Switch Scenarios
Key barriers and limitations to the implementation of the Power Switch scenario could
include:•The existing institutional structure of the electric and gas utilities sectors, including thelack of integration between service territories, regulations and practices that may
discourage on-site generation, lack of competition, and lack of knowledge on the part ofutility managers about renewable and other generation alternatives.

•

Lack of information about demand-side measures among electricity consumers.

•

Lack of information about the climate change problem—and opportunities for solutions—among Japanese consumers.

•

Lack of funding for demand-side measures and for renewable power development,
particularly relative to research and development funding (and other explicit or implicit
subsidies) for well-established generation alternatives.

•

Entrenched interests and expertise within the government and utilities that favor a "BAU"
approach to future energy sector development.

Some of other barriers to the implementation of each fuel or technology cho ice are alsomentioned in the section 4.1.2.

6. Conclusion and Ramifications of Results
In this study, we have developed the Power Switch scenario, which is not a projection, but a“achievable” alternative energy pathway that Japan could take. The scenario, including
aggressive implementation of energy-efficiency and demand-side generation measures,widespread adoption of renewable sources of energy for utility generation of electricity, theuse of natural gas as a fuel for most new non-renewable electricity supply, and a gradualreduction in nuclear generating capacity, can provide:•

Absolute reduction of 20 percent of GHG emissions from a 2000 base year by 2020•

A 31 percent reduction in emissions for the Power Switch scenario compared to the BAU
scenario by 2020

Analysis of the net costs of the Power Switch scenario, taking into account costs differences
for demand-side measures as well as transformation infrastructure and resources use,
indicates that the Power Switch scenario will just over 1 trillion Yen more than the BAU
scenario over 20 years. This net cost could easily be negative (that is, a net benefit) if fossil
fuel prices rise or costs of renewable generation technologies fall faster than estimated. This
cost, spread over the electricity generated in Japan over the period amounts to about 0.3

52percent of electricity costs, about 0.07 Yen per kWh, or about 350 Yen per year per
household in the residential sector.
Clearly, the Power Switch scenario represents an extremely affordable investment in energy
security and in the environment for the Japanese people. A number of policy tools areavailable, and will be needed, to bring the Power Switch scenario about. These range fromefficiency standards and codes, to tax, utility or direct government incentives for energy
efficiency and renewable energy, to emissions targets and caps. National resolve to address
the climate change issue, however, will be the key ingredient in the success or failure of a
Power Switch or similar initiative, as will be thoughtful consideration of climate change
issues into overall planning as Japan's power sector undergoes institutional reorganization.

53