Avoid ‘Japan passing’ by Accelerating Energy Transitions

Consulting Fellow, RIETI

On August 30, the US-Japan Council hosted a webinar titled "the US-Japan Climate Partnership: Increasing the Availability of Affordable Clean Energy."

Speakers included Suzanne Basalla, President and CEO, US-Japan Council; Aaron P. Forsberg, Minister Counselor for Economic and Scientific Affairs, U.S. Embassy in Tokyo; Izuru Kobayashi, Deputy Commissioner for International Affairs, Agency for Natural Resources and Energy; and Yukiko Sato, Head of Japan Business Development, Amazon Web Services Japan.

The panel discussion started with a video message from Fukushima Governor Masao Uchibori, and included Scott Seu, CEO of Hawaiian Electric Industries, and Yusuke Matsuo, Executive Director of the Japan Climate Leaders’ Partnership (JCLP). Ayako Kameda, General Manager, Shell Energy Japan, moderated the discussion.

I was honored to assist the planning of this webinar as a senior advisor to the US-Japan Council.

Below are some of the points that left a lasting impression, mainly from the panel discussion.

Experience with renewable energy deployment efforts in Hawaii

First, Mr. Seu shared his experience with renewable energy deployment efforts in Hawaii. As of 2021, 38% of Hawaii's electricity comes from renewable energy sources including solar, wind, geothermal, etc., and the State is on track to reach its goal of 100% renewable energy by 2045 as set by the State law. The amount of rooftop solar installations that have been completed is particularly significant.

Performance-based Regulation (PBR) was mentioned as an interesting type of regulation that is contributing to renewable energy deployment in Hawaii.

This is a regulatory approach that simultaneously achieves three goals: renewable energy targets, reducing the burden on electricity users, and ensuring profits for utility companies. Hawaii Electric Power is able to curb excessive investment through a mechanism that stabilizes revenues even when customers generate their own solar power and they receive bonuses if renewable energy deployment goals are met earlier than planned. In the process of developing these regulations, the Public Utility Commission, electric utilities, and electricity users collaborate in discussions to simultaneously achieve the macro goals of society as a whole and the micro goals of each participant.

This incentive-based approach is widespread in Europe and the U.S., and Japan has recently become aware of it through market design discussions, but the Hawaii case may also be helpful in providing incentives for electric utilities to introduce renewable energy.

Japan's decarbonization path is beginning to move forward led by demand side.

Second, Mr. Matsuo of JCLP explained that the technical potential of offshore wind power in Japan is 9 times the electricity demand of the whole country, based on the analysis of IEA, and that the economic potential of renewable energy is twice the current electricity demand, based on the analysis of Ministry of the Environment. He emphasized the need to revitalize the domestic economy by increasing energy self-sufficiency through expanding introduction of renewable energy. Japan was once afflicted by a three-way deadlock situation: energy users used to lament the lack of cheap renewable energy, power companies lamented the lack of customers even if they wanted to supply renewable energy, and the government did not hear from either the demand side or the supply side. Mr. Matsuo recognized that market dynamism has recently started to work due to market signals, partly as a result of JCLP's policy advocacy and other activities. He frankly emphasized the importance of the policy governance perspective that the strong involvement of existing energy supply parties in the policy-making process tends to lead to the maintenance of the existing system, and that renewable energy consumers should raise their voices.

Indeed, since then Prime Minister Suga's declaration of carbon neutrality by 2050 in October 2020, energy demand-side industries have voiced a strong desire to decarbonize energy use, and in response, energy supply-related industries have collectively moved toward decarbonizing investments, and government policymaking has increasingly fostered this demand-driven momentum. To a large extent, we should follow this trend and steer both policy and real business toward decarbonization goals from a demand-side perspective.

Advanced Energy Transition Initiatives in Fukushima

Third, Fukushima Governor Uchibori spoke enthusiastically about the efforts to decarbonize Fukushima, with a target of supplying 100% renewable energy to the prefecture's total energy demand in 2040 (currently 43%) including the construction of an 80 km shared power transmission line in the prefecture to promote the introduction of renewable energy. This will enable 11 solar power companies and nine wind power companies to be connected. He also presented the goals of a hydrogen-powered society including the introduction of fuel cell trucks in partnership with Toyota and the development of a hydrogen supply innovation center, FH2R, in partnership with METI, and other examples of Japan's leading-edge energy transition initiatives. In particular, the method of developing shared transmission lines, mainly by renewable energy developers with government subsidies, to solve the transmission line connection problem (which is a bottleneck to the introduction of renewable energy) may have been made possible on the premise that it would benefit the renewable energy developers under the FIT system, but as an example of public-private collaboration in the development of transmission lines, it may serve as a useful reference for other regions as well.

Fukushima Prefecture unfortunately suffered a nuclear accident caused by the 2011 earthquake and tsunami, but the prefecture has used this experience as a springboard to decarbonization, clearly showing its commitment to Japan’s energy transition for the future, and the national government is strongly supporting this in various ways. This is an example of an ideal form of cooperation between the central and local governments.

Importance of U.S.-Japan Clean Energy Cooperation

Fourth, in his opening and closing remarks, Mr. Forsberg and Mr. Kobayashi both emphasized the importance of Japan-U.S. clean energy cooperation. It is worth noting that his presentation showed appreciation of Prime Minister Kishida’s recent stance on restarting nuclear power and the emphasis on the development of new reactor types and the importance of US-Japan clean energy cooperation in the Indo-Pacific region, and his focus on “the Global Subnational Zero Carbon Promotion Initiative,” emphasizing collaboration on decarbonization efforts at the regional level between the U.S. and Japan to third countries. These statements illustrate the characteristic stance of the U.S. today. In other words, there are strong expectations for the development of nuclear energy, especially new reactor types, where the U.S. has strengths. In addition, as the United States aims for a geopolitically Free and Open Indo-Pacific as originally proposed by Japan, it recognizes that decarbonization and energy transition initiatives are important elements of this goal, and as central government policies alone are insufficient to address decarbonization and energy transition, he emphasized the importance of efforts at the sub-national level. Mr. Kobayashi also introduced the similar details in line with the U.S. direction, referring to the discussion at the GX (Green Transformation) Council. As seen in the May 2022 Japan-U.S. Summit Agreement, the direction of Japan-U.S. cooperation in this area is firmly established. It is hoped that the efforts of both the U.S. and Japanese government officials and the private sector will show the world how it will be implemented in the future.

Affordable and stable supply of clean energy is essential for Japan's growth

As mentioned above, there were constructive discussions in this webinar by government officials, local governments, power and non-power companies, and experts, covering comprehensive US-Japan cooperation in decarbonization and energy transition. One of the most memorable points that personally struck me was the wake-up call for Japan as a whole, introduced by Ms. Basalla as a result of the experts' hearing. That is, in order to realize the investments necessary for growth in Japan, the majority of companies in the manufacturing or service sectors, whether they are Japanese- or foreign-owned, are committed to decarbonization, and therefore, securing a supply of affordable and stable clean energy is an essential condition for investment, and if this is not possible, they will not invest in Japan. The warning bells are ringing. Japan is at risk of falling into a ‘Japan passing’ situation, where no one will invest in Japan if Japan cannot provide affordable, clean energy. Japan should listen to these friends and boldly accelerate its energy transition.

September 9, 2022

September 30, 2022