# Cost-Effect Analysis of the Japanese Steel Industry's Energy Conservation Measures

Author Name KAINOU Kazunari  (Fellow, RIETI) December 2006 06-J-059

## Abstract

The Japanese steel industry accounts for 10% of Japan's energy consumption, and therefore the success or failure of that industry's energy conservation measures is of the greatest importance in any discussion of energy and environmental issues, including global climate change issues. This paper makes an objective, quantitative assessment, based on public statistics, of the state of progress of energy conservation measures under the Voluntary Action Plan on the Environment in the Japanese steel industry, and estimates their cost-effect.

This assessment confirms, from objective source materials, that as a result of the steel industry's energy conservation measures under the Voluntary Action Plan on the Environment, it has since fiscal year 1998 achieved a sharp improvement in total energy consumption per ton of crude steel, in fiscal 2005 achieving an improvement of approximately 7% relative to fiscal 1990, and approximately 13% relative to fiscal 1998. Regarding the costs incurred as a result of implementing these measures, the paper estimates, based on the reduction in the steel industry's capital investment and other supplementary capital expenditure and in energy operating costs, that they totaled at least ¥175.3 billion, and taking the amounts of the steep rises in energy prices in recent years into consideration, that they totaled approximately ¥68.4 billion.

Based on the above, the paper estimates the cost-effect of the Japanese steel industry's energy conservation measures under the Voluntary Action Plan on the Environment to be approximately ¥124,000/t-CO2 (US$1,100/t-CO2), or approximately ¥64,000/t-CO2 (US$ 600/t-CO2) after taking into consideration the steep rises in energy prices in recent years. Setting aside the significance of precluding measures such as a government taxation system or "emission cap and trade" systems, the paper assesses the measures as having been comparatively expensive and having imposed a severe burden; the cost-effect being remarkably low relative to estimates of marginal abatement cost based on simulation models and to other benchmarks such as the current price of EU emission trading (EU-ETS).

These results show that there are no grounds for arguments such as that the Voluntary Action Plan on the Environment is ineffective relative to such schemes as a taxation system or "emission cap and trade" system, and that it is laudable that the Japanese steel industry has been accepting this severe burden and achieving steady results under the plan. However, it also shows that in terms of cost-effectiveness there is room for reconsideration of the desirable form of further energy conservation measures.