Vested interests behind energy policies in Japan

Moe, Espen 2012. Vested interests, energy efficiency and renewables in Japan. Energy Policy 40, 260-273. doi: 10.1016/j.enpol.2011.09.070.

The central argument

In an energy hungry but resource poor economy like Japan, one would expect equally strong policies to limit energy use and to develop domestically-based renewable energies. However, support for energy efficiency, solar power and wind power has been very different in Japan since the 1970s. Espen Moe argues that the priority given to energy efficiency over renewables and to solar over wind electricity is explained by the extent to which these energy innovations challenge the existing industrial and institutional structure. Energy efficiency has been fully compatible with vested interests, solar energy has not been too much of a challenge and was even seen as advantegous by the incumbents, while wind power has always been considered as a threat to existing interests. Thus, understanding vested interests are essential for understanding Japanese energy policy.

Energy efficiency, solar power and wind power in Japan

When describing energy transitions, Espen Moe follows Joseph Schumpeter (1942, 1983) by attributing utmost importance to structural economic change and Mancur Olson (1982) by emphasizing the role of vested interests in blocking transitions. The analysis focuses on Japan where the bureaucracy is very strong and connections between policy makers and industry leaders are tight (e.g. policy makers often become industry leaders after early retirement). Due to these connections and the lack of substantial change in politics and institutions for several decades, an "iron triangle" could develop in energy policy making, consisting of LDP (Japan’s ruling party between 1955-1993 and 1994-2009), METI (the Ministry of Economy, Trade and Industry) and the Japanese Business Federation. According to Moe, the extent to which any policy interferes with the interests of these actors largely determines its chance of success.

Energy efficiency did not challenge the iron triangle and became by far the most important strategy after the oil price shocks. In fact, existing industries were eager to provide techno-fixes to energy-related problems, and METI, a strong proponent of high-tech exports, saw large opportunities to sell energy efficient technologies abroad. Within two decades, Japan became the most energy efficient major economy in the world. After 1990, however, improvement slowed down due to lax regulations passed under pressure from business groups. In terms of overall energy intensity several countries caught up with Japan by 2010. Further increasing energy efficiency has by and large become an empty political slogan. Whether Fukushima will change this in the longer run remains to be seen.

While attracting the interest of fewer business groups, solar energy has also been actively pursued since the 1970s. Ever since METI’s 1974 Sunshine Project, there has been a group within the ministry supporting solar energy. The project first focused on solar thermal systems, but its direction has been changed to PV electricity after the second oil price shock in 1979. Perceiving the manufacturing of solar cells a natural extension of their existing activities, Sharp, Sanyo and Kyocera became the main PV producers. Although these technologies were not commercially viable in the 1980s, the ministry forced utilities to accept solar energy in the grid in the early 1990s and started a new, bigger program, partly as a justification for the preceding long and not so fruitful project. The 70,000 Roofs program, launched in 1995, facilitated the growth of the industry and led to falling costs due to economies of scale. When the program expired in 2005, three out of the five largest PV producers of the world were Japanese. However, the subsidy program was discontinued by the new, more market-minded government led by PM Koizumi and in response to the Ministry of Finance's demands to reduce government expenses. Unfortunately for Japan, the global PV market took off in the same year. Within five years, Japan’s global market share fell from more than 50% to 14%. To regain prestige, subsidies were reintroduced in 2009 in a different form. The feed-in tariff proposed by METI was weak, however, and it was only changed after Fukushima. Until then, total electricity production from solar remained in the order of 0.1%.

Although cheaper than solar power, wind energy has not been politically favored for several reasons. First, the availability of land is limited on a densely populated island and there are conflicts between offshore wind parks and the fishing industry. Second, Japanese weather - choppy winds and occasional typhoons - may be seen as too hostile. These geographic factors, however, are only an excuse according to most people interviewed by Moe. Third, unlike solar, no important actors have seen an industrial policy opportunity or commercial potential in wind power. Technologies to harness wind power were not a natural extension of the activities of large Japanese companies and potential buyers were energy utilities, not individual households and businesses. Since the energy sector in Japan consisted almost entirely of 10 quasi-monopolies that not only controlled both production and distribution but also tried to exclude other producers, potential buyers were handicapped. The 10 companies themselves were detracted from investments partly because of a fourth reason, namely that connecting remote wind farms to the grid would have been expensive in a fragmented and in rural areas sparse grid system, which even runs on two different frequencies (50 Hz in the north-east, 60 Hz in the south-west). Unlike solar power that works mostly in urban areas where the distribution network is dense, wind power never got priority access to the grid. Instead, battery storage has been advocated to deal with intermittency, which increased costs. A related fifth reason is that utility companies considered investment into wind energy as a first step towards the liberalization of the energy sector, which they have always vehemently opposed. Losing customers to new producers in a country where population is decreasing looked more threatening than reduced consumption in households that install PVs (but still remains utilities' customers). The powerful anti-wind lobby encouraged bureaucratic barriers in the form of long approval processes and quotas that limit the amount of newly added wind capacity. As a result, wind has not become an important energy source in Japan.

POLET observations

Drawing conclusions from case studies on energy transitions that are not plausible, falsifiable and true is difficult. In most cases it is impossible to generalize from one country to another due to differences between country-specific factors such as geography, economics and politics. Conclusions regarding the future of a given country on the basis of its past can also be tricky, especially after singular events like the Fukushima disaster. Quantitative data that otherwise looks compelling - e.g. that nuclear power received six times more R&D support between the 1960s and 2010 than renewables - may or may not tell much about the future. Shortly after the article was written Japan introduced one of the highest feed-in tariffs in the world for renewables and installed solar capacity quadrupled between 2012 and 2014. At the same time, the fact that wind power developed much slower in the same period indicates that the reviewed article identifies important factors affecting energy transitions in Japan. Comparing how Japan’s ongoing energy market deregulation will change different factors that determine the fate of energy efficiency, solar and wind power according to Moe will be useful to assess chances of a large-scale transition.

References

Olson, M., 1982. The Rise and Decline of Nations. Yale University Press, London.

Schumpeter, J.A., 1942. Capitalism, Socialism and Democracy. Harper Torchbooks, New York.

Schumpeter, J.A., 1983. The Theory of Economic Development. Transaction Publishers, London (1934).