The looming shutdown of every single one
of Japan's nuclear plants - previously the
providers of nearly one-third of the nation's
electricity - has accelerated the country's
initiatives on conservation, renewable energy
sources, and decentralization of electricity
supply. It has also injected considerable momentum
into Japan's "green cities" initiative.
These changes are being fought by those
who insist that Japan cannot live without nuclear
power. The opponents include not just
the utilities, but the banks
who lent so much to the utilities, Keidanren (the
main business federation) and much of the national
government.
However, the growing cost of
energy and worries about power supply are pushing
firms and local governments to find alternatives.
Japan responded with surprisingly rapid success in
conservation and efficiency after the oil crises
of 1973 and 1979. It may do so again.
At
present, only two of Japan's 54 nuclear reactors
are operating. One of these will be shut down at
the end of the March, and the last one will go
off-line in late April or early May. Minister of
Economy, Trade and Industry (METI) Edano Yukio
says that Japan seems likely to spend this summer
with no nuclear reactors in operation at all.
Japanese reactors have regular, 13-month
maintenance schedules, and the approval of
national and local authorities is required before
they can be restarted. In order to reassure a
newly resistant public of their safety, the
nuclear reactors were subject to new "stress
tests" as of last year.
But in late
February, the stress tests were publicly deemed
inadequate by Madarame Haruki, chairman of the
Nuclear Safety Commission and a long-time
proponent of nuclear power. That criticism has
only increased opposition to restarts by
prefectural governors, who are in a position to
veto them. Even supportive local leaders are now
calling for a resolution of the waste-storage
problem before any restarts are allowed.
Buying expensive carbon fuels To
make up for the shortfall, a lot of gas, oil and
coal-fired power capacity is being ramped up,
newly deployed or taken out of mothballs. Data
from METI indicates that in December 2011 thermal
power composed 86% of power generation, with 16%
of that being oil-fired, 23% coal and 46%
liquefied natural gas (LNG). Nuclear reactors
provided only 7.4% of total power.
Compare
that with April, when nuclear was 28.2% of power
generation, and thermal power (5% oil, 20% coal,
38% LNG) was 63% of the remainder. Japan's total
fuel imports in 2010 were valued at 17.4 trillion
yen (US$217 billion) but increased by 25% to 21.8
trillion yen in 2011. Some was due to an actual
increase in volume and some to sharp price
increases. In any case, the imports rose from 3.6%
of GDP to 4.6%.
The increased costs seem
likely to continue for the foreseeable future. As
a result, the much-loathed utility TEPCO (Tokyo
Electric Power Corporation) is slated to raise
electricity prices for large lot power consumers
(those using more than 500 kilowatts) by an
average of 17%.
Pushback by nuclear
lobby These threatened price increases have
mobilized a significant push back by
Keidanren-centered business interests that still
view the nuclear reactors as a cheap source of
safe, reliable, low-emissions power and want them
restarted. Their desire dovetails with that of the
three big financial institutions which hold
trillions of yen in loans to TEPCO, the biggest
slice in the corporate bond market, as well as
financing for other utilities.
Their
nightmare scenario surely envisions Japan making
it through a nuclear-free summer with no major
blackouts or supply-chain disruptions. Such a
scenario would perhaps tip opinion toward seeing
nuclear energy as dispensable even in the short
term, and thus lead to trillion of yen in stranded
assets.
The banks have tried to forestall
this outcome by securing reactor restarts as a
pre-condition for their advancing any additional
finance to a nationalized TEPCO. The financial
sector and many large-lot power consumers have put
forward a tsunami of arguments that the
electricity price increases, resulting from costly
purchases in international markets, and
uncertainty of supply will exacerbate Japan's
already grim problem of hollowing out.
Japan's rising yen, shrinking population,
huge public-sector debt and other handicaps
already pose significant disincentives to business
investment, and the power issue clearly does not
help.
Conservation: a different
answer While some push nuclear restarts as
the answer to the problems of availability and
cost, others are accelerating moves towards
greater energy efficiency and conservation as well
as creating big incentives for the rapid
deployment of renewable power. There were
startling advances in conservation and energy
efficiency last year, driven by compulsory power
reductions as well as subsidies and other
encouragement.
For example, a recent study
by market research firm GfK reported that less
than 2.2% of household ceiling lights were LED
(light-emitting diodes) in January of last year,
but by the week of February 13 to 19 of this year
had taken a 49.4% share of the market. Falling
prices through this mass production also bode well
for Japanese electronics makers hard-pressed in
international markets by the strong yen.
The power-consumption data suggest policy
support for efficiency had significant effects.
The figures of the Federation of Electric Power
Companies in Japan for the summer months of 2011
show total nationwide electricity sales, relative
to the previous year, down 5% in July, 11.3% in
August and 11.4% in September. Data for January
2012 indicate that power generation was down 3.7%
compared to January of 2011.
Conservation
and efficiency were already a growth industry
before the nuclear crisis. But the new,
unforeseeable spurs to innovation and diffusion
may see Japan overshoot "New Growth Strategy"
targets for 2020. These were established in June
2010, and aim at a "green innovation" market
totaling 50 trillion yen (US$625 billion, or 10%
of 2011 GDP) and 1.4 million new workers.
One example of the growing scale of the
conservation incentives is that 80% of 104 major
Japanese firms surveyed in late February by the
Yomiuri planned to reduce power purchases from
TEPCO. More than half (54) of the firms declared
that they would invest in conservation, and 14 of
the 104 replied that they would deploy some form
of in-house power-generation capacity.
To
respond to this increasing demand for
conservation, firms are rushing energy-management
systems to market. Toray Engineering for example
announced February 29 that it was opening sales on
its "Eco-Plant EMS", an energy management system
for use in factories. The system comes with a 40
million yen (US$500,000) price tag, but in on-site
tests apparently achieved a 30% power reduction of
air conditioning and a 10-20% reduction in factory
power use overall.
Moving to
renewables Moreover, Japan has increasingly
robust policies in place for diffusing renewable
alternatives. In particular, its feed-in tariff -
a long-term subsidy guaranteeing producers a
certain rate on the supply of electricity - has
been expanded from solar to include wind, biomass,
small hydro and geothermal, and will take effect
by July 1.
Price setting and periods of
guarantee are being determined by a five-member
consultative committee that held its first meeting
on March 6. The pro-renewable majority on the
committee suggests these crucial elements of the
policy will be robust, perhaps driving rapid
diffusion and concomitant price declines in this
market as well.
Marubeni, NTT, Mitsui, and
a host of local governments and other
organizations are already committed to large-scale
mega-solar, wind and related projects. The most
recent data indicate that the total of mega-solar
projects announced over the past year is twice
what the utilities were planning to install up to
2020. This is strong evidence of how much
low-hanging fruit there was in Japan, on
renewables. We seem likely to find a similar story
in efficiency and conservation.
Decentralization Local
governments have been particularly aggressive in
responding to the crises driven and exacerbated by
the Fukushima shock. The effective collapse of
national energy policy has seen many rethink their
growth strategies and revamp their
intergovernmental organizations, both among
themselves as well as between them and the central
government.
The Fukushima shock was
profound for most local governments due to the
existential threat to power supplies as well as
the central government's abysmal crisis management
in the weeks following the disaster.
Major
local governments such as Metropolitan Tokyo and
Osaka are especially concerned by their
vulnerability to highly centralized power
generation and transmission as well as its clearly
incompetent governance by the national
administration.
One of their responses to
this threat from centralized, overly complex
energy institutions dominated by vested interests
has been to increase local resilience and autonomy
via decentralized power generation. Tokyo, for
example, determined that it needed its own
generation capacity in order to maintain subway
transport and other critical functions in the
event of an emergency. So it is installing
gas-fired power and a small-scale smart grid
separate from the TEPCO utility.
Also,
Osaka City and Osaka Prefecture have banded
together to launch an energy commission, which met
on February 27. They are explicitly committed to
ramping up conservation and renewables in the face
of the central government's immobilism. Kobe and
Kyoto have joined Osaka as partners in the effort.
Other prefectures, including Kanagawa and
Saitama, are also explicitly aiming their
policymaking at efficiency and fostering an energy
shift to renewable power so as to enhance
self-reliance, employment and business
opportunities, as well as international
competitiveness. As of late February, local
governments' fiscal 2012 initial budget
compilations have a combined 52 billion yen
(US$650 million) investment aimed at fostering
renewable power projects. While not tallied and
energy efficiency are many multiples of the budget
for renewables. The central government's
feed-in-tariff adds to these kinds of generalized
incentives to enhance local resilience.
National government divided The
central government seems deeply conflicted. On the
one hand, it appears to be waiting for a crisis in
power supply to drive restarts. On the other hand,
it is using the ongoing crisis to act rapidly to
reshape the power economy and thus leverage green
growth prospects. So, Prime Minister Noda
Yoshihiko, partial to the Ministry of Finance and
the banks, repeatedly calls for restarts while
distracting himself with crafting visions for
raising the consumption tax, though such fiscal
austerity killed a recovery back in 1997.
And his METI Minister, Edano Yukio,
announced in a January 26 press conference that
restarts might be unavoidable, yet failed to
outline any serious initiatives for further
incentivizing efficiency.
Surely both
understand that the longer they dawdle, allowing
uncertainty free reign, the more damage is done to
incentives to invest in Japan. As we have seen
repeatedly over the past year, the nuclear lobby
will say almost anything to keep their assets from
becoming stranded. And that is what they are doing
now, while the Noda Cabinet is preoccupied with
papering over its divisions.
However, at
the same time, central agencies are also rushing
to keep up with events by deregulating so as to
foster new industry as well as to open farmland,
waterways and parks to renewable power projects.
Among recent moves, the METI is indicating that it
will exempt solar from the factory site
regulations on green space as well as include
solar in calculations of peak-power supply.
Even the European Union countries don't do
the latter as their peak demand is at night. But
Japan's peak is in daytime in the summer due to
air-conditioning demand, and this coincides well
with peak insolation [a measure of solar radiation
energy received on a given surface area] and solar
output.
Also, the Ministry of Agriculture,
Forestry and Fisheries recently announced 1,000
regional sites for small hydro and other renewable
projects. There is more than a little irony in
seeing the political class that was elected on a
promise to displace bureaucrats being outclassed
by them in a crisis.
New deregulatory
efforts These new deregulatory efforts are
worth watching. They carry on from the flagship
comprehensive special zone law, which was passed
on June 22, 2011. The zone initiative was billed
as a means to "concentrate resources of central
and local government in areas of high pioneering
potential". It is not simply a relaxation of rules
but also an overall package of support that
includes regulatory exemptions, tax breaks,
financial aid and loans and other mechanisms aimed
at innovation.
The major types of
comprehensive special zones are the international
strategic zones and the regional revitalization
zones. The strategic zones are aimed at clustering
industry and related intellectual and other
resources so as to increase growth opportunities
in the environment, next-generation energy, bio
life science, and other areas.
These zones
include a "Green Asia International Strategy
comprehensive special zone," which groups Fukuoka
City and Prefecture with Kitakyushu City in an
initiative to position their region in western
Japan as the gateway to Asia.
There are
seven special zones as of February 2012. In total,
they comprise budgetary requests of 153.9 billion
yen which are expected to lead to 6.97 trillion
($85 billion) in new economic activity and 298,000
new jobs.
There are at present 26 regional
revitalization zones. The ambit of this zone
program includes disaster prevention and
mitigation, environment and next-generation
industry, tourism and culture, agriculture,
biomass, finance and social business, healthcare
and nursing. The total fiscal scale of the zones
is 63 billion yen that is expected to lead to 2.15
trillion yen in new business activity and 67,000
new jobs.
The tax breaks in the
international strategy zone are focused on
lowering the corporate tax in order to foster
competitiveness in international markets, while
those in the regional revitalization zones center
on deductions for individual investment in
enterprises that are part of the strategy.
Green cities initiative This
flurry of deregulation policies is increasingly
being funneled into the larger environmental
"future city" initiative. This latter policy
regime carries on from the "eco-model city"
program that was put in place in the summer of
2008, and has helped environmental award-winning
cities like Kitakyushu in Fukuoka Prefecture
deepen their green business and expand their
overseas sales.
Kitakyushu last year
became the first Asian city for the Green City
Program of the Organization for Economic
Cooperation and Development. It is also exporting
its expertise on recycling to such Chinese cities
as Dalian and Qingdao. And it is expanding its
reach in the global water business that in 2007
was assessed at 36.2 trillion yen (US$440 billion)
and is expected to reach 86.5 trillion yen
(US$1.05 trillion) in 2025.
Kitakyushu's
water-management business is finding purchasers in
Cambodia's Phnom Penh as well as Vietnam's Hai
Phong. The future city policy that Kitakyushu is
part of was adopted as one of the 21 national
strategic projects of the "new growth strategy"
passed on June 18, 2010.
This initiative
is not simply for green growth; it also includes
measures for dealing with rapidly aging societies
and disseminating policy lessons learned from
within the eco-model cities. The initiative seeks
synergies among these categories as well as from
among the recipient cities.
On December
22, 11 cities were selected as eco-model cities.
Five were outside of Tohoku, the area hit by the
earthquake. These five include Kitakyushu and
Yokohama among those previously designated as
eco-model cities. But after March 11, 2011, the
national authorities expanded the group to include
six from the affected area. These six cities
include hard-hit Minamisoma and Kamaishi.
The inclusion of these cities in the
larger initiative indicates that the government is
drawing on outstanding successes of the eco-model
city initiative, and expanding it to devastated
areas. These successes include the realization of
targets for such aspects as recycling,
international engagement, and the demonstration of
energy management systems.
The core
devastated areas are being rebuilt as
renewable-centered smart cities with funding from
the 19 trillion yen fund for reconstruction.
Japanese policymakers clearly see including them
in the overall green-city project as a way to
encourage application of lessons learned from both
the cities initially involved in the eco-city
project as well as those that are trying to
rebuild from the tsunami. It is a means of
speeding the dissemination of policy learning
among local governments in general as well as to
overseas markets.
Japan seeks lead in
new global market Japan is seeking to use
its policy tools and experience as a means to gain
leadership in the export of green-city models.
This is a new and rapidly growing market. The
University of Westminster's authoritative
International Eco Cities Initiative reports that
its most recent (September, 2011) international
survey found "an unprecedented mushrooming of
various kinds of eco-city initiatives and projects
across the world," with a total of 174 eco-cities
projects catalogued.
Japan's initiative is
not just a bureaucratic talking shop. The eco-city
initiative was institutionalized on December 14,
2008, and included 130 organizations. Of these
organizations, 70 were "highly motivated
municipalities," along with 39 prefectures, 12
related government ministries and 19 related
organs of government. As of November, 2011, these
ranks had swollen to 89 cities, 46 prefectures, 12
governmental offices, 29 public organizations, and
28 organizations from the private sector for a
total of 204 organizations.
The private
sector members include Japan IBM, Mitsubishi
Automobiles, Pacific Consulting, and Nikkei BP.
The last of these is very strongly interested in a
global "smart city" market that it expects to
reach a cumulative 4,000 trillion yen (US$49
trillion) by 2030.
The tug of
war To what extent will these nice-sounding
initiatives actually bear fruit? That remains to
be seen. But to make an assessment of the chances,
we need to get back to the context for all these
policy moves. The potential for a zero-nuclear
summer certainly presents risks to Japan. But it
also affords an opportunity to ramp up the
diffusion of cutting edge conservation and
renewable technologies as well as to accelerate
other focused action in this existing set of
policies for fostering sustainable growth in green
cities.
With powerful pressure from
subnational governments, the green cities policy
regime may become the agency for driving the
Japanese political economy onto a sustainable
growth track. The more Japan is pressed to rapidly
innovate models of green city growth, the greater
its prospects of realizing the national strategy
of expanding green-city exports.
The
problem with implementing this national strategy
hitherto has been the enormous weight of vested
interests in the power and Keidanren-centered
manufacturing sector. They seek to shape green
growth to accord with their own institutional
interests which have long been bound up with
nuclear power and TEPCO. Among other unwise
things, that meant maintaining power monopolies
and suppressing the diffusion of renewables and
smart grids.
Such interests are
incompatible with the most competitive and
sustainable green city model. Rather, the weight
of vested interests has threatened to produce
something of a "Galapagos effect," referring to an
environment found nowhere else, giving Japan a
hamstrung green city model unsuited to most of the
potential green-city markets in rapidly growing
Asia and other regions.
But with the
feed-in tariff and local initiatives, some of
Japan's most innovative providers of capital,
including Softbank, have increasingly robust
incentives and opportunities to wreak creative
destruction in power and other strategic markets.
Through deploying the most advanced
technology and business practices, they increase
the pressure on others, including the central
government, to move faster and smarter. Perhaps
this conjunction of daunting incentives and
capable players in Japan's power sector can help
make the country's green-city policy regime truly
world class.
Andrew DeWit is
Professor in the School of Policy Studies at
Rikkyo University and an Asia-Pacific Journal
coordinator. With Iida Tetsunari and Kaneko
Masaru, he is coauthor of "Fukushima and the
Political Economy of Power Policy in Japan," in
Jeff Kingston (ed.) Natural Disaster and Nuclear
Crisis in Japan.
(This is a revised and
expanded version of an article that appeared in
The Oriental Economist, March 2012.)
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