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Japan’s energy mix after the Ukraine crisis

Russia’s invasion of Ukraine on 24 February 2022 shook the world to its core. Unsurprisingly, the vast majority of states didn’t hesitate to publicly condemn Russia’s unilateral aggression and express solidarity with Ukraine. Japan was no exception. Tokyo has joined the international response to Putin’s aggression by imposing sanctions on Russia on an unprecedented scale.

The impact on the global energy market has already been huge. In the first week after the invasion, oil prices increased by about 15 per cent — a massive surge on top of an already significant rise since the beginning of the year.

In an effort to counteract the pressure on oil prices, IEA member countries agreed to release 60 million barrels of oil from their emergency reserves. But without a commensurate increase in production, it seems unlikely that the price increase will be effectively reversed. After an OPEC Plus meeting on 2 March decided not to make any adjustments to its previous production plans, the world may have to get comfortable with this new price level for a while.

The ripple effect on the economies of net energy importers, such as Japan, poses a significant challenge for these nations’ COVID-19 recovery. Spikes in crude oil prices are passed on to energy consumers through higher retail prices for gasoline, electricity and other goods and services. This may not only seriously hurt domestic demand, but also hamper the international competitiveness of Japanese manufacturers.

To relieve the financial burden on businesses and households, the Japanese government introduced a range of so-called emergency measures that include heavy subsidies to the domestic oil and gas sectors. This has caused climate activists to worry about the fate of Japan’s budding green energy transition. Many argue that rather than alleviating the woes of the fossil fuel industry, policy makers should seize the opportunity to accelerate the shift towards renewable energy.

With the expiration date of the original response program approaching, now is the time to make adjustments to the relief package. However, while the Minister of Economy, Trade and Industry Koichi Hagiuda has acknowledged the limits of gasoline tax cuts and subsidies to oil wholesalers, a significant change in Tokyo’s approach to the crisis seems unlikely. As of 2019, fossil fuels accounted for about 88 per cent of Japan’s total primary energy supply. For now, the ‘old’ energy system is simply too big to fail.

But in addition to cushioning the blow caused by the global oil price hike, Tokyo is actively looking into reducing its dependence on Russian imports. Despite high-level promotion of the Russia–Japan relationship under the Abe administration, Russia’s actual share of Japan’s energy supply remains fairly low. Last year Japan imported about 4 per cent of its crude oil and 9 per cent of its gas from Russia. This is less than the respective shares of 7 per cent and 10 per cent in 2013.

Still, government and business representatives agree that it would be difficult to replace those energy imports in the short term. Officials are also concerned that Japan’s withdrawal from the Russian market would lead to a takeover by geopolitical rivals, first and foremost China.

Against this background, Tokyo is boosting its stake in the global LNG market. For more than a decade the development of a flexible and transparent LNG market has been the flagship of Japan’s engagement in global energy governance. The ousting of Russian gas creates additional momentum for Japanese investments in LNG infrastructure and upstream activities. In addition to boosting its financial support to the private sector through the state-owned Japan Oil, Gas and Metals National Corporation, Japan is also considering a more direct role for the state in LNG procurement.

On the domestic level, the big winner in the current crisis may be nuclear power. More than a decade after the fateful 3.11 triple disaster, where the Fukushima nuclear meltdown became the world’s worst nuclear accident since Chernobyl, nuclear power is once again firmly part of Japan’s current and future energy mix. Tokyo’s highly ambitious decarbonisation commitments made under the Suga administration further buttressed the comeback of the industry.

So far the restart of power plants has proven difficult due to significant resistance from the Japanese public, including some high profile business and political figures. Now, in the wake of the Ukraine crisis, the tides seem to be shifting. Recent public polls suggest that for the first time since 2011 a slim majority of the Japanese public may be ready to accept the restart of domestic nuclear reactors. This is a window of opportunity that the pro-nuclear Kishida administration will not want to miss.

That said, the elephant in the room remains if and how the Ukraine crisis will be able to boost Japan’s green energy transition. While certainly desirable, the replacement of Russian fuel with renewable energy is far from certain. For Japan, the incentives may be less clear-cut than for some richer European countries. Russia’s war has once again put the spotlight on traditional energy security — the premise around which Japan’s energy strategy was built.

Currently there is little to suggest a significant shift in Japan’s previously envisioned energy portfolio. Tokyo’s future energy policy looks likely to be informed by continuity rather than change.

Source: East Asia Forum