Introduction

Japan boasts one of the largest economies in the world. The country continues to experience a moderate economic recovery that began in 2003, following a decade of economic stagnation. Japan’s real gross domestic product (GDP) grew by 2.5 percent in 2005 and 2.3 percent in 2004. The modest upturn over the last few years reflects higher business confidence in Japan, a surge in export demand led by exports to China, and robust consumer spending. Unemployment in Japan fell to 4.4 percent in 2005, down from an early 2003 peak of 5.5 percent.

Japan has virtually no domestic oil or natural gas reserves, and in 2005 was the second largest net importer of crude oil in the world. Despite the country’s dearth of hydrocarbon resources, Japanese companies have actively pursued upstream oil and natural gas projects overseas. Japan remains one of the major exporters of energy-sector capital equipment, and Japanese companies provide engineering, construction, and project management services for energy projects.

Japan’s National Diet (parliament) elected Shinzo Abe as the country’s new prime minister on September 26, 2006, succeeding Junichiro Koizumi, who held the position for more than five years. Both Abe and Koizumi come from the Liberal Democratic Party (LDP), which has been in power since 1955. Before coming into office, Abe held the post of Chief Cabinet Secretary under Koizumi. Many political analysts expect Abe to adopt similar economic and foreign policies to his predecessor, although this remains to be seen.

Oil

World's Top Ten Oil Consumers, 2005 (Source: EIA Short Term Energy Outlook (November 2006)

Japan has very limited domestic oil reserves and relies almost totally on imports to meet its consumption needs. As of January 2006, Oil & Gas Journal (OGJ) estimated that Japan held 59 million barrels of proven oil reserves. During the first three quarters of 2006, Japan produced about 125,000 barrels per day (bbl/d) of oil, of which less than five percent was crude oil. The vast majority (83 percent) of Japan’s oil production comes in the form of refinery gain, resulting from the country’s large petroleum refining sector. For 2006, the Energy Information Administration (EIA) forecasts that Japan will consume 5.3 million barrels per day (MMbbl/d) of oil. Japan remains the second largest net importer of oil behind the United States and the third largest consumer of oil behind the United States and China.

Sector Organization

Although Japan is not a major oil producing country, it has a robust oil sector, comprised of various state-run, private, and foreign companies. Although the country is open to foreign investment in the energy sector, government restrictions and regulations have historically limited the involvement of international oil companies in Japan.

Until recently, Japan’s oil sector was dominated by the Japan National Oil Corporation (JNOC), which was formed by the Japanese government in 1967 and charged with leading oil exploration and production domestically and overseas. In November 2001, then-Prime Minister Koizumi announced the planned breakup of JNOC. The move was part of Koizumi’s wider reform agenda, designed to spin off JNOC’s profitable business units into new companies and introduce greater competition into Japan’s energy sector. Many of JNOC’s activities were spun off into the Japan Oil, Gas and Metals National Corporation (JOGMEC), which was formed in 2004. JOGMEC is a state-run enterprise charged with aiding Japanese companies involved in exploration and production overseas and the promotion of commodity stockpiling at home. Some of JNOC’s most successful business units formed new companies. Two of the largest to be formed through this process are Inpex, now Japan’s largest oil company, and the Japan Petroleum Exploration Co., Ltd. (Japex). Both companies carried out successful initial public offerings (IPOs) on the Tokyo Stock Exchange, although the Japanese government maintains an equity stake in each firm.

Japan’s large downstream sector is dominated by private Japanese companies, as foreign companies have faced regulatory restrictions that limit market entry. Over the last several years, these regulations have been eased, which has led to increased competition in the petroleum refining sector. The country’s refiners also went through a long period of consolidation beginning in 1999, which saw the merger of many large downstream companies. While Japanese companies such as Nippon Oil remain the largest players, international firms, such as Shell and ExxonMobil, also have a sizeable market share in Japan.

Exploration and Production

Japan's Oil Production and Consumption, 1986-2006*. (Source: EIA International Energy Annual 2004; Short Term Energy Outlook (November 2006)

Japan has limited domestic oil reserves and production, concentrated primarily along the country’s western coastline. During the last several years, Japan’s crude oil production (which excludes refinery gain) has hovered around 6,000 bbl/d, covering only a tiny portion of the country’s oil consumption. Offshore areas surrounding Japan, such as the East China Sea, contain oil deposits. However, development of these zones has been held up by competing territorial claims with China.

Overseas

In an effort to mitigate the country’s lack of domestic oil resources, Japanese oil companies have sought participation in exploration and production projects overseas. In May 2006, Japan’s Minister of Trade, Economy and Industry announced a long-term strategy that urges Japanese companies to increase energy exploration and development projects around the world to help secure a stable supply of oil and natural gas. Furthermore, he announced a goal of Japan importing 40 percent of its oil needs from Japanese-owned concessions by 2030, up from the current level of about 15 percent.

One of Japan’s largest investments in oil projects overseas was in the Neutral Zone (sometimes called the “Divided Zone”) between Kuwait and Saudi Arabia. However, the Japanese-owned Arabian Oil Company (AOC) lost its concession in the Saudi portion of the Neutral Zone in 2000. AOC also controlled 40 percent of the Kuwaiti portion of the project, as the operator of the Khafji and Hout oil fields. However, this concession expired in January 2003, although AOC continues to operate in the Kuwaiti portion of the Neutral Zone under a service contract. While AOC does not hold an equity stake in the project, it continues to receive about 50,000 bbl/d of oil from the joint development, although this figure is much smaller than the previous offtake received from the Saudi concession.

Inpex was awarded a $2 billion contract to develop the large Azadegan oil field in Iran in 2004, which is estimated to hold 6 billion barrels of recoverable oil reserves. Inpex was the operator of the project and held a 75 percent stake. However, in October 2006, the state-owned National Iranian Oil Company (NIOC) slashed Inpex’s share to 10 percent, after the Iranian government complained the Japanese company had not developed the oil field quickly enough. The future status of the Azadegan project remains unclear, and NIOC is reportedly in discussions with other oil companies to develop the oil field.

Aside from the Persian Gulf, Japanese companies have also sought equity participation in oil projects in the Caspian Sea region. In 2002, Inpex acquired a 10 percent stake in the Azeri-Chirag-Guneshli (ACG) Project in Azeri territory of the Caspian Sea. The ACG oil fields currently produce around 420,000 bbl/d of oil and hold between 5.4 – 6.9 billion barrels of recoverable reserves. While Inpex holds a 10 percent stake in the ACG project, Japan does not currently import any crude oil from Azerbaijan or the Caspian region. Inpex has also held an 8 percent interest in the North Caspian Sea Block of the Kashagan offshore oil field in Kazakhstan since 1998.

Another region where Japanese companies have been involved in exploration and production activities is the Russian Far East, primarily through the Sakhalin-I and -II oil and natural gas projects. Japan’s Sakhalin Oil and Gas Development Company (SODECO), a consortium of public and private Japanese oil companies, holds a 30 percent interest in the Sakhalin-I project. Oil production at Sakhalin-I began in 1999, and is expected to reach 250,000 bbl/d by year-end 2006. Japanese officials are keeping a close eye on ongoing projects in Russia. The Sakhalin-II project, in which Mitsui and Mitsubishi hold a combined 45 percent stake, recently experienced problems with its environmental license. Russian authorities have also complained about Sakhalin-I’s escalating costs. Japan is also carefully observing Russian plans to build an oil pipeline to the Pacific Coast, for which Russia has yet to choose a final destination. Beijing has lobbied for the “ESPO” (Eastern Siberia Pacific Coast) route to pump oil to China, although Russian officials have said they favor a route that would allow exports to both China and Japan.

Japanese companies are involved in numerous other exploration and production projects, primarily in the Middle East and Southeast Asia. Apart from Inpex, Japanese oil companies involved in exploration and production projects overseas include: Cosmo Oil, Idemitsu Kosan Co. Ltd., Japan Energy Development Corporation, Japex, Mitsubishi, Mitsui, Nippon Oil, and others. Many of these companies are involved in small-scale projects that were originally set up by JNOC. However, many of the highest profile projects being carried out by Japanese firms, some of which are described above, have faced obstacles and other setbacks.

Downstream/Refining

According to OGJ, Japan had 4.7 Mmbbl/d of oil refining capacity at 31 facilities as of January 2006, down from 5 Mmbbl/d in 2001. The refining sector in Japan was characterized by overcapacity in recent years, as petroleum product consumption stagnated. In addition, the country began to allow imports of petroleum products in the mid-1990s, which placed additional pressures on Japanese refiners to lower costs and become more competitive. This resulted in a period of consolidation, with many large refiners merging with and/or acquiring middle market players. There is little new refining capacity planned or under construction, as oversupply remains a problem. Some older facilities are being upgraded and retrofitted with new technologies, however. In November 2006, Idemitsu Kosan and Cosmo Oil each agreed to take a 10 percent equity stake in a new refinery project located in Qatar. The planned facility, which is expected to have a daily refining capacity of 146,000 bbl/d and a cost of $800 million, marks the Japanese industry’s first overseas refinery investment.

Currently, private refiners in Japan are required to maintain petroleum product stocks worth 70 days of consumption, which imposes large additional costs to these companies. The government is reportedly considering reducing this level by five to ten days in order to provide relief to the country’s downstream sector.

Natural Gas

According to Oil & Gas Journal, Japan had about 1.4 trillion cubic feet (Tcf) of proven natural gas reserves as of January 2006. Despite limited natural gas resources, Japan is an important natural gas consumer and imports virtually all of its natural gas from other countries. Lacking international pipeline connections, all of Japan’s imports come in the form of liquefied natural gas (LNG). Japan began importing LNG from Alaska in 1969, making it one of the first countries to pioneer LNG trade. Today, Japan is the largest importer of LNG in the world.

Sector Organization

As with the oil industry, Inpex and the companies created from the former Japan National Oil Company are the primary actors in Japan’s upstream natural gas sector. Besides Inpex, various other Japanese companies are involved in natural gas exploration and production efforts, primarily overseas. Because Japan is the world’s largest LNG buyer, the country has a robust LNG infrastructure, most of which is owned and operated by local power generation companies. Osaka Gas, Tokyo Gas, and Toho Gas are Japan’s largest retail natural gas companies, with a combined share of about 75 percent of the retail market. Although Japan is a large natural gas consumer, it has a limited natural gas pipeline transmission system. This is partly due to geographical constraints posed by the country’s mountainous terrain, but it is also the result of previous regulations that limited investment in the sector. Reforms enacted in 1995 and 1999 have helped to open the sector to greater competition, and a number of new private companies have entered the industry since the reforms.

Exploration and Production

Japan's Natural Gas Production and Consumption, 1984-2004. (Source: EIA International Energy Annual 2004

Japan’s natural gas production is limited, totaling 104 billion cubic feet (Bcf) in 2004. On the other hand, Japan consumed 2,950 Bcf of natural gas in 2004, making it a large net importer of natural gas. Most of Japan’s natural gas fields are associated, meaning that they are co-located with the country’s oil fields. Japan’s largest natural gas field is Yufutsu, which produces approximated 40 million cubic feet per day (Mmcf/d). The Iwafune-Oki field, operated by Japex and Mitsubishi, produces around 6 Mmcf/d.

The East China Sea is believed to hold substantial natural gas reserves and is one possible site of future offshore development by Japan. However, development of hydrocarbon reserves in the region has been hindered by disagreements between Japan and China over the demarcation of their maritime boundary. Japan has objected to China’s exploration and production activities in the Chunxiao natural gas field, which is three miles west of the median line, but which Japan contends may be tapping natural gas reserves which extend past the median line. The Japanese government granted a drilling concession in July 2005 to Teikoku Oil for an area just east of the median line. The Japanese and Chinese governments have participated in several rounds of bilateral negotiations aimed at resolving the impasse, although so far no specific agreements have emerged from these talks.

Overseas Activities

To help mitigate the country’s shortfall of domestic natural gas resources, Japanese companies have actively sought participation in natural gas exploration and liquefied natural gas (LNG) projects overseas. One of the largest initiatives is Inpex’s $6-billion Ichthys project in offshore Western Australia. In 1998, Inpex acquired a 100 percent stake in the WA-285-P field in the offshore Ichthys natural gas-bearing structure. The company has since put forward plans for the project to eventually produce 6 million tons per year (Mmt/y) of LNG (292 Bcf/y), all of which would be exported to Japan. In August 2006, Inpex announced that it had transferred a 24 percent participating interest in the project to Total, while Inpex would remain the Ichthys project operator.

Another high profile LNG project in which Japanese companies have a stake is the Sakhalin-II project in Russia. The project is being developed by Sakhalin Energy, with Shell as the operator (55 percent controlling stake) and Japanese companies Mitsui (25 percent) and Mitsubishi (20 percent) holding participating stakes. In September 2006, the Russian Natural Resources Ministry froze a key environmental permit for Sakhalin-II, which has effectively curtailed operations. The project is slated to begin LNG production in 2008, although it is unclear if this will be delayed as a result of the current environmental problems. Russian officials have proclaimed their discontent with the project’s rising costs, which the Shell-led consortium estimates will reach $22 billion, almost double the 2001 estimate of $12 billion. At its peak, Sakhalin-II is expected to produce 9.6 Mmt/y (468 Bcf/y) of LNG, of which eight Japanese companies have already signed contracts to buy 4.7 Mmt/y (230 Bcf/y).

Japanese companies have also invested in several natural gas projects in Indonesia. In October 2006, Inpex announced that it had found substantial natural gas reserves in the Masela Block in the Timor Sea, in which Inpex holds a 100 percent stake. The company did not offer a specific reserve estimate, but Inpex will reportedly submit a $4.2 billion project proposal to the Indonesian government. The project will aim to ship 3-5 Mmt/y (150-250 Bcf/y) of LNG to Japan and elsewhere by 2015. Inpex is currently involved in two other LNG-producing projects in Indonesia, one on Kalimantan Island and another on the island of New Guinea.

Liquefied Natural Gas

Japan's LNG Imports by Source, 2005. (Source: EIA Natural Gas Monthly (August 2006); IEA Natural Gas Information 2006

As noted earlier, Japan is the largest liquefied natural gas (LNG) importer in the world. In 2005, the country had net imports of 2,858 Bcf (58.6 Mmt) of LNG. Japan has 23 LNG import terminals with a total throughput capacity of more than 60 Mmt/y (2,925 Bcf/y). Most LNG terminals are located around the island nation’s main population centers of Tokyo, Osaka, and Nagoya. Many of Japan’s LNG facilities are owned by local power generation companies that operate natural gas-fired power stations, often in partnership with natural gas distribution companies. These same companies own much of Japan’s LNG tanker fleet.

Japanese regulations permit individual utilities and natural gas distribution companies to sign LNG supply contracts with foreign sources. The largest LNG supply agreements are held by Tokyo Gas, Osaka Gas, Toho Gas, and TEPCO, primarily with countries in Southeast Asia and the Middle East. Many of Japan's existing LNG contracts date from the 1970s and 1980s, when terms were less flexible and tied to prices for crude oil. With these contracts coming up for renewal, Japanese firms have been insisting on terms more favorable to the buyer, including volume variances and a weakening in the pricing link to crude oil. Many of these agreements are set to expire over the next decade, and it remains uncertain whether or not Japanese companies will be able to renew the contracts on favorable terms. Some industry analysts posit that this is driving Japanese firms’ interest in acquiring equity stakes in foreign LNG projects, in an effort to guarantee future supply.

Coal

Japan's Coal Production and Consumption, 1984-2004. (Source: EIA International Energy Annual 2004)

Japan has small coal reserves of 396 million short tons. The country ceased coal production in January 2002 with the closure of its last operating coal mine at Kushiro, on the northern island of Hokkaido. Despite Japan’s limited domestic coal reserves and lack of production, the country is a large importer of coal. Japan is the world’s largest importer of steam coal, which it uses for power generation, paper plants, and cement production. Japan is also an important buyer of coking coal for use in its steel industry.

Electricity

Japan's Electricity Generation by Source, 1984-2004. (Source: EIA International Energy Annual 2004

In 2004, Japan had 243.5 gigawatts (GW) of installed electricity generating capacity, the second largest in the world behind the United States. During 2004, Japan generated 974 billion kilowatt-hours (Bkwh) and consumed 906 Bkwh of electric power. Of the country’s generation, about 61 percent came from conventional thermal sources, 28 percent came from nuclear electric sources, 10 percent from hydroelectric sources, and less than 2 percent from other renewables.

Sector Organization

Japan's Regional Electric Power Companies, Installed Generating Capacity. (Source: Federation of Electric Power Companies)

Japan’s electricity industry is dominated by 10 privately-owned, integrated power companies that act as regional monopolies, the largest of which is the Tokyo Electric Power Company (TEPCO). These companies account for more than three-quarters of Japan’s electricity capacity and also control the country’s regional transmission and distribution infrastructure, leaving limited room for independent power producers (IPPs). The 10 companies cooperate with one another to ensure the stability of electricity supply and work together to exchange or provide electricity during emergency situations or power shortages. Other players in the electricity market are the Japan Atomic Power Company (JAPC), which operates three nuclear power plants, and the Electric Power Development Company (known as J-Power), which operates 16 GW of hydroelectric and thermal power plants. J-Power, formerly a state-owned enterprise, was privatized in September 2004.

While Japan’s 10 regional power companies are privately owned and subject to some competition, historical regulation of the power sector has guaranteed effective monopolies for the companies. Japan has set out to liberalize and deregulate the electric power sector on a step-by-step basis. The Japanese Diet passed a bill in May 1999 that amended the Electric Utilities Industry Law to allow a partial opening to competition. Beginning in March 2000, large industrial power purchasers, representing about one-third of the Japanese electricity market, have been able to choose their power suppliers. In April 2005, the scope of liberalization was increased to include medium-scale electricity purchasers. The Japanese government intends to consider full liberalization beginning in April 2007. In February 2004, the Electric Power System Council of Japan (ESCJ) was established to oversee the liberalization and deregulation program.

The Ministry of Economy, Trade and Industry (METI) has primary regulatory authority for the energy industry. Within METI, the Agency of Natural Resources and Energy (ANRE) and its various electric power subdivisions oversee the electricity sector. Japan’s Nuclear Safety Commission regulates operations at the country’s nuclear power plants.

Conventional Thermal

In 2004, Japan had about 175 gigawatts (GW) of conventional thermal electric generating capacity, an 8 percent increase from 2000. The country has a large number of oil-fired power plants, although much of this capacity is primarily reserved as slack capacity to meet peak demand. Natural gas-fired power stations are increasing in Japan. Coal remains an important fuel source for many generating facilities, although the Japanese government has encouraged the use of less polluting technologies. Still, as a means of decreasing the country’s reliance on hydrocarbon imports from the Middle East for power generation, emerging coal technologies are being promoted. J-Power and the regional power companies have formed Clean Coal Power R&D, a joint-venture that aims to build an experimental 250-megawatt (MW) coal gasification power plant that will have the highest thermal efficiency rate in the world.

Nuclear

Japan currently has 55 operating nuclear reactors with a total installed generating capacity of around 50 GW, the third-largest in the world behind the United States and France. While Japan has promoted nuclear electricity over the years as a means of diversifying its energy sources and reducing carbon emissions, safety and reliability at many of the country’s reactors has become a concern. In August 2002, it emerged that maintenance inspection findings at some nuclear reactors owned by TEPCO had not been properly reported to government regulators. This led to the shutdown of all 17 of TEPCO's nuclear reactors over the following several months. Several new reactor projects, including some proposed by other utilities, were put on hold while the issue was resolved. In the short term, this led to increases in Japan's fuel oil and liquefied natural gas (LNG) consumption, as generating capacity using fossil fuels was brought online to make up for the shortage of nuclear generating capacity. TEPCO gradually brought all 17 of its nuclear generating units back online, completing the process in August 2004.

This incident has empowered a growing anti-nuclear lobby in Japan. In March 2006, a district court ordered Hokuriko Electric Power Company to cease the development of its new 1,350-MW nuclear reactor at Shika based on an initiative introduced to the courts by public advocacy groups. However, despite some opposition, industry reports predict that new reactors and expansions at existing facilities will increase Japan’s installed nuclear capacity by up to 20 GW in the next decade. Media reports also suggest that without new nuclear electric power, Japan is unlikely to meet its Kyoto Protocol emissions reduction targets.

Hydroelectric

Japan had installed hydroelectric generating capacity of 22 GW in 2004, or about 9 percent of total capacity. While Japan would like to see additional development of hydropower to increase the country’s energy self-sufficiency, government reports suggest that the country has nearly exhausted its sites for additional large-scale hydroelectric projects. J-Power has canceled plans for two new hydropower projects in Fukui and Niigata prefectures.

Environment

Overview

In the past few decades (and especially since the late 1980s), Japan has significantly improved energy conservation and environmental protection. Since that time, Japan has become a world leader in the development and implementation of pollution control technologies and energy efficiency innovations. It is now one of the preeminent international disseminators of environmental technology.

The environmentally friendly nature of current Japanese polices represents a significant departure from earlier periods, when the government pursued economic development without regard to environmental impact. This nearly exclusive focus on economic development led to significant public health problems like "minamata" disease, which was caused by industrial emissions released in wastewater. While Japan's environmental protection efforts have improved, it still faces a number of environmental challenges. In particular, increased energy consumption as a result of economic growth has led to increases in nuclear waste, road traffic, pollution and other energy-related environmental problems. These have offset some of Japan's environmental progress.

The roles of the different Japanese authorities involved in environmental protection are set out in the Basic Environment Law, which was enacted and implemented in November 1993. The Ministry of the Environment (MOE) is the chief national authority for environmental matters. It is responsible for coordinating policies and budgets, as well as setting various environmental standards. Many other offices in Japan's national executive branch also are prominently involved in environmental protection. Ministries engaged in drafting and enforcing national environmental policy include: METI; the Ministry of Health, Labor, and Welfare; and the Ministry of Agriculture, Forestry, and Fisheries. The Ministry of Public Management, Home Affairs, Posts, and Telecommunications is responsible for the Environmental Dispute Co-Ordination Commission, which was created in 1972 to mediate disputes over pollution. In addition to Japan's central government, prefectural and municipal authorities also play a role in environmental regulation. Sometimes, their regulations are even stricter than those set by the central government. Interestingly, the Basic Environment Law specifically allocates partial responsibility for global issues like ozone depletion and global warming to local authorities.

Air Pollution

Controlling air pollution is a major issue on both the local and national levels in Japan. It was first addressed in the Air Pollution Control Law of 1968, which was amended most recently in 1996. The Air Pollution Control Law provides for air quality monitoring stations in several parts of the country. These check whether nitrogen dioxide (NO₂), suspended particulate matter (SPM), sulfur dioxide (SO₂), carbon monoxide (CO) and photochemical oxidants (O_x) adhere to national emissions standards.

Emissions standards were established by order of the Prime Minister’s Office and were last amended in 1998. The limits on sulfur oxide emissions from stationary sources vary according to the geographic location of the facility and height of the exhaust stack, and nitrogen oxide emission limit values vary according to boiler or furnace type. Sulfur content limits for fuels were included under the Air Pollution Control Law by amendments in 1995 and have been in force since 1996.

Automobile traffic is a major cause of urban air pollution in Japan. Vehicle emissions standards for nitrogen oxides, carbon monoxide, and hydrocarbons were also established by the Air Pollution Control Law and by the Automobile NO_x Law of 1992. The latter only affects a total of 196 city, ward, town and village governments in Tokyo, Saitama, Chiba, Kanagawa, Hyogo and Osaka. The Automobile NO_x Law was updated in 2002 to specifically focus on the emissions of diesel-powered vehicles. The Air Pollution Control Law and Automobile NO_x Law also contain provisions aimed at reducing traffic congestion. In recent years, however, the share of private cars as a proportion of total passenger transport in Japan has increased, leading to more cars on already-congested roads. Japanese automakers are now producing trucks and vans in order to comply with "short-term" emissions regulations implemented in October 2003 that require them to produce cars with very sharply reduced CO and hydrocarbons emissions. These regulations will become even more stringent in 2005.

While Japan's regulations have succeeded in dramatically reducing the concentration of sulfur dioxide over the past few decades, the MOE acknowledges that nitrogen dioxide concentrations have not declined. This reflects the continued growth in automobile use. Japan is expected to begin regulating volatile organic compounds (VOCs) in 2004. At present, Japan has the greatest concentration of VOCs amongst advanced industrial nations (4.9 tons a year per square kilometer). A carbon dioxide (CO₂) emissions-trading program that was tested in December 2003 by METI is also expected to begin in early 2004.

Water Pollution

Japan's aquatic environment has improved significantly over the last few decades, as industrial water pollution was sharply curtailed. That said, the MOE acknowledges that its environmental quality standards for organic water pollution are still not being met in about 30% of Japan's total water area. Particular areas of concern are rivers running through urban areas and enclosed water areas such as inland seas, inlets, lakes, and reservoirs.

In addition to domestically-created water pollution, Japan is also impacted by international factors. For example, oil tanker traffic through the Sea of Japan has recently become an environmental problem. Due to the fact that several countries bordering the Sea of Japan have relatively weak environmental regulations regarding oil tankers, there have been large numbers of minor oil spills in recent years. The volume of oil tanker traffic along this route has caused coastal and marine pollution in Japan. In an effort to prompt better environmental behavior, the Japanese Ministry of Land, Infrastructure, and Transport proposed in March 2003 to increase the punitive fines for tanker spills by 50% pending the approval of the Parliament. If approved, the proposal would mean the largest tankers could face a $41 million increase in their fines. Besides tanker spills, the Sea of Japan is also negatively impacted by land-based pollution from neighboring countries. For example, up to 80% of the Russian city of Vladiostok's sewage is dumped into the Sea without treatment.

Energy Use and Carbon Emissions

In 2001, Japan was the 4th largest energy consumer in the world behind the United States, China and Russia. In that year, Japanese energy consumption amounted to 21.9 quadrillion Btu (more than all of Central and South America combined), or 5.4% of the world total (Japan's population is 2.1% of the world's total). Fossil fuels accounted for a significant majority of this energy consumption: 50.2% came from oil; 16.8% came from coal; and 13.6% came from natural gas. Nuclear energy was by far the most prominent non-carbon energy source; it contributed 14.4% of Japan's total energy consumption. Although Japan is a world leader in renewable energy technologies, non-hydroelectric renewables accounted for only 1% of total energy consumption in 2001%. Japan's share of total world carbon emissions was somewhat smaller. In 2001, it accounted for 4.8% of the world's total energy-related carbon emissions.

Japan has been a strong supporter of efforts to combat global warming and played host to the conference that led to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which was finalized in December 1997. Japan ratified the Kyoto Protocol in June 2002. If it is ratified by at least 55 nations, accounting for at least 55% of 1990 carbon dioxide emissions from industrialized countries, Japan would have to reduce its emissions 6% from its 1990 levels between 2008 and 2012. In order to reduce emissions, the Government Advisory Committee for Natural Resources and Energy has proposed stepping up energy conservation efforts in all sectors, expanding renewable power generation, and gradually switching from coal to natural gas. As part of its commitment to the Kyoto Protocol, the MOE is considering a tax on carbon emissions, which has become known as the "environment tax." Though it has not yet passed, some Japanese firms have begun buying carbon emissions credits even though there is no market for their exchange yet.

Despite these proposals and strong public support for the ideals set out in the Kyoto Protocol, Japanese energy-related carbon emissions increased every year between 1999 and 2001. Overall, between 1990 and 2001, carbon emissions grew 17%, from 269 million metric tons to 316 million metric tons. This means that to achieve the levels required under the Kyoto Protocol, Japan would have to reduce its carbon emissions by 20% from their 2001 level. Recent events suggest that Japan is growing even more carbon intensive. According to the Japan Business Federation, carbon dioxide emissions by Japan's 35 main industries, including steel and car-manufacturing, increased 1.8% in fiscal 2002 from the previous year. Much of this rise may be attributable to increased operation of thermal electricity plants to compensate for the closure of nuclear reactors. Tokyo Electric Power (TEPCO) closed all its facilities following a scandal over its cover-up of safety problems.

Energy and Carbon Intensity

Energy Intensity in Select Countries, 1984-2004. (Source: EIA International Energy Annual 2004)

For a variety of economic, political, and cultural reasons, Japan is one of the least energy- and carbon-intensive countries in the developed world. In part, this is due to the fact that Japanese energy costs are among the highest in the world. This has led the country's heavy industry, formerly a major energy consumer, to streamline its energy use. In addition, Japan has continued to shift away from energy-intensive industries and has developed extensive energy efficiency programs.

In 2001, Japan consumed 7,013 Btu per $1995-PPP, the second lowest behind Italy among the Group of Seven (G-7) industrialized countries. Japan's carbon intensity is similarly low. In 2001, the country released 0.1 metric tons of carbon per thousand $1995-purchasing power parity (PPP_, compared to the U.S. level of 0.17 metric tons.

Japan has an Energy Conservation Law that sets energy efficiency standards on a broad range of products including everything from automobiles to home and office appliances. The law establishes a "Top Runner Program" that sets targets and timelines for energy saving improvements. Japan's Advisory Committee for Natural Resources and Energy plans to draw up a long-term plan for energy conservation in early 2004. This blueprint is expected to focus on curbing consumption in the private and transportation sectors.

Another aspect of the government's effort to reduce carbon emissions is to increase the exploitation of domestic resources. Japan has around 1.4 trillion cubic feet of proven natural gas reserves, with more possibly beneath the Sea of Japan. At present, Japan imports 97% of its natural gas, all in the form of liquefied natural gas (LNG).

Per Capita Energy Consumption and Carbon Emissions

Energy Consumption per Capita. (Source: EIA)

While total Japanese energy consumption ranks fourth in the world, Japanese per capita energy consumption is lower than most other advanced nations. Japan consumed just 172.2 million Btu per person in 2001, around half of the United States' rate of 341.8 million Btu per person. This low consumption rate is primarily due to the rapid adoption of energy efficient technologies and government-mandated energy savings initiatives.

As with energy consumption, Japan's 2001 per capita carbon emissions were less than half the U.S. level. Japan emitted 2.5 metric tons of carbon per person, compared to 5.5 metric tons per person for the United States. Relative to other G-7 countries, Japan was in the middle. Per capita carbon emissions for Canada, Germany, and the United Kingdom were higher at 5.0, 2.7, and 2.6 metric tons per person, respectively. Italy (2.1 metric tons) and France (1.8 metric tons) had lower per capita carbon emissions rates.

Nuclear Energy

Japan would like to be able to increase nuclear energy consumption both to improve its energy security, and to reduce its carbon emissions. Japan's current 10-year energy plan, approved in March 2002, calls for the expansion of nuclear generation by about 30% by 2010. This is expected to entail the construction of between 9 and 12 new nuclear power plants. The Japanese government also plans to offer subsidies for nuclear power plant construction in order to offset expected cost-cutting pressures on utilities due to deregulation which might lead to increased reliance on fossil fuels for electricity generation.

Safety concerns have seriously jeopardized any expansion of the nuclear sector. Popular opposition has grown in recent years due to the serious accident at the Tokaimura uranium processing plant in September 1999 and the 2002 discovery that maintenance inspection findings at some nuclear reactors owned by TEPCO had not been properly reported to government regulators. The latter led to the closure of all 17 TEPCO nuclear facilities. As of mid-January 2004, only 5 of the reactors had come back on-line. The reduction in nuclear power generation has led to reliance on thermal power plants. The unpopularity of nuclear power has led to the postponement of several new reactor projects, including some proposed by other utilities.

Japan's desire to reprocess the excess plutonium generated in its reactors has also provoked widespread public opposition. As an alternative to costly plutonium disposal methods and storage facilities, the country plans to build facilities that reprocess spent nuclear fuel and use the plutonium as fuel for fast breeder reactors. The mixed plutonium and uranium oxide (MOX) fuel program is seen as the sole option for consuming this plutonium, but it is feared that processing MOX reduces safety margins and increases the risks of more severe accidents. These fears were given new currency by the 1999 discovery that British Nuclear Fuels (BNFL) falsified data on MOX for use in a Fukui prefecture nuclear facility.

Renewable Energy

In 2001, Japan released a Revised Long-Term Energy Supply and Demand Outlook. It emphasizes efficient use of energy and the development of nuclear power plants as effective means of reducing CO₂ emissions. The Outlook complements the Revised Energy Savings Law, adopted in 1999, which calls on central and local governments to offer effective economic incentives to promote wider use of environmentally-friendly products and technologies, including solar cells and lower-emission and multi-fuel vehicles. The Revised Energy Savings Law established a "Top Runner Program" that sets targets and timelines for energy saving improvements. It also calls for dramatic increases in the use of renewable energy sources by 2010. Solar energy's installed capacity is expected to reach 5,000 megawatt (MW) by 2010, while the targets for wind power and geothermal energy are 300 MW and 1,000 MW, respectively. As a volcanic island country, Japan has significant potential for geothermal electricity generation. However, potential sites are difficult to develop, because almost all are located in National Parks.

Japan has recently initiated several policies aimed at promoting renewable energy. For example, the Green Power Fund was established in 2000 to promote the use of wind power. Renewable energy, especially wind power, also benefited from two important pieces of legislation in 2003 . The first was a revision of the Electricity Utility Law, which allowed new providers to the sell to a broader array of clients. It is intended to allow independent providers with comparatively little capacity to enter the electricity retailing business. The other recent legal change was the enforcement of the Special Measures Law Concerning Promotion of the Use of New Energy by Electricity Utilities, which introduced a renewable portfolio standard (RPS) system. The RPS system mandates that a certain percentage of power must come from renewable sources and is intended to force major power providers to generate or purchase renewable energy.

Further Reading

• Country Data on Japan, Energy Information Administration.
• Japanese Agency for Natural Resources and Energy