An Analysis of Northeast Asian Energy Cooporation and Japan's Ev

BAKER INSTITUTE STUDY PUBLISHED BY THE JAMES A. BAKER III INSTITUTE FOR PUBLIC POLICY OF RICE UNIVERSITY NO. 13 MAY 2000 JAPANESE ENERGY SECURITY AND CHANGING GLOBAL ENERGY MARKETS An Analysis of Northeast Asian Energy Cooperation and Japan’s Evolving Leadership Role in the Region For Japan, energy and security are inextricably in- these shocks and continued to experience strong eco- tertwined. Part of this reflects simple economic reality. nomic progress overall. Indeed, when Japan finally ran Japan, the world’s fourth-largest consumer of energy into economic trouble during the 1990s, it was during after the United States, China and Russia, must a period of relatively low international energy prices. import over 80 percent of its energy needs. Japanese All this suggests that concerns about Japan’s vulner- policy-makers and the general public alike are pain- ability may be exaggerated, implying that the costs of fully aware of the vulnerability that this dependence sustaining elements of its traditional energy security creates. Indeed, from its expansionist role in World policy – notably a highly regulated, administrated War II to its activist industrial policies of the 1970s rather than market conforming domestic energy sector and 1980s, energy security has played an important – may have become unacceptably high. – and sometimes overriding – role in Japanese foreign ere are, however, additional factors complicat- and domestic policy. ing this conclusion – ones of which Japanese deci- Compounding this sense of vulnerability is Japan’s sion-makers are acutely aware. Most importantly, the national experience during the end of World War II expected dramatic increase in oil use in Asia --includ- and the first years of American occupation – years of ing a large jump anticipated for the Asian giants, collapse for the Japanese economy and physical hard- China and India-- could contribute to rising oil prices ship for the Japanese people. Japanese do not have to or even foster destabilizing competition for oil sup- imagine the consequences of being cut off from access plies if not properly managed. Another is the altered to energy and other resources; they have experienced geostrategic environment created by the end of the it. is gives energy security a political salience in Cold War and, specifically, the effect it might have on Japan that it does not have, for instance, in the United the US-Japanese relationship, long the cornerstone of States. Japanese security and now the key protection against Yet this may be changing. After all, this “resource- disruption of Japanese energy supplies. poor island nation” has registered extraordinary e issue of energy security for Japan is both com- economic achievement despite its energy vulnerability. plicated and sensitive. Japanese policy makers must Annual oil import bills in excess of $50 billion have give serious consideration to the challenges of energy not stopped Japan from running yearly trade surpluses security in forging new economic policies that will twice or more that level. Major oil shocks in the stimulate sustainable economic growth such as dereg- 1970s and 1980s and the Gulf War in 1990, though ulation and privatization. Whatever policy Tokyo pur- challenging at the time, are in retrospect evidence not sues could have dramatic effect not just domestically of Japan’s weakness but its resilience; Japan weathered but internationally as well. A movement away from BAKER INSTITUTE STUDY NO. 13, MAY 2000 nuclear energy on economic grounds or as a response into and participation in an Asian contest for increas- to domestic political pressures, for instance, could dra- ing oil imports. Under scenarios where oil continues matically increase Japan’s oil import levels. is would to lose market share to other fuels and conservation, fuel competition for supply, significantly bloat Japan’s the Baker Institute projects Japanese oil imports may oil import bill and put pressure on international oil rise by only 900,000 b/d to 1.6 million b/d by 2015 prices. Alternatively, renewed emphasis on develop- to a total of 6.6 million b/d to 7.3 million b/d. is ing Northeast Asian natural gas markets --with Japan compares with a more substantial rise for China of as the major demand hub-- could serve as a brake on between 2 to 5 million b/d over the same period. Un- Tokyo’s role in the Asian race for Middle East oil sup- der such a scenario, Japan’s economic growth won’t be plies and enhance its cooperation with other regional a critical factor pitting it increasingly in competition powers such as Russia and China. Japan could also for oil supply with its neighbors or fueling increasing increase research and development of new energy tightness in international oil markets. Japanese policy technologies, creating more pressure on oil producers makers can also take a more relaxed view in reevaluat- to hold prices low as well as stimulating greater energy ing oil security policy, relying more heavily on mar- efficiency at home without heavy reliance on nuclear ket-oriented, commercial solutions such as deregula- fuels. tion of electricity markets and privatization of Japan’s Japan has been very successful to date in promot- exploration companies. ing energy efficient practices and diversification from However, the continued accumulation of wealth, oil. Japan’s oil consumption has been relatively stable combined with the current limits on conservation in recent years, rising from 4.8 million barrels a day technologies in the transport sector, still point to a (b/d) in 1988 to 5.7 million b/d in 1999. is com- significant rise in energy use in Japan. Total primary pares to soaring oil use in neighboring countries such energy use is expected to rise from 480 million metric as South Korea, whose oil consumption rose from tons of oil equivalent (mtoe) in 1995 to 673 to 717 740,000 b/d to 2.35 million b/d over the same period, million mtoe by 2015. At the same time, popular or China whose consumption doubled. Oil has been sentiment in Japan is increasingly turning against reduced from 77% of Japan’s total primary energy nuclear power. Were Japan to shift away from increas- consumption in 1973 to 55% in 2000 as a result of ing the share of nuclear power in its energy mix, the diversification toward nuclear energy and natural gas, amount of incremental oil imports might rise from conservation and a structural shift in Japan’s economy the 900,000 to 1.6 million b/d projected above to as away from heavy industry toward services. From much as 2.2 million b/d to 3.1 million b/d, signifi- 1980 to 1995, the country’s energy intensity, that cantly augmenting its influence in emerging global is, the amount of energy needed to produce goods oil market trends and in Asian competition for energy and services, was reduced from 0.22 kilograms of oil resources. equivalent per constant 1985 dollar to 0.18 kg of oil Public opposition to the use of nuclear power has equivalent, making it one of the most energy efficient existed since the first nuclear power plants were built countries in the world. in the 1970s, but had historically little effect on the is declining energy intensity trend will be hard- Japanese government’s policies. Government opinion er to sustain in the coming decade, however, as Japan’s polls throughout the 1980s and 1990s showed that industrial sector continues to shrink and conservation a majority of Japanese found nuclear power plants and efficiency will increasingly have to be wrought out “safe” or “somewhat safe.” is allowed officials to of the transportation and residential sectors. ignore localized public protests against the plants. Ar- Japan’s Ministry of International Trade and Indus- guments promoting nuclear power to enhance energy try (MITI) continues to target increases in alternative self-sufficiency overrode arguments over its dangers, energy sources such as nuclear energy and renew- even after occasional accidents at nuclear power plants ables. Should Japan manage to stay on track for oil highlighted safety risks. to decline in its share of the domestic energy market, But political and social changes occurring in Japan Tokyo might be worrying for naught about its input in the mid- to late-1990s have shifted public opinion against pro-nuclear government policies. Political and that are intended to make politicians more responsive economic upheaval coupled with numerous scandals to civic needs. Legal changes in 1998 brought Japan involving bureaucrats and politicians have eroded a national freedom of information law and legalized public trust in the government. ese factors have private non-profit organizations not sponsored by the lead to stronger calls for policy reform. ree specific government. ese changes promise to encourage citi- factors have played a role in elevating the degree of zen activism. Whereas decision-making once almost influence public opinion has on nuclear energy policy: always occurred behind closed doors, new disclosure 1) a series of recent dangerous mishaps involving laws now allow citizens, with considerable success, to nuclear material; 2) a general rise in local defiance of expose the process. Finally, critics are better organized, central government policy edicts; and 3) the prolifera- and media is increasingly independent, backed by tion of the use of the Internet to organize opposition. support from international non-government groups Public outcry over recent incidents involving (NGOs). the dangerous mishandling of nuclear materials has Arguments that nuclear power is the most pref- forced the Japanese government to alter its ambitious erable energy source because it is domestically pro- nuclear energy plans. In March 2000, the Japanese duced, and thereby more secure, may hold less water government responded to increasingly bitter public in coming years as economic forces are increasingly protests over the safety and wisdom of nuclear power brought to bear.

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