Japan’s Energy Policy Review; From E3 to E10 by 2020

4 June 2006

A review of Japan’s energy policy by the Ministry of Economy, Trade and Industry concluded that the country must improve its energy efficiency by 30% and reduce its dependency on crude oil from 50% today to less than 40% by 2030 to cope with surging oil prices. The ministry released the final version of the review last week.

Japan, with almost no oil reserves of its own, is the world’s third-largest oil consumer after the US and China, according to the US Energy Information Administration. Japan consumed an estimated 5.35 million barrels per day (bpd) of oil in 2004, down from 5.50 million bpd in 2003.

Among the recommendations in the review are boosting the efficiency of cars and appliances, increasing the proportion of crude oil production developed directly by Japanese firms from 15% today to 40% by 2030, and increasing the percentage of ethanol in gasoline from 3% (E3) to 10% (E10) by 2020. The review also suggests maintaining or boosting nuclear energy to contribute 30-40% or higher to total energy production.

A report by the USDA Foreign Agricultural Service (FAS) notes that Japan’s move toward biofuels will be affected by the limited prospects for domestic production of biofuels due to the country’shrinking agricultural production.

In order for biofuels to be adopted nationwide, Japan would need to import either the raw commodities or the biofuels...If Japan were to expand its biofuels use it would essentially be substituting petroleum imports for biofuel imports. For Japan the prospect of moving toward renewable fuels simply substitutes dependence on oil producers with dependence on grain producers.

One of the main drivers for a biomass policy is Japan’s commitment to reduce its greenhouse gas emissions under the Kyoto Protocol. The country’s first biomass strategy incorporated a 2003 decision to allow blends of up to 3% ethanol (E3).

There are six government-sponsored feasibility studies evaluating the potential for domestic biofuel production in Japan, exploring the use of wood waste, monster cane, and molasses, among others. Current ethanol production in Japan uses sugar cane.

The FAS report also notes, however, that:

In Japan, there is not a noticeable consumer movement toward renewable fuels. Although hybrid vehicles are frequently seen about the country, the main factors driving consumer decisions are (a) passing Japan’s strict emissions tests and (b) the price of gasoline...

Given industry’s reluctance and the lack of market potential for domestic crops, Japan’s renewable fuels prospects are largely guided by government policy rather than market forces.

Japan has been increasing its partnership with Brazil and Brazilian companies over ethanol production and imports.

The Advisory Committee for Natural Resources and Energy granted the review preliminary approval by and will formally adopted it this month. The recommendations will be incorporated into an overhaul of the government’s energy strategy slated for this fall.

Resources:

• USDA FAS GAIN Report JA6024: Japan Bio-Fuels Production Report