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5 November, 2016
Introduction
Japan has almost no domestic energy resources and the country must look overseas to resource the bulk of its energy requirements. The post-war restoration program and subsequent economic boom created a huge demand for energy in Japan but the oil crises of the 1970s reminded the country just how precarious its energy supply problem was. A firm commitment was made by the government of the time to secure a stable supply of energy and a shift toward energy supply source diversification was adopted.
Energy Conservation Law
This policy was reflected in the enactment of the "Law Concerning the Rational Use of Energy" (Energy Conservation Law) in 1979, which provided a legal basis for energy conservation activities and spurred a culture of innovation in its manufacturing industries which emphasized efficient energy consumption. The Energy Conservation Law contained energy consumption efficiency standards for machinery, equipment, and other items. Initially, the types of machinery and equipment covered by the regulations were limited to three items: electric refrigerators, air conditioners, and cars.
Top Runner Program
Japan consequently revised the Energy Conservation Law in June 1998, with the goal of strengthening the legal underpinnings of various energy conservation measures. The “Top Runner Program” was introduced to establish energy consumption efficiency standards for machinery, equipment, and other items for the residential and commercial sector and the transportation sector. This program has become the cornerstone of Japan’s energy efficiency policy and the primary means by which the country tackled its greenhouse gas reduction commitments under the Kyoto Protocol.
At first, 11 product items (including cars and air conditioners) were covered by this program, which has now been expanded to cover 31 product items, with a focus on high energy-consuming products, such as printers, microwave ovens, oil water heaters, and vending machines. It now also includes construction materials that contribute to energy conservation such as insulation materials and windows (sashes and multi-paned glazing).
Products which meet the energy efficiency standard receive a “Top Runner” label at the point of sale. The label includes an expected electricity bill and a five-star rating to represent the relative position of a product in the market with respect to energy-saving performance, as well as its energy consumption efficiency or heat loss prevention performance. The Ministry of Economy, Trade and Industry (METI) is empowered to ‘name and shame’ companies that fail to meet the targets, as well as to issue recommendations, orders, and fines. Thus, companies are incentivized to avoid negative publicity.
Fukushima meltdown and the future
More recently, following the Fukushima Daiichi Nuclear Power Plant accident, caused by the Great East Japan Earthquake on 11 March 2011, the large scale shutdown of domestic nuclear power stations resulted in a substantial decrease in power supply (many such plants were suspended out of safety concerns). Consequently, the demand for oil, natural gas, and coal increased. The rolling blackouts across Eastern Japan in the weeks following the earthquake also spurred a renewed effort to conserve energy and to promote alternative energy supply.
In September 2011, METI began a program to help stimulate the use of carbon credits to compensate private industry for the introduction of equipment and facilities that reduce CO2 emissions. The domestic carbon credit system involves the use by small and mid-sized enterprises of capital and technology from larger corporates to help reduce greenhouse gas emissions. The larger corporates are then awarded carbon credits by the government. Another financial incentive available for industry is a tax incentive scheme which provides a special depreciation rate of 30 percent of the acquisition cost for businesses investing in certain energy conservation and energy efficient equipment.
One key initiative, introduced in 2012, was the renewable energy program, based on a feed-in tariff system. However, regarding solar projects, there has been an excessive uptake for this program which has led to a bust, tipping solar panel shipments into decline and forcing the government to revise the guaranteed tariff payment for solar power projects downward, year on year. Many investors now prefer to buy into existing projects which have a higher locked-in tariff agreed several years ago, rather than develop their own projects at the current low tariffs.
Advanced R&D into rechargeable batteries is now yielding results. Honda Motors announced earlier this month (9 October 2016) that it has developed what they claim to be the world’s first practical magnesium-based rechargeable battery. This would allow batteries to last much longer and to reduce the cost of smart phones and other devices, since magnesium is substantially cheaper than the more standard lithium ion batteries.
METI is also promoting the construction and marketing of “Net Zero Energy Houses”, i.e. those which achieve an annual net energy consumption of around zero (or less) by generating energy by means such as photovoltaic power generation, while a significant level of energy conservation is realized at the same time through heat insulation and other energy efficient improvements. Smart meters, smart grids ,and even home energy storage systems are also being promoted by industry as another means of achieving optimum energy efficiency in the residential sector.
According to the 2016 Energy Efficiency Scorecard, Germany is the world’s most energy efficient country. Japan and Italy are tied for second place. Japan’s high placing on this table is a result of a long-term, well-considered policy. All signals indicate that Japan’s commitment to energy efficiency remains as strong as ever. However, the challenge of anticipating and adapting to sharp changes in technology should not be understated.
For further information, please contact:
Joseph Kim, Partner, Hogan Lovells
joseph.kim@hoganlovells.com
