Japan, the world’s third-largest economy, is at a pivotal moment in its energy transition. Over 90% of the nation’s energy needs are met through imports, exposing it to global market volatility, geopolitical tensions, and currency fluctuations. The yen, valued at 151 yen per U.S. dollar as of November 2024, continues to exacerbate import costs, driving up the price of essential energy sources like liquefied natural gas (LNG), coal, and oil. While LNG import volumes dropped by 8% in 2023 to 66.2 million metric tons, costs remained elevated at $13.25 per million Btu. Combined with surging coal and oil prices, these imports contributed to a trade deficit of ¥5.89 trillion ($38 billion) in the last fiscal year, underscoring the urgency for systemic reforms.
Japan’s commitment to achieving carbon neutrality by 2050 adds complexity to its energy policy. Balancing energy security, affordability, and sustainability requires a strategic mix of subsidies to stabilize prices, shield households and businesses from inflationary pressures, and support technological advancements. However, these subsidies also expose inefficiencies and policy contradictions, especially given the country’s ongoing reliance on fossil fuels.
Nuclear energy is regaining attention after years of public skepticism following the 2011 Fukushima accident. As of early 2024, 12 reactors have resumed operation, with 8 more awaiting restart approval. Initiatives like the January 2024 Decarbonized Power Supply Auction, led by the Ministry of Economy, Trade, and Industry (METI), aim to incentivize clean energy production, including nuclear plants, signaling the government’s renewed focus on leveraging nuclear energy to enhance energy security and reduce carbon emissions.
Japan’s energy subsidies encompass a broad range of mechanisms, including direct government support, tax incentives, price controls, and funding for research and development. These subsidies reflect both immediate needs for price stability and long-term goals for decarbonization and energy independence.
In late 2023, Prime Minister Fumio Kishida unveiled the “GX Promotion Strategy,” committing ¥20 trillion ($133 billion) over the next decade to catalyze ¥150 trillion ($1 trillion) in investments. This initiative focuses on hydrogen, ammonia, renewable energy, and energy efficiency while phasing out reliance on fossil fuels. The government’s 6th Strategic Energy Plan, published in October 2021, provides a roadmap to achieve the following targets by 2030:
Compared to other major economies, Japan’s subsidy system stands out for its ongoing support of fossil fuels and cautious reintroduction of nuclear energy. The European Union has aggressively phased out fossil fuel subsidies and emphasizes renewable energy through EU-wide programs and carbon pricing mechanisms. In contrast, China continues to provide significant fossil fuel subsidies but is rapidly expanding its renewable and nuclear capacity, heavily supported by state funding. Meanwhile, the United States has shifted its focus under the Inflation Reduction Act (2022), providing substantial tax credits for clean energy projects, including nuclear. Japan’s unique challenges as an import-dependent island nation shape its subsidy strategy, but recent moves to support hydrogen, ammonia, and nuclear energy position it to better align with global trends.
Japan’s reliance on energy subsidies reveals inherent challenges that hinder its long-term goals. Fossil fuel subsidies, totaling ¥11 trillion ($77 billion) since 2022, have provided short-term relief during inflationary periods but diverted resources from clean energy investments. For example, subsidies capping gasoline prices at ¥175 per liter ($1.16/liter) helped stabilize consumer costs but conflicted with the country’s carbon neutrality ambitions.
The Feed-in Tariff (FIT) system, introduced in 2012, successfully drove renewable energy adoption, resulting in 22.5% of electricity generation by 2022. However, the high costs associated with FIT—raising household electricity bills by 14% since its inception—sparked public dissatisfaction, highlighting the need for reform.
Meanwhile, Japan’s ongoing support for LNG and coal as transitional fuels delays the broader adoption of renewables and nuclear energy. While high-efficiency, low-emission (HELE) coal plants reduce emissions compared to conventional technology, they remain at odds with decarbonization goals.
Nuclear energy is emerging as a critical pillar in Japan’s strategy to reduce dependency on costly subsidies and imported fossil fuels. As of 2024, the government has set a target for nuclear power to contribute 20–22% of electricity generation by 2030, supported by reactor restarts and advanced technology investments.
The Kashiwazaki-Kariwa Nuclear Plant, the world’s largest, is a key focus. In March 2024, the government directly requested its restart, signaling strong political commitment to revitalize the nuclear sector. To incentivize clean energy production, METI launched the Decarbonized Power Supply Auction in January 2024, offering financial guarantees to nuclear plants and other clean energy facilities for 20 years.
Rebuilding public trust in nuclear energy remains a priority. Following the Fukushima accident, the Nuclear Regulation Authority (NRA) introduced stricter safety requirements for nuclear power plants, and electric utilities have made significant investments in upgrading safety equipment and protocols. Voluntary initiatives led by organizations like the Atomic Energy Association (ATENA) and the Japan Nuclear Safety Institute (JANSI) aim to go beyond regulatory requirements, fostering a culture of continuous improvement.
Transparency and communication are integral to these efforts. The government and the nuclear industry are working to provide clear, factual information about safety measures and nuclear energy’s role in Japan’s energy mix. Enhanced engagement with local communities aims to address public concerns openly and build confidence in the safety and benefits of nuclear power.
Japan’s commitment to innovation in nuclear energy is evident in the Nuclear Energy x Innovation Promotion (NEXIP) Program, launched in 2019 by METI. With an annual budget of ¥10 billion ($94 million), the program supports the development of advanced light-water reactors, small modular reactors (SMRs), and new reactor concepts. SMRs, developed by Mitsubishi Heavy Industries, promise enhanced safety, scalability, and operational flexibility. Advanced light-water reactors aim to modernize existing technologies for improved efficiency and safety. Additionally, Japan is investing ¥1.8 billion ($16.86 million) in nuclear fusion research, positioning itself as a leader in next-generation energy solutions.
Renewable energy is a vital component of Japan’s transition, accounting for 22.5% of electricity generation by 2022, with plans to increase this share to 36–38% by 2030. The FIT system drove initial adoption but has since shifted toward supporting offshore wind, battery storage, and energy efficiency projects. However, the reliance on imported components, such as wind turbines and solar panels, continues to pose challenges, particularly with the weak yen inflating costs.
The Hydrogen Society Promotion Act positions hydrogen and ammonia as future energy carriers, allocating ¥3 trillion ($20 billion) to support industrial decarbonization efforts. These technologies are particularly promising for heavy industries like steelmaking and shipping, where electrification is less feasible.
Japan’s energy subsidy system reflects a nation in transition, balancing immediate economic needs with long-term sustainability goals. While fossil fuel subsidies have shielded consumers from inflation, their continued use is economically and environmentally unsustainable. Nuclear energy and renewables present viable paths forward, offering stability, affordability, and alignment with carbon neutrality targets.
With 12 reactors operational and initiatives like the Kashiwazaki-Kariwa restart and METI’s auction in place, nuclear energy is regaining momentum. Renewables, bolstered by FIT reforms and technological advancements, are also expanding their share. The gradual reduction of fossil fuel subsidies beginning in May 2024 marks a significant policy shift, reflecting Japan’s commitment to cleaner energy.
To succeed, Japan must align subsidies with its long-term energy strategy, foster innovation in nuclear and renewable technologies, and rebuild public trust in nuclear power. Through transparent communication, community engagement, and rigorous safety measures, Japan can reduce its reliance on imports, stabilize energy costs, and position itself as a global leader in sustainable energy development.
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