Goals of Japan’s Energy and Environment Policy

Establishment of Low Carbon Society  on the basis of long-term outlooks for energy and CO2 emissions  through development and diffusion of innovative technologies In the medium and long term In the short term Achievement of the Kyoto Target  “The Kyoto Target Achievement Plan” (2005) based on review and assessment of the current climate change policy programme  Climate change policy should be developed and implemented so as to contribute to both the environment and economy by making the best use of technological innovation and innovative ideas in economic circles.  Japan assists developing countries with its climate-friendly technologies. 1

Framework of Japan’s Energy Policy Basic Principles of Japan’s Energy Policy : 3Es (Based on the Basic Law on Energy Policy Making-*enacted in June 2002) Master Plan for energy supply-demand *issued in October 2003 Long-term Outlook on Energy Supply-demand *interim report issued in October 2004 (Advisory Committee for Natural Resources and Energy, Energy Supply and Demand Subcommittee) Security of Energy Supply e.g. Alternatives to oil Harmony with Environment e.g. Lowering CO2 emission Economic Efficiency e.g. Utilizing market mechanism * In utilizing market mechanism, full consideration will be given to other two policy goals. 2

Stabilization of global GHG concentrations In order to stabilize the atmospheric concentration of CO2, carbon emissions from the burning of fossil fuels need to be balanced with the terrestrial and ocean carbon uptake. To balance emissions and uptake, emissions must be drastically reduced to less than half of the current level. The IPCC scenario for stabilizing at 550 ppm (WRE550) shows that, although emissions need to be reduced to less than half of the current level, about one-fourth reduction will be necessary in comparison with the future emission peak. 3 Emission scenarios to stabilize atmospheric CO 2 concentration (Source) IPCC (2001)

2030 Energy Demand-Supply Structure in Japan Energy demand will begin to drop: In the reference case, energy demand will take a downturn in fiscal 2021, mainly due to energy conservation technologies and introduction of efficient equipment along with industrial and socioeconomic structure change. Energy supply structure will gradually change: The spread of distributed power generating systems will increase demand for natural gas to increase its share. Nuclear power will continue to secure a stable share as a power source. Oil, despite a decrease in share, will continue to be an important source of energy that accounts for around 40% of the total energy supply. Given progress in the introduction of new energy technologies, renewables may attain a share of around 10%. Domestic Primary Energy Supply (10^3 kloe) Final Energy Consumption (10^3 kloe) 4

Long-term Outlook for CO2 emission Technologies and nuclear energy are key for reducing CO2 emission in growing economy Line 1: As R&D affords considerable potential for energy conservation, CO2 emissions may begin to fall around 2020 in spite of steady economic growth. Line 2: Introduction of additional nuclear plants also has enormous impact. Line 3: Further introduction of advanced technologies has enormous impact which would reduce CO2 level in 2030 well below 1990 level. Line 4: GOJ pursues Kyoto Protocol target with additional measures. 【 Energy-Related CO2 Emissions 】 5 Line1: Reference case – 10 additional nuclear plants expected. Line2: Nuclear-high case – 17 additional nuclear plants expected Line3: Additional R&D case Line4: Additional measures case for Kyoto Target Line1 Line2 Line3 Line4

- Japan has been the most successful in decoupling energy demand from economic growth. Japan’s level of energy efficiency has been better than other developed countries. - Accordingly, marginal abatement cost of Japan is higher. - The manufacturing industry has played a key role for drastic energy efficiency improvement during 1970s and 1980s. Fig: Energy consumption per GDP in EU15, US and Japan (Source) IEA, Energy Balances of OECD Countries Fig: Energy consumption per production of the manufacturing industry in Japan (Source) IEEJ-EDMC, Handbook of energy & economic statistics in Japan Fig: Marginal cost calculation for each country to achieve its Kyoto target (Source) IPCC (2001) Japan’s Energy Efficiency 6

GAP - Innovative technologies are necessary for sustainable development. -The Government of Japan has put emphasis on energy-related R&D with a view to reducing emissions not only domestically but also globally. Key for Success: New Technologies (1) (Source) IEA (2002) Fig: Importance of innovative technologies in CO2 emission reduction (Source) Battelle (2000) Fig: Energy-related R&D investment by government 7

Key for Success: New Technologies (2) - Light-emitting diode (Lights for the 21st Century) Low energy consumption (10% of incandescent lighting) Long life (10 times fluorescent lighting) - Saving of stand-by electricity consumption - High performance boiler & laser 17% improvement of thermal efficiency - Photovoltaic power generation GOJ has been concentrated on supporting R&D program to contribute to global dissemination of PV. - Biomass - 5 million vehicles by 2020 in Japan. - Clean coal technologies, etc Japan MW US 212.2MW German MW Others MW World MW (2002) Renewable energy technologies Energy conservation technologies Promotion of nuclear power Carbon sequestration technologies Fig: Total worldwide installations of photovoltaic power system (Source) IEA PVPS 8 Clean technologies of fossil fuel Fuel cell

Fig. Example of Top Runner Program Table: Examples of covered equipment (18 equipments are covered in total.) Fuel Efficiency (km/l) Fuel Efficiency (km/l) Top RunnerProgram(Stricter energyconservationstandard) Conventional energy conservation standard Key for Success: Efficiency Improvement (1) -Energy efficiency is a key for striking a balance between environment and economy. -The “Top Runner Program” was introduced in 1998 as energy conservation standards for home/office appliances and fuel efficiency standards for automotives. 9

-The “Top Runner Program” has -stimulated competition and innovation in the market, -diffused existing technologies, and -enhanced industrial competitiveness -It created “win-win” situation and virtuous cycle. Key for Success: Efficiency Improvement (2) (Source) JEMA (2002) Fig: Energy efficiency of refrigerator Average Fuel Consumption for Gasoline Passenger Vehicles TR Ratio *The target is 23% improvement of efficiency in 2010.(Base year is 1995.) Fig. Average fuel consumption for gasoline passenger vehicles, and Top Runner ratio km/L 10

Key for Success: Efficiency Improvement (3) 11 -As for industry sector, incentive for better competitiveness needs to be utilized. -They know their own technologies and facilities best. -Best practices and best available technologies need to be globally shared. Sectoral approach is effective for this purpose and can make technology transfer easier. Thermal power sector; thermal efficiency (Electricity output per energy input) Steel industry (Energy intensities in integrated steel plant) Chemical industry (CO 2 emission intensities of ethylene production) Cement (Energy intensities of clinker) (Source): ECOFYS(2004), etc (Source): SRI Chemical Economic Handbook etc (Source): Korea Iron & Steel Association, etc (Source): Battelle