Socio-economic footprint of the energy transitionJAPAN

Executive summary Japan is one of the world’s most economically and industrially advanced nations. It is also one of the world’s largest consumers and importers of energy. The country is still heavily dependent on fossil fuel imports; however, renewables play a small but growing role in the energy mix, and deployment is increasing every year (Figure S1).

In 2020, in terms of its renewable energy power capacity, Japan has one of the highest installed
capacities. The country ranked third in the world for solar power and pumped storage, seventh for
biomass, and tenth for geothermal and hydropower. The deployment of renewables in the power sector
has been hampered by difficulties in connecting projects to the grid and in harmonising regional grids,
as well as by low land availability and the occurrence of natural disasters. Japan has put in place a diverse set of policies to support renewable energy deployment. In the power sector, policies have included liberalisation of the sector as well as instruments such as renewable portfolio standards (RPS), feed-in tariffs and auctions. Policies in the transport sector include measures related to biofuels as well as the promotion of e-fuels and electric vehicles. Some policies have also been enacted to strengthen research and development (although with limited budgets) as well as innovation and industrial development, for example in hydrogen. Carbon pricing policies are found in Japan, mostly at the local level. Japan pledged to achieve carbon neutrality by 2050 in October 2020. In April 2021, the country
reviewed its 2030 target for reducing greenhouse gas emissions and increased it from 26% reductions
to 46% reductions from 2013 levels (Figure S2). The country’s new, more ambitious emission reduction
pathway is closer to the energy transition roadmap outlined by the International Renewable Energy
Agency in its 1.5 degree Celsius scenario (1.5-S). Japan’s new strategy for carbon neutrality has made
the analysis provided in this report even more relevant, as the present discussion portrays the potential
impacts (benefits and costs) of such a roadmap in comparison to the less ambitious targets of the past.

Introduction Japan is one of the world’s most economically and industrially advanced nations. The country’s economy, however, faces challenges related to an ageing population – currently 126.5 million (UN, 2019) – and a shrinking workforce. Japan is also one of the world’s largest consumers and importers of energy. Lacking its own fossil fuel resources, it relies on imports for nearly all of its supply. This dependence on imports makes the country vulnerable to external forces, such as volatile fossil fuel prices and geopolitical shocks. Since the oil crisis of the 1970s, Japan has placed energy security at the centre of its energy policy. The country’s efforts to improve energy security and self-reliance were disrupted in 2011 by the Great East Japan Earthquake and related accidents at the Fukushima Daiichi nuclear plant. The resultant shuttering of the country’s nuclear power plants created a 30% gap in electricity supply (METI, 2020a). This gap was partially covered by energy efficiency and conservation measures, such as the use of energy-efficient machinery, cutbacks in air conditioning use and power rationing.

Japan’s key indicators: Energy, economic growth, welfare and jobs With a view to assessing and providing background on the potential socio-economic impacts of the energy transition, this section discusses the latest trends and performance in key energy, economic and social indicators in Japan. These same socio-economic indicators – namely GDP, welfare and jobs – are used to report the results from the scenario analysis in section 3. The COVID-19 pandemic has continued to affect most economies worldwide. Japan’s economy shrank 4.5% in 2020 then bounced back in 2021 (1.6% growth) and is expected to continue growing (2.4% in 2022 and 2.3% in 2023); however, projections beyond 2023 remain below 1% (IMF, 2022). In any case, it is essential that the path to recovery is sustainable and inclusive (IRENA, 2020b). In late 2020, Japan announced a target of achieving net zero emissions by 2050. The transition towards that target should remain an urgent policy goal during the recovery period and beyond. Renewable energy will play the most significant role in this transition.

Meanwhile, Japan’s total final energy consumption (TFEC) was 12 089 petajoules in 2020, down 10.8%
compared to 1990 (METI, 2022). In 2020, renewable energy accounts for more than 8% of TFEC. The
largest energy-consuming sectors in Japan in 2020 were manufacturing (42.1%), transport (22.3%), public and commercial services (16.6%), and residential (15.8%), with the primary sectors contributing a smaller share (3.2%) (METI, 2021). Electricity accounted for more than a quarter (27.0%) of the country’s TFEC in 2020 (METI, 2021), well above the global average of around 21% in 2019 (IRENA, 2022a), indicating an increasing electrification of the energy system. In response to the oil crisis in the 1970s, Japan turned to nuclear power to generate electricity. Since the 2011 Fukushima accident, however, most of the country’s nuclear reactors have been temporarily suspended or shut down. To compensate for the loss of nuclear energy, Japan re-intensified its dependence on fossil fuel imports (together with renewables and energy efficiency measures). In the process, its energy self-sufficiency rate dropped from around 20% in the 2000s to just 6.6% in 2012, before increasing again to 11.2% by 2020 (METI, 2021). The resurgence of nuclear power plants has led to these improvements, with their share in TPES rising from 0.4% of the energy mix in 2015 to around 2% in 2020 (METI, 2021).

Socio-economic impact of the energy transition To support transition planning and informed policy making, IRENA analyses the socio-economic footprint of the energy transition using a macro econometric model to measure impacts on GDP, employment and human welfare. This process provides insights into how the transition can be planned to attain the highest possible benefits. 8 This section presents the key findings of IRENA’s socio-economic analysis for Japan, outlining potential impacts on economic growth (GDP), employment and welfare, including a discussion of the underlying drivers (Box 3.1) that lead to the results. These findings delineate the difference between the 1.5°C Scenario (1.5-S) and the Planned Energy Scenario (PES).

WELFARE On top of the specific economic benefits discussed above, the main potential of the energy transition is to improve overall welfare in Japan. IRENA quantifies the impact of the energy transition through its Welfare Index (IRENA, 2021a). The index captures five welfare dimensions: economic, social, environmental, distributional and energy access (see section 2.3). Figure 3.5 presents the welfare index and its dimensional indexes for the 1.5-S by 2050 for Japan, and the relative difference in welfare indices, broken down by dimensional contributions, between the PES and the 1.5-S, by 2050 for Japan. The welfare improvement for Japan under the 1.5-S compared to the PES reaches 12.6% by 2050.

The welfare improvements of the 1.5-S over the PES are led by the social dimension. This dimension is
informed by two indicators: health impact and social expenditure. Japan performs rather well under both
these indicators in the 1.5-S, with the health impact indicator experiencing a significant improvement
over the PES (whereas the social expenditure indicator remains similar to the PES). Under the PES, the
reliance on fossil fuels is expected to worsen health impacts in Japan drastically. Thus, by ameliorating
indoor and outdoor air pollution, the 1.5-S improves welfare significantly by 2050 compared with the
PES. The absolute social index reaches 0.65 under the 1.5-S by 2050 (left side of Figure 3.5), with rather equilibrated contributions from its two indicators (indexes of 0.70 and 0.61 for social expenditure and health impact respectively), indicating room for improvement of overall welfare by further improving these two indicators.

Conclusion Japan’s energy sector is highly dependent on fossil fuels. However, the government has taken steps to change this. The country recently pledged to achieve net zero emissions by 2050 and has developed a plan to reduce emissions 46% by 2030 compared to 2013 levels. Renewables will be a pillar of these plans. A key question is how Japan’s current energy policies and wider economic plans will impact its socio-economic development. Globally, the sustainability and equity of economic activity is acquiring increasing relevance. In developed countries such as Japan, sustainable development has increasing marginal returns in terms of well-being (De Neve and Sachs, 2020). The analysis has shown that a scenario involving larger amounts of renewable energy and more efficient energy demand management – in short, a comprehensive and more ambitious energy transition – will lead to improved socio-economic outcomes. Under the 1.5-S, Japan’s GDP is estimated to be, on average, 6.3% higher than in the PES over the 2021-2050 period and is 8.8% higher in 2050. Greater household consumption and lower fossil fuel imports, as well as higher transition-related investment, are the main drivers of this GDP difference. Economy-wide employment will be 2.7% higher under the 1.5-S than under the PES by 2050 (1.6 million additional jobs), while the energy sector adds 0.5 million jobs under the 1.5-S compared to the PES. Human welfare under the 1.5-S improves by 12.6% in 2050 compared to the PES, led by the social and environmental dimensions. From the five dimensions of the welfare index, the economic and energy access dimensions reach the maximum index value under both scenarios, and hence do not provide additional room to improve the welfare index. Policy action aiming to improve welfare should therefore focus on the environmental, social and distributional dimensions.


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