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German energy study offers framework for Japanese policy chaos

by Jochen Legewie

Pure chaos is reigning over Japanese energy policy and the future of its nuclear power industry.

Just after trade minister Banri Kaieda declared the nation’s nuclear power stations safe to restart late last month, Prime Minister Naoto Kan suddenly ordered that stress tests be conducted on all reactors as a precondition for rebooting. As a result, only four of the country’s 54 reactors might be online next February.

At the moment, only 19 reactors are running and 15 are scheduled to undergo regular inspections in February. And the other four will have to undergo checks in the following months.

The entire industry shook its head in response to Kan’s July 6 announcement. Then it cried foul.

While the trade minister immediately said he was “not opposed” to the tests, he made it clear that he and Kan held different views.

Even Democratic Party of Japan Secretary General Okada questioned the move, saying, “Conducting the stress tests and restarting the reactors are two separate issues.” It didn’t help much when Kan apologized for the confusion, saying, “My instruction was inadequate and came too late, and I feel responsible for that.”

The damage is done. The mayor of Genkai, Saga Prefecture, who went out on a limb as the first local government official to approve a reactor restart since March 11, was forced to turn tail and retreat. Now the future of nuclear energy in Japan is less clear than ever. Some politicians are even muttering about holding a referendum on the issue to see if the government can develop a clear long-term strategy that has the backing of the people.

Against this backdrop, Japanese politicians and business leaders are looking more and more to Germany. Last month, the German Parliament decided to completely exit nuclear power by 2022, making it the first major industrialized nation to abandon atomic energy.

Chancellor Angela Merkel pursued this 180-degree change in energy policy following the Fukushima disaster and the subsequent uproar in antinuclear sentiment that has swept the industrious German population.

Many observers have described the political process that led to the abrupt nuclear exit as irrational and highly undemocratic. More than few industry leaders have complained and warned about the risk of higher power prices triggering deindustrialization throughout the country once its reactors come to a halt.

Leading German utilities RWE and E.ON are even considering taking the government to court over the move, but the decision has been made and is unlikely to change.

When Green Party leader and former German Environment Minister Juergen Trittin visited Japan in June, he was in high demand by Japanese ministers eager to hear about Germany’s experience with atomic energy. While he was able to brief them on the trials and successes of promoting renewable energy in Germany, he had no crystal ball to help him quantify the costs and benefits of Merkel’s decision. How much will the nuclear exit cost? What will the impact be on electricity prices? How will German industry react?

A study published by German business consultancy Roland Berger this month attempts to address some of these questions. According to the study, the price of industrial electricity in Germany will rise nearly 40 percent on average by 2050 and have a strong effect on energy-intensive industries.

Assuming annual industry growth of 1 percent, the absolute electricity bill for four selected industries (basic chemicals, metals production, pulp and cement) is expected to grow by up to 60 percent by 2050.

The increase will be even higher without massive investment in energy-efficiency measures. Berger calculates that energy-efficiency investments will amount to €7 billion in the pulp industry and €10 billion in the chemicals industry.

The future is clear: German firms are facing a double punch — higher energy costs plus increased investment needs.

In addition, other industrial countries, such as France, will continue providing massive electricity subsidies to their industries, putting companies operating in Germany at a further disadvantage.

It’s no wonder that German industry is crying foul. Its leaders are threatening to move operations abroad on a large scale. However, the study estimates this risk to be rather small. In fact, the authors are convinced that German companies will instead rise to the challenge and stay, further increasing their operational efficiencies and even gaining a substantial advantage over their global competitors in the long run.

The industrial structure of Japan strongly resembles that of Germany. In terms of energy efficiency, Japanese firms are probably even ahead of their German peers in many areas. Hence, a rise in electricity bills resulting from a potential phaseout of nuclear energy should be manageable.

But we must not forget two other fundamental aspects of this issue.

First, can Japan as an island state survive without nuclear energy in the medium term and avoid blackouts during peak demand? The potential risks and costs of failing to do so are much higher than in Germany.

Second, can Japan afford to stay uncertain about its future energy plans much longer? So far, players in Japan have benefitted for decades from a very clear, pronuclear policy that provided ultimate stability and the ability to conduct long-term planning.

The current chaos is just the opposite. The eventual cost of gambling on whether the government will switch its reactors on or off in the short and long terms is unbearable.

If the chaos continues, Japan will deprive itself of the stability needed for economic activity, and thus prosperity and wealth. Setting a clear direction seems even more important now than the question of whether to follow Germany’s course and abandon nuclear power.

In the end, a referendum on this question will probably become necessary at some point if Japan’s dysfunctional politicians are unable to come up with a solution otherwise.

Jochen Legewie is president of German communications consultancy CNC Japan K.K. (See his blog: www.cncblogs.jp)