Without the euro, Europe would be insignificant. Jean-Claude Juncker

A Nuclear Island

Fukushima produced very different reactions around the world. While Germany has abandoned nuclear power, Japan is slowing embracing it again.

When Japan decided in September to phase out nuclear power by the end of 2030s, what policy makers had in mind was similar decisions made earlier by Germany and Switzerland, as well as opinion polls showing people are against nuclear power.

That decision was put on hold three months later, when people voted the center-left Democratic Party of Japan out of power in an election in December, putting the conservative Liberal Democratic Party in its place.

Germany is seen as a country that has overcome similar challenges that is facing Japan. Both are industrial powerhouses that need lots of electricity to fuel their manufacturing industries and run economic infrastructure, but neither has many fossil fuel resources.

What has changed in the last few months, during which people were found opposed to nuclear power and the same people also voted for a pro-nuclear party? Well, not much.

Yes, more people call for a moderation of the nuclear phaseout plan proposed by the previous government. Yes, more people point out Japan’s differences from Germany, a continental nation with extensive grid and pipeline connections with neighboring countries. Germany can import electricity and natural gas relatively inexpensively from neighboring countries in emergencies, while Japan, an island nation, doesn’t have such a privilege.

But that doesn’t mean that people have forgotten the risks they’ve taken with their heavy dependence on nuclear power. The memories of the March 2011 nuclear accident at Fukushima Daiichi, and a massive earthquake and tsunami that had caused it, are still alive.

Much of the soul-searching has centered on one question: why Japan couldn’t change its course in the past 50 years, while Germany has made a series of decisions that have eventually created the world’s most dynamic renewable energy sector?

It has become clear to Japanese that a major shift in energy policy cannot be made with just one ballot.

Monopolized energy markets

In the past two decades, Germany has terminated a fast-breeder reactor project; discontinued nuclear fuel recycling arrangements with France and Britain; scrapped a fuel recycling project; began to study direct nuclear waste disposal; broke up vertically integrated power monopolies; developed an electricity exchange market; strengthened linkage with Europe’s power grids; developed gas pipeline networks; introduced feed-in-tarrifs. Most of these steps are yet to be put in place in Japan.

Instead, Japan has kept its monopoly power supliers essentially in tact in the past half century. At the core of this structure is a cost-plus-profit pricing system, which allows utilities to pass on any costs of investments to rate payers, so they could make capital investments without worrying about recouping the costs.

The system worked well in the immediate aftermath of the World War II, when Japan needed lots of new power plants to support industrial growth. But the system has also led to overinvestments and one of the highest electricity rates in the world.

Tokyo Electric Power Co.‘s (Tepco) Kashiwazaki Kariwa plant is an example. Built during the height of Japan’s asset bubble, the plant is the world’s largest with seven reactors, despite concern that siting so many in one location would create safety problems during a nuclear disaster, a danger that critics say was highlighted by Fukushima Daiichi.

Uneconomical projects proliferated. A fast-breeder reactor, a program long abandoned in Europe, is still kept alive in Japan, at the cost of tens of billions in taxpayer money a year. A nuclear fuel recycling project is still under way, even though it has no prospects of commercial operations after more than Y2 trillion of investments.

Japan’s heavy investment in a nuclear future – often in apparent defiance of economic logic – was made possible by the heavy influence of the country’s utilities.

These utilities, nine of them in total, are economic titans in their respected regions, even while demand for power widely is projected to go down in line with a decline in population.

The future remains uncertain

The March 2011 nuclear accident sharply changed the politics and policy debate. A government advisory panel on Feb. 8 made a set of recommendations on energy sector reform, including a breakup of the virtually integrated monopolies and the scrapping of the cost-plus-profit pricing system — steps that could streamline the industry and allow more diverse sources of energy to develop. Whether these measures will actually be implemented is up to the government.

Will the change happen? Prime Minister Shinzo Abe, in his first policy address on Jan. 28, made no mention of energy. His speech was focused on dealing with the strong yen and the deflation.

The proposed change faces powerful opposition. It means cutting back on subsidies for communities hosting nuclear plants. It means restructuring at politically influential utilities. But it could also mean new business opportunities and potentially lower electricity rates. Whether Japan’s new administration will choose this path remains to be seen.

Read more in this debate: Jennifer Morgan, Chris Nelder, John Rhys.

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