Japan News Brief and Action Alert

Japan Spent $9.5 Billion in Fossil Fuel Subsidies in 2021

May 9, 2023May 9, 2023

According to the Public Finance for Energy Database, Japan’s finance from major government institutions for fossil fuels totaled  US$5.75 billion in 2021 (Figure 1). Figure 2, which shows the amount of public money spent on fossil fuels and clean energies from 2015 to 2021, shows that Japan has spent an average of 6-7 times more on fossil fuels than on clean energies between 2015 and 2020. However, in 2021, fossil fuel funding dropped sharply while clean energy funding rose.

Figure 1. Top 15 G20 Country Comparison (2021).

Source: Public Finance for Energy Database.

 

Figure 2. Public Finance by Year – Japan (2013-2021)

Source: Public Finance for Energy Database.

The Public Finance for Energy Database shows how much money comes from major government financial institutions like the Development Bank of Japan. Still, it doesn’t show how much money comes directly from the Japanese government. It’s hard to track down all fossil fuel subsidies, but the Ministry of the Environment (MoE) and the Ministry of Economy, Trade, and Industry (METI) are the two main government agencies in charge of energy subsidies (METI). Figure 3 shows how much the two organizations are thought to have given in subsidies for fossil fuels and clean energy projects. The subsidies for fossil fuels will cost 3.7 billion USD in 2021. There could be duplicated amounts with the funds provided by the government finance institutions in the Public Finance for Energy Database, but it shouldn’t be a big deal. Suppose we add this amount to the amount that Public Finance for Energy Database estimates indirect funding to be in 2021, which is 5.8 billion USD. In that case, the total is estimated to be 9.5 billion USD. Even though the government allocates fewer finances to fossil fuels, it is not yet clear that it is increasing funding to clean energy.

 

 

Figure 3

Source: Adapted from MoE “予算概算要求事項別表” and METI “資源・エネルギー関係概算要求のポイント”

At the start of 2022, the Japanese government began subsidizing part of the price of gasoline, kerosene, and other fuels. The annual budget is about 3.2 trillion yen, about USD 24.6 billion. If crude oil prices stay where they are now, about 300 billion yen (about USD 2.3 billion) will be needed monthly (Asahi Shinbun, 2022). This subsidy is considered temporary because it is meant to cover the skyrocketing fuel cost caused by the war between Russia and Ukraine. In the meantime, the financial results for the same time period for the three largest oil wholesalers, ENEOS Holdings, Idemitsu Kosan, and Cosmo Energy, showed significant increases in sales and final profits, with two of them reaching record highs. The subsidies are already built into wholesale prices, so they shouldn’t directly affect their sales or profits. However, the oligopoly in this sector has benefited the oil companies (Diamond, 2022). It’s funny that oil-related companies are doing better at a time when Japan is trying to get the economy to use less carbon. Electric cars aren’t as common in Japan as in other developed countries, and oil companies are changing their business models more slowly. Even the Japanese people don’t want to make big changes. Instead, they’d rather take advantage of subsidies than deal with important problems like climate change and reliance on fossil fuels.

Japan seeks to reduce its GHG emissions by 46% by 2030 compared to what they were in 2013 and be carbon neutral by 2050. METI wants to decrease the percentage of power from fossil fuels (natural gas, coal, and oil) from 76% to 41% by 2030. METI says, “When it comes to thermal power generation (from coal, natural gas, and oil), the proportion of thermal power generation in the mix of power sources will be cut as much as possible, with stable supply as a major premise.” Between 2016 and 2020, closing down old power plants reduced 16.6 million kw of thermal power generation capacity, while building new plants added 15.5 million kW. Overall, the goal is to burn less fossil fuels, but things aren’t changing quickly, and there must be clear plans for making a difference.

Table 1.

Power composition 2019 2030
Renewable Energy 18% 36～38％
Hydrogen and ammonia 0% 1％
Nuclear Energy 6% 20～22％
Natural Gas 37% 20％
Coal 32% 19％
Petroleum,etc. 7% 2％
Total electricity generation 1,065 BkWh 934 BkWh
Percentage of GHG reduction vs.2013 14% 46%

Source: METI (2021)  https://www.enecho.meti.go.jp/category/others/basic_plan/pdf/20211022_02.pdf

After the accident at the Fukushima Daiichi Nuclear Power Plant, Japan stopped using nuclear power, brought back old thermal power plants, or started building new ones. It also subsidized gasoline as a way to deal with the rising cost of fossil fuels because of the war in Ukraine. Recently, the Japanese government has declared that nuclear power plants will be restarted and has announced a policy of increasing the operating period of nuclear power plants from 40 years in principle to 60 years or more. These steps keep the current generation of citizens from being overburdened and put off the problem without making any major changes to how they handle energy. There needs to be a public, in-depth discussion about Japan’s energy policy and sustainability, including how subsidies should be used. First, a national agreement on Japan’s future energy mix needs to be signed. For example, the share of nuclear power generation in 2030 is expected to be 20–22%, but do the Japanese people who went through the horrific accident at Fukushima understand this? It’s easy for people to understand the use of renewable energy, but will they understand the issue of economic efficiency, which means putting more stress on the Japanese people? To get the desired energy mix, what sectors and technologies will get subsidies and other government funds? The public must have important conversations about these issues, including security perspectives in a world that is changing.

This Post was submitted by Climate Scorecard Japan Country Manager Kazuya Takeda

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