Market News

 August 25, 2009
Japan's Election: Parties Wrangle over Green Credentials but at what cost?

 With the Japanese general election looming on 30 August, the two main political parties are using their manifestos to promote clean energy as an industry in which Japan should excel for the sake of future economic growth.

The opposition Democratic Party of Japan is emerging as the contender with the most ambitious plans, overshadowing the clean energy credentials of its opponent, the ruling Liberal Democratic Party. Yukio Hatoyama's DPJ is riding a wave of popularity and looks poised to oust the embattled LDP in this weekend's poll, after an almost-uninterupted 55 years in power.

The DPJ has drawn criticism for the apparent loftiness of its green goals, with concerns over how the cost will be borne by the Japanese public. One policy to have grabbed attention is its plan for a 25% reduction in carbon emissions from 1990 levels by 2020 -- or 30% below 2005 levels -- and to aim for a 60% cut by 2050.

In comparison, the LDP's goal to reduce emissions by 15% from 2005 levels by 2020, selected in spring this year by Prime Minister Taro Aso from six possible scenarios, looks somewhat feeble.

But, as ballots are cast, voters may take into account recent government figures on the cost to the average family of these two competing plans. The LDP stated that its own target would cost JPY 77,000 (USD 815), while the DPJ's would cost JPY 360,000 (USD 3,811) per year.

Furthermore, Japan's Ministry of Economy, Trade and Industry says the LDP target with its associated costs was in fact selected from the six scenarios, including the 25% option proposed by the DPJ, based on feedback from the public. Alongside its emissions-busting target, the DPJ manifesto also proposes to "establish an effective domestic emissions trading market and cap-and-trade formula" and contains a promise to study the introduction of global warming taxes.

The LDP is said to view emission trading and carbon taxes with caution and does not touch on them in its manifesto. However, it does promise to enact a "basic law promoting a low-carbon society" and aims for a 20-fold increase in solar power generation from current levels by 2020 and a 40-fold increase by 2030.

Under the DPJ, Japan would fast-track the introduction of a fixed-price purchase system, or feed-in-tariff, requiring utilities to buy the entire power output of renewable energy generators. LDP's equivalent policy, unveiled in February this year, requires utilities to purchase only surplus solar power at a higher set price for 10 years. The scheme is slated to begin before the end of the year.

Concern over the price of the DPJ's green resolve and its 25% emissions cut could be well founded, since industry reports have placed a USD 508bn (JPY 49 trillion) price tag on the cost of meeting the current government's lesser 15% target.

METI earlier this month outlined the costs of some of its domestic policy measures in meeting this target. Of these, the most expensive was the promotion of energy-efficient cars. It aims for these to account for some 50% of new car sales by 2020 at an expected cost of some JPY 12 trillion (USD 127bn).

The cost of increasing solar capacity by 20 times through to 2020, via the use of subsidies, is estimated at JPY 8 trillion (USD 84.7bn), while the roll-out of energy-saving domestic appliances would be JPY 5 trillion (USD 52.9bn). For energy-saving information technology equipment, JPY 4 trillion (USD 42.3bn) was the figure cited.