By Yoshikazu Kobayashi
Three years after the 3-11 earthquake in Japan, the new Basic Energy Plan (BEP) was approved by the cabinet this spring. The new BEP, a product of lengthy and heated discussions among policy planners, academics, and business leaders, calls nuclear energy “an important base-load power supply source” for the future of Japan’s energy supply, and provides fundamental policy direction for other energy sources such as coal, oil, natural gas, electricity, and renewable energy. Utilizing the new BEP as the framework, specific policies for each energy source will be developed and implemented.
In light of these developments, it is important to review Japan’s policy challenges from the viewpoint of resilience enhancement. Because supply disruption risk cannot be reduced to zero, strengthening prompt recovery capabilities should have more significance in Japan’s energy policies. This post identifies potential areas of bilateral energy cooperation between Japan and the United States.
The U.S.-Japan alliance plays a crucial role in enhancing Japan’s energy resilience. First of all, liquefied natural gas (LNG) exports from the United States will further solidify our bilateral relationship because it has significant effects on the diversification of Japan’s supply sources and energy price references. If all of the proposed LNG export projects to Japan (Freeport, Cove Point, and Cameron) are realized, it will result in an export volume of 17 million tons of LNG. This volume exceeds the exports from Qatar to Japan in 2013 and ranks second only to Australia in terms of total 2013 Japanese LNG imports. This level of exports will certainly have a material impact on Japan’s diversification efforts as well as balance Asia’s LNG market.
Even if some of these projects do not start as scheduled, U.S. LNG exports to Japan will have symbolic meaning for the alliance. There is no doubt that there is an economic motivation to export LNG to capture the rents caused by the natural price difference in the U.S. and Asian markets. As a study commissioned by the U.S. Department of Energy reveals, LNG exports will bring net benefits to the U.S. economy. Export of energy, however, is always politically sensitive because energy is a critical resource for all economies. The manufacturing and petrochemical industries have repeatedly have argued against the U.S. government’s export efforts. Concerns about potential price spikes in the natural gas market remain, as occurred when the United States was hit by unusually cold weather in February 2014. American willingness to export LNG to non-FTA countries like Japan–despite all of these concerns and opposition within the United States–is interpreted as a sign that the U.S. intends to assist in the restoration of the post-earthquake Japanese economy. Increased trade of a vital commodity such as LNG will naturally draw more U.S. attention to preserving a free and safe maritime order in the Asia Pacific basin. This will accelerate the U.S. rebalance policy and will have a favorable effect on the U.S.-Japan alliance.
Another equally important area for bilateral cooperation is nuclear energy. Japan and the United States have been developing cooperative partnerships in the civil utilization of nuclear energy since the 1950s, and have deepened their cooperation since the current Japan-U.S. Nuclear Power Cooperation Agreement went into effect in 1988. The earthquake in 2011 provided additional momentum for bilateral nuclear energy cooperation. President Barack Obama and former Prime Minister Yoshihiko Noda made an agreement to establish the U.S.-Japan Bilateral Commission on Civil Nuclear Cooperation in April 2012. The commission intends to “facilitate discussions on future nuclear energy cooperation; and advance shared interests in nuclear safety and security, nonproliferation, counterterrorism, decommissioning and decontamination, emergency preparedness and response, and research and development.” Under this commission, the two countries held a working group meeting in February 2014 to discuss the advancement and adoption of Probabilistic Risk Assessment methodology for nuclear power plant operations. The next step is, in accordance with the agreement of the bilateral commission, to expand the scope of cooperation to areas such as nuclear security and emergency response.
Nuclear energy, despite the severe accident at Fukushima, has gained importance due to growing energy demand in the developing world, the increasing need to reduce global greenhouse gas emissions, and chronic geopolitical uncertainties in major oil- and gas-producing regions. Sharing its experience of long-term peaceful use of nuclear energy and lessons from the Fukushima Daiichi accident with all existing and future nuclear energy users is Japan’s responsibility to global society. As leading civil nuclear energy countries, the United States and Japan have to tighten their collaborative relations to ensure safe and peaceful expansion of nuclear energy in the world.
In light of the increasing importance of energy for the two countries, establishing a Bilateral Strategic Energy Dialogue is worth considering. The energy market and business activities are primarily undertaken by private companies both in Japan and the United States, and government intervention should be minimal. Yet regulatory issues such as LNG exports, long-term crude oil exports, and nuclear security and safety issues cannot be discussed and promoted without serious commitment from both governments. Regular meetings at the minister-level will accelerate the development of bilateral cooperation, solidify the U.S.-Japan alliance, and play a key role in enhancing Japan’s energy resilience.
Mr. Yoshikazu Kobayashi is a senior economist at the Institute of Energy Economics, Japan and a visiting scholar with the Japan Chair at the Center for Strategic and International Studies. Mr. Kobayashi’s essay is part of CSIS’s Strategic Japan Working Paper Series featuring Japanese scholars addressing pressing issues in Japanese foreign policy.