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What the Japanese Energy Crisis Should Teach Us

Regulations in Japan stir already high energy prices amid cold snap

A cold snap is laying bare the flaws of the Japanese energy grid. The country, which relies on imports for the lion’s share of its energy, is struggling to meet demand for electricity and heating.  As this cold snap overtook Europe and Asia in early January, natural gas prices soared and the price for super-cooled liquefied natural gas (LNG) reached record highs.

As Asia has experienced a comparatively robust recovery from the Covid-19 pandemic, its demand for natural gas in general, and demand for LNG in particular has rebounded quickly. And, as China switches more coal over to gas, it has added millions of households’ demand to the gas market. 

This price spike is felt especially strongly in Japan because it is an island nation, and cannot receive natural gas by pipelines from neighboring countries as other nations do. It relies instead on imported LNG, and is the largest buyer in the world, accounting for 23.4% of the world’s LNG net imports. In 2019, it imported 77 million tons of LNG, at a cost of approximately $39.8 billion. A steep increase in the price of LNG means a concomitant increase in the price of Japanese electricity as well as gas heat.

At the same time, cold weather means more stress to the grid because customers will use more power than usual to keep their homes warm. The high demand will continue to raise the price, and in some parts of the country it may become difficult or impossible to meet demand. In some areas, utilization reached 99 percent of available capacity, leaving little slack to meet any increase in demand. Natural gas supply at some of the country’s biggest power plants is now running low enough that they are forced to run at lower rates. This energy crunch is the result of demand that follows normal market forces, over against a supply limited by government mandates aimed at limiting construction to meet decarbonization goals, and limited further by the continued closure of most of the country’s nuclear power plants. Often we view caution as being without cost, but being too cautious can often have the same deleterious effects as being overzealous. Blackouts cause avoidable deaths, as do rising electricity costs.                                                                                                                             

Why is the Japanese grid uniquely vulnerable? 

A mixture of factors are at play. The shutting down of nuclear plants, the country’s physical isolation from other nations, and its lack of natural resources are all components of the problem. As it has very little in the way of natural energy resources, it relies heavily on imports to meet its energy demand.

Following the great Japanese earthquake and resultant Fukushima Daiichi nuclear accident, the country shut down all of its 33 nuclear power plants, three of which have since reopened. Before the earthquake, 30 percent of Japanese electricity came from nuclear power, and that share was projected to grow to 40 percent by 2017. They are currently working to restart reactors, with 18 in the approval process to be restarted. The country aims for 20 percent of its power to come from nuclear by 2030. The earthquake dealt a serious blow to Japan’s ability to generate electricity.  

With these plants offline, the country became less energy-independent since the earthquake. In 2010, the country’s net electricity imports were at 80 percent, in 2015 after the earthquake, that had risen to 93 percent. Questions of safety are of course essential to the discussion of how and if Japan should bring its nuclear reactors back online, but one consideration that is often forgotten is that both the cost and availability of electricity are relevant to mortality rates.

In 2019 the Institute for the Study of Labor found 1,280 cold deaths between 2011-2014 that could be attributed to higher electricity prices following the shutdown of the nation’s nuclear plants. Shortages and price increases on necessary resources are not only inconvenient, but they can also be life-threatening, especially for the poor who feel price increases first, and the elderly who are ill-equipped to survive cold temperatures. Although precaution is warranted in the wake of disaster, delaying the reopening of plants that could be safely brought back online has costs which are often forgotten in the name of precaution. 

Hopefully, Japan can weather this cold snap without a major blackout, but the precarity of the present situation shows how important it is to add reliable capacity to the grid and bring existing capacity back online as soon as possible. In the coming years, we will likely see more events like this one, as more countries import their energy after limiting their own supply. Those countries that allow the market to decide where power comes from will be the best equipped to face future crises, whatever their source.

Paige Lambermont is a Research Fellow at the Competitive Enterprise Institute in the Center for Energy and Environment. She covers the electrical grid, energy regulation, nuclear power issues, and other free-market energy topics. Paige has a Bachelor’s Degree in Political Science from American University and a Master’s Degree in Public Administration from the University of Idaho. She is also a Columnist Fellow at Catalyst.
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