The Shale Revolution and Japan’s Energy Policy

A US Strategist Speaks on Japan's Leadership and Energy Policy Needs

Politics Economy

In early November 2012, Abe Shinzō, president of the main opposition Liberal Democratic Party, was announcing that his party would reactivate Japan’s nuclear power plants if it returned to power. This was in response to Prime Minister Noda Yoshihiko’s announcement of a plan to phase out nuclear power by the 2030s. On November 7, editorial board member Taniguchi Tomohiko spoke to John Hamre, president of the Center for Strategic and International Studies, to hear what he had to say about Japan’s energy policy choices and the outlook for bilateral ties.

John Hamre

President and CEO of the Center for Strategic and International Studies. Dr. Hamre earned his PhD from the School of Advanced International Studies, Johns Hopkins University, in 1978. He joined the Congressional Budget Office, rising to deputy assistant director for national security and international affairs. He next worked as a staff member of the Senate Armed Services Committee until 1993, when he went to the Department of Defense. He served as deputy secretary of defense from 1997 to 2000, when he took his present post. Since 2007 he has also chaired the Defense Policy Board Advisory Committee.

TANIGUCHI TOMOHIKO Early this fall the government of Prime Minister Noda Yoshihiko tentatively agreed on a plan to abolish the nuclear power plants by the 2030s. He stresses that there should be a better mix of energy sources, and is leaning toward alternative sources, not nuclear—perhaps because he’s catering to the wishes of the voters.

JOHN HAMRE I do think that he has heard the voters’ negative feelings on nuclear power, and I understand that. I suspect that while people are angry about nuclear power, though, they haven’t been entirely realistic about alternative energy sources. There’s a view that somehow solar or wind power is an easy alternative—that all we have to do is pick it. But there hasn’t been a full discussion about the problems with these alternative energy sources.

I haven’t seen very good discussion about alternatives to nuclear power anywhere in Japan—nor, for that matter, about nuclear power itself. I would fault both political parties for not conducting an information campaign. You don’t need to lobby people, but you do need to inform them. I don’t know whether the prime minister has received good advice on alternative energy packages and strategies.

TANIGUCHI Why do you think Japan is closing its eyes to the reality that you’re talking about?

HAMRE In a way it’s a form of posttraumatic stress. The March 11 disaster had a drastic impact on Japan. What was even more traumatic was that the corporate and political leaders failed to lead effectively during the crisis. There was no effective response, and the citizens felt even more vulnerable because they weren’t hearing that their leaders knew what was going on or had a plan. I think that became the bigger crisis.

TANIGUCHI This situation transcends nuclear and other energy issues. Japan is still facing huge problems in its economy, and the lack of vision and leadership is a sign of deeper trouble.

HAMRE Yes. Japan has such a strong history and culture of consensus-based decision making. This works so long as you pick the right general path. But when all of a sudden you find yourselves out of step, it makes it much harder to lead the country in new directions with this consensus approach.

TANIGUCHI One hopes that the next prime minister will be someone who can speak the truth. “Bite the bullet,” if you like.

HAMRE My sense is that Japan wants a strong leader in government. They’ve had a period of ten or fifteen years when government leadership hasn’t been strong. There’s an abundance of talent in the country. But if you have ineffective political leadership, everybody loses confidence.

The Implications of Japan’s Energy Choices

TANIGUCHI I’d like to ask you to divide the question of energy into three subsets of issues. The first is economic implications: Japan has had to import much more fossil fuels, bringing its trade balance into the red. Second is the area of strategic implications. And third is the Japan-US bilateral relationship, particularly in the energy field.

HAMRE First, the economic impact. Because alternative energy sources like solar and wind aren’t realistic in the near term, the only option is to import large quantities of fuel oil or natural gas. This is a problem for the economy. Japanese industry is going to have to pay three or four times as much for manufacturing energy input, compared to its competitors. In the United States, for example, we pay just under three dollars per million BTU for natural gas. Right now Japan is paying almost fourteen dollars, or about five times as much! Now Japan is very efficient in its use of energy, but when all of a sudden your costs to industry are five times higher than your competitors, you can’t overcome that. This is a huge economic impact. Japan will slide farther behind in global economic competition if it has to spend so much for its energy.

On the geostrategic topic, here I think Japan needs to understand one thing: it can decide that it doesn’t want nuclear power, but that doesn’t change China. China is going to move ahead and build nuclear power plants, as are Korea, India, and Russia. The geostrategic risk comes in two dimensions. One of them is the question of how safe these countries are when it comes to operating nuclear power plants. Now this is not intended to be a criticism of China, but that country doesn’t have a history of operating complex systems effectively. And, of course, China is upwind from Japan. If there’s a nuclear accident in China, Japan is going to feel it.

The second dimension is more complicated. Nuclear power has the potential for good things, economically speaking, but it also is a potential source of material for nuclear weapons. For thirty-five years the international community has had in place a system to prevent the diversion of fissile material from commercial plants producing electricity in order to covertly produce plutonium weapons. This nonproliferation treaty system has been very effective. Japan, Europe, and the United States have basically led the global community in imposing this system to prevent the diversion of nuclear material to make weapons.

But if Japan abandons nuclear power and Europe does the same—and America may follow, although I don’t want this to happen—the countries that were sustaining this global nonproliferation system are no longer involved, and the system starts to break down. Korea, China, India, and Russia are not countries that have ever been leaders in this area. They’ve been followers. If the leaders in the nonproliferation arena abandon nuclear power, we’re not going to be able to shape the future of nonproliferation. That’s an enormous risk to Japan and to the United States. I think the government of Japan needs to consider this as one reason to stay engaged with nuclear power. We want Japan to be our partner in telling the rest of the world what must be done to have safe nuclear power.

On the issue of bilateral relations, I’d note first that our relations are very deep and broad. I wouldn’t say that if Japan were to abandon nuclear power it would break our relationship in any sense. But what it would do is make Japan less of a partner to the United States on global matters. That’s the risk we face. Historically the United States has greatly valued Japan as a partner and as the standard-bearer for the progressive, Western value system in Asia. So we wouldn’t want Japan to become a diminished factor. While it wouldn’t end our bilateral relationship, it would make things more difficult.

TANIGUCHI Which of these three areas—economy, geostrategy, and bilateral ties—struck you as the most serious issue when you first heard Noda indicate the direction he meant to take on energy policy?

HAMRE For me, the most serious is the longer-range impact—the chance that this could become very corrosive to the international nonproliferation system. That’s by far the biggest, but it is a longer-term impact. The second thing that hit me was the economic factor. This is going to prolong Japan’s slow recovery. We want a healthy, vibrant, robust Japan. And this economic issue is far more immediate. The security issues are part of a pattern that will emerge over the next twenty years. But if we don’t get started on it right away, it’s inevitable that these other countries will dominate nuclear energy and we will become smaller bit players who can’t shape the security environment going forward.

Problems at the Top

TANIGUCHI This all fits into a larger picture of a Japan in gradual decline, marginalizing itself on the world stage.

HAMRE I’ve had numerous conversations with friends from Japan who wonder whether the country will become the next Sweden, the next Switzerland, or the next Portugal. I tell them, “What are you talking about? This is the second largest economy in the world. You’re an enormous player. Don’t lose your confidence. Move forward.” But this to me is the great question: Will Japan rediscover and be confident in its own trajectory?

There’s a lack of conviction and confidence in Japan. This isn’t something that’s organically a part of the culture or the economy. I think both the economy and Japan’s culture are exceptionally strong. Right now, what’s weak is political leadership.

TANIGUCHI Going back to the first point, the economic implications of an end to nuclear power, you noted that Japan’s industry has to pay many times as much as its US counterpart for its energy. I have two questions here: First, what do you make of the puzzling silence from the Japanese business community on this? And second, in relation to the so-called shale gas revolution, the United States is on track to reducing its energy costs even more. Would it change the picture if shale gas and shale oil produced in the United States could be exported to Japan?

HAMRE I do think that there will be exports of shale gas and shale oil to Japan. Today in the United States, probably half of the shale gas wells that are drilled are capped and never brought to market. The reason is that if the producers brought it to market, the price would collapse even further. So there’s great impetus toward exporting it. While we will see exports of this natural gas, it’s going to be at prevailing international market prices. Until there’s a dramatic expansion of shale gas around the world, the price is going to be set based on what the last million BTU provided to a customer happened to cost. So Japan is going to pay higher prices no matter what, for quite a while.

That’s why it’s important for Japan to get its nuclear power plants operating again so it can have affordable, reliable electricity. Solar and wind are not reliable—you can’t run your factory in the middle of a storm if you’re dependent on solar or wind power. You can’t have your economy yo-yo back and forth based on what’s happening in the environment every day.

TANIGUCHI Yes, when you go through something like Hurricane Sandy, these power sources are going to stop.

HAMRE Exactly. You don’t get solar power at night, and you get diminished output on cloudy days. And there’s no way to store electricity at scale. The only way to do that would be through widespread adoption of electric vehicles. That would give you an enormous, nationwide, distributed battery system. But even for this, you need cheap base electricity at night, when peak power is not needed for homes and offices. And you can’t get this from solar. For constantly available electricity, you have to go either with natural gas, with fuel oil, or with nuclear. And nothing beats the efficiency of nuclear for base energy production.

There’s a very clear case to be made here. But there has to be a clear dialogue with the public. I was in Tokyo a few weeks ago and I went up to the Kantei, the prime minister’s official residence. I saw the antinuclear protestors there. How many of them really know that the average windmill is only producing electricity ten percent of the time? Are they being honest about solar power? These are not reliable sources of electricity, and somebody has got to start being factual about this.

Leadership Also Needed from Business

TANIGUCHI Speaking of the massive demonstrations around the Kantei, I’ve seen many of the protestors wear T-shirts that did not declare them to be antinuclear, but rather "pro-peace." Many say that people like [former Tokyo Governor] Ishihara Shintarō and Abe Shinzō are bringing the country to the right, but I think this is one sign that political discourse in Japan is leaning more toward the left. Did you gather that during your visit?

HAMRE Well, no, I’m not close enough to that. I’m not in touch with these protestors. Now I don’t doubt that they are sincere. The question is, are they realistic? Again, I don’t hear political leadership on this. Very few LDP politicians who I met were prepared to stand up and talk about the necessity of nuclear power. They’re just sort of waiting for this “Hurricane Sandy” of public opinion to pass. “Hurricane Fukushima,” I suppose. They feel like they’re in the middle of it and they can’t stand up to say anything or they will get blown away. So they just stay silent. But you’ve got to inform the people about what this means.

TANIGUCHI There’s a similarly conspicuous silence among the business leadership.

HAMRE In Japan, I believe the business community is deferential to the companies that have a direct interest in a matter. So when the whole Fukushima thing came up, most companies stayed silent and said it was up to TEPCO, or up to Hitachi and Toshiba as the reactor designers, to make their case. I think that was a mistake. The business community didn’t give the public a clear understanding of the implications of eliminating nuclear power—it didn’t do its job adequately. It needs to stand up and be more vocal now.

TANIGUCHI One final question: Is there going to be a bipartisan consensus when it comes to the American position on these issues, no matter which administration you have coming in soon?(*1)

HAMRE In Washington, there’s a bipartisan consensus on the security issues. Both Republicans and Democrats understand the larger security issue associated with nuclear power and what it means if Japan abandons it. When it comes to the economic issues, though, there’s probably not a bipartisan agreement. The American Democrats have a strong strain of antinuclear sentiment. Republicans generally are stronger advocates for nuclear power. President Obama has supported restarting nuclear power plant construction in the United States, but inexpensive natural gas has undercut the economic justification. I suspect the administration will try to develop a new energy policy in the second term, but I doubt it will show strong leadership on restarting nuclear power plant construction.

TANIGUCHI Thank you for your messages. I’m sure they will resonate in Japan’s policy and business communities.

HAMRE I would really like to see a change. I’m studiously nonpartisan here in the United States, so I have to be nonpartisan in Japan as well. But I am an advocate for leadership in Japan. There’s nothing wrong with Japan, but its politics is not strong. And that’s what needs to change.

(Based on a November 7, 2012, interview.)


(*1) ^ This telephone interview took place while results were coming in for the US presidential election on November 6, US time.—Ed.

politics nuclear power Noda shale gas Taniguchi Tomohiko energy Abe John Hamre