Based on an essay by Junko Takeuchi published in the Sankei Shimbun, this chapter considers the industries and power reforms that will support Japan’s post-coronavirus economy. Looking at the limitations of tourism, agriculture, forestry, fisheries, and data-related businesses, it argues that the return of manufacturing to Japan requires stable, high-quality electricity, restrained energy costs, and a realistic review of nuclear and renewable energy policy.

June 16, 2020
Energy is a basic production good and is connected to the competitiveness of every manufacturing industry.
Without stable, high-quality electricity, high-value-added products cannot be made, and without the reassurance that stable supply will be secured in the future and that costs will not rise sharply, companies cannot decide to move their production bases.

The following is from an essay by Junko Takeuchi, director of the International Environment and Economy Institute, published in today’s Sankei Shimbun under the title “Power Reform to Support Earning Power After the Coronavirus.”
The emphasis in the text, except for headings, is mine.

What industries will Japan live on from now on?
If abundant natural resources were buried underground, perhaps we would not have to think about it, but unfortunately that is not the case with our country.
Although the coronavirus restrictions reminded us once again that the lives of the people cannot be protected by medical care and welfare alone, and that economic activity is also important, discussions in both the Diet and the media are tilted not toward how to earn, but toward the methods and forms of distribution.
In this essay, I would like to consider Japan’s “source of livelihood.”

Considering Japan’s “Source of Livelihood”

Before the coronavirus shock, tourism was attracting great expectations.
The number of foreign visitors to Japan had continued to grow at an astonishing pace in recent years, surpassing 30 million in 2018.
However, foreign visitor travel consumption amounts to 3 to 4 trillion yen, not even reaching 1 percent of GDP.
When a recession comes, it is among the first items to be cut from consumer spending, and there is also concern that the decline in movement caused by the coronavirus may be prolonged.
There has also been discussion of turning agriculture, forestry, and fisheries into growth industries.
There are high-value-added products such as strawberries, whose export value has increased about tenfold over the past five years, and the total value of agricultural output has turned upward.
The primary industries also have diverse significance, such as national land conservation, and I hope for their development, but the number of people employed is rapidly declining, and the reality is severe.
What about data and communications-related businesses?
Companies such as Yahoo and Rakuten are also expanding their businesses, and I too hope that they will become data platformers capable of competing with GAFA.
But it is also true that in the field of digitalization, where first-mover advantage is great, overcoming the difference in strength will not be easy.
Each of these fields has room to grow, but none can yet be called killer content.
It may be called old-fashioned, but the importance of manufacturing as a pillar of the Japanese economy will likely remain unchanged.
From the viewpoint of securing employment, and also from consumers who want to obtain products of stable quality with certainty, there are strong voices calling for the return of manufacturing to Japan.
Japanese manufacturing companies have established global supply chains from the viewpoints of efficiency and risk diversification, but it is ironic that, because of the coronavirus, global dispersion hindered efficiency.
Omitted.

Supporting the Return of Manufacturing to Japan

However, in order to make our country’s economy resilient, a reliable “source of livelihood” is necessary, and manufacturing is expected to be one of its pillars.
What is needed for manufacturing to return to Japan?
Various measures can be considered, such as preferential treatment for domestic capital investment, reductions in corporate tax, and relaxation of labor and environmental regulations.
But in addition to these, I would like to point out the stable supply of energy and the restraint of costs.
Energy is a basic production good and is connected to the competitiveness of every manufacturing industry.
Without stable, high-quality electricity, high-value-added products cannot be made, and without the reassurance that stable supply will be secured in the future and that costs will not rise sharply, companies cannot decide to move their production bases.
In order to lower energy costs, Japan carried out system reforms in electricity and gas.
In the several years since liberalization, electricity prices have been on a downward trend because power companies competed in a way that wore down their own strength.
However, in U.S. states and European countries that moved ahead with liberalization earlier, there are no cases that can be evaluated as having achieved a long-term decline in electricity rates through liberalization.
In addition, Japan continues to spend enormous time and cost on reviews of conformity with the new regulatory standards for nuclear power plants.
There have also been cases in which nuclear power plants that made huge investments in safety measures, passed the new standards, obtained the consent of the local host community, and began operating were stopped by provisional injunctions seeking suspension of operation.

The Energy Supply Resilience Act

Renewable energy has been introduced outside the liberalized market by asking the public to bear the burden.
The renewable energy surcharge that the public will pay this fiscal year is approximately 2.4 trillion yen.
It is an achievement that the amount of electricity generated by solar power has expanded to the point where Japan ranks third in the world.
However, households bear more than 10 percent of their electricity bills as renewable energy surcharges, and power-intensive manufacturing industries bear 15 percent of their electricity bills, and in some cases around 25 percent, as renewable energy surcharges.
If the CO2 reduced by this amounts to only about 50 million tons per year, criticism from the viewpoint of cost-effectiveness cannot be avoided.
Moreover, it is clear that the surcharge will continue to increase for the time being, and there are estimates that it will exceed 4 trillion yen annually.
Fortunately, the cost competitiveness of renewable energy is improving.
The measures that should be taken toward making it a main power source have shifted to such matters as the effective use of transmission and distribution lines.
Although the Abe administration had been slow to act on energy issues, in this session of the Diet it enacted the Energy Supply Resilience Act and made revisions such as preparing for natural disasters and linking renewable energy prices to the market.
However, changes to measures supporting the introduction of renewable energy are scheduled to begin in 2022, and it is hard to say that the effects in terms of speed and cost restraint will be sufficient.
In order to advance the return of manufacturing, restraining energy costs cannot be avoided, and now that people are spending more time at home, it is also effective as a relief measure for vulnerable households.
Without stable, affordable, low-carbon energy, the resilience of society cannot be secured.
I hope that the Abe administration will address this issue as part of its legacy.