Kenji Kushida on Japan’s Energy Security in the Era of Climate Change

Kenji E. Kushida is a senior fellow for Japan studies in Carnegie’s Asia Program, directing research on Japan, including a new Japan-Silicon Valley Innovation Initiative at Carnegie. He was formerly a research scholar with the Japan Program at the Walter H. Shorenstein Asia-Pacific Research Center at Stanford University. Kushida’s research and projects are focused in five streams: (1) Japan's transforming political economy; (2) how politics and regulations shape the development and diffusion of information technology such as artificial intelligence; (3) institutional underpinnings of the Silicon Valley ecosystem, (4) Japan's startup ecosystem, and (5) the role of foreign multinational firms in Japan. He has published several books and numerous articles in each of these streams and is the author of books and monographs in Japanese and English. Kushida has appeared in media including the New York Times, Washington Post, Nihon Keizai Shimbun, Nikkei Business, Diamond Harvard Business Review, NHK, PBS NewsHour, and NPR. He is also a trustee of the Japan ICU Foundation, an alumnus of the Trilateral Commission David Rockefeller Fellows program, and a member of the Mansfield Foundation Network for the Future. Kushida holds a PhD in political science from the University of California, Berkeley. He received his MA in East Asian studies and his BA in economics and East Asian studies with honors, all from Stanford University.
Kaito Komoriya CMC '22 interviewed Dr. Kenji E. Kushida on on April 8, 2022.
Photograph and biography courtesy of Dr. Kenji E. Kushida.

Nuclear energy has been a key component of Japan’s energy security.  In the aftermath of the Fukushima nuclear disaster, what role do you see in nuclear energy in Japan’s future energy security? How has Japan’s policy on nuclear energy evolved since 2011?

Before the Fukushima nuclear disaster, Japan was poised to dramatically grow its dependence on nuclear power, but that all came to a crashing halt. Interestingly enough, unlike some European countries, anti-nuclear parties like the green parties that we saw in European parliamentary systems, did not develop in Japan. The Liberal Democratic Party (LDP) managed to both stand for restarting nuclear power and stand against it. People like Kono Taro were outspoken critics of nuclear energy, while others were thinking “economy first.” The LDP, as soon as it came back into power, was able to stand for both positions at once. 

This chart shows the dynamics of the political transition in Japan with Nikkei’s opinion surveys on approval ratings. We see a pattern that whenever the disapproval ratings rise higher than the approval rating, we get a new prime minister. After the March 11 disaster hit, Kan Naoto’s approval rating slid, and he remained extremely unpopular for his response. Part of Kan’s response to the disaster was a 180-degree turnaround on nuclear energy, saying Japan would never go nuclear again. Big business, worried about the stability of electricity supplies and Japan’s overall economy, was generally opposed. Fairly or not, Kan was blamed for challenges facing the disaster response, and under pressure from the LDP in opposition, he was replaced. The following DPJ Noda cabinet came in and said that it would compromise on the issue and it would restart some nuclear power plants according to new safety standards once the new organizations were put into place. Combined with other factors, the DPJ was unpopular, and it lost in a landslide victory to the LDP, which came back to power with Abe Shinzo as a reformer. Abe was remarkably popular until he stepped down for health reasons.  Then the Suga administration came in and was initially popular, but he quickly became extremely unpopular, partly due to his pandemic response and pushing forward with the Tokyo Olympics even while imposing stressful restrictions on people’s daily activities. The Kishida administration is now in power, and its popularity is quite high. 

In July, an Upper House election is coming and the LDP wants a big win.  If there is no concentrated opposition to nuclear power, LDP leaders can promise a limited restart citing the need for energy security. If it turns into a hot button issue, they can immediately step back and push it off. The LDP is not ideologically committed one way or another, which is part of their historic strength of being pragmatic on many key issues. Rather than an ideologically committed or strongly interest group dominated policy stance in many areas, they can adjust while gauging the temperature of popular opinion. Given the Ukraine-Russia situation, people are worried and perhaps more willing to develop nuclear energy. However, if it turns out that the polls reveal this to be unpopular, my guess is the government would step back very quickly in order to try to get as many seats as possible in the summer election. A series of short-term, popular vote response measures are shaping Japan’s nuclear strategy for energy. We cannot really talk about the medium or long term in the strategic sense that is disconnected from shorter-term electoral political dynamics. 

How do you see Japan navigating disruptions in its energy supply amid the Russia-Ukraine crisis?  For example, what do you make of the decision by Japanese companies to continue their involvement in the Sakhalin LNG projects despite other foreign partners like Shell and Exxon Mobil pulling out? 

This is another great question. It is this political logic, again, of trying to maintain enough popularity, at least until the summer elections. What we have just seen with the announcement yesterday is that Japan is now going to stop coal imports from Russia. This had been an issue that Japanese leaders were quiet about but basically allowed. They figured that what Russia is doing to Ukraine is unpopular enough to the general population that Japan can make the economic sacrifice here, and it will be okay politically. 

Prime Minister Kishida used a very interesting word in his explanation of this. He called it “kokumin no seikatsu no anzen,” or the security/safety of Japanese citizens’ livelihood. We're basically talking about the raw economic interest of buying imports from problematic places to avoid a price hike that becomes unpopular and damaging for the LDP. Japanese leaders frame this in security terms so as to avoid being seen as slow-moving, given the U.S. and European countries imposing stronger sanctions earlier and incurring the economic damage themselves. We might infer that Japan’s willingness to incur economic damage and then be blamed for it is actually much lower than it is in Western Europe, especially since the conflict is not being framed in Japan’s popular press as a struggle between liberal democratic values and the specter of rising authoritarianism.

I see Japanese leaders navigating disruptions in its energy supply in a piecemeal fashion while watching opinion polls very carefully to make sure they don’t do anything to suddenly turn popular opinion radically against them. The Japanese companies are closely talking with the government at various levels and will follow the lead of the government regarding relations with Russia. If the government says, “actually we'd like you to stop these,” then they can informally request that, and we'll see a stop since the government will be doing various things to influence Japan’s future energy mix so it’s a long-term, reciprocal set of relationships. In the meantime, if there isn't a strong government directive, the companies will probably go ahead with the projects and see how it turns out. If it becomes a big Japanese domestic media issue and popular opinion is affected, then I think we'll see them drop it immediately. These kinds of moves haven't received that much domestic press. People are worried about inflation in Japan right now, which is starting for various reasons. The LDP doesn't want to be blamed for inflation, so this is a fine line that they are toeing. 

Japan has invested great sums into the research and development of hydrogen energy and methane hydrate. How viable are these two solutions as part of Japan’s energy security?

This question is very interesting because until this crisis erupted, my own view was that Japan was moving too far too quickly in the direction of hydrogen energy and hydrogen vehicles. Further in the future, hydrogen may very well be one of the major solutions to our energy challenges, but the near future of hydrogen energy is about the infrastructure of the refueling stations, processing hydrogen, and moving hydrogen around. Who is going to foot the bill for all of that? What's the business logic for private sector companies to build hydrogen charging stations for vehicles? This didn't quite make sense to me. This industry falls within my area of scholarship connected to Japan's IT industry. I've labeled it “leading without followers.” However, in the medium to long term, hydrogen does seem to be extremely promising as a source of energy. 

Japan has rushed to implement hydrogen energy in various ways, and we saw interesting compromises. Some of these include charging stations funded mostly by the government, the import of very dirty hydrogen from Australia that was made with fossil fuels, and then a lack of vision of how the hydrogen fueling infrastructure would diffuse as a business proposition in other places. I was worried that Japan was becoming locked in a situation where the further it ran in the direction of implementing hydrogen, especially for vehicles and other industrial uses, the more it would end up isolating itself. This would come with great costs. Now with the Russia-Ukraine crisis, it is quite possible that Europe will look toward hydrogen much more seriously. There are also areas such as construction or aviation, which have more concentrated fuel supply infrastructure than automobiles, which might be converted more easily. Japan is looking at methane hydrate quite seriously as well, with the big trading companies and Japanese petroleum refining companies looking into this new source of energy. 

In terms of energy security, there's a good rationale for Japan to keep moving into hydrogen and branch out into methane hydrate. However, while doing so, the government and private sector need to think very carefully and experiment with various ways of the business logic for infrastructure development outside Japan for hydrogen. Are there standards that Europe might adopt that then lock out Japan in terms of compatibility? In terms of energy system transformation, it is very political and long-term. Politics in other places can move in various directions because they all have different political dynamics. Japan’s efforts to build coalitions with other countries to move together and find partners have not been demonstrated yet on a large scale involving a broad range of powerful companies and governments. There is an alphabet soup of organizations, conferences, and forums to talk about these issues, but to me the way forward is not obvious. 

You are an expert on Japan’s startup ecosystem and have written extensively on the topic. What role do you see startups in creating novel solutions to Japan’s energy security?  What can the Japanese government do to encourage private sector innovation in this space?

Startups in Japan can play a very important role in helping guide the big incumbent companies that have massive global footprints, deep pockets, lots of employees, and great engineering. Despite their resources, these companies and management often lack the courage and organizational capabilities to try new things. In Silicon Valley, a lot of times, startups end up disrupting, and then displacing big incumbents. They grow fast and then outcompete big existing companies. In Japan, my sense is that the large companies are here to stay and will not be replaced by Japanese startups. Instead, they are likely to be more symbiotic. 

As an analogy, we can picture the image of a big ship, which represents these big Japanese companies and the startups as tugboats. The ship by itself isn't that easily maneuverable. Tugboats can move the direction of the big ship, and this is exactly what Japanese startups can, and are starting to do. 

There are some great examples of this dynamic. Some startups are coming up with new technology. Others are using existing technology but combining them in new ways. They're partnering with existing large companies and receiving investments that are big for the startup, but small for the big companies. One example is a company called Power X, which is a great example of how Japan’s startup ecosystem is maturing. Power X was co-founded by the former CEO of a successful Japanese startup purchased by Zozo and another serial entrepreneur in the biotech space. The idea behind Power X is that you take a large ship and you put a lot of batteries on it. The calculation is that if Japan plans to build lots of offshore wind turbines, the cost of cables connecting the floating wind turbines to land will be extremely expensive because the ocean off the coasts of Japan immediately becomes very deep. The calculation by Power X is that these cables will be so expensive that it's actually cheaper to just make a bunch of big ships with gigantic batteries on them and then move the energy that way.

Beyond this cost issue, disaster response is very important for Japan. If there is an earthquake, tsunami, or some natural disaster with power outages – or even if there is a power grid near failure for other reasons – you can just send the battery ships where needed. They become virtual power plants. One reason why the Fukushima nuclear disaster happened was because the power plant lost landline power since the cables were severed in the massive earthquake, and the on-site backup diesel generators, got damaged in the tsunami. This meant there was no electricity to cool the reactors, which led to the reactor core meltdowns. Battery ships would have been another line of defense that could have been rushed over to the nuclear plant and connected to the cooling pumps, although of course the extensive tsunami damage to the power plant’s electric circuitry meant that it was not quite as simple as plugging in the ship’s batteries. However, given that the government and self-defense forces were working several days straight to navigate battery trucks through the earthquake-destroyed roads and tsunami-ravaged terrain to attempt to reach the power plant, a battery ship might have been quite helpful. 

An important point for Japan’s energy transformation is that once the business model moves from solely the realm of energy generation into the realm of disaster mitigation and recovery, this can move Japanese politics and institutions into the popular realm. Preparing for big disasters is an issue that people really believe in, and politicians may be insulated from political attacks and popular media portrayals of wasteful spending if they can frame it as preparing for big natural disasters. Japan is constantly being pummeled by earthquakes and major storms, and there is a great deal of trepidation about the next major earthquake centered on Tokyo, or a serious tsunami hitting from tectonic shifts of the Pacific Ocean underwater trough south of Japan. 

The startup Power X partnered with some of Japan’s biggest and oldest companies, such as Imabari Shipbuilding, one of Japan’s biggest shipbuilders. It also received investments from Japan's biggest shipping company, Nippon Yūsen (NYK). Both companies basically are representatives of traditional corporate Japan, who are large, well-established, and conservative, but cash-rich and populated by elite university graduates, and whose large boards of directors are mostly older Japanese men who rose up through the ranks of the company over their entire careers. This kind of collaboration of younger entrepreneurs with these very traditional companies is a big start. It represents an exciting type of collaboration because Imabari or NYK probably would not have come up with this idea or been willing to execute it on their own. This attempt to try new things is what's important. The serial entrepreneurs themselves will be fine even if this effort doesn’t work out – they already live comfortably and will not go personally bankrupt if the startup fails, and they can go do their next thing. These big companies have enough wealth that if these ventures do not work, it is not a big deal since fluctuations in natural resource prices and exchange rates produce an order of magnitude greater effects on their balance sheets anyway. They do not have to lose face by trying it themselves. 

Japanese startups can play a critical role to help guide existing big firms. There are several other areas in which this is happening, such as startups building software to help manage energy distribution and startups creating new forms of turbines and wind generators. One startup is working on wind turbines with large vertical panels. Instead of having big blades that could rip off if there were mega typhoons, these turbines have large vertical panels that turn vertically along the axis of the pole. It is being shipped to the Philippines and being tested there.  

With its pledge to mitigate climate change and its goals to reduce greenhouse gas emissions to zero by 2050, what has the government been proactively doing to reach such ambitious goals?   

The Suga administration unexpectedly put forward a very ambitious target, but his administration was already unpopular, and he fell from power shortly afterward. Historically, when the LDP is quite unpopular, you get reformers like Prime Ministers Hashimoto Ryutaro and Koizumi Junichiro, and when the LDP came back into power in 2012, Prime Minister Abe Shinzo came into power with a wide-ranging reform agenda. So reform becomes attractive when the LDP does poorly. However, when the LDP is doing relatively well, reformers get pushed to the side, and people who like to reach compromises and not overreach with bold visions become central. When Suga announced that he was going to step down and not run for prime minister again, he was so unpopular that the very act of announcing his resignation caused the popularity of the LDP to rebound substantially. This means that the LDP was no longer in crisis, and many of the parliamentarians who feared losing their seats now felt comfortable. As a result, the frontrunner for prime minister based on popular opinion, Kono Taro, was shoved aside by the internal LDP leadership. What we have now is the Kishida administration which is trying to manage different interests carefully without a bold substantive vision. His slogan of a “new capitalism” was revised quickly when critics pointed out that it was mostly redistributive and lacking pro-active economic growth strategy. If we consider all this context, it’s a pretty good guess that if the LDP feels like it will be blamed for economic damage from trying to reach this greenhouse target too quickly, the party would shy away from that.

There has not been big, bold action since the Kishida administration has come in. The slogan of “new capitalism” was revised a few times, but it’s basically existing policies rather than a big proposition. Looking forward, we expect the Kishida administration to be carefully looking at opinion polls and avoiding doing anything that is bold to the point of causing short-term economic pain to voters. If the LDP does badly down the line, then we will get reformers who are likely to take concrete steps that could cause pain but are nonetheless popular because the LDP is unpopular. That’s the logic that I see here. In terms of proactiveness, right now, we're in a more reactive government mode, to the detriment of Japan reaching these climate change goals.

What is the role of different industries in helping Japan mitigate its carbon gas emissions, specifically in the automotive and manufacturing sectors?

In the automotive sector, Japanese companies are facing a big disruption from electric vehicles, as different parts of the world move fast to adopt electric vehicles and pass aggressive mandates for phasing out the sale of gasoline cars. However, technologies such as autonomous driving and connected cars are the primary disruption that the auto industry is facing, and reducing carbon gas emissions is a byproduct of their strategy to survive.  Of course, in the popular discourse, it's always good to say, “we want to lower our carbon emissions.” Companies that are worried and want to stay in gasoline can often come up with different numbers, saying that the manufacturing process of electric vehicles actually produces a lot of carbon gas emissions, or the use of electric vehicles is actually not that clean depending on what the energy source is used to make the electricity for EVs. There's been a fair amount of Japanese press looking at how EVs don't actually solve the problem that much. This is likely to be a reflection of some of the big car companies that are nervous about getting disrupted by EVs and want to hedge their bets. 

In other manufacturing sectors, if the Japanese economy starts to falter with inflation, its weak yen, global slowdown, and the Russia-Ukraine situation, then sales and production abroad will become even more important for big manufacturers. For that, there is this mismatch between the carbon gas emission concern of the countries in which this activity happens and the final consumers of these products in other places. 

If products have a carbon footprint in their production required by, for example, the EU, then the Japanese companies are likely to react. If not, the carbon gas emission mitigation for manufacturing will come second to the ability to survive in an increasingly cutthroat, new, industrial competitive reality. 

If inflation hits Japan and the central bank raises interest rates, the small and medium manufacturers will face severe financial difficulties because many of them are zombies in that they are not profitable. With the current interest rate that's virtually zero, they do not have to pay much in interest to service their debts to stay alive. But if interest rates rise in response to inflation, they have to repay the interest on their debt, which will be a real financial burden if they are not really profitable. If they can't make these interest payments, a lot of them are going to go under. We can see for the past couple of decades, a lot of inefficient, non-competitive industry has been propped up by the low-interest rates and lack of inflation. If that ends, then for the small-medium manufacturing sector, it is going to be a question of whether they can survive or not, which unfortunately puts the carbon gas emission concern in the back seat. The government has been using employment provided by uncompetitive small-medium businesses as a social safety net, so if waves of bankruptcies and unemployment occur, the issue of carbon gas emissions will also be secondary since the LDP may be fighting to survive. 

Having said this, there is a third point here. There is much concern among the Japanese public about climate change and its effects on the extreme weather, storms, and flooding that Japan has experienced lately. This leads to interest in a lot of big Japanese firms that are in Silicon Valley, for example. They're really interested in climate tech and in figuring out real strategies that are more than window dressing for ESG (Environment, Social, and Governance) investing. The interest that's moving beyond window dressing for the big industries that are already fairly competitive does seem to be real. These have deep pockets and longer time horizons with the big Japanese companies intending to be in business for the next 100 years, so climate tech from Silicon Valley and other places is one of the edges that they can get. Now they are looking around and partnering and investing. We’ve seen Mitsubishi Corporation, the trading company, investing in large solar operations in Japan to power Amazon data centers. Mitsubishi Corporation also created waves by getting all the orders from the government for offshore wind turbines, offering quite a low price. Everybody expected that there would be multiple companies that would be winning this bid to get the contracts from the government. This suggests that Mitsubishi Corporation does not necessarily intend to make a lot off of this project in the short term. Instead, they want to be in a position with a presence in this area so that they can scale it globally. It is a very aggressive move that we see with public-private partnerships.  Other companies such as oil refining company Idemitsu, which is also one of Japan’s largest gasoline station operators, are entering the electric vehicle industry to offer their own small EVs, particularly aimed at regional areas and rural areas. Despite the shorter-term political fluctuations that we can expect from the political leadership, real investments and commitments by big business, and their partnerships with the rapidly maturing startup ecosystem, will make this an exciting area of Japan’s future development. 

Kaito Komoriya CMC '22Student Journalist
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