Japan’s energy policies aim to reduce use of fossil fuels in electricity generation
In the first part of our two-part series on Japan’s energy policies in the electric power sector, we examined policies affecting generation from non-fossil fuel sources, namely renewable sources and nuclear generation.
The second part of this series discusses policies affecting generation from fossil fuels, including liquefied natural gas, coal, and petroleum.
Liquefied natural gas (LNG)
Policies target reducing the share of natural gas-fired generation in Japan’s power generation from 34% in 2022 to 20% by 2030. The electric power and industrial sectors are the largest consumers of natural gas in Japan, accounting for 82% of all natural gas consumed there in 2022. Following the 2011 Fukushima Daiichi accident and the subsequent shutdown of nuclear reactors, use of LNG in the electric power sector increased from 5.8 billion cubic feet per day (Bcf/d) in 2010 to 7.8 Bcf/d by 2012. However, since 2019, LNG consumption in the electric power sector has been declining as more of Japan’s nuclear capacity has returned to service.
In 2022, less natural gas was consumed in Japan than in 2009, mainly because of slower economic growth, less industrial demand, high international LNG prices, and continued improvements in energy efficiency. We expect the decline in natural gas consumption in the electric power sector to continue.
Although LNG consumption has declined in recent years, we expect LNG to continue playing a significant role in Japan’s power generation mix through the mid-term. Natural gas-fired generation accounted for 34% of generation in 2022—the largest share of any fuel—followed by coal at 31%. As coal plant retirements continue and more electricity is generated from renewable sources, natural gas-fired power plants will continue to provide load-following power supply to compensate for the intermittent nature of renewable generation.
Japan’s ample natural gas storage capacity contributes to the country’s energy security by helping to meet seasonal demand peaks and ensuring that natural gas remains available in case of interruption in global LNG supplies. Japan does not have international pipeline interconnections and imports about 98% of its natural gas in the form of LNG. LNG intended for consumption and additional volumes designated as reserves or inventory are stored in above-ground cryogenic storage tanks co-located at more than 30 of Japan’s LNG import terminals. Japan has the world’s largest LNG storage capacity, estimated to total 425.1 billion cubic feet (Bcf) of natural gas according to data from GIIGNL.
LNG stored in tanks as reserves or inventory can be used if LNG imports from global suppliers are interrupted. We estimate that from 2009 through 2023, Japan’s LNG inventory varied between 32% and 66% of available LNG storage capacity.
Note: LNG=liquefied natural gas
Japan’s LNG storage capacity exceeds average monthly consumption to meet peaks in seasonal demand. The balance between LNG imports, consumption, and inventory is closely monitored and continuously optimized because LNG gradually evaporates even under the most favorable ambient conditions during storage in cryogenic tanks.
Coal and petroleum
Policies in Japan target reducing the share of coal in electric generation from 31% in 2022 to 19% by 2030 and the share of petroleum generation from 4% in 2022 to 2% by 2030. This target extends policies announced in 2020 to phase out old and inefficient coal units. The policies also focus on rapid development of technologies aimed at reducing emissions from coal, including integrated-gasification combined-cycle infrastructure, carbon capture and sequestration, and fuel blending with ammonia and biomass to achieve higher operational efficiency of coal-fired plants.
Japan’s government announced that it intends to review rules for power grid use to prioritize renewable electricity generation over coal-fired electricity generation. In 2023, Japan’s government announced that all new coal-fired power plants must have emission reduction measures in place.
Japan plans to close or suspend around 90% of the existing coal-fired power plants that have been deemed inefficient: approximately 100 facilities. Although specifics regarding these criteria and a list of coal plants that are considered inefficient have not been made public, it’s likely the facilities will include older plants that use lower-efficiency subcritical or higher-efficiency supercritical technologies. Based on such a cutoff, we assess the 100 oldest facilities (approximately 24 gigawatts [GW] of coal-fired capacity) could close or suspend operations. This policy would reduce Japan’s total installed coal capacity by about 40%. Only 1.2 GW of new coal capacity is currently under construction.
Two proposals are being considered to help keep up to 12 GW of existing coal-fired capacity operational after 2030. They include adding 20% or more ammonia to the coal supply or blending 25% or more wood pellets into the coal boilers to help lower CO2 emissions and keep the plants open. The wood pellet program is well underway, but the use of ammonia is still being tested.
Japan's Ministry of Economy, Trade, and Industry (METI) is offering a feed-in-tariff (FIT) that pays owners of coal-fired plants for every kilowatthour generated by wood pellets in a coal boiler. The FIT would be offered for 20 years. The program has resulted in more than 3 million tons of wood pellets being imported in 2023, an amount likely to increase in the future. To qualify for the FIT, METI requires that generators keep lifecycle greenhouse gas emissions under certain limits.
The pace of coal retirements actually achieved under Japan’s phaseout plan will depend on several factors, including:
- Addition of nuclear capacity through restarts and new facility additions
- Growth in renewables (both wind and solar) beyond what is currently in development
- The ability to balance the power grid as renewable generation grows
Principal contributors: Victoria Zaretskaya, Jonathan Russo, Slade Johnson