Koji Nakui – Agency for Natural Resources and Energy – Role of CCS and the future direction of energy policy in Japan

Energy Policy of Japan June 2012Agency for Natural Resources and Energy Natural Resources and Fuel Department Coal Division Koji Nakui

Contents1. Review of The Basic Energy Plan ・・・22. Near-term Electricity Supply-demand Balance ・・・73. Rethinking the Basic Energy Plan ・・・144. Renewable Energy ・・・305. Energy Resource Development ・・・426. Future Energy Policy of Japan ・・・46 1

1. Review of the Basic Energy Plan 2

History of Japan‟s Energy PolicyJapan is poorly endowed with energy resources, which are indispensable to economic and social activities. To meet thechanging economic and energy situation of the time at home and abroad, Japan has reviewed its energy policy in order toensure “energy security,” “economic efficiency,” and the “environment.” 1970s [(1) Responding to the oil crises (1970s-80s)] Energy security 1973: First oil shock 1980s 1979: Second oil shock [(2) Promoting regulatory reform (since 1990s)] Energy Economic 1990s security + efficiency [(3) Coping with global warming issues (since 1990s) ] Energy Economic security + efficiency + Environment 1997: Kyoto Protocol adopted 2000s 2005: Kyoto Protocol came into effect [(4) Enhancing resource security (2000s)] Energy Economic security + efficiency + Environment Enhanced resource security [(5) Current Basic Energy Plan] 2002: Basic Act on Energy Policy enacted 2003: Basic Energy Plan established (revised in 2007 and 2010) 3

Japan‟s Energy Supply Structure (in crude oil equivalent kL) 3% *100% Renewables etc. 3% 90% Hydro Nuclear power 12% 80% Natural gas 19% 70% Coal 60% First oil shock 21% 50% Coal 40% 42% 30% 20% * “Renewables etc.” consists of 10% solar power (0.1%), wind power Oil (0.1%), geothermal heat (0.1%), and biomass (2.8%). 0% 1999 2001 2003 2005 2007 2009 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 Source: Prepared based on “Comprehensive Energy Statistics” issued by the Agency for Natural Resources and Energy.” 4

Projections for Shale Gas Production Increases and LNG Imports in the U.S. ○U.S. shale gas production in 2009 was about 3 trillion cubic feet (approx. 16% of total gas production, equivalent to approx. 70 million tons of LNG). The country’s shale gas production is forecast to continue increasing steadily. ○As shale gas production increases, projected U.S. LNG imports are projected to decline significantly. Projections for U.S. natural gas production (by type) Projections for U.S. LNG imports(trillions of CF) (trillions of CF) Results Projections Results Projections 7 As of 2005 6 5 4 3 2 1 As of 2011 0 Source: EIA, “Annual Energy Outlook 2011.” Source: EIA, “Annual Energy Outlook 2011.” 5

Natural Gas Prices (Japan vs. North America)○Japan’s LNG import prices, which are linked to crude oil import prices (JCC), have been rising in recent years.○By contrast, natural gas prices (Henry Hub price) in North America have been declining in recent years, reflecting a less tight supply and demand balance in the North American market due to the increased production of shale gas. LNG import price Crude/raw oil price (JCC) Henry Hub price May-09 May-10 May-11 Dec-08 Aug-09 Sep-09 Dec-09 Aug-10 Sep-10 Dec-10 Aug-11 Sep-11 Dec-11 Nov-09 Nov-10 Nov-11 Feb-09 Feb-10 Feb-11 Mar-09 Mar-10 Mar-11 Jan-09 Jun-09 Jan-10 Jun-10 Jan-11 Jun-11 Oct-09 Oct-10 Oct-11 Apr-09 Apr-10 Apr-11 Jul-09 Jul-10 Jul-11 6

2. Near-term Electricity Supply-demand Balance 7

Operational Status of Nuclear Power Stations (as of June 8) All the 50 NPSs in Japan have suspended operation (red)TEPCO Kashiwazaki-Kariwa NPS Tohoku EPCO Higashidori NPS Hokkaido EPCO Tomari NPS 1 2 3 4 5 6 7 1 1 2 3Hokuriku EPCO Shiga NPS 1 2 Tohoku EPCO Onagawa NPSJAPC Tsuruga Power Station 1 2 3 1 2KEPCO Mihama Power Station 1 2 3 TEPCO Fukushima Daiichi NPSKEPCO Ohi Power Station 5 6 1 2 3 4KEPCO Takahama Power Station TEPCO Fukushima Daini NPS 1 2 3 4 1 2 3 4Chugoku EPCO Shimane NPS JAPC Tokai No. 2 NPS 1 2 Chubu EPCO Hamaoka NPSKyushu EPCO Genkai NPS 3 4 5 1 2 3 4 Shikoku EPCO Ikata Power Station Kyushu EPCO Sendai NPS 1 2 1 2 3Output NPS in operation<0.5 million kW <1 million kW ≥1 million kW NPS not in operation 88

Dealing With Peak Power Shortages This Summer(figures indicate projections as of November 2011)[Policy] ○Aim to avoid planned power outages and power usage restriction ○Support efforts to save energy and increase power supply capacity through the FY 2011 initial and supplementary budgets (235.3 billion for direct measures to meet peak power demand and 579.4 billion in total, including indirect measures) and regulatory reform (26 priority items)[Three pillars] (1) Increasing visibility of power use (shared saving targets, visualized power consumption with smart meters, more price plans encouraging electricity saving) (2) Promoting energy saving by electricity customers (demand structure reform) (3) Supporting efforts to increase supply capacity involving diverse entities (supply structure reform) Efforts to reduce demand -16.56 mil. kW Increasing visibility of power use (-9.2%) Diversifying price plans, etc. Reducing demand Up to 9.80 million kW 7.10 million kW Promoting energy saving by electricity customers (budget measures, etc.) 2.70 million kW Supporting efforts to increase supply capacity involving diverse entities ( budget measures, etc.) 2.33 million kW Increasing supply Up to 6.42 million kW Supply measures by utilities (Increasing thermal power capacity, installing emergency power sources, etc.) 4.09 million kW Peak power shortage announced on July 29 Efforts to increase supply capacity 9

Outline of the Government Action Plan for Energy Regulation and System Reform○To responsibly implement measures to resolve the power shortage problem this summer, the government established the “Government Action Plan for Energy Regulation and System Reform.”○The government will stress the implementation of 26 regulatory and system reform items.○In principle, the conclusion should be reached by the end of FY 2011, followed by swift implementation. Power system reform (9 items) Installation of renewable energies Energy saving promotion - Promoting participation of diverse (9 items) (8 items) entities for this summer - - Supply structure reform - - Demand structure reform - (1) Solar power generation (1) Introduction of demand-side(1) Increased use of distributed power measures for peak hours ・Review safety regulations under Electricity sources ・Actively evaluate peak electricity measures Business Act - Promote installation of distributed power under the Energy Conservation Act sources (e.g. self-generation, renewable ・Review of treatment under Factory Location Act ・Foster cooperation of suppliers on demand- energies) and enhance neutrality and fairness (2) Wind power generation side measures for peak hours of power transmission and distribution to ・Consider reviewing technical guidelines for support them examination of wind power plants in natural ・Essentially reduce the burden of the “self-generation parks (2) Expanded use of storage batteries backup contract,” which is needed to prepare for a ・Improve institutional environment for offshore ・Review regulations concerning the handling failure of self-generation wind power generation of lithium-ion batteries under the Fire and ・Lower the imbalance fees imposed based on the rule Disaster Management Act that generated power be equal to demand at all times (3) Geothermal power generation ・Permit use of lithium-ion batteries as ・Use utility grids to effectively use excess self-generated emergency power sources power ・Clarify permission requirements under location ・Implement wide-area operation of power transmission regulation pursuant to the Natural Parks Act ・Establish rules to give priority to renewable energies for ・Establish the concept of judgment criteria for (3) Enforcement and reinforcement of connection and power supply drilling permission under the Hot Springs Act energy conservation regulations(2) Promotion of smart meter installation mainly in the private sector and flexible electricity price plans (4) Small hydro power generation and ・Review energy conservation standards for ・Provide flexible price plans to further motivate biomass houses and buildings customers to reduce peak-hour consumption and save ・Enhance the housing/building labeling energy (5) Common items ・Establish an institutional framework to accelerate smart system meter installation in accordance with a five-year ・Facilitate adjustment of the use of farmland and ・Phase in mandatory conformance to energy intensive installation plan woodland for promoting renewable energy conservation standards for houses and ・Standardize the smart meter interface installation in rural villages under the new act to buildings under the Energy Conservation(3) Cost reduction by invigorating the promote renewable energies in rural villages Act wholesale market ・Review permission requirements and standards・Use extra power generation capacity of wholesale utilities for national forests (4) Promotion of the effective use of and IPPs ・Clarify the handling of renewables installation in local government action plans for global warning thermal energy ・Establish systems for thermal energy use prevention measures 10

Risk of Electricity Cost Increase Due To the Use of Alternative Fuels<Conceptual image> Maximum supply Reduction in supply capacity capacity due to shutdown Capacity margin of nuclear power plants (1) Peak power shortage (2) Cost increase due to substitution of thermal power generation Thermal power generation, etc. Thermal power generation will Substitution of thermal power Nuclear power generation be used as a generation substitute if Daytime Night Morning Morning Daytime Night nuclear power generation is not operated Nuclear power generation (shut down) Estimation of additional fuel costs arising from the substitution of thermal power generation, assuming that LNG- /oil-fired thermal power generation substitutes the entire generation capacity (approx. 280 billion kWh) of nuclear power plants operated at a level equal to FY 2009 ○Risk of a fuel cost increase of approx. more than 3 trillion (about 20% of Japan’s electricity expenses of approx. 15 trillion) ○Factors of increasing overall social costs, e.g. installation of self-generation systems by customers and installation of emergency power sources, aside from the cost increase due to the use of alternative fuels <Two measures> (1) Reducing total demand (2) Improving management efficiency of electric utilities 11

Measures to Curb Electricity Cost Increase Reducing total demand through Improving management efficiency of energy saving electric utilities(1) Introducing energy management systems <Actions by electric utilities> (HEMS/BEMS) ○Reducing procurement costs(2) Promoting installation of energy-/power-saving equipment (efficient boilers, efficient air ○Improving management efficiency conditioners, building insulation, double-paned ・ Taking action considering the points identified in the windows, etc.) “TEPCO Management and Finance Investigation Committee Report”(3) Promoting investment to increase production capacity for LED lights and other energy-saving products/parts <Actions by the government> ○To promptly review the electricity fee system and its(4) Encouraging industries, businesses, and implementation, the government formed an “Expert households to save electricity Panel for the Review of the Electricity Fee System and Its Implementation” and compiled a report in March ＋ 2012. The fee calculation rules and the fee examination procedure were revised in FY 2011.○Efforts toward peak shaving (e.g. visualizing power consumption) also have a great potential ○The validity of fees set by individual utilities will be to contribute to reductions in total demand checked with improvement of management efficiency as because they lead to rational behavior to save a major precondition. electricity 12

Supply-demand Balance Projections for Electric Utilities Projections for the electricity supply-demand balance this summer the Electricity Supply-Demand Verification Committee Supply-demand balance projections, assuming a summer as hot as in 2010, economic conditions in 2012, and established effects of electricity saving measures ※Included the electricity saving effects of supply and demand adjustment contracts ※The light blue number take account of 3% capacity margin. Central Country Kansai Kyushu Hokkaido Shikoku Hokuriku Tohoku Chugoku Tokyo Chubu Eastern & Westernsupply-demand gaps 25 ▲445 ▲36 ▲10 2 20 53 53 251 137 ▲269 294 (in 10,000s kW) 13

３. Rethinking the Basic Energy Plan 14

Current Basic Energy Plan (Cabinet decision in June 2010)○The government established a new “Basic Energy Plan” in June 2010. Considering increased public interest in global warming issues, it seeks to significantly improve the energy self-sufficiency ratio (from approx. 18% to approx. 40%) by 2010 and reduce energy-related CO2 emissions by 30% by 2030 by mobilizing all policy measures, including the construction of new/additional nuclear power plants. Targets for 2030○Double the energy self-sufficiency ratio and the self-developed fossil fuel supply ratio(*thereby increasing the energy independence ratio from 38% to about 70%)○Raise the zero-emission power source ratio from 34% to about 70%○Reduce CO2 emissions from people‟s lives (residential sector) by half○Maintain and enhance energy efficiency in the industrial sector at the highest level in the world○Allow Japanese companies to obtain leading shares of global markets for energy-related products Measures to achieve the targets Comprehensive efforts to secure resources and enhance supply stability Establishment of a low carbon energy demand structure○ Deepening strategic relationships with resource-rich countries through public- ○ Maintaining and enhancing the world’s most advanced energy efficiency (business private joint efforts sector)○ Raising the self-sufficiency ratio of strategic rare metals to more than 50% etc. ○ Making net-zero-energy houses/buildings available by 2030 ○ Replacing 100% of lights with highly efficient lights (LED etc.) by 2020 on a sales basis and by 2030 on an installation basis ○ Raising next-generation vehicles’ share of new vehicle sales to up to 50% by 2020 Establishment of an independent and environmentally friendly and up to 70% by 2030 energy supply structure etc. ○ Expanding the feed-in tariff system for renewable energy and promoting deregulation ○ Promoting nuclear power generation Creating a new energy society New/additional reactors: 9 by 2020, 14 or more by 2030 ○ Demonstrating smart grids and smart communities in Japan and abroad etc. Capacity utilization rate: 85% by 2020, 90% by 2030 ○ Improving the efficiency of coal-fired thermal power generation etc. Promotion of international business expansion in the Development and diffusion of innovative energy technologies energy and environment sector 15

Developing the Strategy From Scratch (material for the third meeting of the Energy and Environment Council on October 3) ○The current Basic Energy Plan adopted in June 2010 seeks to increase power dependence on nuclear energy to more than half by 2030. This should be reviewed from scratch. Energy saving (in 100 millions of kWh)12,000 GDP: 1.4-fold increase by 2030 Power demand: 1-fold 10,239 Renewables 10,200 increase by 2030 etc. ＝10,000 9% 9% Including about 30% energy saving 21% Renewables etc. 21% 8,000 26% ・14 new/additional reactors ・Improved capacity utilization rate (60.7% in 2007 6,000 approx. 90% in 2030) 28% 53% Nuclear 53% Renewables 4,000 etc. Fossil fuels 25% 66% 25% 25% 13% Natural gas 2,000 13% Fossil fuels Fossil fuels 26% 59% 74% 13% 11% Coal 2% Oil etc. 0 1970 1980 1985 1990 1995 2000 2005 2007 2009 2030 Basic Energy Plan First oil crisis 16

Past Developments and Future Plans ( material for the fifth meeting of the Energy and Environment Council on December 21) [Past developments] [Future plans] December 21 (Wed): Energy and Environment Council (5thJune 7 (Tue): Energy and Environment Council formed as meeting)a subgroup of the Council on the Realization of the New ○Adopted Basic policy for presenting options in the next spring.Growth Strategy.July 29 (Fri): Energy and Environment Council December 22 (Thu): Council on National Strategy and Policy (5th meeting)○Adopted “Interim Compilation of Discussion Points for the Will incorporate policy in the “Strategy for the Rebirth of Japan”Formulation of Innovative Strategy for Energy and theEnvironment.”・Decided the general direction of the strategy - a scenario to reduce Energy and Advisory Committee Atomic Energy Central dependence on nuclear power and a shift to a distributed energy system. Environment for Natural Commission Environment Resources and Council ・Developing Council Energy ・Discussing draft nuclear ・Developing draft ・Developing draft green growth policy options options of climate energy mix scenarios strategy change measuresOctober 3 (Mon): Energy and Environment Council (3rdmeeting)○Formed “Cost Estimation and Review Committee.” Next spring: Energy and Environment Council ○Will present options of energy and environment strategies  Fostering national debate Advisory Committee Central Atomic Energy CentralCost Estimation for Natural Atomic Energy Energy and Advisory Committee Environment Commission Environment and Review Commission for Natural Resources and Environment Council Council Resources and ・New Committee Energy Council ・New global Energy Framework for Dec. 19  Dec. 20  Under ・Green Growth warming  Dec. 9 ・Strategic Energy Nuclear Energy Report Major discussion deliberation Strategy (draft) countermeasures Draft report Plan of Japan (draft) Policy (draft) points (draft) Next summer: Energy and Environment Council ○Will adopt “An Innovative Strategy for Energy and Environment” 17

Highlights of the “Interim Compilation of Discussion Points for the Formulation of „An Innovative Strategy for Energy and the Environment‟” (prepared based on material for the second meeting of the Energy and Environment Council on July 29, 2011)Basic philosophy 1: Three principles for achieving a new best mix of energy sourcesPrinciple 1: Draw up a scenario for reducing dependence on nuclear energy○The government will conduct a zero-basis reexamination of the present energy mix, in which nuclear power generation constitutes more than half the electric power supply.○In other words, the government will enhance the safety of nuclear power plants and continue to use them but with reduced dependence.○At the same time, the government will cultivate energy frontiers, such as increasing the percentage of renewable energies, drastically reforming the energy demand structure through energy- saving efforts, and enhancing the clean use and efficiency of fossil fuels.Principle 2: Develop a clear and strategic schedule in order to avoid energy shortfalls and price hikesPrinciple 3: Conduct a thorough review of nuclear power policies and pursue a new vision○When developing a specific scenario for reducing dependence on nuclear power, the government will comprehensively inspect nuclear policies.○For how long and by how much should the government reduce dependence on nuclear power? How should the government handle new-generation nuclear technology R&D? What should it do with back-end issues or nuclear fuel cycle policies? How should the government secure/foster technologies or human resources for attaining the world’s top class safety or maintain the safety of existing nuclear power plants? How should the government enhance collaboration or cooperation with international organizations or foreign nations? The government will make these issues clear.Basic philosophy 2: Three principles for the realization of new energy systemsPrinciple 1: Seek to realize distributed energy systemsPrinciple 2: Seek to make international contributions as an advanced problem-solving nationPrinciple 3: Take a multifaceted approach to the realization of distributed energy systemsBasic philosophy 3: Three principles for the formation of national consensusPrinciple 1: Stimulate a national discussion to overcome the confrontation between the opposition to andpromotion of nuclear power generation○The confrontation between the opposition to and promotion of nuclear power generation has blocked discussions and brought about an unfortunate gap between expert decisions and public opinions.○As for nuclear power plants consisting of existing technology, if people can agree with the idea that the government should reexamine the current Plan from scratch and reduce the dependence on nuclear power, the national discussions will be developed with the theme of “realizing the scenarios for reducing nuclear dependence.”○Such discussions should help effective energy choices in the future.Principle 2: Verify objective data in developing the strategy○The government should hold practical and concrete discussions by objectively verifying data, such as the cost of nuclear power generation and the amount of introducible renewable energies.○The Energy and Environment Council will set up the “Cost Estimation and Review Committee” for cost examination and reflect the results in the basic policy formulation scheduled at the year- end.Principle 3: Formulate innovative energy and environmental strategies while maintaining dialogue with a broadrange of citizens 18

Power Generation Cost Comparison Among Major Power Sources (1) Nuclear (5) Distributed power approx. (2) Coal & LNG (3) Wind & geothermal (4) Solar : 10-20 sources 9 or more in the 10 range 10 or less in some around 10-20 cases even now ○For large-scale installations, ○Even more attractive to ○Increases with fuel backup by auxiliary power ○Incurs social power consumers when costs and CO2 ○Competitive even in at present supply or storage batteries is costs, e.g. cost savings in electricity fees to prepare for emission measures. if conditions are favorable. needed. (20 for households, 14 the risk of ○As competitive as ○The followinginstallations.apply constraints to large-scale for commercial/industrial accidents. nuclear energy. ・Higher transmission costs for 50 customers) are ○8.9/kWh or wind power due to concentration considered. more of plants in Hokkaido and Tohoku ・Constraints on geothermal heat, [/kWh] e.g. concentration in natural 40 parks <Legends> Upper limit Upper limit Lower limit Lower limit 9.4- 38.9 2010 2030 model 23.1 ↑ 25.1 20.1 30 2004 model ↓ 36.0 ↑ estimates 9.9- 8.6- ↑ （10％） 19.7 (before 17.3 23.1 22.1 deduction ↓ （50％） of heat value) 8.8- 9.2- 20 11.6 A/C: 10.3 10.9 17.3 7.9-23.4 8.9- ↑ ↑ （2010= 33.4- （2010=2030） 9.5 10.7 2030） 16.5 38.3 ↓ Fridge: 10 9.9- 1.5-13.4 20.0 11.5 Incandesce 6.2 ↑ nt lamp 5.9 5.7 10.6  LED 0.1 0 Nuclear Coal-fired LNG-fired Wind power Wind power Geothermal Oil-fired Solar Gas cogeneration Energy [70%/40 yr] (new policy scenario) (new policy scenario) (onshore) (off-shore) [80%/40 yr] [50% or 10% (residential) (before deduction saving of heat value) /40 yr] [12%/20 yr] [80%/40 yr] [80%/40 yr] [20%/20 yr] [30%/20 yr] (30% in 2004 [70%/30 yr] (35 yr in 2030 model) [capacity utilization rate (%) /useful years ] estimates) 19

source: “Major discussion points toward the establishment ofGeneral Direction of Major Discussion Points a new „Basic Energy Plan for Japan‟” on December 20, 2011)(1) Perspectives required in rethinking the (3) Direction of energy policy reform Basic Energy Plan 1. Realizing the world’s most advanced energy-In the aftermath of the Great East Japan Earthquake and the accident at saving society: Reform of the demand structureTEPCO’s Fukushima Daiichi NPS, Japan’s review of the energy policy must • Enhance energy conservation policies that include a peak-place stronger emphasis on the following perspectives, with the highest shaving approachpriority given to “ensuring public safety.” • Build a flexible fee structure • Form dispersal-based smart communities1. Sustainable energy that earns public trust (restoration of public confidence) • Promote visible energy savings through HEMS/BEMS and2. Energy policy that emphasizes the “demand side” reform work style and lifestyle by supplying information to (demand structure reform by providing “options” [e.g. power sources] and consumers appropriate incentives for energy and power saving; supply structure reform from the demand side)3. Energy policy that emphasizes “consumers” and “ordinary citizens” as 2. Realizing a distributed next-generation energy well as “regional communities” system: Reform of the supply structure (participation of “consumers,” “ordinary citizens,” and “regional communities” to • Achieve distributed next-generation systems that give play leading roles; regional revitalization through the use of untapped energies) consumers various options and makes maximum use of various4. Energy policy that supports national strength while making international supply capabilities (e.g., renewable energies, cogeneration, contributions private power generation, etc.) (maintaining and reinforcing Japan’s industrial competitiveness; ensuring • Reinforce and widen transmission and distribution networks energy security, providing stable and inexpensive energy; Japan’s responsibility • Ensure neutrality of the transmission sector in the context of the international energy situation; a strong energy policy) • Spread cogeneration and fuel cells5. Energy policy that utilizes diverse power and energy sources (overcoming vulnerabilities of a large-scale intensive power system; effectively • Develop infrastructure for the use and interchange of unused using energy throughout the market) heat in urban districts • Expand the domestic supply network for natural gas and build a(2) Desired energy mix disaster-resistant petroleum product supply structureFurther discussion will be held on the following basic directions: 3. Importance of technical innovation1. Fundamental reinforcement of energy and electricity conservation • Maintain and reinforce the world’s most advanced energy measures technologies2. Accelerated development and use of renewable energies to the • Accelerate technical innovation maximum degree possible • Implement joint public-private initiatives3. Clean use of fossil fuels (e.g. shift to natural gas)4. Reduced dependence on nuclear power wherever possible 20

Energy Mix in Major Countries: Composition of Power Generation by Energy Source Nuclear Coal Oil Natural gas Renewables etc. Japan U.S. Europe Korea China Germany France Italy Ukraine Slovakia Source: EA “ Electricity Information 2010” “Energy Balances of OECD/Non-OECD Countries 2010” In Europe, where interconnection of power and gas supply networks is more common, energy security is ensured throughout the region. Europe’s composition of power generation by energy source is similar to that of Japan. 21

Trends in Final Energy Consumption in Japan (millions kL of crude oil equivalent) (trillions)450 600 Real GDP Final energy 19732009 consumption400 2.3-fold growth 500350 1973→2009 Transport sector 23.7% 1.3-fold300 400 growth 16.4% Transport250 19732009 18.1% Residential & Commercial sector 300 1.9-fold200 33.6% growth Residential & 19732009 Commercial150 200 65.5% 2.4-fold 42.7%100 Industry sector growth 100 50 19732009 Industry 0.85- 0 0 fold 1980 1984 2005 2009 1973 1974 1975 1976 1977 1978 1979 1981 1982 1983 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2006 2007 2008 growth Sources: “Comprehensive Energy Statistics” and “Annual Report on National Accounts.” 22

Structure of the Energy Conservation Act (Act on the Rational Use of Energy)The Energy Conservation Act, the basis of Japan’s energy conservation policy, was established in 1979 inresponse to the oil crisis.It calls for the improvement of energy efficiency in the industry, commercial/residential, and transport sectors. ●Companies whose energy consumption or transport capacity exceeds the specified level are Factories, offices, required to submit periodical reports concerning the items below every year for review by the carriers, consigners government. (1) Changes in energy intensity (target: 1% on annual average) (2) Implementation status of energy conservation measures (requiring actions contributing to energy conservation in accordance with qualitative guidelines) ●For any company notably lacking in its energy conservation efforts, the government can disclose the name and issue directives/orders (or fine in the event of violation). ●Manufacturers and importers of energy consuming equipment are required to meet high standards Machinery & (Top Runner standards) in the target fiscal year (set about 3-10 years ahead) and to report equipment results in the target fiscal year so that the government can check the degree of (Top Runner program) achievement. ●If substantial improvement in performance is necessary, the government can disclose the name and issue recommendations/orders (or fine in the event of violation). Top Runner standards (23 product categories) Designated products, including passenger vehicles, air conditioners, and TV sets, are required to provide, in their own target year, performance equal to or more than that of the most superior product on the market at the time of setting the standards. [Past improvements in efficiency] passenger vehicle fuel efficiency: up 47% (from 1997 to 2009) air conditioner energy efficiency: up 68% (from 1997 to 2004) * In addition, the law provides for specific regulatory measures for houses and buildings. 23

Fossil fuels: International Comparison of Electricity Composition Among Major Countries ○ The global energy market (generated electricity) is dominated by the U.S. and China. ○ The 21st century’s energy supply is expected to be sourced mainly from fossil fuels, especially in developing countries. Renewables etc. Hydro Nuclear Gas Coal Oil U.S. China Japan Canada Germany France [Sources: OECD/IEA, “Energy Balances of OECD Countries 2010” and “Energy Balances of Non-OECD Countries 2010,” 2008 results.] 24

Fossil Fuels : Technological Innovation Toward Zero Emissions Efficiency of coal-fired power generation, by country: The efficiency of coal-fired power generation in major countries remains low, leaving room for improvement. Efficiency of coal-fired power generatio (LHV, %) 43 Japan 41 39 Germany 37 USA 35 China 33 Australia 31 India 29 27 Japan Germany USA China Australia India 25 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: Ecofys, “International Comparison of Fossil Power Efficiency (2008).” 25

Technological Innovation toward Zero Emission International Joint Research and Demonstration on Oxifuel Combustion At Callide A pulverized coal power station (generation capacity: 30MWe) in Central Queensland, Australia, low-emission coal thermal power generation using Oxifuel Combustion Technologies will be demonstrated toward practical application of CCS (Carbon Capture and Storage) technology. Project image Oxifuel Combustion is: Technology to facilitate CO2 recovery by burning fuel such as ST Smokestack coal using only oxygen to make CO2 the principal component of G Condenser Noncondensable gas exhaust gas from the boiler. N2 Coal Dust collector CO2 storage transportation equipment SystemAir O2 Boiler P ・Oxygen generation (air separation) equipment is installed.（N2, O2） CO2 liquefaction ・Exhaust gas is re-circulated and flame temperature is adjusted to and recovery Oxygen generator Re-circulated gas (mainly CO2） plant CO2 use existing boiler technology. Underground storage Features ・Applicable to both existing and new power plantsOxifuel combustion Co2 recovery power generating system CO2 transportation/storage ・Has a potential to reduce CO2 recovery energy and costs ・Has a potential to reduce NOx emissions PartnersJapan : Japan-Australia Oxifuel Combustion Demonstration Project Japan Limited Liability Partnership(formed Project budget by J-POWER, IHI and Mitsui & Co.) JCOAL (Supporting Collaborator) About 225M Australian dollars (including subsidies fromAustralia: CS Energy, Xstrata, Schlumberger, Japanese and Australian governments) Australian Coal Association (ACA) Japan contributes 42M Australian dollars (about 34B yen that is split between public and private Schedule partners) 2008 – 2011 Retrofit of existing power station 2011 – 2013 Oxyfuel demonstration operation 2012 - 2014 CO2 injection and monitoring 26

The CCS Demonstration Test at the Tomakomai Site Tomakomai Site 1. Sequence of Events Launch of EPC in 2012 fiscal year（１） In 2008, by taking into account the presence or absence of data for existing wells with an excavated depth of over 500 meters, the proposed sites for the CCS demonstration test were narrowed down from 115 to 7 sites.（２） In 2009, taking into account whether a source of emissions was located in the vicinity, the sites were Kitakyushu Site narrowed down again to three candidates (offshore Tomakomai, offshore Nakoso-Iwaki, and offshore Basic Survey Stage Kitakyushu).（３） Of the three sites, the survey at the Tomakomai site was the furthest ahead. Thus, based on the survey results at the time, a technical evaluation was conducted. Concurrently, activities to promote the understanding of CSS were carried out locally (holding forums etc.). In February of this year it was decided to begin a trial implementation at the Tomakomai site starting in the 2012 fiscal year. Nakoso-Iwaki Site Survey currently halted due to Great East Japan Earthquake 2. Future Plans（１）Demonstration Test Overview ①Source of emissions ： oil refinery ②Separation and Recovery System ： chemical absorption method ③Injected amount ： 100 000 tones of CO2/year or more (injection period: approximately 3 years) (Injected into two layers: Moebetsu Layer (depth of 1100m to 1200m) and Domestic location of the three proposed sites Takinoue Layer (depth of 2400m to 3000m))（２）Demonstration Test Schedule ①Measurement of temperature, ② Measurement of pressure etc. at temperature, pressure, ③Well bottom temperature, CO2 injection amount at 1styear 2ndyear 3rdyear 4thyear 5thyear 6thyear 7thyear 8thyear 9thyear pressure measurement wellead wellhead Vibration and natural earthquake Engineering, Procurement observation CO2 Supply Base Supply Operation ,Construction ④ Well bottom temperature, Investiga- pressure measurement Port of Tomakomai CO2 Injedtion Bsae Engineering, Procurement tion Injection Operation and Injection Well Phase ,Construction(Excavation) ⑤Periodic 2D and 3D elastic ⑦ Observation of vibrations and natural wave survey of ocean Engineering, Procurement Pre-injection Observation During Post-injection earthquakes by land-based seismometer Monitoring Observation region ,Establishment Injection Observation installation ⑥Observation of seabed ⑧ Ocean monitoring system (Marine vibrations and natural Pollution Prevention Law) earthquakes（OBS, OBC） Injection Monitoring Schematic Diagram 27

Energy Self-sufficiency Ratio and Energy Mix Source: Excerpts from documents created by the IEANuclear power is an important option for countries with a low energy self -sufficiency ratio(i.e. with scarce domestic energy resources) 28

Energy Dependence on Specific Regions and Energy Mix Nuclear energy-using countries Non-using countries Crude oil import dependence on the Middle East Gas import dependence on Russia Source: Excerpts from documents created by the IEAJapan and Korea (which are heavily dependent on the Middle East for crude oil) and EastEuropean countries (which are heavily dependent on Russia for gas) promote nuclear power. 29

４. Renewable Energy 30

What is Renewable Energy? Solar power generation Wind power generation Other: Hydroelectric Ocean energy, etc. power generation generation Wave activated Geothermal Biomass power generation power generation Courtesy of Mitsui Engineering & Shipbuilding Co., Ltd. power generation Ocean current 提供：(財)エンジニアリング振興協会提供：㈱ジャイロダイナミクス Courtesy of Kawasaki Heavy Industries, Ltd.Sources: Agency for Natural Resources and Energy, “Energy in JAPAN”; New Energy Foundation, “New Energy Award”; NEDO, “Best 100 New Energies”; etc. 31

Market for New Energy Industries New energies, energy conservation and the smart community are technologies still in their infancy. However, their markets have a large growth potential driven by factors such as increasing resource constraints, energy security, global warming, and even electricity supply shortages after the 3.11 disaster. The market size and the market growth rate of new energy industries will be substantial, even compared with the automobile industry, today’s leading market. Projected global market size in 2020 Global market size in 2010 The size of the circle corresponds to the market size. [New energy industries] 86 tn. * Including solar power, wind power, solar heat, fuel cells, storage batteries (LiB), ZEB, and ZEH. Market growth rate (2010-20) New energy industries Source: Prepared by Teikoku Databank based on documents, such as the Global Wind Energy Council’s “Global Wind Energy Outlook 2010.” [Automobile industry] Source: Estimated at the value 151 tn. of 1,747,718 per vehicle, which was calculated from METI’s 30.3 tn. Automobiles “Machinery Statistics” (2010 10 tn. 15 tn. 50 tn. 123 tn. 200 tn. Annual Report), and using figures in “Automobile Industry Forecast for 2020 (2011 edition)” issued by Sougou Giken Co., Ltd. Market size (in trillions) 32

Change in the Amount of Electricity Supplied by Renewable Energy  Since the introduction of the RPS system (in 2003), the supply amount of renewable energy sourced electricity has doubled.  Furthermore, since the introduction of the Excess Electricity Purchasing Scheme (in 2009), the installation of residential solar systems has sharply increased. Change over the years in total supply of electricity from “New Energy” power generation facilities (in 100 millions of kWh) FY 2003 Wind Hydro Biomass Solar FY 2004 Wind Hydro Biomass Solar FY 2005 Wind Hydro Biomass Solar FY 2006 Wind Hydro Biomass Solar FY 2007 Wind Hydro Biomass Solar FY 2008 Wind Hydro Biomass Solar Specified solar Start of excess electricity FY 2009 purchasing from residential facilities Wind Hydro Biomass Solar FY 2010 Wind Hydro Biomass Solar Specified solar* The above data shows electricity supply from facilities certified under the RPS Act. It does not include electricity generated before the enforcement of the RPS Act, electricity generated by facilities not certified under the RPS Act, and electricity generated by facilities certified under the RPS Act but self-consumed.* The solar power generation facilities covered by the excess electricity purchasing scheme are counted as “specified solar” facilities in and after November 2009. 33

Outline of the Act on Special Measures for Renewable Energy Electric utilities are obliged to purchase electricity generated from renewable energy sources (e.g. solar power, wind power, hydro, geothermal heat, biomass) on a fixed-period contract at a fixed price. The system will be launched on July 1, 2012. The cost of the purchased electricity will in principle be transferred to electricity customers in the form of a surcharge proportional to electricity usage. The government expects to attract investments to the renewable energy market by promising steady returns. The purchase price and period have been discussed by the Procurement Price Calculation Committee (appointment of the members requires consent of the Diet), which submitted opinions to the METI Minister on April 27 (e.g. purchase at 42 for 20 years for large-scale solar power generation). With these opinions in mind, the Minister will decide the final purchase price. Operators of commercial Sell electricity generated Supply electricity power generation from from renewable energies renewable energies Electric utilities Purchase electricity for the government-defined period and price Collect surcharges as part of electricity bills Grant purchase Pay collected costs surcharges Electricity Cost Bearing Adjustment Organization customers (responsible for collecting and distributing surcharges) Set purchase price and period Decide surcharge based on opinions of the unit price per kWh Procurement Price Calculation Committee METI Minister Operators of residential ・Certify facilities power generation (The government verifies the facilities’ capability to generate power stably and Opinions on purchase price and efficiently. Certification is revoked for period facilities no longer satisfying the requirements.) Procurement Price Government Calculation Committee 34

Purchase Categories, Prices and Periods Proposed by the Committee Chair Source Solar power Wind power Geothermal heat Small & medium hydroPurchase category ≥10 kW <10 kW ≥20 kW <20 kW ≥15,000 kW <15,000 ≥1,000 kW, ≥200 kW , <200 kW <30,000 kW <1,000 kW kW Construction 325/kW 466/kW 300/kW 1,250/kW 790/kW 1,230/kW 850/kW 800/kW 1,000/kW cost (in 1,000s)Cost Annual 10/kW 4.7/kW 6.0/kW - 33/kW 48/kW 9.5/kW 69/kW 75/kW operation & maintenance cost (in 1,000s) IRR 6% before 3.2% before 8% before 1.8% 13% before tax (*2) 7% before 7% before tax tax tax (*1) tax before tax tax Purchase price Incl. 42 42.00 23.10 57.75 27.30 42.00 25.20 30.45 35.7０ per kWh tax (*3) (*1) Excl. 40 42 22 55 26 40 24 29 34 tax Purchase period 20 yr. 10 yr. 20 yr. 20 yr. 15 yr. 15 yr. 20 yr. (*1) Residential solar power generation In solar power generation, although the purchase price for <10 kW may seem equal to that for ≥10 kW, the actual price for residential power generation is 48 when a subsidy of 35,000 per kW (FY 2012) is taken into account. Since ordinary consumers are not obliged to pay consumption tax on electricity they sell, their prices including tax are equal to those excluding tax. (*2) IRR of geothermal power generation The IRR set for geothermal power generation (13%) is higher than those for other energy sources because site development, including earth surface surveys and exploration well drilling, costs about 4.6 billion per project and because the rate of successful commercial operation is low (about 7%). (*3) Handling of the consumption tax Tax-exclusive pricing is proposed regarding the consumption tax, assuming the possibility that the consumption tax rate may be changed in the future. However, with regards to the case of purchasing excess electricity generated from solar power (a majority of which is generated by ordinary consumers) the existing consumption tax should be applied. 35

Purchase Categories, Prices and Periods Proposed by the Committee Chair Source Biomass Purchase category Gasification Gasificatio Solid fuel Solid fuel Solid fuel Solid fuel Solid fuel (sludge) n (livestock combustion (unused combustion combustion combustion combustion excreta) wood) (general wood) (municipal (sludge) (recycled wood) waste) Construction cost 3,920/kW 410/kW 410/kW 310/kW 350/kW (in 1,000s)Cost Annual operation & maintenance cost 184/kW 27/kW 27/kW 22/kW 27/kW (in 1,000s) IRR 1% before tax 8% before tax 4% before tax 4% before tax 4% before tax [Biomass from [Unused wood] [General [Biomass from wastes [Recycled Cat. methane fermentation wood (incl. palm (other than wood)] wood] gasification] shell)] Purchase price Incl. 40.95 33.60 25.20 17.85 13.65 per kWh tax Excl. 39 32 24 17 13 tax Purchase period 20 yr. 36

Promoting the Development of Innovative Photovoltaic Technology ○Starting with the Sunshine Program in 1974, Japan has been leading the global solar cell market. However, China, Germany and the U.S. have made huge strides in recent years. ○Japan needs to accelerate the improvement of power generation efficiency and significant cost reductions by conducting R&D of innovative technologies for new types of high-efficiency, low-price solar cells (thin-film type, dye- sensitized type, quantum dot type, etc.), in which Japan has advanced technology. Market share by photovoltaic module  Future technology development manufacturers (2009) First Solar Suntech Power 260/kWh (U.S., (China) 6.6% Germany, Malaysia) 9.5% CIS (chemical Polycrystalline Sharp compounds) (Japan) silicon Development of innovative Other 5.6% Dye sensitized solar cell technology 35.9% 49/kWh Systems with no burden on the grid From standalone to integrated 2009 global Q-Cells (Germany, Thin-film silicon systems Quantum dot structure production Malaysia) 5.0% 10,660 MW Systems with storage batteries Power generation Emergence of solar cells using new Yingli Green Commercialization of thin materials (dye, etc.) and new film products Energy (China) structure (quantum nano-structure) (silicon/chemical instead of silicon or chemical 4.9% compounds) in addition to 24/kWh Solar fun compounds bulk crystalline silicon (China) 2.1% JA Solar (China) 4.8% Storage battery costs 14/kWhE-TON (Taiwan 2.1% reduced by technological 7/kWh innovation Kyocera (Japan) 3.8% SANYO Sun Power Electric Canadian Solar Motech Gintech (Philippines Conversion efficiency: 10-15% Over 40% (Japan) (China) 3.1% 2.4% (Taiwan) (Taiwan) [U.S.]) 3.7% Trina Solar (China) 3.4% 3.5% 3.7% Source: Prepared by METI based on the “Report by the Review Committee on Source: IEA “Trends In Photovoltaic Applications – Survey report of selected IEA countries the PV Roadmap Toward 2030 (PV2030),” issued by NEDO in June 2004. between 1992 and 2008” 37

Increasing the Installation of Offshore Wind Power Generation Installed capacity of offshore wind power generation, by country○The development cost of onshore wind power generation in Japan (as of June 20, 2010) may increase gradually because facilities are installed at locations with favorable conditions first and because they face noise and Installed capacity (MW) landscape problems.○Japan’s offshore wind power generation has a large potential (sea Installed capacity (MW) area) if conditions - which are less favorable than in Europe (e.g. fewer large shallow water areas, impact of typhoons and sea currents) - are overcome with new technologies.○Japan should promote development with an eye toward plant export and technology transfer to Southeast Asian countries, where U.K. Denmark Netherlands Sweden China Germany Finland Belgium Ireland Spain Norway meteorological conditions are similar to Japan’s. Source: Prepared based on “Wind Service Holland” (http://home.kpn.nl/windsh/wsh/html). Effort toward innovative technologies ○Development of floating technologies (lightweight, strong materials/structures for the floating body) in order to operate offshore wind power generation in deep-sea areas ○Development of high-strength foundations (base) resistant to strong sea currents ○Development of highly durable components (bearings, etc.) to cope with the difficulty of offshore repair work Coast of Kitakyushu, Fukuoka Coast of Goto, Coast of Kamisu, Windmill Nagasaki Ibaraki Wind observation tower Coast of Boso Peninsula, Chiba Coast of Miura, Wave observation unit Kanagawa Coast of Ichikikushikino, Kagoshima Conceptual image of experimental study on the wind observation and power generation system 6 sea areas subjected to feasibility study (detailed FS indicated in blue) (Courtesy of Tokyo Electric Power Company, Inc., the University of Tokyo, and Kajima Corp.) 38

Increasing Needs for a Smart Community To install renewable energies in large amounts, a “smart grid” is necessary in order to manage the supply-demand balance in response to constant fluctuations of renewable energies by means of energy creation, conservation and storage. Since the Great East Japan Earthquake, the need for a decentralized, rather than centralized, energy network based on distributed power sources has become pronounced. With the goal of developing technologies for a “smart community” that implements these concepts, field trials are underway in Yokohama, Toyota, Keihanna Science City, and Kitakyushu to establish EMS and power storage technologies. Keihanna Heavy dependence on the grid Yokohama City (centrally controlled) Kanazawa <Participants> district <Participants> Kyoto Prefecture, KEPCO, Osaka Gas, Omron, Mitsubishi Yokohama City, Toshiba, Panasonic, Hitachi, Heavy Industries, Mitsubishi Electric, Mitsubishi Motors, etc. Meidensha, Nissan, Tokyo Gas, TEPCO, etc.• Smart meters have been installed in a new housing estate • Conducting technical demonstration of a regional energy consisting of about 900 households to apply dynamic pricing and Minato management system in a large area (Minato Mirai, Kohoku New Kohoku New Mirai district demonstrate changes in demand among residents (demand Town district Town and Kanazawa districts) inhabited by 4,000 households. response demonstration). • Introduced dynamic pricing based on the smart meter and the• The project provides families with energy consulting services HEMS. (through ESCO) and studies commercialization of healthcare • Installed a large-capacity lithium-ion battery (1 MW) in the and retail services by means of in-home terminals to visualize Housing Wide urban substation for virtual integration with residential storage batteries to energy consumption. achieve control as a single storage battery. estate type area type Control of the single sector (residential) Integrated control of multiple sectors Toyota City Kitakyushu City Independent Major provincial house type city type <Participants> (Participants) Kitakyushu City, Fuji Electric Systems, Toyota City, Toyota Motor, Chubu Electric Power, Denso, IBM Japan, Nippon Steel, NTT West, etc. Sharp, Fujitsu, Dream Incubator, etc. • This demonstration project started in April this year to install• Operated by Toyota City, Toyota Motor, Chubu Electric Power, smart meters in 230 Denso, Sharp, Fujitsu, Dream Incubator, etc. households and 50 offices Establishment of a regional• Installed HEMS in 67 houses (27 occupied as of April 2012) to in the area receiving power electricity saving station that totally manages area-wide perform a demand response demonstration (changes in the from Nippon Steel under energy residents’ demand by dynamic pricing) and demonstrate special contract and to change automatic home appliance control and V2H. the electricity pricing scheme• Implementing demand-side management of the transport Small dependence in real time in accordance with sector in collaboration with public transport systems and a one- the supply-demand balance. mile mobility project. on the grid (distributed control) 39

Consolidating the Distributed Energy System with Hydrogen Infrastructure For example, operators of solar power generation, which depends on weather, can reduce dependence on grid power by using fuel cells as well, which can generate power on rainy or cloudy days. The distributed energy system will become a more reliable energy infrastructure when combined with fuel cells, along with solar power generation and storage batteries. Commercial fuel cell (100 kW class) Hospital House Factory Smart community (steelworks, chemical factory, etc.) Hydrogen as a Residential fuel cells by-product (Ene Farm) Natural gas supply lines (existing) Oil factory Hydrogen pipelines Commercial facilities (future) Hydrogen station Apartments Hydrogen Fuel cell-gas turbine Factory (steelworks, chemicalcombined power generation system factory, etc.) (250 kW class) Hydrogen filling <under development> Fuel cell vehicles Residential fuel cells (FCV) (Ene Farm) <to be launched in 2015> Commercial fuel cell-gas turbine Highway shuttle bus Conceptual image of combined power generation system Fuel cell scooter <under field trial> a fuel cell train Mobile/portable fuel cell <copied from JR East website> (1.20 million kW class) <under field trial> <copied from JEMA website> <development starting in FY 2012> 40

Accelerating the Introduction of Smart Meters and Flexible Price Plans ○The government has been active in introducing and expanding flexible price plans for peak shaving/shifting (applicable to unregulated fees first), even before the installation of smart meters. ○The target for the installation of smart meters, as outlined in the Basic Energy Plan (installation in every household in the early 2020s, in principle), will be met ahead of schedule. <Installation of smart meters> Near term (this winter) (this summer) Install smart meters for 2020voltageHigh Install smart meters for Install smart meters for 80% of total demand in all large customers all small customers the next 5 years Meet the Basic EnergyLowvoltage Plan target ahead of 」 Field trials of meter communications Creation of roadmap for installation Full-scale installation of smart meters schedule <Peak-hour electricity saving effects of pricing measures on households> (1)Time-of-day fees (fees doubled during peak hours) Power consumption reduction effect: -13.1% ■ (2) Emergency peak-hour surcharge (fees tripled during peak hours on a day with a temperature at 33 degrees C or higher) Power consumption reduction effect: -15.6% × (3) Visualizing power consumption Source: FY 2010 project to demonstrate the effects of a large-scale installation of smart meters. 41

5. Energy Resource Development 42

Exploration and Development by International Oil Majors Arctic Ocean development Shale gas Arctic Ocean development Shale gas Land: Coalbed methane Sea: Development in the ultra-deep oceanDevelopment in the ultra-deep ocean Mining property acquisition in 2008-2009 43

Major Coal Trading Across the World (estimates for 2009) Other parts of Europe Russia Poland Canada Kazakhstan China European OECD countries United States Japan Other parts of Asia NorthAmerica Colombia Africa & Middle East Indonesia South America Australia South Africa 44

Methane Hydrate Distribution Latest BSR distribution map (2009) BSR area = approx. 122,000 km2 BSR (accumulations estimated by detailed surveys) approx. 5,000 km2 BSR (characteristics suggesting accumulations found in some parts of the sea area) approx 61,000 km2 BSR (no characteristics suggesting accumulations) approx. 20,000 km 2 BSR (little survey data available) approx. 36,000 km 2* The BSR is an abbreviation for the bottom simulating reflector, which is observed in seismic exploration. It is used as an indicator of the presence of methane hydrate. 45

6. Future Energy Policy of Japan 46

Direction of Japan‟s Desirable Energy MixIn the wake of the great earthquake disaster and the nuclear accident, Japanfaces the need to radically review its policy for energy structure, which aims toincrease its energy dependence on nuclear power to more than half by 2030.<Basic direction of review>1. Fundamentally enhancing energy and electricity conservation measures2. Accelerating the development and use of renewable energies to the maximum degree3. Promoting the clean use of fossil fuels (shifting to natural gas, etc.)4. Reducing dependence on nuclear power generation wherever possible 47

Outline of the “Major Discussion Points” Published by the Fundamental Issues Subcommittee of the Advisory Committee for Natural Resources and Energy (released on December 20, 2011) The report is a summary of the general direction of the discussions held by the subcommittee to date and is considered as the starting point for a full-fledged debate.1. Perspectives required in rethinking the Basic Energy Plan i. Sustainable energy policy that earns the public’s trust ii. Energy policy that emphasizes the “demand side” iii. Energy policy that emphasizes “consumers” and “ordinary citizens” as well as “regional communities” iv. Energy policy that supports national strength while making international contributions v. Energy policy that utilizes diverse power and energy sources2. The desired energy mix and direction of energy policy reform(1) Desired energy mix (2) Direction of energy policy reformFurther discussion will be held on the following basic i. Realizing the world’s most advanced energy-savingdirections: society: reform of the demand structure i. Fundamental reinforcement of energy and electricity ii. Realizing a distributed next-generation energy system: conservation measures reform of the supply structure ii. Accelerated development and use of renewable * Regarding the power system reform, two energies to the maximum degree possible directions are mentioned: fundamental review (e.g. iii. Clean use of fossil fuels (e.g. shift to natural gas) liberalization, separation of generation and iv. Reduced dependence on nuclear power wherever transmission) and more reserved opinions on the possible reform. • Regarding nuclear power generation, two directions are iii. Importance of technical innovation mentioned: “withdrawing from nuclear energy as soon as possible” and “maintaining a certain proportion of nuclear power.”3. Next StepsThe subcommittee will hold intensive discussions on specific scenarios for individual energy sources and present desiredenergy mix options around this spring, with the aim of reflecting the results in a new Basic Energy Plan to be completed aroundthis summer. 48

Quantitative Energy Mix Scenarios Under Discussion Committee for Natural Resources and Energy The government has identified five potential energy mix scenarios for 2030: These options have been discussed in consideration of the results of an economic impact analysis in order to prepare a draft of official scenarios.The real growth rates are based on conservative cases (note) (approx. 1.1% in the 2010s, approx. 0.8% in the 2020s).(Note: Conservative cases refer to a conservative economic outlook compiled in accordance with the decision shown in “Fiscal Management Policy” [Cabinetdecision in June 2010]: “The roadmap for fiscal consolidation targets should in principle be predicated on a conservative economic outlook.”) Energy-related Thermal Cogeneration/ CO2 emissions Electricity fees Nuclear power Renewable Energy saving (Electricity-related [basically power self- (power saving) CO2 emissions) compared with generation energy generation generation [compared with *1 *1 2010 level] 1990 level] *1 1 -16% +78% 0% 35% 50% 15% (+5%) to +130% (approx.) 2 [Compared with -20% +64% 15% 30% 40% 15% 2010 level] (-8%) to +101% (approx.) Energy saved by 3 approx. 20% -23% +66% 20-25% 25-30% 35% 15% (-15%) to +94% (approx.) (Electricity Reference saved by approx. -28% +53% case 35% 25% 25% 15% 10%) (-33%) to +76% (approx.) Realizing a socially optimal configuration for electrical power according 4 to the market choice of consumers under a system that places the burden - - of the social cost on providers (as well as consumers).Present plan -31%(established in 45% 20% 23% 12% - FY 2010) (-27%) +6% FY 2010 26% 11% 57% 6% - (+25%) *1: Energy-related CO2 emissions, electricity-related CO2 emissions, and electricity fees are preliminary figures (and still under detailed examination). 49

Thank you for your listening! 50

Koji Nakui – Agency for Natural Resources and Energy – Role of CCS and the future direction of energy policy in Japan

by Global CCS Institute on Jun 27, 2012

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