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Monday, September 07, 2009

Japan's New Government Plans to Expand Clean Energy Deployment Incentives

Originally posted at the Breakthrough Institute

Elected less than a week ago, the Democratic Party of Japan (DPJ) may be new to power but according to a recent Bloomberg piece, it has already acknowledged the urgency of the clean energy race. Centered on an aggressive target to reduce carbon emissions 25% by 2020 from 1990 levels and increasing the share of renewables to 10% of its energy mix by 2020, the DPJ has set forth a proposal to achieve those cuts that is on course to outdo its predecessor, the Liberal Democratic Party (LDP), in both promise and execution.

While many nations' emissions targets end up as nothing more than empty promises, the DPJ's proposal outlines plans that include direct investment in clean energy technology that could have a variety of positive impacts on Japan's clean energy sector and ultimately improve its ability to compete in the clean energy race.

With the intent to expand and improve upon the LDP's clean energy deployment initiatives and grow the share of renewables in its energy mix, the DPJ is offering increased subsidies for solar photovoltaics as well as planning to extend Japan's soon-to-be feed-in tariff system, to include all renewables, instead of just solar.

As of 2006, renewables made up 3.2% of Japan's total primary energy supply. The DPJ aims to increase that share to 10% by 2020: an ambitious goal that will require Japan to deploy 4,500 megawatts (MW) of solar capacity each year until 2020. Although the DPJ's policy proposal is not specific on how it will achieve this target, if a party policy paper released in April proposing 50% subsidies (increased from the 10% subsidies instated by the LDP) for residential solar photovoltaic (PV) installations is any indication, the DPJ plans to significantly expand direct investments in clean energy deployment initiated by the LDP.

Bloomberg reports that the DPJ also intends to build on the LDP's planned solar feed-in tariff, set to take effect November 1st, by extending it to all renewable energy technologies and by requiring utilities to buy all power generated by households and businesses. This policy measure would not only benefit the solar sector significantly, but could also lend support to wind-power developers. Wind capacity will need to increase 680 megawatts each year until 2020 if the DPJ wants to meet its emissions and renewables goals.

As a point of comparison, analysis shows that the proposed U.S. climate legislation recently passed by the House would only require 8-12% of electricity to come from renewables by 2025, if all exemptions and specifications written into the legislation are taken into account. Other than short-term incentives enacted by the economic stimulus (ARRA) and slightly longer-term tax credits set to expire in 2012 and 2016 for wind and solar, respectively, the U.S. has not backed up renewable energy deployment targets with strong investments in clean energy - yet.

In 2008, Japan produced 1,172 MW of solar cells, accounting for 17% of the global total while the United States produced only 375 MW, or 5%, and has lagged behind Japan, China, Taiwan and some European nations for years. If the DPJ rises to the challenges it has set and implements the policies it has proposed, its solar market is expected to see a flood of new investment, and it could reclaim global dominance in the solar energy.

In contrast to U.S. climate policy, which is currently proposing cap-and-trade as the preferred mechanism for reducing carbon emissions, Japan's imminent feed-in tariff system will invest directly in clean energy industries and spur private investment, as well. Eventually, Japan may instate a carbon tax on fossil fuels, a controversial policy measure that is still more straightforward than America's cap and trade program, which promises - at least for the next decade or two - to do little more than impose weak carbon limits while relying primarily on a dubious offsets market that could permit actual U.S. emissions to continue to rise in the years ahead.

After securing their electoral victory, the DPJ has been quick to state that their lofty emissions targets now hinge on China and India's willingness to submit to an international agreement in Copenhagen. In contrast, given the economic benefits of a robust and thriving clean technology sector, the DPJ's clean energy investment proposals are likely to be the centerpiece of the new Japanese government's energy policy, making the nation a formidable competitor in the clean energy race.

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