Energy efficiency and energy policy in Japan 1973 to 1991

Abstract

This thesis explains the mechanisms behind the dechne in aggregate energy intensity in Japan between 1973, the year of the first oil shock, and 1991, the first major change in the targets of Japanese energy policy after 1973. The study decomposes and quantifies the importance of structural change and technological change at three levels of aggregation: across the whole economy (between economic sectors); across the manufacturing sector (between industries); and within industries. The effectiveness of govemment energy policies in reducing energy consumption is considered. Prospects for future targets for energy intensity are assessed in the light of the analysis of changes in the 1973-1991 period, changes in location of energy demand growth in the Japanese economy and a period of low world oil prices. Aggregate energy intensity, the ratio of total energy consumed to total output, dechned in Japan by some 37 per cent between 1973 and 1991, more than in any other industrialised country. Structural change in the Japanese economy in the period 1973- 1991 limits the usefulness of econometric modelhng of energy demand in understanding the dechne in aggregate energy intensity. The study develops and applies more suitable methodologies which disaggregate the decline in aggregate energy intensity to identify the periods and sectors accounting for the largest shares of aggregate change. This study develops an index for energy intensity based on the Divisia index, which shows that most of the change in aggregate energy intensity was attributable to the manufacturing sector, and that within the manufacturing sector most change was attributable to four energy-intensive industries: iron and steel; ceramics and cement; pulp and paper; and non-ferrous metals . The method of decomposition by differencing is apphed to energy intensity data to quantify the shares of aggregate change attributable due to structural change and technological advances. Almost 90 per cent of the decline in aggregate energy intensity took place between 1973 and 1985, and most of this was due to technological change raising the energy efficiency of key industries in the manufacturing sector. Technological change was supplemented by structural change that saw output shares of the energy-intensive industries fall. Combination of input-output techniques with these approaches enables incorporation of changes in indirect energy intensities as well as direct energy intensities over the 1980-1990 period. The results show that most change in total energy intensities was due to structural change, with the changing mix of inputs the next most important factor, followed by changes in direct energy intensity. Detailed examination of four energy-intensive industries shows that energysaving technologies diffused rapidly in the 1970s and early 1980s. In the late 1980s, however, changes in the output mix favouring more highly processed, energyintensive outputs in the steel industry in particular have arrested the fall in industrial energy intensity. While energy intensities in the manufacturing sector generally stabilised in the late 1980s, energy consumption and intensity levels in the tertiary sectors continued to rise. Household demand for electricity in particular shows rapid growth, and electricity generation will have an increasingly important role in determining aggregate energy intensity as electricity consumption continues to rise. Japan has had a broad range of policies to reduce energy intensity since the first oil shock. These policies supported reduction of energy intensity while crude oil prices rose to their peak in the early 1980s. With crude oil prices falling these policies were not particularly effective in delivering continued progress towards long-term objectives of less reliance on oil and greater energy efficiency, although there was no significant reversal of progress achieved earlier. In a climate of low crude oil prices, which are expected to remain low for some time, Japan's rate of dechne in energy intensity has slowed considerably at all levels. With reduced energy use a fundamental requirement of Japan's strategy to reduce its emissions of greenhouse gases, it is unlikely that Japan will meet the goals agreed under the "Toronto Target." Show more