METI Influence on the Direction of Japan’s Energy Sector

In today’s post, we will discuss perhaps the biggest driver of the direction of Japan’s energy industry—the Ministry of Economy, Trade and Industry (METI)—and why it’s so important to keep an eye on what it is up to.  

The Dual Role of METI

METI is the home of the policy planning divisions and regulatory agencies which oversee Japan’s energy sector, so the importance of METI’s activities may seem self-evident. However, today we’d like to go a level deeper and discuss some more fundamental aspects of the role of ministerial bureaucracies in the governance of Japan.

As we mentioned in one of our earlier posts, following the extended power outages during the 2019 typhoon season, a METI expert committee recommended regulatory changes intended to lead to the proliferation of highly resilient microgrids throughout the Japanese electricity supply system.  The thing worth noting, though, is METI did not only recommend the changes, but also wrote the draft legislation which is on the agenda of the Japanese National Diet for 2020.

This point bears emphasis: a government ministry created a draft of the legislation under which it wishes its own activities to be governed. 

For those accustomed to the Western democratic legislative model, this might be a bit jaw-dropping. After all, in that model, the overwhelming majority of draft legislation originates with the legislators and their staff (often, needless to say, with much input from a variety of external lobbying organizations). In Japan, though, this has long been a fact of life.  

Now, let’s take a closer look at some of the key dynamics behind this phenomenon, both at a general level as well as in relation to the energy industry.  

#1: Short Tenures and the Power of Senior Career Bureaucrats

First of all, the tenures of ministers appointed to head the Japanese government’s ministries tend to be very short.

There are a number of reasons for this—no confidence votes and snap elections leading to the fall of entire administrations, cabinet reshuffles within an administration to give the public a sense of a change of direction, and resignations due to scandals.

A 2014 study found that the average ministerial tenure is just 10 months.

More important for our discussion than the causes of the high ministerial turnover is the result:   senior career bureaucrats are able to carve out a space in which they can decide the direction of ministry policy with minimal input by politically appointed ministers representing different parliamentary factions.

This tendency has changed under the Abe administration. Some would even argue that it has changed to the point that only sycophants are rising to the top of the bureaucracies from within, giving Abe outsized influence over most areas of ministerial policy.

However, this doesn’t change the fact that bureaucrats who rise to the top of their respective ministries also continue to command outsize influence. Even if that influence is employed in service of Abe’s policy aims, it still means that a large part of the legislation is being generated by the ministries, instead of through an organic parliamentary process.  

#2: METI’s Influence on Post-Fukushima Energy Policy

In May 2012, the Japanese government, through the Nuclear Damage Compensation and Decommissioning Facilitation Corporation, injected cash into TEPCO to prevent it from collapsing after the Fukushima accident in exchange for a controlling stake.

Since then, METI has used this additional leverage over the electric power industry to push through important changes. Among others, those have included:

  • A feed-in-tariff system which has stimulated significant growth in renewable generation 
  • Market deregulation which ended the incumbent utilities’ monopolies on the sale of electricity within their respective grid zones

METI has been the source of the legislation, the interpreter and translator of the intent of the legislation into detailed regulation, and has recently put the new legislation mentioned above on the Diet’s agenda to further adjust the trajectory of the energy sector.  

#3:  Pending Energy Policy Changes

There are now numerous pending energy policy changes that have been spearheaded by METI. The most important of those include amendments to three existing laws:

  • Changes to the Electricity Business Act to make the electricity supply system more resilient in the face of natural disasters
  • Changes to the Renewable Energy Supply Act to shift away from the feed-in-tariff system towards a feed-in-premium auction system and to promote greater economic self-sustainability in the development of renewable generation
  • Allocation of emergency LNG supply responsibilities to the Japan Oil, Gas and Metals National Corporation (JOGMEC) which can be exercised at the discretion of the Minister of Economy, Trade and Industry

Stay Tuned!

We plan to provide detailed coverage and analysis of the pending policy changes as we watch how they play out in the weeks and months ahead.

Separately, we will also be releasing the first of several new services we have in the works to help you keep track of movements that indicate the direction in which the Japanese energy sector will be moving.

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