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Japan's Proposed Pivot Back To Nuclear Energy Is Positive for Energy Security and Decarbonization

Japan's energy policy is undergoing a shift in response to the sharp increase in global energy prices over past year. Following the Russian invasion of Ukraine, all G7 countries have committed to reduce their reliance on Russian energy by phasing out or banning imports of Russian sourced fuels. At present, Japan imports 90% of its energy requirements, with imports from Russia accounting for 10.2% of its coal imports, 8.7% of LNG, and 3.7% of petroleum gas.

Japan was once a top producer and consumer of nuclear energy, but the nuclear share of Japan’s energy mix declined after the Fukushima nuclear accident in 2011 with natural gas and coal imports making up the shortfall. In an effort to diversify energy sources and enhance energy security, Prime Minister Kishida announced in August 2022 that Japan would restart idle nuclear plants and build new reactors with regulation ensuring higher safety standards. This move aligns with the government's energy transition and decarbonization plans. This commentary examines Japan's current energy mix and climate strategy, including a possible return to nuclear energy. In DBRS Morningstar's view, the shift back to nuclear bodes well for Japan’s energy security, and will likely be supportive of its A (high) sovereign credit rating.

Key Highlights

-- Japan is the fifth-largest energy consumer in the world, however domestic energy resources account for less than 10% of its total energy use.

-- The rise in global energy prices could accelerate the resumption of Japan’s nuclear energy sources whose share in total energy dropped from 13% to 3% of total energy following the Fukushima accident.

-- The shift back to nuclear bodes well for Japan’s energy security, trade balance and in helping it meet its climate goals.

“The sharp increase in global energy prices is prompting a shift in Japan's energy policy” says Rohini Malkani, Senior Vice President of the Sovereign Group at DBRS Morningstar. “The proposed pivot back to nuclear bodes well for Japan’s energy security and aligns with the government's green transition and decarbonization plans.”