Fast on the heels of the historic international climate agreement reached in Paris this past December, Japan last month initiated an important domestic power market reform that could help get the country back on track to meet or beat its greenhouse gas emission reduction target. Electricity market deregulation opens up significant potential for Japan to be a leader in developing an innovative 21st century electricity sector that is critical to achieving the clean energy and climate goals it has committed itself to in the Paris Agreement. And it represents an opportunity to become a new pillar for U.S.-Japan cooperation in the energy and climate space.

But this only holds true if Japan is mindful of the climate implications of its market reform; if it is not careful, Japan could make the mountain it needs to climb to meet its international climate change obligations much taller — or even insurmountable.

What will deregulating the country’s retail electricity market do? It will open the door for competition, allowing households to shop around for electricity from multiple companies, and choose the option that is cheapest or otherwise best meets their needs — much like with cellphones or internet providers. Already, the prospect of deregulation has caused one major utility to cut prices in order to retain customers. In this way, Japan aims to bring new companies into the power sector and foster competition to lower prices; but it also risks driving massive investment into new fossil fuel production. Such an outcome would undermine Japan’s efforts to combat climate change and leave Japanese companies paying off long-term investments in new fossil fuel power plants even as the United States and countries around the world are working hard to switch to cleaner sources of energy.

Although Japan has been slowly deregulating its electricity sector since 1995, the government only established a Policy on Electricity System Reform in 2013 to deregulate the country’s retail electricity sector and break up utility monopolies by 2020. These reforms were enacted in an attempt to drive down prices and introduce market innovations to an industry monopolized by 10 major electricity companies. This dynamic is similar to the United Kingdom, where the historically entrenched “Big Six” energy suppliers serve 90% of Britain’s energy customers — but have seen three million customers switch to smaller independent energy suppliers in recent years. In addition to offering customers new choices for their electricity providers, the move holds the potential to reverse Japan’s rising greenhouse gas emissions by spurring new investment in clean energy and energy efficiency.

Continue reading at Nikkei…

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