Bloomberg suggests that a decision by Japan to abandon nuclear energy will lead to another decade of lost growth and deeper economic and energy problems.   Two decades of government spending in a failed attempt to revive growth following the bursting of the asset- price bubble in 1990 has given Japan the distinction of having the world’s highest level of public debt.  Now it looks like the future could be more of the same.

Japan faces a third “lost decade” of economic growth as rising energy costs resulting from its shift away from nuclear power add to a fuel bill that already accounts for more than a quarter of its imports.

Prime Minister Naoto Kan’s effort to reduce reliance on nuclear energy would require the equivalent of 470 million barrels of oil a year, swelling the 17 trillion yen ($222 billion) annual cost of fuel imports and further burdening Japan’s $5.5 trillion economy, former Saudi Arabian Oil Co. manager Osamu Fujisawa said.

“Growth will already be difficult with persistent deflation, an aging and shrinking population and deficits,” said Fujisawa, now an independent energy economist in Tokyo. “Rushing Kan’s vision under those conditions would spell chaos for the economy.”

Meanwhile, China‘s rapid growth over the past 20 years has driven up world oil prices and increased Japan’s energy costs. Japan’s manufacturing export revenue has been unable to offset  the need to pay more for imported energy.  In 2009 Japan imported 80% of its energy requirements.

Closing the nuclear plants is only going to make Japan’s electricity more expensive.

…producing power from gas and oil is more expensive than nuclear, according to government estimates. It takes 5.3 yen to produce one kilowatt hour of electricity from atomic power, compared with 6.2 yen for LNG and 10.7 yen for oil.

Some predict that the days of a manufacturing economy based on heavy use of electricity is over.  Says Masaaki Kanno, chief economist at JP Morgan Chase & Co.: “Manufacturing that relies on heavy power consumption is over, and the country’s economic structure needs to fundamentally change so that it supports industries that actually save electricity.”

In the short to medium term, however, higher electricity bills and concerns over power shortages could lead Japanese companies to move factories offshore.

See our earlier posts on Japan here.


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