JAPAN S ENERGY POLICY AND JAPAN-RUSSIA ENERGY COOPERATION

JAPAN S ENERGY POLICY AND JAPAN-RUSSIA ENERGY COOPERATION November 07 Kazushige Tanaka Director, International Affairs Division Trade and Industry (METI) Trade and Industry Table of Contents. Japan s Energy Situation. Long Term Outlook 3. Policy Review 4. Japan-Russia Energy Cooperation

Trade and Industry. Japan s Energy Situation Japan s Energy Supply Structure Japan s Primary Energy Source 6%* 4% 0% 4% 6% 40 % FY * Renewables etc. consists of solar power (.5%), wind power (0.%), geothermal heat (0.%), and biomass (.), effective recovery use of wasted energy(.%). Source: Prepared based on Comprehensive Energy Statistics 06 issued by the. 3

Stable supply: Self-sufficiency Significantly lower than before the earthquake (9. in 00). Second lowest in 34 OECD countries. Aim to improve to about 5%, higher than before the earthquake *IEA regards nuclear power as domestic energy and includes it in primary energy self-sufficiency. The Strategic Energy Plan of Japan regards nuclear power as semi-domestic energy. st Norway Primary Energy Self-Sufficiency Rate of OEDC Countries (04) Oil Natural Gas Hydro-Power nd Australia Oil Natural Gas 3rd Canada 7th U.S.A. 4thU.K. 5th France th Germany 6th Spain 3thKorea 33th Japan 34th Luxembourg Oil Natural Gas Oil Natural Gas Oil Nuclear Power Oil Nuclear Renewables Nuclear Nuclear Natural Gas Renewables Renewable Energy, etc. geothermal, solar etc. Nuclear Power Renewable Energy, etc. geothermal, solar etc. IEA includes nuclear power in the first primary energy self-sufficiency rate. 9.9. 6.3 (9th) (33th) (33th) 6. (33th) 6.0 (33th) Nuclear Power 5.0 5. 0.9 0.5 Hydro-Power.4.6.4.5.6 Natural Gas Oil Renewable Energy Effective Recovery Use of Wasted Energy 0.6 0..7.0 0.7 0. 3..3 0.7 0. 3..3 0.6 0. 3.4.5 0.6 0. 3.7.5 Natural Renewable Energy 0.7 0. 0..0. 4 Trend in Domestic Power Generation Ratio The nuclear power ratio in domestic power generation has decreased after the Great East Japan Earthquake due to the long-term shutdown of nuclear power plants. On the other hand, the thermal power ratio has increased to 0%. Currently, LNG thermal power alone accounts for nearly 40% of domestic power generation. 0 Hydro LNG Oil Nuclear Renewables (except Hydro) Power Generation 0TWh Ratio (%) 00 0 0 03 04 05 06 00 Nuclear 0 Oil % 9 % 0 % % % % % 3 3% 0 0% 4 5% % 6 7% % 60 40 Oil LNG LNG 7% 9 4 4% 3 3 7 % 40 4% 4 5% 4 43% 0 % 4 46% 0% 39 44% 6 7% 4 44% 0 Hydro Hydro 5 5% 9 4 5% 9 6 % % 30% 3% 3% 9 0% 9 3% % 5

Nuclear Power Plants in Japan Decommission 6 Trends in Final Energy Consumption in Japan Trends in Final Energy Consumption in Japan The final energy consumption of Japan has basically consistently increased, except for periods immediately following the two oil crises and the recent economic downturn. Until 05 the GDP continued increasing to about.6 times the 973 level and the consumption of energy for individual sectors significantly increased with the Consumer sector (Residential + Commercial) increasing to about. times, while the transportation sector increased to about.7 times, whereas the industrial sector decreased to about 0. times. 6% Real GDP 973 05 (JPY trillion) 3% 4% Transportation Final energy consumption 973 05.-times 97305.7-time % Residential 97305.9-time 66% 45% Commercial 97305.4-times Sources: Comprehensive Energy Statistics and Annual Report on National Accounts. Industry 97305 0.-times

Trade and Industry. Long-term Outlook Basic Principle for Drawing the Long-Term Energy Supply and Demand Outlook Through the process to simultaneously achieve specific policy targets related to safety, energy security, economic efficiency, and environment, which are basic viewpoints of the energy policy, Draw an outlook based on the basic guideline of the policies given in the Strategic Energy Plan, such as reducing dependence on nuclear power generation as much as possible by promoting thorough energy efficiency and conservation, introduction of renewable energy, and introduction of efficient thermal power plants <Policy target for 3E+S> Safety Safety is the top priority. Energy security Economic efficiency Environment Self-sufficiency: About 5%, higher than before the earthquake (about 0%) Electricity cost: To lower from the current level (9.7 trillion yen in FY03 to 9.5 trillion yen in FY030) Greenhouse gas emission reduction target: comparable to the targets of Europe and the US 9

Power Demand and Power Source Composition Power demand Economic growth.7%/year Thorough energy efficiency and conservation 96. billion kwh 7% lower than before the implementation of the energy conservation measures (Power transmission /distribution loss, etc.) Energy conservation + renewable energy account for 40%. (Total generated energy),7 billion kwh Energy conservation 7% Renewable energy 9 to 0% Power source composition (Total generated energy),065 billion kwh Renewable energy to 4% Geothermal.0 to.% Biomass 3.7 to 4.6% Wind power.7% Solar power 7.0% Nuclear power 7 to % Nuclear power 0 to % Hydroelectric. to 9.% Electric power 966.6 billion kwh Electric power 90. billion kwh LNG % LNG 7% 03 (Actual result) % Petroleum % 030 030 6% Petroleum 3% Base load ratio: 56% * Values are approximate. 0 Stable Supply, Self-Sufficiency Rate and Dependence on Fossil Fuels The self-sufficiency rate will be improved from approx. 6.0% to 4.3%. The dependence on fossil fuels (on the basis of power source composition) will be also reduced from approx. % in 03 to 56%. Self-sufficiency rate 973 ( st oil shock) 00 04 030 9. 6.0% 4.3% * The actual results are based on IEA Energy Balance. Dependence on fossil fuels (On the basis of power source composition) 76% 6% % 56%

Trade and Industry 3. Policy Review Major Stream of Energy Shifts First shift From domestic coal to petroleum (960s) Dramatic decline in self-sufficiency rates Energy self-sufficiency rates 960 970 5% 5% Second shift Two oil crises (970s) Price surge Electricity rates (970=00) 970 90 00 03 * Consumer price index Third shift Liberalization of markets and global warming (990s-) Kyoto Protocol (adopted in 997) CO reduction as a challenge Fourth shift Great East Japan Earthquake and Fukushima Daiichi NPS (F) accidents (0-) Most serious power supply crisis Values as premise of energy supply Renewable energy as a new energy option Fifth shift Paris Agreement 050 Reduction targets (030-) Sharing the ambitious goal with many participating countries Structural changes in technologies, industries and systems We are here 960-970 - 990-0 - 030 - Major changes in situations; forecasting future changes as an important perspective Decline of oil and renewable-energy prices Full-fledged development of storage batteries and the reality Presently, some countries are phasing out nuclear power, whereas many countries still make use of nuclear power. Full liberalization of markets and further popularization of renewable energy; degradation of investment environments No change seen in energy trends even en after the United States withdrawal from the Paris Agreement Ongoing expansion of global energy and electricity demand Rise of emerging companies; significant financial industries presence Growing geopolitical risks; strategies requested to address such risks 3

Strategic Energy Plan 04 and Paris Agreement Strategic Energy Plan 04 setting goals to be achieved by 030; progress made therein (as of FY06) [i] Scenario for cutting CO emissions (Target to be achieved by 030 44% as the zero-emission power source rate) From 0% in 03 to 7% in 06 (approx. renewable energy:5%; nuclear energy: %) [ii] Scenario for improving energy self-sufficiency rates (Target to be achieved by 030 4% as a self-sufficiency rate) From 6% in 03 to % in 06 [iii] Scenario for curbing costs (Target to be achieved by 030 cut electricity costs as soon as possible) Electricity rate hike by 30% after the occurrence of Great East Japan Earthquake in 0 (recently by 0% after this) (oil price, purchase cost of renewable energy, coal-fired energy as an alternative for nuclear energy ) Identifying issues standing in the way of realization 030 = Working with a focus on realization Paris Agreement Developed countries share very ambitious, high-level goals for decreasing greenhouse gas emissions by 050. Japan U.S. Canada Germany France (from 03) (from 005) (from 005) (from 990) (from 990) Down by Down by Down by Down by Down by 030 6% 6 -% 30% 40% 40% Down by Down by Down by Down by Down by 050 0% 0% 0% 0-95% 75% * As for Japan, no base year for the 050 target is determined yet. * As for the U.S., 05 target = decrease emissions by 6-% from 005 level. Common factors of participating countries - Technological innovations (nuclear energy, renewable energy, CCS, energy efficiency, etc.) - Contribution to related efforts overseas - Human resources development; accelerated investment Establish industrial structures and policies under which Japan can engage in technological innovation and investment as well as in contributions to related efforts overseas, as indispensable initiatives 050 = pursuing all possibilities Advisory Committee for Natural Round Table for Studying Energy Situations 4 Trade and Industry 4. Japan Russia Energy Cooperation 5

Promoting cooperation with Russia on energy The importance of cooperation between Japan and Russia From the viewpoints of Russia s potential for abundant natural resources, geographical proximity, and other advantages, the cooperation between Japan and Russia on energy is important for Japan to diversify its energy sources and ensure stable energy supply. In addition to the upstream oil and gas fields in which two countries have been traditionally working together, other types of cooperation are also making steady progress, including cooperation in the fields of energy conservation and renewable energy, such as wind power generation, and cooperation in the field of nuclear power, such as the decommissioning of the reactors at the Fukushima Daiichi Nuclear Power Station. Japan-Russia Energy Initiative Council To ensure steady progress in Japan-Russia cooperation, the "Japan-Russia Energy Initiative Council" was established in November 06 (chaired by Japan s Mr. Seko, Minister of Economy, Trade and Industry and Minister for Economic Cooperation with Russia, and chaired by Russia s Mr. Novak, Minister of Energy). Under the Council, three working groups were set up to study three fields of "hydro carbon," "energy conservation & renewable energy," and "nuclear power." Inviting participation from concerned private sector companies, these groups are driving this initiative by which public and private sectors are working in an integrated manner. (*The first council was held in November 06 in Moscow, the second in January 07 in Moscow, the third in April 07 in Tokyo, and the fourth in September 07 in Vladivostok.) Future cooperation In December 06, when Russian President Mr. Putin visited Japan, two countries signed 3 energy-related, public/private memoranda of cooperation and other outcome documents (0 when all fields are combined). Furthermore, when Prime Minister Mr. Abe visited Russia in April and September 07, Japan and Russia signed three (9 in total) and eight (56 in total) outcome documents, respectively. To substantiate the individual items of cooperation that two countries agreed, the Council and each working group are now taking necessary measures. Promoting cooperation with Russia on energy Three working groups under the Japan-Russia Energy Initiative Council Hydro carbon (oil, natural gas, and coal) Sophistication of upstream oil and gas, LNG projects, and the related plants; Construction and technological development of petrochemical plants; Cooperation toward the development and expansion of gas and LNG markets; Cooperation toward coal purchase. Energy conservation & renewable energy Promoting the introduction of wind power generation and cogeneration (local production, technical demonstration); Promoting technical exchanges to create opportunities for energy conservation analysis and projects. Nuclear power Nuclear power related activities in areas where cooperation between Japan and Russia makes sense, such as the decommissioning of the reactors at the Fukushima Daiichi Nuclear Power Station and the associated basic research, and other types of cooperative basic research. LNG plant Petrochemical plant Gas turbine Wind power generation