Basic Principles Towards a proposal defining Options for an Strategy for Energy and the Environment

December 21, 2011 The Energy and Environment Council

Basic Principles Contents Aiming to Propose Multiple Options for Strategy for Energy and the Environment

Introduction .................................................................................................................. 1 (1) Main points of Interim Compilation 1 (2) Start of Verification from a clean slate, and Status of Discussion 1 (3) Development of Basic Principles towards a proposal defining Options this Spring .. 2 1. Cost review 4 (1) New Approach to Cost review 4 (2) Thorough Verification of Costs of Nuclear Power Generation 5 (3) Review of Costs of Power Sources Other than Nuclear Power Generation 6 ((1) Thermal Power (2) Renewable Energy (3) Consumer-led Energy choice) (4) Main Points of results of Cost review 9 2. Points of issue in Strategy Formation 12 (1) Points of issue towards Development of a New "Strategic Energy Plan of Japan" 12 - Based on discussions by the Advisory Committee on Energy and Natural Resources (2) Points of issue related to Global Warming Countermeasures .................................. 14 - Based on discussions by the Central Environment Council 3. Basic Principles ......................................................................................................... 16 (1) Basic Stances for Proposing Options ....................................................................... 16 Reflecting on why we are conducting a "full review of policies from a clean slate", take all possible actions to ensure full management of nuclear power-related risks ............................................................................................................................... 17 Push ahead with policies which achieve the dual objectives of both energy security

and global warming countermeasures, towards reduced dependence on nuclear power generation, paying due attention to international contexts ...................................... 17 Achieve a new energy mix and take global warming domestic countermeasures by creating a new energy system in which customers and local communities can voluntarily select their energy options taking into account all aspects of the energy chain of creating, storing, and conserving energy. ........................................................... 18 (2) Basic Principles for Aiming to Propose Multiple Options Related to Nuclear Energy Policies, Energy Mix and Global Warming Domestic Countermeasures ........................ 19 (1) Basic principle for aiming to propose options related to nuclear energy policies Propose draft options on nuclear power policies under the principle of intensifying nuclear risk management efforts ............................................................................ 19 (2) Basic principle for aiming to propose options related to energy mix Propose various draft scenarios on energy mix under the principle of reducing dependence on nuclear energy by pioneering energy frontiers and implementing reforms to energy systems ..................................................................................... 19 (3) Basic principle for aiming to propose options related to global warming domestic countermeasures Propose draft options on global warming domestic countermeasures in the light of the way what Japan ought to be for the future and the contribution to reduce global emissions based on the ideal long-term stance to energy ...................................... 20 (3) Drawing up Green Growth Strategy that are Key to Revitalizing Japan Drawing up Green Growth Strategy as part of the strategy for energy and the environment ....................................................................................................................................... 20 Conclusion ..................................................................................................................... 22 Attachment Reference Cost review Committee Members ......................................................... 23 Progress after July 29 ............................................................................ 24

Acceleration of the Implementation of Energy Structure Reforms

Basic Principles Towards a proposal defining Multiple Options for an Strategy for Energy and the Environment December 21, 2011 The Energy and Environment Council Decision Introduction (1) Main points of Interim Compilation On July 29 this year, the Energy and Environment Council settled on an interim compilation of points of issue for the formulation of "Innovative Strategy for Energy and of strategies. The first philosophy outlines steps to achieve a new ideal energy mix. Three main principles have been presented: draw up scenario of reducing dependency on nuclear energy; Define a clear and strategic scenario which avoids energy shortfalls and price hikes; and Conduct a thorough review of nuclear power policies and pursue a new framework. The second philosophy outlines steps to achieve a new energy system. Three main principles have been presented: seek to realize a more distributed energy system; seek to make an international contribution as an advanced problem-solving nation; take a multifaceted approach cmbining short term and medium/long term steps to realize energy system reform. The third philosophy is for the formation of national consensus. Three main principles have been presented :Stimulate national discussion overcoming the simple dichotomy between nuclear proponents and opponents; Discuss the desirable strategy through verification of objective data ;Formulate innovative energy and environmental strategies while maintaining dialogue with a broad range of national people . (2) Start of Verification from a clean slate, and Status of Discussion The Energy and Environment Council, the Japan Atomic Energy Commission, the Advisory 1 Environment" (hereafter, "Interim Compilation"), and decided on three basic philosophy for the formulation

Committee on Energy and Natural Resources, and the Central Environment Council have started verification work to address the key issues based on this Interim Compilation. With the establishment of the National Policy Conference, the Energy and Environment Council became a subcommittee focused on addressing national policies that not only cover energy and environment strategies, but also global warming domestic countermeasures as part of strategies for revitalizing Japan. In the six months since the Interim Compilation was developed, the three basic philosophy put forward by the Energy and Environment Council, namely reducing dependency on nuclear energy, making the shift to distributed energy systems, and holding national discussions, are becoming a common ground of understanding based on which the strategies are to be developed from a clean slate. While this general direction is becoming a shared view, other vital points of issue are gradually becoming clear. Some points of issue include: how exactly will we reduce dependency on nuclear energy; how will we maintain a stable balance between balance and supply while we achieve an ideal energy mix reducing dependency on nuclear energy and realizing a shifting to a more distributed energy system; how can we achieve the shift to non-fossil energy resources required from the perspective of energy security and global warming countermeasures; how can we conceive leading the world in global warming countermeasures while reducing dependency on nuclear energy; and what efforts Japan can take now independently and proactively based on the discussions at COP17, in a seamless manner. (3) Development of Basic Principles towards a proposal of Options this Spring The Energy and Environment Council decided to make a comprehensive summary of the comprehensive overview of cost review and discussions held with associated agencies, and proposes a set of Basic Principles based on which options related to the Innovative Strategy for Energy and Environment this coming Spring. On the basis of these Basic Principles, the Energy and Environment Council will move forward, in cooperation with the Japan Atomic Energy Commission, Advisory Committee on Energy and Natural Resources, and the Central Environment Council, with a view to presenting options related to nuclear energy policy (including nuclear fuel cycle, fast breeder reactors), energy mix and global warming domestic countermeasures, this coming Spring. 2

The Energy and Environment Councils aims to present an overall view of the options available for this strategy around Spring. Clearly outlining the advantages and issues related to each option from the perspective of the economy, industry, lifestyle, global warming, energy security and other factors will lead to open and fruitful national discussions overcoming the simple dichotomy between nuclear power generation proponents and opponents, with Summer set as a guideline for announcing the overall strategy. In the remainder of this report, 1. outlines the results of cost review and their significance. This is followed by 2. which summarizes the views on developing strategies based on the state of examinations at each related agency, and finally 3. which outlines the Basic Principles for selecting energy sources. The basic stance taken for presenting these options will be outlined to finalize the Basic Principles for examining options related to nuclear energy policy, energy mix and global warming domestic countermeasures. Policies for energy shifts and energy system reforms aimed at revitalizing Japan, and Green Growth Strategy designed to resolve global issues will also be proposed.

1. Cost review The Energy and Environment Council established the "Cost review Committee (chaired by the Vice Minister of State for National Policy, 10 key figures (see Attachment) as members (hereafter, the "Committee"))" as an organization that encompasses numerous existing government agencies, on October 3 to start on cost review work on various power sources, including nuclear energy. The Committee held a total of eight public meetings, and released the Cost review Committee Report (hereafter, the "Cost review Report") on December 19. The Cost review Report aims to be used as a fundamental set of materials for presenting options when examining the future energy mix and other factors related to power sources. An outline of the key points is as follows. (1) New Approach to Cost review The estimate differ to the "Natural Resources and Energy Electricity Industry Committee Subcommittee to Study Costs and Other Issues Advisory Committee Report (hereafter, the "2004 Estimate")", which estimated the power generation costs of large-scale power sources such as nuclear power and thermal power, in that it includes power generation costs for new power sources such as renewable energy and cogeneration, as well as cost estimates related to energy efficiency measures. This allows the exploration of new possibilities for energy structural reform where new energy operators and energy users will play more active roles. The cost estimate also factors in so-called social costs, which cover future risk costs, CO2 costs and policy costs, to encompass factors for safety and peace-of-mind, and measures for environmental protection. Also factored into the estimate are cost predictions for 2030, which allows the impact of the effects of mass-production and the potential of technological innovations on renewable energy, and the effects of rising fuel costs and CO2 costs related to thermal power to be reflected. At this stage, the costs of the accident unfolding at the Fukushima Daiichi Nuclear Power Plant operated by Tokyo Electric Power Company remain unclear, and with some important assumption being made on the nuclear fuel cycle, technological innovations in the field of renewable energy and the effects of mass-production, the outlook for the future remains to a 4

certain extent fluid. With these aspects in mind, all the preconditions for estimates, calculation methods, aspects and figures that have not been determined at this stage, have been included within the Cost review Report so that each and every citizen can examine it carefully themselves. (2) Thorough Examinations of Nuclear Energy Power Generation Costs Nuclear energy power generation costs have increased 50% from 5.9 yen/kWh of the previous estimate to 8.9 yen/kWh or more (+ 3.0 yen/kWh or more). (1) The power generation cost in the 2004 Estimate was 5.9 yen/kWh, with the preconditions of an operating efficiency of 70%, and a nuclear fuel cycle where a portion of the nuclear fuel is returned for reprocessing and the remainder stored in temporary storage facilities before being reprocessed. (2) Construction costs increased +1.2 yen/kWh compared to the 2004 Estimate. (3) A difference in nuclear fuel cycle cost of 0.1 yen/kWh1 under the current model (half reprocessed, the remainder stored in temporary storage facilities before being reprocessed). (4) Costs for additional safety measures that were not included in the 2004 Estimate have been added. +0.2 yen/kWh. (5) Policy costs related to nuclear energy, including site subsidies, research and development, and other factors, that were excluded from the 2004 Estimate (FY2011 budget 318.3 billion yen) have been added. +1.1 yen/kWh. (6) Accident costs that were also excluded from the 2004 Estimate have been added. The amount of damage at the model plant has been estimated by nuclear energy operators using the 40-year operating life of nuclear power plants, and was determined to require at least +0.5 yen/kWh.
1

Discount rate of 3%, current model of 1.4 yen/kWh, direct disposal costs of 1.0 yen/kWh

and total reprocessing model of 2.0 yen/kWh. 5

 The expected damage costs are currently set at almost 6 trillion using figures that are clear at this stage. - This has been calculated from damage compensation costs and reactor decommissioning costs that have been calculated statistically from a macroscopic perspective in the TEPCO Management and Financial Investigation Commission Report, and associated policy costs. This refers to decommissioning costs of the TEPCO Fukushima Daiichi Nuclear Power Plant reactors 1 through 3 of approximately 1 trillion yen, and damage compensation costs of 4.5 trillion yen, as calculated in the TEPCO Management and Financial Investigation Commission Report. Further costs of 1.3 trillion yen are expected to be incurred in the 3rd year and 5th year. This total of 6.8 trillion yen is equivalent to 5 trillion yen when converted to one reactor at the model plant. If costs of almost 1 trillion yen related to nuclear energy restoration included in the amended FY2011 budget and the FY2012 initial budget are included, the total comes to almost 6 trillion yen. - This figure of almost 6 trillion yen has been used as the figure for the lower limit of costs. This means that the reactor decommissioning costs and contamination costs included here are only a provisional figure that fall within the range that can be estimated at this stage, and does not include compensation costs that factor in the impact on human life or health. Maintenance for temporary storage facilities due to disposal of contaminants, permanent disposal related costs and other costs have not been calculated. If these costs are considered as one type of insurance, operators still need to take the necessary steps toward accident risks to ensure that they are fully covered. - If these damage costs are carried over the 40-year operating life for nuclear power plants that nuclear energy operators in Japan assume, costs are 0.5 yen/kWh for estimated damages of almost 6 trillion yen, 1 yen/kWh fpr 10 trillion yen and 2 yen/kWh for 20 trillion yen, (7) If the rise in construction costs (+1.2 yen/kWh), additional safety measures (+0.2 yen/kWh), policy costs (+1.1 yen/kWh) and future risk costs (at least +0.5 yen/kWh) are added to the 2004 Estimate figure of 5.9 yen/kWh, the power generation cost of nuclear energy comes to 8.9 yen/kWh or more. (3) Cost review of Power Sources Other than Nuclear Energy Power generation costs other than nuclear energy are outlined as follows. 6

(1) Thermal Power Coal-fired thermal power taking into account CO2 costs = (almost 6 yen/kWh in the previous estimate including CO2 costs) 9.5 yen/kWh (2010), over 10 yen/kWh (2030) LNG used as base power resource = (over 6 yen/kWh in the previous estimate but with rising fuel costs) almost 11 yen/kWh (2010), around 11 yen/kWh (2030) Oil-fired thermal power used as a peak power source = (over 16 yen/kWh in the previous estimate (facility utilization ratio of 30%) but with rising fuel costs) almost 39 yen/kWh (facility utilization ratio of 10%) (2030) Oil-fired thermal power used as a medium power source = over 25 yen/kWh (facility utilization ratio of 50%) (2030) - The cost of coal-fired thermal power increases drastically with CO2 costs, and LNG thermal power and oil-fired thermal power with rising fuel costs. - When compared to the cost of nuclear energy that includes future risk costs and other costs, coal-fired thermal power (over 10 yen/kWh in 2030) and LNG thermal power (almost 11 yen/kWh in 2030) are still competitive with nuclear power (8.9 yen/kWh or more), even when factoring in rising fuel costs and CO2 costs. - Note than CO2 costs may fluctuate depending on policies or international standards, and costs may increase the longer measures are delayed. Fossil fuels also include a certain risk related to energy security that cannot be converted to costs.

(2) Renewable energy Onshore wind power, geothermal = (not included in the previous estimate depends on conditions) around 9 yen/kWh to the 17 yen/kWh level (2010 to 2030) - Onshore wind power and geothermal is around 9 yen/kWh and the 10 yen/kWh level if there are favorable site conditions, which is on par with nuclear energy. - On wind power, areas with favorable conditions are limited to certain locations, and improvements to power lines will be required if installation quantity is increased. Additional 7

investments will also be required for system stabilization measures throughout the entire power grid. - Offshore wind power has major untapped potential, and if technology advances, there is a major possibility of cost reductions beyond those listed in this estimate. Solar power = (not included in the previous estimate with effects of mass-production) 33 yen/kWh level to 38 yen/kWh level (2010) 9 yen/kWh level to 20 yen/kWh level (2030) - Major price reductions are expected with solar power as the effects of global mass-production are factored in, with costs expected to halve. When this happens, solar power will be more cost effective than oil-fired thermal power used as a peak power source (facility utilization ratio of 10%). - With large installation quantities, additional investments may be required in the future for system stabilization if improvements for stabilization, such as measures to limit voltage fluctuations at distribution level are required throughout the entire power grid. (3) Consumer-based energy selection Gas cogeneration = almost 11 yen/kWh including thermal value (2010) over 11 yen/kWh (2030) Energy saving = products such as LEDs are available that are economically feasible enough to pay for themselves with energy saving effects. - When thermal values are considered, gas cogeneration comes to 10.6 yen/kWh (2010) 11.5 yen/kWh (2030), which is competitive when considering the relationship with other large-scale power sources. - Fuel cells have only recently been commercialized, however come to 11.5 yen/kWh in the 2030 model plant when thermal values are considered, as major cost reductions are expected. Energy saving products, such as replacing incandescent bulbs with LED bulbs or installing high-efficiency air-conditioning and refrigerators can be a more effective option than focusing on power generation. - Energy saving has a high potential of making improvements at relatively low cost through functions such as visualization of energy consumption, development of pricing patterns 8

promoting energy efficiency, and the move to smart houses that are combined with IT. - Distributed power sources such as cogeneration and solar power, and the installation of energy saving products are advantageous to consumers as they do not have to pay for electricity charges for the amount of energy saved. (4) Key Points of Cost review Results This cost review factors in power generation cost (ensuring economic feasibility), CO2 costs of fossil fuels (and measures against global warming), and the social costs of nuclear energy (meeting demands for safety and security) to the extent possible, out of the four requirements for energy selection, namely economic, environmental, safety, and energy security. Accordingly, there is a limit to the extent that this cost review applies to energy security. These estimates have also been conducted taking into account numerous assumptions, which means there is an applicable range for each figure. Also note that the future risk costs for nuclear energy have been set at the lower limit of costs. With this in mind, the conclusions obtained from the results of this cost review are provisional and limited at best, but have been outlined as follows. [Nuclear energy] (1) Nuclear power generation possesses extensive social costs when taking into account the risks associated with it. [Energy mix] (2) If CO2 costs and rising fuel costs are factored in to coal and LNG, the power generation costs for these power sources becomes higher than they are now, however when compared to the costs of nuclear power generation and associated social costs, they have a competitive edge as a base power source. (3) Wind power and geothermal face issues related to site restrictions, and stability/transmission improvements to the power grid. However they may play a certain role if these issues can be resolved, and for locations with favorable conditions, power generation costs can be reduced to a level that are competitive with nuclear energy, coal-fired thermal power and other power sources.

(4) Issues such as measures for stabilization of the power grid and other factors related to the entire electrical system start to present themselves for solar power at large installation quantities, however cost reductions are expected with the effects of mass-production due to an expanding global market. This makes solar power cost competitive over oil-fired thermal power, and is expected to be used as a power source to improve the balance between supply and demand during peak times. (5) Energy saving and distributed power sources such as cogeneration have the same potential as large-scale intensive power sources. From the consumer's perspective, there are benefits to be gained in the form of savings in electricity charges. Small-scale hydroelectricity, biomass and other similar power sources are expected to contribute to the development of new energy systems that effectively utilize the resources available in certain regions. Distributed power sources will no doubt form part of a new energy mix developed through the decisions made by consumers and the region as a whole. (6) Regardless, any form of power source has its advantages and its disadvantages, and this estimate has uncovered some of the hidden costs and issues related to installation. Solutions to these issues are being examined in the form of new operators, increased uptake of new contributors such as consumers themselves, improved competitive capabilities and innovative technologies. Yet until long-term targets can be achieved by overcoming the majority of these issues, multiple scenarios which achieve such targets may be considered with a different combination of power sources to be utilized. To determine the best scenario to use for achieving long-term targets, the most optimum selection must be made from a range of perspectives. In addition to costs, this also includes possible installation quantity. [Energy systems] (7) When factoring in the results of cost review, this calls for reforms to the energy demand structure (developing an energy saving society), and reforms to the energy supply structure (greater utilization of distributed power sources, initiatives for promoting use of renewable energy and clean technologies for fossil fuels), as well as development of a new system which maintains pressure on power companies to keep costs down by continuously improving business operation efficiency through customer choice of energy and participation of new energy operators. Development of such a new energy system holds the key to a scenario that reduces dependency on nuclear energy. 10

[Relation with strategies to revitalize Japan] (8) This cost review has been conducted based on the existing technological framework. The overall state of this energy shift will change if development targets can be achieved for the key next generation energy systems, such as offshore wind power, new types of solar power cells, innovative storage cells and new methods for electricity supply and demand adjustments. Pursuing in parallel, strategies based on an assumption that this next-generation technology paradigm will be achieved will prove valuable when developing growth strategies for revitalizing Japan, and resolving issues present in Asia and around the world.

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2. Discussion Points for Developing Strategies In parallel with the cost review, the Advisory Committee on Energy and Natural Resources, Central Environment Council and Japan Atomic Energy Commission have started verification work for developing the Strategy for Energy and the Environment. The following is an outline of the points raised during discussions held by the Advisory Committee on Energy and Natural Resources and Central Environment Council. (1) Discussion Points for Development of New "Strategic Energy Plan of Japan" - Based on discussions by the Advisory Committee on Energy and Natural Resources The Advisory Committee on Energy and Natural Resources began studies on conducting reviews of the Strategic Energy Plan of Japan at the Fundamental Issues Subcommittee. A large range of opinions have been raised at discussions held until now, and a summary of these points were released on December 20 (Tue) outlining the overall direction of major points of discussion. Some people suggested that summarizing the points raise at the time was too early, however this summary is not intended to restrict the range of future discussions, but instead have been arranged as a starting point for triggering future discussions. The main points are as follows. Perspectives from which reviews of the Energy Basic Plan should be undertaken Future energy policies must place the highest emphasis on "ensuring the safety of citizens", while also focusing on "sustainable energy policies that give citizens peace of mind", "energy policies that emphasizes the 'demand side'", "energy policies focusing on 'consumers' and 'ordinary citizens' as well as 'regional communities'", "energy policies that support national strength while making an international contribution", and "energy policies that utilize diverse power and energy sources". Direction of the ideal energy mix Basically, the energy mix is something that should be realized as a result of user selection, and the governments role is to develop a social system that will make such a selection possible. However, energy has a deep connection with such public values, and immediately realizing a social system that appropriately incorporates these values is difficult. This makes it necessary to have a shared vision of the ideal energy mix with the public. 12

Noting that various opinions were expressed concerning basic direction.

specific methods and time frames,

the subcommittee intends to deepen discussion on this issue further along the following

- Fundamental reinforcement of energy and electricity conservation measures by considering reform of user behavior and social infrastructure; - Accelerated development and use of renewable energies to the maximum degree possible; - Effective utilization of fossil fuels (i.e., environmentally friendly use of fossil fuels), including a shift to natural gas, while giving maximum consideration to environmental burden; and - Reduced dependency on nuclear power wherever possible. When doing so, there have been wide-ranging opinions raised about how to reduce dependency on nuclear power and the medium to long-term importance of nuclear power, including "pulling away from nuclear energy as soon as possible" and "maintaining a certain proportion of nuclear power", questioning of whether it is wise for Japan to so easily completely abandon an energy option, and many other sometimes contradictory opinions. The subcommittee will move forward with constructive discussions that will give serious consideration to future of Japan. All energy sources have advantages and disadvantages. There are no sources that are perfect. Thus, considering the ideal energy mix and scenarios for achieving it will require comprehensive, quantitative, and time line-oriented study of the energy structure as a whole based on objective data. Moreover, when studying the power supply structure, it will be important to study the priority of each power source based on rigorous distinction of base, middle, and peak functions. Furthermore, given that the current situation is undergoing dramatic change as well as the existence of uncertainties concerning future technical advances, it will be necessary to envision a broad range of possibilities and conduct regular reviews. It should be noted that, when presenting the energy mix in terms of numerical figures, it will necessary to clarify the nature of these figures (e.g., as commitments, policy targets, nonbinding targets, assumptions, etc.). Direction of reforms to energy policy To overcome the vulnerabilities that were exposed after the recent disaster in Japan, and to 13

efficiently create the ideal energy mix, drastic reforms are required for the current energy policy for both supply and demand. When doing so, - A perspective of controling peak-time electricity demand (i.e.,peak-cut) is required considering future supply and demand conditions for power. Moreover, it will be important to include more thorough response in the consumer sector, where there is considerable room for further energy conservation in addition to further efforts by industry. -From this standpoint, it will be important to reinforce energy conservation policy so that it includes the peak-shaving concept, promote early diffusion of smart meters, develop flexible fee structures that reflect supply-demand conditions, and development of distributed energy-based smart-communities. In the consumer sector, it will be necessary to encourage popularize use of high-insulation building materials, residences , and buildings.. - We will aim to realize a next generation energy system based on distributed energy to diffuse risk and achieve efficiency by maximizing consumer choice and use of a variety of supply options. At the same time, reinforcing and widening transmission and distribution networks and ensuring neutrality in the transmission sector will be important issues in firmly supporting distributed energy systems. It will also be important to establish a social foundation upon which various energy sources that are in addition to the electric power system can be utilized to maximum effect. Accordingly, it will be necessary to popularize cogeneration systems and fuel cells to promote effective use of electricity and heat, develop infrastructure for use and interchange of unused heat in urban districts, expand the domestic supply network for natural gas, and build a disaster-resistant petroleum products supply structure. It will also be necessary to further strengthen initiatives to stably secure natural resources in order to set the stage for these steps. Need for technical innovation to support the energy mix conversion and reform of the energy supply-demand structure Maintaining and reinforcing the world's most advanced energy technologies that can most efficiently and stably utilize all energy sources will be an important key. Consequently, joint public-private initiatives will be needed to accelerate technical innovation. (2) Discussion Points for Global Warming Domestic Countermeasures Based on discussions by the Central Environment Council The Global Environmental Division of the Central Environment Council summarized the 14

"Initiatives related to Global Warming" on December 9 (Fri). The most important points of discussion related to the development of Strategy for Energy and the Environment are as outlined below. It will remain important to consider short-term, medium-term and long-term measures against global warming, and examinations of energy policy, two sides of the same coin. Japan's approach to global warming problems - In order to become aware of the damage that has already started to become evident due to global warming, and to bear the responsibility for working together to resolving these problems, the technology available in Japan must not only be used to reduce emissions here, but help to reduce emissions overseas, and indeed overall emissions around the world. - Research and development, and the implementation of regulations and new systems may trigger demand for energy conservation and renewable energy products that use private funds, and may also result in technological breakthroughs, which may encourage green innovations that lead to the creation of new market opportunities. By aiming for green growth that links emissions reductions to economic growth, all these factors can be linked to strategies for revitalizing Japan. (2) Long-term, medium-term and short-term issues and targets - Long-term: long-term targets include greater awareness of the 2C target, cut global GHG(Greenhouse Gas) emissions by 50% in 2050, and 80% in Japan, while showing the roadmap for GHG emissions to 2030. - Medium-term: based on long-term targets, options for medium term domestic GHG emission reduction targets for 2020 will be presented. When doing so, the preconditions for estimates, as well as installation quantities for specific areas, policies to ensure achievement of these quantities, and the impact on citizen lifestyles and economic effects will also be presented - Short-term: measures to achieve the goals set in the Kyoto Protocol will be taken. (3) Items to be considered towards the presenting of options for each field - Emissions reductions policies for CO2 from energy sources will be examined at the same time as the energy mix. This means that while efforts are made to reduce dependency on 15

nuclear energy, CO2 emissions at energy sources will be cut back by encouraging further energy conservation, expanding the use of renewable energy and encouraging cleaner, more efficient use of fossil fuels. Efforts will also be taken for CO2 reduction in non-electricity sectors in addition to CO2 emissions in the electricity sector. The development of smart communities and promotion of futuristic environmentally-friendly cities must also be encouraged from a regional view of reducing GHG, as a means of developing self-sustaining regions and distributed energy systems. The characteristics of various policy methods, including voluntary methods, regulatory methods, economic methods and information methods, should be utilized efficiently taking into account each methods characteristic. - Reductions in emissions of gases such as CO2, methane, dinitrogen monoxide, and three fluorocarbon gases from non-energy sources will be achieved through promotions of individual policies covering waste disposal, development/ promotion of non-chlorofluorocarbon products, etc. - Measures for carbon sinks such as forests include the maintenance and conservation of forests such as thinning, appropriate management of agricultural land and urban greenification projects. To ensure that these measures can be implemented properly, they must be implemented in line with revitalization efforts conducted in rural districts through utilization of biomass etc. - Efforts to reduce greenhouse gas emissions overseas can be advanced with global uptake of existing environmentally-friendly technologies developed in Japan as part of efforts to help reduce global emissions. An offset credit system needs to be established between two countries to properly assess the effects of these emissions reductions. - Scientific evidence has indicated that even if the most stringent reduction measures are put in place, the effects of current global warming will be unavoidable for coming decades. With this in mind, the government must start implementing appropriate adaption measures, and take the appropriate risk minimization efforts to suit the characteristics of each particular region to reduce the impact of flooding and other disasters on agricultural produce. (4) Continuity of measures and policies for achieving Kyoto Protocol targets To better examine measures and policies that are currently being considered, the state of progress and effects of current measures and policies designed to achieve the targets set by the Kyoto Protocol must be carefully examined, and the results of such examinations should be utilized appropriately.

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3. Basic Principles (1) Basic Stance for Proposing Options As outlined above, heated discussions have been held during related councils held within Japan with a common understanding of a need to achieve a reduced dependence on nuclear energy and make the shift to distributed energy systems. While there is a general common consensus for reducing the dependency on nuclear energy and making the shift to distributed energy systems, the time has come to take one step further and clarify the points that need to be overcome to achieve these goals, explore ways to resolve these problems, and determine which scenario is most suitable as a package together with the solutions. To address these points, The Energy and Environment Council is planning to take the following stance for proposing strategy options planned for this coming Spring. Reflecting on why we are conducting a "full review of policies from a clean slate", take all possible actions to ensure full management of nuclear power-related risks The trigger to review the Strategy for Energy and the Environment was the severe accident at the TEPCO Fukushima Daiichi Nuclear Power Plant. Risk management for nuclear energy is essential as a precondition for reduced dependence on nuclear energy, a common view held for making major moves for the future. When presenting options related to Innovative Strategy for Energy and the Environment, we must return to the starting point of the review, and take a stringent approach to nuclear energy risk management by implementing all steps possible. Push ahead with policies which achieve the dual objectives of both energy security and global warming countermeasures, towards reduced dependence on nuclear power generation, paying due attention to international contexts Given that there is a generally shared view towards a need for reduced dependence on nuclear energy, it is becoming clearer that the challenge lies in how we can best achieve this objective while stabilizing the lifestyle of citizens and industrial activities, ensuring energy 17

security, and making contributions to global warming. Especially when the international political situation, international situation related to natural resources, and international opinion on global warming are fluid, the most important point remains achieving such objective while assuring energy security and demands for contributing to global warming. As we move to reduce dependency on nuclear energy, the question remains just how to assure energy security and implement measures to combat global warming while making the move to non-fossil energy resources. To reduce dependency on nuclear energy and make the move to non-fossil energy resources, a system which autonomously promotes energy conservation and renewable energy must be realised, but the question is how best to do this. How can Japan make the necessary adjustments to reduce GHG emissions while also reducing dependency on nuclear energy, which is a power source with no emissions? As a leading country known for resolving problems, what steps can Japan take to develop the technology and train personnel resources, including in the area of nuclear safety? And how can collaboration and cooperation with international organizations and other countries be improved? The aim is to present ideas for measures to resolve issues related to discussion points such as these when presenting energy mix options. Achieve a new energy mix and take global warming domestic countermeasures by creating a new energy system in which customers and local communities can voluntarily select their energy options taking into account all aspects of the energy chain of creating, storing, and conserving energy. The concern over energy supply and demand following the Great East Japan Earthquake and the accident at the Fukushima Daiichi Nuclear Power Plant has changed the behavior of all consumers of energy and has brought to light numerous possibilities. For example, the possibility of achieving greater stability of demand supply balance has emerged where energy users could make more energy investments in the following areas: "Energy creation" involving energy users cover their own energy needs by introducing self-generation and distributed energy systems, "Energy conservation" involving additional insulation in houses and buildings, installation of smart meters, and utilization of market 18

mechanisms, and "Energy storage" utilizing batteries such as electric vehicles and fixed storage cells. If consumers invest in their own energy needs. Allowing consumers to select their own energy sources can also increase the chance for the energy supply structure to be changed to expand the use of renewable energy and increase the uptake of clean technologies for fossil fuels. Some increasingly state that developing regional-based localized energy networks in parallel to the main backbone energy network will be effective from the perspective of both risk management and regional revitalization.

We will aim to achieve a new energy mix and realize the global warming countermeasure objectives by gathering and integrating technologies related to "Energy creation", "Energy storage" and "Energy conservation", and creating a new energy system where consumers and local regions can voluntarily participate in choosing their own energy option. These steps should be linked with regional revitalization efforts and contribute to resolving global issues. (2) Basic principles for Presenting Options Related to Nuclear Energy Policies, Energy Mix and Global Warming Countermeasures The Energy and Environment Conference has defined the following basic policies with the above stance for presenting strategy options planned for this coming Spring. The Energy and Environment Conference has requested the Atomic Energy Commission of Japan, Advisory Committee for Natural Resources and Energy, and the Central Environment Council to conduct further studies of options related to nuclear energy policy, energy mix and global warming policy based on these basic principles. Basic principle for proposing options related to nuclear energy policies Propose options based on principle that call for thorough risk management of nuclear energy Nuclear power generation entails substantial social costs; it is necessary to drastically and systematically revamp safety measures by for example putting in place safety standards which are among the highest level in the world, while also ensuring objective and stringent implementation of such standards. Compensation schemes must also be established in accordance with international trends.

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Options for the medium/long-term future for nuclear energy policy will be presented while we conduct a thorough examination of nuclear energy policy that includes the nuclear fuel cycle, reviewing various factors such as safety, the environment, energy security and economic feasibility. Basic principle for proposing options related to energy mix Propose various scenarios under the approach of reduced dependence on nuclear energy by pioneering energy frontiers and implementing reforms to energy systems Renewable energy, cleaner utilization of fossil fuels, energy conservation, and distributed energy systems have the potential to play a major role as part of energy sources. We will strive to realize such potentials as soon as possible by pioneering energy frontiers and making the move to distributed energy systems, which will allow us to realize the reduction of dependency on nuclear energy. Conversely, every type of energy source available today has its shortcoming. The question is under what time span, and in which manner we should take steps to change the energy mix, toward the achievement of an ideal energy mix, one which satisfies all requirements for safety and security, the environment, energy security and economic feasibility based on a new portfolio of technologies which is not fully known to us at present? Making safety a fundamental prerequisite, multiple scenarios need to be proposed, while also taking inton account other aspects such as stabilizing the lifestyle of citizens and industrial activities, ensuring energy security, and making contributions to global warming. Basic principle for proposing options related to global warming countermeasures Propose options for global warming countermeasures to help reduce global GHG emissions based on the ideal long-term stance to energy Japan should take the lead in global warming countermeasures, in line with international cooperation and based on scientific evidence. At the same time, Japanese global warming countermeasures must be designed with Japan's own energy structure, industrial structure, state of lifestyle of citizens, and the long-term conditions for the future in mind. Energy conservation, renewable energy, and clean technologies for fossil fuels, which are being studied as options to nuclear energy, also can contribute to reductions of CO2 emissions from various energy sources. The shift to consumer-based distributed energy 20

systems is also an effective approach for global warming countermeasures. Numerous options related to global warming countermeasures will be presented in close link to various energy mix options. When presenting options, the cooperation of a wide range of associated committees will be requested to present data on areas such as the medium-term term targets for national policies, required measures and policies, and the impact and effects on the lifestyle of citizens and the economy, based on progress conditions and effects of past measures and policies. It will be important for reductions of emissions, measures for carbon sinks, and other applicable measures to be implemented in Japan into the future, while at the same time Japanese technology is utilized to reduce emissions overseas and resolve problems related to global warming. More details will be released on how the offset credit system between two countries will be utilized, and the international approach taken for global warming countermeasures. (3) Development of Green Growth Strategies that are Key to Revitalizing Japan Develop green growth strategies as part of the strategy for energy and the environment While proposing options related to nuclear policy, energy mix and global warming countermeasures, the Energy and Environment Council has set out to form a Green Growth Strategy to better clarify how the Strategy for Energy and the Environment will be able to revitalize Japan, and how it will be able to contribute to growth and resolving worldwide economic issues throughout Asia. This strategy seeks to clarify how the shift will be made to a low-carbon society and industrial make-up, and how to forecast growth of the energy and environment industries that will create new employment, growth and technologies, as we implement the energy shift to reduce dependency on nuclear power, the move to a distributed energy system, and take global warming countermeasures. The Energy and Environment Council plans to coordinate work with various associated agencies and organizations to present the Green Growth Strategy by Summer.

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Conclusion (1) Various committees such as the Atomic Energy Commission of Japan, Advisory Committee for Energy and Natural Resources, and the Central Environment Council will develop a draft proposal of options for nuclear energy policy, energy mix and global warming countermeasures by Summer based on the Basic Principles outlined by the Energy and Environment Council. (2) The Energy and Environment Council will summarize proposals based on these studies, and present a unified set of multiple options related to the Strategy for Energy and the Environment. (3) By proposing options and other activities, the government deepen national discussions, to formulate the Innovative Strategy for Energy and the Environment, around this Summer .

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(separate attachment) Cost review Committee Members Committee Chairman Katsuyuki Ishida Vice Minister of the Cabinet Office (Vice

Minister of State for National Policy) Committee Member Reiko Akiike Keigo Akimoto Boston Consulting Group Partner & Managing Director Research Institute of Innovative Technology for the Earth Systems Analysis Group Deputy Chief Researcher Shuhei Abe Kazuhiro Ueda Kenichi Oshima SPARX Group Co., Ltd. Reprisentative Director & President, Group CIO Graduate School of Economics and Faculty of Economics, Kyoto University Professor College of International Relations, Ritsumeikan University Professor Kazuhiko Ogimoto Institute of Industrial Science, The University of Tokyo Sciences Collaborative Engineering Takao Kashiwagi Technology International Research Center of Advanced Energy Systems for Sustainability Hiroshi Sasamata A.T. Kearney, Inc. Tokyo Hajimu Yamana Professor Partner Professor Research Center for Energy Project Professor Department of Human and Social Group Leader,

Solutions Research Laboratory, Tokyo Institute of

Toshihiro Matsumura Institute of Social Science, The University of Professor Kyoto University Research Reactor Institute

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(Reference) Progress after July 29 Acceleration of the Implementation of Energy Structure Reforms

1. Control of the accident and measures for the safety of nuclear energy after reflecting on the accident at the nuclear power plant (1) Control of the accident The government has responded to the accident by developing a progress schedule outlining how the accident at TEPCO Fukushima Daiichi Nuclear Power Plant will be controlled in May this year. The affected nuclear reactors were brought to "cold shutdown" status on December 16 to complete step 2 of the schedule, which indicates that the accident has been brought under control. The "Government and TEPCO Medium-term Countermeasure Committee" was established as part of efforts to determine the medium-term roadmap for abolishing the reactors, and to conduct progress management. (2) Accident inspections An accident and inspection committee that was established in May this year at TEPCO Fukushima Daiichi Nuclear Power Plant launched the TEPCO Fukushima Daiichi Nuclear Power Plant Accident Investigation Panel in May this year to start inspections into the accident. The Nuclear and Industrial Safety Agency has also scheduled a hearing to summarize technical knowledge following the accident. (3) Initiative in response to economic damage due to the accident at the nuclear power plant In response to economic damage due to the accident at the TEPCO Fukushima Daiichi Nuclear Power Plant, the Dispute Reconciliation Committee for Nuclear Damage Compensation was established in April this year, and will focus on forming guidelines for determining the extent of damage in order. The Dispute Reconciliation Committee for Nuclear Damage Compensation was formally passed by the regular Diet session in August this year, and the Nuclear Damage Liability Facilitation Fund was formed to provide TEPCO with support for compensation claims. The government also provided a supplementary budget for supporting restoration efforts. The issue relating to contamination is also currently being addressed. (4) Checking safety With the accident as the TEPCO Fukushima Daiichi Nuclear Power Plant, emergency safety 24

measures and severe accident countermeasures as part of emergency initiatives that form countermeasures. The introduction of safety assessments was passed in July this year, following details of stress tests conducted in Europe. Efforts have also been made to review nuclear safety regulations following accident inspections and other factors. (5) International coordination International organizations such as IAEA have provided cooperation with the efforts above, and efforts have also been coordinated with other members of the international community, including individual neighboring countries. An additional report outlining efforts to control the accident was submitted to IAEA in September this year. Specialists from overseas were invited to participate in an international seminar held to discuss stress test assessments, and reviews provided by IAEA regarding stress tests are being applied. (6) Systems It was decided in August this year that the Nuclear Safety Regulatory Standard Division of the Nuclear and Industrial Safety Agency would split from the Ministry of Economy, Trade and Industry based on the perspective of "separating regulations and use" by April next year, to establish the Nuclear Safety Agency (tentative name) as an affiliated agency of the Ministry of the Environment. The Nuclear Damage Liability Facilitation Fund was established as outlined in (3), and work began on creating an outline of systems for contamination. 2. Determining short-term energy strategies The Energy and Environment Conference developed action plans for the stabilization the supply of and demand for energy in November this year. Limiting total demand through energy saving and other measures, and ensuring more efficient operation of power utilities will minimize the risk of increasing power costs, while various policies such as budget measures and reforms to regulations and systems have been applied to ensure stable supply and demand of energy. Action plans for measures related to supply and demand for individual consumers, action plans for measures related to supply and demand for power utilities, and 26 other important items have been summarized in the government's energy regulation and system reform action plans backed by a 580 billion yen supplementary budget.

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3. Start of Examinations from New Plans for Strategy for Energy and the Environment (1) Start of thorough cost examinations for selecting energy options, and holding national discussions. System reforms have also been implemented. The Cost Verification Committee was established as part of the Energy and Environment Conference in October this year. Examinations have begun into cost review work for each power source, and a report summarized in December. This Committee has conducted examinations from four new approaches outlined below. - Thorough examinations of nuclear energy power generation costs. Examinations of the future potential of other power sources. - Factoring in social costs such as accident risks and the load placed on the environment. - Factoring in future forecasts such as the price of fuel and the effects of mass-production. - The basis for calculations has been disclosed for more fruitful national discussions. Discussions have started at the Advisory Committee for Natural Resources and Energy, Atomic Energy Commission of Japan and Central Environment Council. Various topics have been discussed at each committee while retaining transparent deliberations. Reviews to budgets and reforms to regulations and systems have also started to be implemented. The amended FY2011 budget and the FY2012 initial budget outlined within action plans for the stabilization the supply of and demand for energy have been specifically identified as the current advanced budget. Major reviews have started to be applied to the research and development budget for nuclear energy based on the streamlining of proposed policies by the Government Revitalization Unit. The Energy and Environment Conference in November also proposed a basic approach for investing strategic resources into related research and development budgets, and began work on structural reform based on priority shifts in the budget. Regulation and system reforms have also been started. Twenty-six high-priority items have been proposed in the government's action plans for energy regulations and system reforms. In addition to the feed-in tariff for renewable energy, each agency has been conducting examinations related to systematic frameworks such as the Law Concerning the Rational Use of Energy, revised laws for ensuring a stable supply of oil and other resources (such as the Oil Stockpiling Act, JOGMEC laws), and renewable energy laws in rural districts. 26

(2) Positioning of Strategy for Energy and the Environment, and global warming strategies as part of strategies for revitalizing Japan With the establishment of the National Policy Conference in October this year, the Energy and Environment Conference became a subcommittee focused on addressing national policies for innovative energy environment strategies, and global warming countermeasures as part of strategies for revitalizing Japan. A green growth alliance between Japan and South Korea was proposed in November, and a global low-carbon growth vision was announced at COP17 in December. Action plans for the stabilization the supply of and demand for energy are currently being developed to form the key to revitalizing Japan.

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