More than a year-and-a-half after the tsunami and resulting nuclear disaster at Fukushima, Japanese policymakers are trying to figure out what to do about Japan’s power-generation future. In September, the government released a document titled “Revolutionary Energy and Environment Strategy,” which proposes to eliminate all nuclear generation in Japan by 2040. While the general public continues to support a transition away from nuclear power in Japan, business leaders have argued that such a change would increase energy costs, thereby making Japanese companies less competitive in an already increasingly competitive East Asian market.

Japan’s annual LNG imports increased by 12.5 percent in 2011, largely a result of the Fukushima disaster in March 2011.

Close to one-third of Japan’s power generation came from nuclear prior to Fukushima, and before the tsunami, there had even been discussion of increasing the share of nuclear to 50 percent with hope that this would help the country reduce its greenhouse gas emissions. Now that much of the population wants to phase-out nuclear by 2040, Japan faces an interesting question of what to do with its power sector in the future.

One solution, and what Japan has largely done in the short-term, is to rely more heavily on fossil fuels. After Fukushima, Japan began importing more natural gas and oil to make up for its loss of nuclear generation, and the share of fossil fuel generation in its electricity mix rose to 73 percent (a level not seen in decades) by early 2012. The problems with this increase, however, are numerous.

First, Japan already had high electricity tariffs before Fukushima, and now that it is importing greater quantities of expensive oil and natural gas, energy prices are rising. While Japan may have had little choice but to rely on oil and natural gas in the short-term due to its lack of domestic fossil fuel resources, a long-term energy plan based on these fuels would lock Japan into an expensive energy future.

Second, Japan’s nuclear generation produced relatively few associated greenhouse gas emissions. A transition from nuclear to oil and natural gas has and will continue to make it more difficult for the country to meet its greenhouse gas reduction targets. This is not only bad for the climate, but could also potentially put Japan in an economically disadvantageous position in the future. If a legally binding international carbon market is implemented over the next couple of decades, Japan and its economy will struggle to adapt since it will have recently constructed an expensive fossil fuel-based system.

Third, there is the problem of energy security and a lack of energy independence. While Japan has always imported a majority of its fuel for power generation, much of that fuel was uranium, which has relatively little impact on generation costs since most of the costs associated with nuclear generation stem from initial construction of the power plant itself. Now that Japan is relying more heavily on imported oil and natural gas for power generation, its power market is becoming increasingly vulnerable to high prices and price volatility. One example of this is the price that Japan currently pays for natural gas. During the summer, Japan paid more than US $18 per million BTU for liquefied natural gas, more than five times what generators in the U.S. pay. This not only requires Japan to expend a lot of money outside its borders – which it could otherwise invest domestically – but it also puts a major economic strain on Japanese citizens and businesses. Clearly, these problems signal that Japan is ready for an energy transition.

Japan’s electricity system faces significant challenges, and for many, these challenges represent an opportunity for renewable energies. In fact, just this past July, Japan initiated a feed-in-tariff for renewable generation. Considering that Japan already pays very high electricity tariff rates, wants to continue to be a leader in combating climate change, and is home to significant renewable energy potential, an energy policy that relies heavily on renewable development is a plausible solution to a complicated problem. Japan’s focus now should be on addressing the barriers to renewable energy development, and the Fukushima tragedy could be the necessary catalyst to make Japan a leader in renewable energy.

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