Power Shortage and Japan's Economy

◆After establishing optimistic and pessimistic scenarios for nuclear power plant operation and the deployment of renewable energy in Japan, we found that this summer the power shortfall will be a maximum of 1.8% and 4.8% under the optimistic and pessimistic scenarios (monthly basis, nationwide), respectively. There will probably be substantial regional differences in the severity of the power shortages.

◆Over the medium to longer term, power shortages will come to an end under the optimistic scenario, but will persist for some time under the pessimistic scenario. Under both scenarios, electricity supply from thermal power plants will rise (increasing fossil fuel imports). As a result, electricity prices will rise and CO2 emissions increase. The use of renewable energy will help curb CO2 emissions, but it will be necessary to cover the cost of deploying renewable energy by raising electricity prices.

◆Power shortages will crimp the output of goods and services. Higher electricity prices will also increase costs to industry and individual living costs, lowering real incomes. Greater fossil fuel imports will mean a decrease in net exports. A worsening economic climate will cause unemployment to rise and prices to slump. By measuring the real GDP lost due to the adverse effects on the economy, we estimate that under the pessimistic scenario the loss will grow to Y19.2 trillion in FY15 and average more than Y14 trillion annually (2.5% of standard scenario GDP) over the 10 years from now.

◆The estimates in this report do not take into consideration any initiatives taken on the demand side and represent a conservative (grim) assessment, assuming foot-dragging with respect to nuclear power generation strategy for many years to come. If this is the case, there could be some negative impact even under the optimistic scenario, and the losses would be enormous under the pessimistic scenario. Japan must urgently rebuild its electricity strategy from both a short- and long-term perspective.