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Part 4 - Long-term strategies for mitigating global warming


10. The role of technology in energy/economy interactions: A view from Japan
11. Global and renewable energy: Potential and policy approaches
12. Energy efficiency: New approaches to technology transfer
13. Decarbonization as a long-term energy strategy


10. The role of technology in energy/economy interactions: A view from Japan

Chihiro Watanabe

1. Introduction

Over 20 years have passed since the publication of the international best-seller The Limits to Growth (Meadows et al., 1972), and the external factors that place restrictions on sustainable development have changed dynamically since the early 1970s. Indeed, only one year after the appearance of The Limits to Growth, the world faced a grave new situation, the first oil crisis. This crisis brought energy issues to the forefront around the world and completely changed global development theory. Key factors governing the sustainability of development changed from environmental capacity considerations to the quantitative and qualitative supply of energy. Since the decline of international oil prices in 1983, problems related to the world's energy supply have eased considerably. However, a new issue now governs the sustainability of development - the global environmental problem.

Japan successfully overcame a number of domestic environmental challenges in the 1960s and 1970s. Although the global environmental issue now facing the world is structurally different from that which faced Japan in the 1960s and 1970s, given the two-sided nature of the global environmental issue and energy consumption, Japan's experience in overcoming the two energy crises of the 1970s despite the fragile nature of its energy structure and while also maintaining sustainable development provides useful suggestions concerning the current worldwide question of how to sustain world development in the face of a grave situation such as global environmental constraints (MITI, 1992a).

The Japanese economy, despite many handicaps, achieved sustainable development in the face of various constraints by focusing efforts on improving the productivity of the relatively scarce resources of the time (Economic Planning Agency, 1980). Scarce resources were chiefly capital stock in the 1960s, followed by the supply of labour, environmental capacity constraints, and then the supply of energy after the first energy crisis in 1973 (Economic Planning Agency, 1980). The driving force behind this achievement was the development of manufacturing industry, and the rapid enhancement of productivity levels was most typically observed in the overcoming of constraints in the supply of energy by means of technological development. It is noteworthy that this enhancement was successful because of such means as substituting an unlimited resource (technology) for limited resources (energy) (Watanabe, 1992b). This success provides a new theory which can be applied to a "constrained economy." Attaining sustainable development by overcoming existing constraints is important for a constrained economy, and a positive solution can be expected through the contribution of technology (MITI, 1992a). Thus, a key point in the question of how technology and sustainable development interact with respect to global environmental constraints is how effectively resources that have become scarce owing to global environmental constaints can be substituted for by an unlimited resource, technology.

In this paper I first introduce Japan's technological development path over the past two decades - a path that aimed to overcome the energy crises by substituting an unlimited production factor (technology) for a limited production factor (energy), thereby resulting in a dramatic improvement in the nation's technology as a whole. I then introduce the Ministry of International Trade and Industry's (MITI's) new challenge of leading the way to sustainable development by overcoming energy and environmental constraints simultaneously through technological innovation that induces the substitution of limited production factors by technology in the new circumstances of increasing global environmental constraints in the face of economic stagnation. Section 2 explains Japan's sustainable development path, with special emphasis on energy constraints; section 3 explains MITI's efforts to encourage R&D aiming at freedom from energy constraints after the first energy crisis in 1973; section 4 analyses fears concerning an increase in energy and environmental constraints; section 5 explains MITI's new comprehensive approach for sustainable development by means of technological innovation; and section 6 explains the implications for sustainable development.

Fig. 10.1 Trends in Japan's GNP and primary energy supply, 1880-1990 (average change rate, % p.a. Source: elaboration of data from the Institute of Energy Economics, Tokyo)

2. Sustainable development despite energy constraints: Japan's path

Parallel path between energy supply and development

Figure 10.1 illustrates trends in Japan's economic development and energy supply since 1880 (just after the Meiji Revolution in 1868). We can note the parallel path between economic growth and energy supply: the average rate of increase in real GNP over the period 1880-1940 (just before World War II) was 4.3 per cent, while the average rate of increase in the primary energy supply was 4.5 per cent. For the period 1955-1973 (the year of the first energy crisis), the average rates of increase were 9.3 per cent and 9.9 per cent, respectively. These data suggest that Japan was able to sustain its high rate of stable economic growth supported by a stable energy supply (MITI, 1982). Faced with the energy crises in 1973 and again in 1979, this stable energy supply disappeared and the fragile nature of Japan's energy structure was revealed.

Fig. 10.2 Trends in production and energy consumption in Japanese manufacturing industry, 1955-1990 (1955 = 1. Sources: Agency of Natural Resources and Energy, MITI, Comprehensive Energy Statistics;MITI, Annual Report on Indices on Mining and Manufacturing)

Given the parallel paths of economic growth and energy supply, which provided a structural foundation for Japan's sustainable development before the energy crisis, Japan's economic growth should have declined as its energy supply decreased as a result of the energy crises. However, as illustrated in figure 10.2, despite a dramatic decrease in energy dependency, Japan was able to maintain sustainable development that was, among advanced countries (see figure 10.3), the most stable despite having the most fragile energy structure and incurring the most damaging impacts of the energy crises.

Trends in improvement in energy efficiency

Figure 10.4 illustrates trends in production (value added and index of industrial production (IIP)) and materials (intermediate inputs except energy) and energy consumption of Japan's manufacturing industry over the period 1970-1990. We can note the significant contribution of improvements in energy efficiency (the gap between IIP and energy consumption) to a dramatic decrease in energy consumption after the first energy crisis in 1973.1 The average contribution of improvements in energy efficiency to the decrease in energy consumption in the period 1974-1990 was 64 per cent while the contribution of changes in industrial structure and the value added of production goods (the gap between value added and IIP) was 32 per cent. This dramatic improvement in energy efficiency can be clearly observed by looking at trends in unit energy consumption (energy consumption per IIP). Figure 10.5 illustrates trends in unit energy and materials consumption in Japanese manufacturing industry over the period 1970-1990, and indicates a contrast between energy efficiency improvements and those of materials. Figure 10.6 demonstrates the clear structural change in energy efficiency after the first energy crisis.

Fig. 10.3 Trends in real GNP and energy consumption in Japan, the United States, and West Germany, 1973-1986 (1973 = 100. Sources: Real GNP: Japan - Economic Planning Agency, Annual Report on National Accounts; USA - US Department of Commerce, Survey of Current Business, West Germany - OECD, OECD Quarterly National Accounts; Energy: Japan - Agency of Natural Resources and Energy, MITI, Comprehensive Energy Statistics; USA & West Germany - OECD, Energy Balances of OECD Countries)

Fig. 10.4 Trends in production and in energy and materials consumption in Japanese manufacturing industry, 1970-1990 (1970 = 100. Sources: See fig. 10.2)

Fig. 10.5 Trends in unit energy and materials consumption in Japanese manufacturing industry, 1970-1990 (1970 = 1. Sources: See fig. 102)

Fig. 10.6 Trends in the ratio of energy consumption to the index of industrial production in Japanese manufacturing industry, 1960-1991 (1960 = 100. Sources: See fig. 10.2)

The substitution of technology for energy

In order to identify sources contributing to a dramatic improvement in energy efficiency I first analysed the impact of oil prices. Figure 10.7 illustrates trends in international oil prices and derived changes in both energy and materials prices in Japanese manufacturing industry in the period 1970-1990. We can note that energy prices increased dramatically, influenced by a sharp increase in international oil prices owing to the energy crises of 1973 and 1979, whereas materials prices were stable despite the change in international oil prices. Figures 10.5 and 10.7 suggest that dramatic improvements in energy efficiency were made as a reaction to the sharp increase in energy prices. Second, I analysed the contribution of technology, which is largely independent of the constraints of energy price increases. Table 10.1 compares correlations between improvements in energy efficiency and (a) prices of energy, (b) autonomous energy efficiency improvements (AEEI) from autonomous productivity increases, and (c) technology stock (endogenous technological change). Table 10.1 suggests that the contribution of technology stocks to improvements in energy efficiency was almost equivalent to the contribution of AEEI and more significant than the contribution of energy prices. These analyses suggest that endogenous technological change by means of an increase in technology stock made a great contribution to improvements in energy efficiency in Japan's manufacturing industry after the energy crises.

Fig. 10.7 Trends in international oil prices and prices of energy and materials in Japanese manufacturing industry, 1970-1990 (1970 = 100. Sources: See fig. 10.2)

Table 10.1 Comparison of the contribution to energy productivity (E/IIP) improvements by autonomous energy efficiency improvement (AEEI) and technology stock (T) in Japanese manufacturing industry, 1974-1988

  Adj. R2 DW
AEEIa
In E/IIP = 81.24 - 0.04t - 0.13lnPe .984 1.24
(-16.74) (-2.68)    
Technology stockb
In E/IIP = 3.52 - 0.50 In T - 0.14 lnPe .971 1.05
(-12.19) (-2.23)    


a. t = time trend; Pe = energy prices.
b. Technology stock (T) is measured by the following equation:

Tt = Rt-m + (1-r )Tt-1

where Rt-m = R&D expenditure in the period t - m, m = time-lag of R&D to commercialization, and r = rate of obsolescence of technology.

In the circumstances of a "constrained economy," it is generally pointed out that the majority of efforts aimed at overcoming constraints are directed towards substitution of a constrained (or limited) production factor by unlimited production factors (Christensen et al., 1973) similarly to an ecosystem in that, in order to maintain homeostasis (checks and balances that dampen oscillations), when one species slows down another speeds up in a compensatory manner in a closed system (substitution), whereas dependence on supplies from an external system tends to dampen homeostasis (complement) (Odum, 1963). This concept of "substitution" provides useful analogies in relation to a "constrained economy."

In this particular case, a constrained production factor is energy whereas technology is an unlimited production factor. Figure 10.8 illustrates trends in the substitution of energy by other production factors in Japanese manufacturing industry. These indicate that, in order to overcome sharply increased energy constraints resulting from the energy crises while maintaining sustainable development, intensive efforts to substitute technology for energy (such as energy conservation technology, alternative energy technology, and technologies for improving energy productivity) followed by efforts to substitute capital for energy (typically observed in investment in energy conservation) have been made in Japan's manufacturing industry over the past two decades. This substitution of energy by other production factors (chiefly technology and capital) was distinctive compared with the substitution of materials by other production factors. These analyses suggest that the Japanese economy was able to sustain its development in the face of sharply increased energy supply constraints by substituting technology for energy, and this substitution resulted in a dramatic improvement in Japan's technological level as a whole (MITI, 1988; Watanabe, 1992b).2

3. MITI's efforts to stimulate R&D that challenges energy constraints

Trends in MITI's energy R&D efforts

Japan has adopted different industrial policies at different stages of its economic development, and these policies have reflected the international, natural, social, cultural, and historical environment of the postwar period (Watanabe, 1990). In the late 1940s and 1950s, Japan made every effort to reconstruct its war-ravaged economy and lay the foundations for viable economic growth. During the 1960s, Japan actively sought to open its economy to foreign competition by liberalizing trade and the flow of international capital. In the process, it achieved rapid economic growth led by the heavy and chemical industries. On the other hand, the heavy concentration of such highly material-intensive and energy-intensive industries and population in Japan's Pacific belt area led to serious environmental pollution problems (Ogawa, 1991). This necessitated a re-examination of industrial policy (MITI, 1972b).

Fig. 10.8 Comparison of the average substitution elasticities of energy and materials in Japanese manufacturing industry, 1974-1987. (a) Energy, (b) Materials (Sources: See fig. 10.2)

Fig. 10.8 (a)

Fig. 10.8(b)

Recognizing the need for a change in direction, MITI formulated a new plan for Japan's industrial development. This plan, which was published in May 1971 as MITI's Vision for the 1970s (MITI, 1971), proposed a shift to a knowledge-intensive industrial structure that would place a lesser burden on the environment by depending less on energy and materials while depending more on technology.

In order to identify the required basic concept of industry and the industrial technology policies that would contribute to the establishment of the industrial structure proposed in its vision, MITI organized an ecology research group in May 1971, consisting of experts from ecology-related disciplines, to define an ecology science for studying the global environment. This research group then proposed the concept of "Industry-Ecology" as a comprehensive method for analysing and evaluating the complex mutual relations between human activities centring around industry and the surrounding environment (MITI, 1972b).

On the basis of its extensive research work, MITI attempted to develop a new policy principle to be applied to its industrial policy as well as a new policy system based on the principle. Efforts were directed to further developing R&D programmes to contribute to restoring the ideal equilibrium of the ecosystem by creating an environmentally friendly energy system4 in the summer of 1973 (MITI, Annual Report on MITI's Policy, 1973).5

The first energy crisis occurred a few months later, which induced the reduction in redundancies by taking ecological considerations into account. The majority of MITI's efforts focused on how to secure an energy supply in the face of a dramatic increase in oil prices. Given such circumstances, a new policy was initiated, based on the basic principle of Industry-Ecology, namely securing a solution to basic energy problems by means of R&D on new and clean energy technology. This policy led to the establishment of a new programme, the Sunshine Project (R&D on New Energy Technology), which was initiated in July 1974.

Fig. 10.9 Trends in MITI's energy R&D budget, 1974-1990 (Source: Annual Report on MITI's Policy,MITI, 1974-1990)

The basic principle of Industry-Ecology suggests that substitution among available production factors in a closed system should be the basic way to achieve sustainable development under certain constraints. The Sunshine Project initiated this approach by enabling substitution of technology-driven energy, which has unlimited potential, for limited energy sources, chiefly oil. Further substitution efforts needed to be made not only in the energy supply field but also in the field of energy consumption. Improvements in energy efficiency by means of technological innovation would contribute to a lower dependence on energy, and this process is simply the substitution of technology for energy. In line with this policy consideration, the Moonlight Project (R&D on Energy Conservation Technology) was initiated in 1978 (MITI, Annual Report on MITI's Policy, 1978).

The second energy crisis occurred in 1979, and MITI was able to implement policies capable of stimulating industrial dynamism conducive to sustainable development in the face of the damaging impact of the energy crises by means of the substitution of an unlimited resource, technology, for a limited resource, energy.6 MITI's budget for the Sunshine Project and the Moonlight Project represented 14 per cent of MITI's total R&D budget in 1979, and in 1982 it increased to 29 per cent. It had been only 5 per cent in 1974 (figs. 10.9 and 10.10, and table 10.2).7

As international oil prices decreased and the "bubble economy" emerged, MITI's priority for energy R&D shifted to other policy fields such as the Global Environmental Technology Programme, which was initiated in 1989 (Watanabe and Honda, 1992).

Fig. 10.10 Trends in the share of MITI's energy R&D budget in its total R&D budget, 1974-1990 (Source: See fig. 10.9)

Table 10.2 R&D expenditures on energy and environmental technologies in Japan, 1990 (Y100 million)

 

Industry (Manuf. ind.)

Research institutionsa

Universities

Totalb

Energy technology 3,492 (2,819) 5,241 417 9,150
Nuclear 827 (660) 2,922 272 4,021
Non-nuclear 2,665 (2,159) 2,319 145 5,129
Energy conservation 1,882 (1,693) 1,754 66 3,702
Renewable 145 (120) 86 52 283
Coal 172 (117) 185 8 365
Oil & gas 294 (177) 198 10 502
Electric power 172 (52) 96 9 277
Environmental technology 1,428 (1,360) - - -


a. Research institutions are organizations established by central or local governments or by private organizations that perform R&D.

b. Total R&D expenditure in 1990 (natural sciences): Y11,993.5 billion (industry 9,267.2: research institutions 1.4012; universities 1,325.2)

Stimulation of industry's energy R&D

MITI's efforts to engender the substitution of technology and technology-driven energy for energy and also for limited energy sources stimulated industry's energy R&D. Figure 10.11 summarizes the outcome of a questionnaire to manufacturing firms involved in MITI's energy R&D programme projects regarding their expectations concerning these R&D projects. In addition to supplementation of industry's own R&D activities, a significant number of firms expressed the strong expectation that such projects would stimulate industry's R&D in relevant fields. Table 10.3 summarizes the outcome of an analysis with respect to correlations between MITI's energy R&D expenditure and expenditure on energy R&D initiated by Japan's manufacturing industry. We can observe a strong correlation between industry efforts and MITI's initiatives with respect to energy R&D. The correlations of R&D on energy conservation, renewable energy, and coal technologies led by both the Moonlight Project and the Sunshine Project are very clear, while the correlations of resource-constrained exhaustible energy technologies such as oil and gas R&D are relatively less clear. These analyses demonstrate that MITI's energy R&D programme projects such as the Sunshine Project and the Moonlight Project functioned well in stimulating related R&D activities initiated by industry.

Fig. 10.11 Expectations of MITI's energy R&D: Questionnaire to manufacturing firms (valid sample 54) involved in MITI's energy R&D programme projects (Source: Agency of Industrial Science and Technology, MITI, June 1993)

Table 10.3 Stimulating impact of MITI's energy R&D on energy R&D initiated by Japanese manufacturing industry, 1976-1990

  Adj. R DW D
Energy R&D total
ln(ERT) = 3.43 + 0.45 ln(SSML) + 0.24 ln(nSM) - 0.65 D .978 0.96 1976 = 1
(4.21) (1.31) (- 5.67)      
Energy conservation
ln(ERS) = 3.84 + 0.72 ln(ML + SSH) - 1.43 D .975 1.28 1976 = 1
(12.82) (-8.36)      
Renewable energy
ln(ERR) = 0.09 + 0.98ln(SSS + SSG + SSO) .957 1.75  
(17.59)      
Coal
ln(ERC) = -5.86 + 0.50ln(SSC) + 1.13 ln(MC) .972 2.18  
(18.07) (12.06)      
Oil and gas
ln(EROG) = 0.46 + 0.92 ln(MOG) - 1.01 D .780 0.95 1976 = 1
(4.41) (-2.24)      
Nuclear
ln(ERN) = 3.17 + 0.56 ln(MN) .848 2.16  
(8.88)      
Electric power
ln(ERE) = -2.59 + 1.53 ln(ME) + 1.34 D .870 1.07 1979 = 1
(9.76) (2.54)      


Table 10.3 (cont.)

MITI's energy R&D (Y100 m.) Manufacturing industry's energy R&D (Y100 m.)
Total (SSML+nSM) 1,299       Total (ERT) 2,819
  Moonlight (ML) 116 Energy conservation   (ML) 116      
    Hydrogen   (SSH) 1 Conservation (ERS) 1,693
SSML 512     Solar (SSS) 74      
  Sunshine (SS) 396 Renewable Geothermal (SSG) 54 Renewable (ERR) 120
      Wind/ocean (SSO) 18      
    Coal conversion   (SSC) 249 Coal (ERC) 117
    Coal   (MC) 66      
    Oil/gas   (MOG) 256 Oil and gas (EROG) 117
nSM 787 Coal/Oil/Nucl./Elec. Electric power   (ME) 119 Electric power (ERE) 52
    Nuclear   (MN) 346 Nuclear (ERN) 660

Fig. 10.12 Trends in production, energy consumption, and CO2 emissions in Japanese manufacturing industry, 1970-1990 (1970 = 100. Sources: See fig. 10.2)

4. Fears of increasing energy and environmental constraints

Trends in factors contributing to change in CO2 emissions

The global environmental consequences of CO2 emissions resulting from energy use are causing mounting concern regarding the sustainability of development. Figure 10.12 illustrates trends in production, energy consumption, and CO2 emissions in Japan's manufacturing industry over the period 1970-1990.8 We can see that Japan's manufacturing industry was able to sustain steady development (the average growth rate of manufacturing production by value added between 1971 and 1990 was 5.1 per cent) despite the damaging impact of the energy crises on the energy supply. However, despite this big increase in production, CO2 emissions were controlled at a mininum level (the average rate of increase in CO2 emissions between 1971 and 1990 was 0.08 per cent), which was largely attributable to efforts to reduce dependency on energy.

Figure 10.13, which analyses the factors contributing to trends in CO2 emissions in Japan's manufacturing industry, indicates that, over the period 1971-1990, 58 per cent of the reduction in CO2 emissions was due to energy conservation (improvements in energy efficiency), 27 per cent was due to a change in industrial structure and production goods, and 12 per cent was due to changes in fuels.9

Fig. 10.13 Factors contributing to changes in CO2 emissions in Japanese manufacturing industry, 1971-1990 (Note: Change in industrial structure includes changes in production goods and services in the same sector. Sources: See fig. 10.2)

If we look at CO2 emissions trends and the contributing factors by period, we find that the CO2 emissions level fell dramatically after the first energy crisis in 1973 in line with an increase in energy conservation efforts. This was largely the result of the substitution of technology (energy conservation technology) and capital (energy conservation facility) for energy (see fig. 10.8), whereas the contribution made by a change in fuels (which also represents the outcomes of similar substitutions involving oil-alternative technologies and capital investment) was not so significant (only 6 per cent). This was considered to be due to an increasing dependency on coal as a promising alternative to oil. If we look at these trends carefully, we note that CO2 emissions changed to an increasing trend after 1983 (the year when international oil prices started to fall) because of an increasing dependency on coal and slight decrease in energy conservation efforts. The decrease in energy conservation efforts became significant after 1987, the year of the start of Japan's so-called "bubble economy," resulting in further increases in CO2 emissions.

Fig. 10.14 Factors contributing to changes in energy conservation in Japanese manufacturing industry, 1971-1990 (Sources: Agency of Natural Resources and Energy, MITI, Comprehensive Energy Statistics;MITI, Annual Report on Indices on Mining and Manufacturing; Annual Report on MITI's Policy, MITI, 1974-1990)

Trends in factors contributing to changes in energy conservation

Figure 10.14 illustrates the outcome of analyses on trends and factors contributing to energy conservation in Japan's manufacturing industry over the period 1971-1990. We can note that a distinct decrease in energy conservation after 1987 was due chiefly to a decrease in R&D intensity.10

The following equation demonstrates the contribution to R&D intensity of technology substitution for other production factors in the period 1974-1990:

Fig. 10.15 Trend in the elasticity of substitution between energy and technology in the 1980s (Source: See fig. 10.9)

R/S = 1.4(s t1-1)-0.18 (s tk-1)-0.12 (s tm-1)-0.73 (s te-1)-0.32
  (-2.53) (-1.81) (-9.72) (3.78)


Adj. R .979 DW 1.68

where R/S = R&D intensity and s tx = elasticity of technology substitution for production factor x (l = labour, k = capital, m = materials, and e = energy).

This shows that efforts to substitute technology for energy made a significant contribution. The trend in elasticity of substitution between energy and technology in the 1980s is illustrated in figure 10.15. We can see that elasticities rose considerably up to 1986, whereas there was a dramatic decrease after 1987 as a result of a decreasing trend in international oil prices and the succeeding "bubble economy," causing, to a certain extent, a decrease in R&D intensity.

R&D intensity has a strong correlation with R&D's investment share of total investment, with a one- to two-year time-lag (see table 10.4). Considering the decreasing trend in R&D investment as a share of total investment illustrated in figure 10.16, it is strongly feared that R&D intensity may further decrease as a result of the bursting of Japan's "bubble economy" (see fig. 10.17)."

Table 10.5 compares the factors that stimulated energy R&D, R&D for environmental protection, and R&D for information technology in Japan's manufacturing industry over the period 1976-1990. We can note that R&D for environmental protection and energy R&D are sensitive to the level of R&D intensity, in contrast to R&D for information technology.

Table 10.4 Correlations between R&D investment share of total investment and R&D intensity in Japanese manufacturing industry, 1978-1990

Industrial sector Adj. R DW D
Chemicals
ln(R/S) = 0.02 + 0.52 Lag2(ln IR) .933 2.53  
(12.96)      
Iron & steel
ln(R/S) = 0.07 + 0.30 Lag1 (ln IR) + 0.21 D .907 1.58 1985-1987 = 1
(7.36) (4.14)      
Machinery
ln(R/S) = -0.24 + 0.58 Lag2 (ln IR) + 0.06 D .886 1.51 1986-1990 = 1
(8.74) (2.66)      


IR = R&D investment share of total investment, R/S = R&D intensity.

Fig. 10.16 Trends in R&D investment share of total investment in Japanese manufacturing industry, 1976-1992 (Source: See fig. 10.9)

Warning of a decrease in R&D intensity and its impact

The analyses in figure 10.17 and table 10.5 suggest that the R&D intensity of Japan's manufacturing industry will change to a decreasing trend in the near future, resulting in increases in both unit energy consumption and CO2 emissions as estimated in figure 10.18. These analyses also provide us with some warning that, despite its success in overcoming energy and environmental constraints in the 1960s, 1970s, and the first half of the 1980s, Japan's economy once again faces the prospect of constraints following the fall in international oil prices and the succeeding "bubble economy" (MITI, 1992a).

Fig. 10.17 Trends in R&D intensity in Japanese manufacturing industry: Actual values, 1965-1991; estimated values, 1978-1994 (%, using constant prices. Source: See fig. 10.9)

This prompted MITI to develop effective policy measures to reactivate efforts directed towards substituting technology for constrained production factors such as energy and environmental capacity. Moreover, MITI needed to develop a comprehensive approach based on an integration of related programmes (MITI, 1992b).

5. MITI's new comprehensive approach: The New Sunshine Programme

Principal countermeasures to global environmental constraints

Figure 10.19 illustrates the principal countermeasures to global environmental constraints that Japan's manufacturing industry has been taking and is also planning to take on a priority basis in the near future. We can note that waste treatment is currently the highest priority, followed by energy conservation and changes in fuels. Towards 1995, however, whereas priorities for energy conservation and fuel change increase, the priority for waste treatment was expected to decrease. This estimated trend supports the analyses in the previous section and demonstrates the increasing significance of energy conservation and fuel change as the principal measures to counter global environmental constraints.

Table 10.5 Factors stimulating R&D on energy, environmental protection, and information technology in Japanese manufacturing industry, 1976-1990 (firms with capital of more than Y100 million; 1985 constant prices)

   

Multipliers of factors

Adj. R

DW

D

R&D share by objectives

R&D intensity

Energy prices

Energy R&D
ln ENERD = 2.12 + 0.77 ln ENERS + 1.50 ln R/S + 0.45 ln Pe + 0.12 D .918 1.54 1990 = 1 0.77 1.50 0.45
(2.64) (3.70) (1.29) (1.34)            
R&D for environmental protection
ln ENVRD - 2.86 + 1.07 ln ENVRS + 2.08 ln R/S + 0.21 ln Pe - 0.14 D .847 1.85 1986 = 1 1.07 2.08 0.21
(7.94) (8.97) (1.57) (-1.77)            
R&D for information technology
ln INFRD = 2.75 + 1.53 ln INFRS + 0.87 ln R/S + 0.27 ln Pe .999 2.44 1.53 0.87 0.27  
(23.10) (6.25) (4.92)            


ENERD, ENVRD, and INFRD = R&D expenditures on energy R&D. R&D for environmental protection. and R&D for information technology, respectively.

ENERS, ENVRS. INFRS- the ratio of R&D expenditures on energy, environmental protection and information technology. respectively.

R/S= R&D intensity.

Pe = energy prices.

Fig. 10.18 Trends in the average rate of change in R&D intensity, unit energy consumption, and CO2 emissions in Japanese manufacturing industry, 1979-1994 (Note: R&D intensity = ratio of R&D expenditure to sales at constant prices; unit energy consumption = ratio of energy consumption to production. Sources: See fig. 10.14)

Fig. 10.19 Principal measures to counter global environmental constraints in Japanese manufacturing industry, 1992 and 1995 (Source: questionnaire to major firms undertaken by the Japan Development Bank in 1992; total number of valid samples, 657)

The New Sunshine Programme

Objectives

The global environmental consequences of energy use are causing mounting concern regarding the sustainability of the world's development future. Given the two-sided nature of the global environmental issue and energy consumption, a comprehensive approach based on R&D programmes on new energy technology, energy conservation technology, and global environmental technology is needed to lead the way to sustainable development by overcoming both energy and environmental constraints simultaneously (MITI, 1992a).

In this regard, MITI decided to establish the New Sunshine Programme (R&D Programme on Energy and Environmental Technologies) in April 1993 by integrating the Sunshine Project, the Moonlight Project, and the Global Environmental Technology Programme, as illustrated in figure 10.20 (MITI, 1992b). This is expected to achieve effective and accelerated achievement of R&D in the fields of energy and environmental technologies by means of co-utilization and supplementation of such key technologies as catalysts, hydrogen, high-temperature materials and sensors common to new energy? energy conservation and environmental protection. In addition, the New Sunshine Programme is expected to provide a new concept for an environmentally friendly technology system and inspire a new principle to be pursued under global environmental constraints.

Fig. 10.20 The basic concept of the New Sunshine Programme (Notes: a. total R&D expenditure indicates the accumulation of MITI's R&D budget; b. includes R&D on hydrogen, solar, wind, and geothermal energy, and synfuels such as coal liquefaction; c. includes R&D on fuel cells and energy storage; d includes R&D on chemical CO2 fixation and utilization; c. action to stabilize per capita and total CO2 emissions at 1990 levels by the years 2000 and 2010, respectively; f. action to restore the Earth over future decades through the reduction of greenhouse gases)

The structure of the New Sunshine Programme

The New Sunshine Programme comprises the following three R&D programmes in the field of energy and environmental technologies:

• The Innovative R&D Programme - aims to accelerate R&D on innovative technology essential for the achievement of the goal of "The Action Programme to Arrest Global Warming," which is to stabilize per capita CO2 emissions at 1990 levels by the year 2000.

• The International Collaboration Programme for Large-scale R&D Projects aims to initiate large international R&D projects expected to make a significant contribution to the achievement of the goal of "New Earth 21," which is to restore the Earth over future decades through the reduction of greenhouse gases (fig. 10.21).

• The Cooperative R&D Programme on Appropriate Technologies aims at the development and assimilation of appropriate technologies in neighbouring developing countries through cooperative R&D on technologies originating from the Sunshine Project and the Moonlight Project.

Fig. 10.21 The development programme of the New Sunshine Programme's projects in conjunction with the action programmes of "New Earth 21" (Notes: a. broad-area energy-utilization network system; b. world energy network - international clean energy network using hydrogen conversion)

Development programme

Priority projects in the New Sunshine Programme can be classified into two basic types:

1. Acceleration projects, which are expected to lead to practical use in the near future by means of a virtually spiralling cycle (decrease in costs through technological improvement (r) increase on demand (r) further decrease in costs through mass production) triggered by an acceleration of R&D.

2. Innovative synthetic system projects, which are expected to achieve an extremely high level of breakthrough by means of a synthesis of key technologies.

Cost and benefit estimates

The budget requirement for the New Sunshine Programme's projects over the period 1993-2020 is estimated at Y1,550 billion (US$11 billion). Of this amount, Y54 billion (US$390 million) will be disbursed in JFY 1993, with such investment expected to contribute to reducing Japan's energy and environmental constraints by one-third and one-half, respectively, by 2030.

6. Implications for sustainable development

Increasing constraints of energy and the environment, especially the global environmental consequences of energy use, are causing mounting concern, and it is widely warned that these consequences could limit the ability to sustain future development. Considering the two-sided nature of the global environmental issue and energy consumption, Japan's success in overcoming the energy crises while maintaining economic growth and attaining a dramatic improvement in its technological level could provide useful suggestions on the question of how technology can be utilized to sustain development.

Summarized briefly, these suggestions include the following:

The basic principle of a constrained economy suggested by Industry Ecology

The following suggestions obtained from Industry-Ecology may be useful as basic principles applicable to a constrained economy:

- recognition of confinement;
- recognition of system;
- recognition of redundancies;
- recognition of dose-response; and -discipline of self-control.

Technological development as a system

Japan's success with respect to technological development and its effective contribution to economic development can be attributed to the integration of both internal and external technology in a cyclical system similar to an ecosystem. This suggests that careful consideration, taking into account the global environmental issue as a significant factor of external technology, is especially important in furthering R&D.

A grave situation turned into a springboard

Another important observation is that Japan was able successfully to change a grave situation such as the energy crisis into a springboard for technology development by using the situation as an external stimulus that might dampen "homeostasis." This suggests that integrated efforts directed towards overcoming the global environmental issue could be a springboard for effective R&D and stimulate the potential vitality of industry.

Stimulation to substitute as a basis of a constrained economy

An analysis of trends in the substitution of limited production factors such as energy by technology indicates that Japanese technological development succeeded by focusing on efforts to break through the constraints of the scarcest resources of the 1970s and 1980s. This suggests that a comprehensive approach that challenges the limits of sustainable development by substituting new technology for energy and environmental constraints could lead to a new frontier.

Notes

1. E= E/IIP- (V/IIP)-1 • V

D V/V - D E/E = D (V/IIP)(V/IIP) - D (E/IIP)/(E/IIP) + h

where E = energy, IIP = index of industrial production, and V = value added.

2. In the analysis of my previous work with respect to the analysis of trends in the substitution of production factors by technology in Japan's manufacturing industry over the past 20 years, the following conclusions were supported (Watanabe, 1992b). Triggered by the sharp increase in energy prices due to the two energy crises, energy has been substituted by technology and also, to some extent, by capital. The sharp increase in energy prices also resulted in an increase in labour prices, which has induced labour to be substituted by technology. Although capital and materials have been complementary to technology, they have been shifting towards substitution by technology. Thus, all of the production factors have been, directly or indirectly, substituted by technology or have been shifting in that direction.

3. MITI's Vision, in order to establish a knowledge-intensive industrial structure, stressed the significant role of innovative R&D, which leads to less dependence on materials and energy in the process of production and consumption. It also stressed that such reduced dependence could he possible by means of intensive conservation and recycling of resources (materials and energy) in a long, global, and ecological context, and that R&D aiming to develop "limit-free energy technology" (technology-driven clean energy) was significant.

4. MITI attempted to construct a cyclical system, similar to an ecosystem, which aims to maintain homeostasis (checks and balances that dampen oscillations) through the cycle of producers (r) consumers (r) decomposers (r) abiotic substances (r) producers (Odum, 1963).

5. A chronology of MITI's efforts can be summarized as follows (MITI, Annual Report on MITI's Policy, 1970 l990; MITI, 1972a,b):

1971 May MITI's Vision for the 1970s ('limit-free energy technology" - technology-driven clean energy in an ecological context).
May Organization of an ecology research group.
1972 March First research report by the research group.
April Advice by MITI Minister's Secretariat to consider a new policy based on the ecosystem principle.
1973 March Second research report by the research group.
April Advice by MITI Minister's Secretariat to formulate a new policy based on the ecosystem principle.
May Start of policy formulation.
Aug. Budget requirement of the Sunshine Project.
Oct. The first energy crisis.
Dec. Government's approval for the Sunshine Project's FY 1974 budget.
1974 July Start of the Sunshine Project.
1978   Start of the Moonlight Project.
1979   The second energy crisis.
1980   Establishment of the New Energy Development Organization (NEDO).
1983   Start of the fall in international oil prices.
1985   Plaza Agreement (appreciation of the yen).
1987   Start of the "bubble economy."
1988   Start of the Global Environmental Technology Programme.
1991   Bursting of the "bubble economy."
1993   Start of the New Sunshine Programme.


6. The mechanism of MITI's policy system for such stimulation can be summarized as follows
(Watanabe and Honda, 1991):

- penetration and identification of future prospects and strategic areas,

- formulation and publication of visions,

- provision of policy measures that stimulate such substitution in order to induce industries to increase their R&D intensity,

- the potential for further technological development increases as the degree of R&D intensity increases,

- expectations on the outcome of technological development among industries increase,

- inducing further investment in R&D activities, and

- building up dynamism conducive to technological development.

7. MITI's energy R&D can be categorized as follows:

Unconstrained energy resources: energy conservation, hydrogen, solar, ocean, coal conversion, coal, nuclear
Constrained renewable energy resources: geothermal, wind, biomass, hydro
Constrained conventional energy resources: oil and gas

8. Japan's CO2 emissions in 1990 are distributed as follows (inclusive of CO2 in the power generation process):

Industry: 47.6% (manufacturing industry: 43.1%)
Residential and commercial: 22.6%
Transportation: 18.5%
Other: 11.3%


9. C = C/E E/I • (V/I)-1 • V

where C = CO2, E =energy, I = IIP, and V =value added.

D C/C = D (C/E)/(C/E) + D (E/I)/(E/I) - D (V/I)/(V/I) + D V/V

where D (C/E)/(C/E) = change in fuel or fuel switching
  D (E/I)/(E/I) = change in unit energy consumption or energy conservation
  D (V/I)/(V/I) = change in industrial structure.

 

10. ln(E/IIP) = -0.002-0.971 ln(R/S)-0.141 ln(Re/R)-0.131 ln(Pe)
  (-11.00) (2.80) (2.25)

Adj. R .950 DW 1.71

where E = energy consumption, IIP = index of industrial production, R = R&D expenditure, S = sales, Re = expenditure on energy R&D, Pe = energy prices.

11. The estimation function for figure 10.17 is as follows:

ln(R/S) = -0.56 + 0.65 In(Lag2(RD/I)) + 0.07D
(26.68) (3.94)

Adj. R .987 DW 2.23 D 1986, 1991 = 1

where R/S= R&D intensity (ratio of R&D expenditure to sales at constant prices). and RD/I = R&D investment share of total investment.

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