Japan is a highly industrialized island nation with few domestic resources and heavily dependent on atomic energy and fossil fuels, which still deliver around 83% of the primary energy supply. Atomic power was scaled back after the Fukushima catastrophe in 2011 but has revived somewhat and is now being pushed by the current government, which does not favor renewable energies. Japan, however, has very good potential for renewable energies, with more sun, wind and biomass plus volcanoes with excellent geothermal energy sources when compared to Germany. Nevertheless, it has just half the RE quota.
In the energy sector, Japan has a very well-organized industry with 10 utilities and trading houses, which use and even partly own (!) fossil fuel sources in other Asian countries. They collaborate well with the government and of course prefer the traditional fossil and nuclear energy sources. Adding to this low incentive to switch to renewables are also some natural challenges, like vast mountainous areas covering 70% of Japan, many islands, and steeply sloping coastal shelves, which increase the costs for exploitation. On the other hand, renewable generation is cheap and would make Japan more independent of imports.
Japan committed early to reducing emissions and now faces a critical energy crossroads due to geopolitical change, the necessity of securing a stable supply, and the environmental mandate of achieving net-zero emissions. Consequently, the national strategy is governed by the energy doctrine S+3E: Safety, Energy Security, Economic Efficiency, and Environment. The lessons from the 2011 Fukushima Daiichi Nuclear Power Station accident remain the "starting point for Japan’s energy policy," establishing safety as the highest priority.
The strategy guided by the S+3E principle has been laid out in the 7th Strategic Energy Plan (SEP) approved in 2025 with the following Key Strategic Pillars:
Renewable Energy: The 7th Strategic Energy Plan is the first to designate renewables as the largest future power source, but with a non-binding target of 40–50% by 2040. Despite high potential (solar, wind, geothermal) in Japan, deployment is slow due to structural barriers, utility monopolies, and physical constraints such as a lack of suitable land.
Nuclear Power: The strategy involves a controversial recommitment to nuclear power, aiming for it to make up approximately 20% of the electricity mix by 2040 to provide stable base load power. Critics argue that this is a political decision to avoid retiring old reactors, which, however, present safety risks in an "earthquake country" and which are also inflexible and block the deployment of renewables. However, just this January, the current Prime Minister, Takaichi, announced a stronger focus on nuclear power.[i]
Fossil Fuels: Thermal power is to maintain a significant role (30–40% by 2040) to ensure grid stability. The government is promoting hydrogen and ammonia co-firing and carbon capture (CCUS) technologies to decarbonize this sector, a strategy that risks "carbon lock-in" and stranded assets. Critics say this is because of the engagement of many Japanese companies, especially the trading houses, in fossil fuel sources in other Asian countries.
The GX Initiative is Japan's core industrial policy to stimulate ¥150 trillion in public-private investment through state-led financing mechanisms, such as GX Transition Bonds and phased carbon pricing. While it successfully mobilizes capital and supports the narrative that decarbonization can drive economic growth, it has been criticized for reversing market liberalization and protecting incumbent power companies.
Challenges and Outlook
After falling energy consumption for years, Japan faces an imminent "demand crisis" as electricity demand is expected to increase by up to 20% by 2040, driven by digitalization, AI, and data centers. The central challenge in the transition is balancing energy security with the need for rapid decarbonization, while overcoming powerful institutional inertia and the influence of incumbent industries who favor centralized, large-scale assets and fossil fuels over decentralized renewables.
A positive development can be seen in local governments, which are already acting in a more environmentally friendly way, but the central industry-government nexus – which has very strong advantages in efficiently facing challenges – must still move collectively towards renewable energies to escape import dependencies and reduce prices.
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The views, conclusions and recommendations expressed in this report are solely those of its author(s) and do not reflect the view of the Konrad-Adenauer-Stiftung, or its employees.