The government picking winners and losers is bad for any economy. But it also often leads to the opposite of the intended result. Take a look at Japan.
Last week, an expert committee from Japan’s Ministry of Economy, Trade, and Industry announced its plan to reduce the price of solar energy from 42 yen to 37.8 yen (43.7 cents to 39.3 cents USD) per kilowatt per hour. This is a continuation of the Japanese government trying to pick a winner in the energy sector by subsidizing it.
After March 2011’s earthquake, former Prime Minister Naoto Kan took the initiative to push for more green energy sources, emphasizing wind and solar energy. The price of nuclear energy, before the shutdown of nearly all of Japan’s nuclear reactors, was roughly 6.5 yen (8 cents USD) per kilowatt per hour. Solar energy was roughly 49 yen (60 cents USD) per kilowatt per hour.
His plan aimed to wean Japan off nuclear energy, which at the time supplied 30 percent of total energy, and to double Japan’s reliance on renewable energy to 20 percent.
Meanwhile, this green initiative is actually forcing Japan to rely more on fuel imports, long a worry for the country. Last year, Japan spent roughly 24 trillion yen on fuel imports, an amount three times its trade deficit that year. In 2011, its fuel imports totaled 21.8 trillion yen, 4.4 trillion more than 2010 and 7.6 trillion more than 2009—significant for a country trying to expand its use of green energy.
Japan should stop subsidizing uncompetitive companies and industries. A return to large-scale use of nuclear energy—as part of a mix of resources determined by the market—even if not at the 30 percent level, would boost the domestic economy with cheaper energy supplies and reduce the risks from growing dependence on fuel imports.