Executive summary

Japan is reshaping its energy system, while balancing its multiple objectives and managing geopolitical and market volatility. Its approach is pragmatic and deeply rooted in the long-standing S+3E principle: safety, energy security, economic efficiency and environment. The 7th Strategic Energy Plan and the Green Transformation (GX) framework set out a strategy that links energy diversification, industrial competitiveness and innovation. This Energy Policy Review offers constructive advice on how Japan can translate that strategy into delivery, paying particular attention to natural gas, hydrogen and ammonia, and geothermal energy.

The GX framework aims to deliver three objectives simultaneously: stable energy supply, economic growth and decarbonisation. It seeks to mobilise large-scale public and private investment, supported by the gradual introduction of carbon pricing. It frames the energy transition not only as an emissions-reduction agenda, but also as a way to strengthen industrial competitiveness through efficiency, electrification, innovation and new fuels. Under the GX Promotion Strategy, Japan aims to mobilise JPY 150 trillion (around USD 1 trillion) of public and private investment over a ten-year period, while the 2023 GX Promotion Act provides a stable basis for long‑term investment. Japan can further improve alignment and continuity across the innovation ecosystem and reinforce the effectiveness of carbon-pricing instruments to support its longer term objectives.

Japan’s progress over the past decade provides a strong foundation; the next phase would benefit from more technology-neutral and competitive policy instruments. Energy consumption and greenhouse gas (GHG) emissions have fallen while economic output has grown, reflecting Japan’s world-leading efficiency policies, strong institutions and deep innovation base. Yet due to the country’s unique structural circumstances, including its high import dependence (a self-sufficiency rate of 16.3% in 2024), fossil fuels still account for over 80% of total energy supply. To address this challenge while maintaining flexibility and resilience, Japan’s strategy supports a wide array of low-emissions technologies, including innovative options like hydrogen and ammonia, carbon capture and storage, advanced nuclear technologies, perovskite solar cells and next-generation geothermal energy. Wider use of competitive mechanisms that allow different technologies to compete on performance would improve cost-effectiveness and reinforce policy stability.

Natural gas remains a cornerstone of Japan’s energy security, and greater transparency could strengthen an already resilient supply framework. Imported liquefied natural gas (LNG) accounts for around one third of Japan’s electricity generation. Diversification, overseas equity participation, long-term contracts and strategic LNG buffers have created resilience. Building on this foundation, enhanced third-party access to LNG terminals and increased information disclosure in low‑competition regions would support more efficient infrastructure use, increase regulatory oversight and enhance market confidence, provided these measures are carefully calibrated to the country’s security objectives.

Electricity sits at the intersection of rising demand, an evolving generation mix and affordability. Japan is already one of the most electrified economies in the IEA. After a decade of decline, electricity demand is expected to grow again, driven by data centres, semiconductors and wider electrification. This reinforces the importance of accelerating the deployment of nuclear energy and renewables. Japan has committed to ending new unabated coal and is phasing out inefficient units while maintaining sufficient thermal capacity for system stability. To attract timely investment and contain costs, the capacity, spot and balancing markets should send consistent and technology-neutral signals, including through stronger scarcity pricing and expanded market access for flexibility providers.

Accelerating grid modernisation and connection is essential for electricity security if Japan is to integrate more renewables, storage and new sources of demand. Renewables supplied nearly one-quarter of electricity in 2024 and are projected to account for 40-50% of supply by 2040. Japan is already a global leader in installed solar capacity per unit of land area, while offshore wind is an important strategic priority. The dual-frequency grid, with 50 hertz (Hz) in eastern Japan and 60 Hz in western Japan, continues to constrain interregional flows, and the deployment of grid-scale battery storage remains modest despite a large number of applications for new projects. Stronger incentives to modernise and expand the network – e.g. through performance-based regulation and targeted investment frameworks – and faster connection processes for new generation, storage and large loads, would help unlock investment and improve system flexibility.

Nuclear energy is regaining an important role in Japan’s energy mix. A clear timetable for restarts and new builds would help system planning, operations and investments. The government has made significant efforts to raise public awareness and acceptance of nuclear power. By the end of 2025, 14 reactors, representing around 13 gigawatts (GW), had resumed operation and a further 12 GW were advancing through approval processes. Kansai Electric Power’s 2025 decision to begin surveys for a replacement reactor at Mihama was a notable step towards possible new construction. However, long lead times and licensing uncertainties may deter investment. Japan can increase confidence by setting transparent licensing and deployment timelines for large-scale reactors and small modular reactors (SMRs), while continuing to prioritise nuclear restarts on the basis of assured safety and the understanding of local communities.

A policy push in buildings and transport would help sustain Japan’s efficiency leadership and broaden the benefits of the transition. Japan has long been a global leader in energy efficiency, particularly through its Top Runner Program. Mandatory energy performance standards for new buildings took effect in 2025, but much of the existing building stock is under-insulated. A clearer roadmap towards zero-energy buildings, aligning standards, incentives, finance and skills, would support faster renovation. In transport, Japan’s leadership in hybrids and its “range of pathways” approach offer flexibility. Faster charging deployment towards its 2030 target, clearer life cycle assessments, stronger price signals for road fuels and a sharper focus on zero-emission mobility would increase the sector’s contribution.

Hydrogen and ammonia are distinctive pillars of Japan’s strategy. Their impact will depend on deploying them where they are the most competitive and needed. Japan published the world’s first national hydrogen strategy in 2017 and has set clear supply targets to 2050, supported by a price-gap mechanism based on a 15‑year contract for difference model. Japan should focus low-emissions hydrogen, ammonia and derived fuels in sectors with limited alternatives, including energy‑intensive industry, while using early power sector demand carefully to anchor supply chains, build experience and reduce costs without locking in inefficient pathways.

Geothermal energy is a major domestic opportunity that could be unlocked through stronger risk-sharing, clearer permitting and local partnership. Japan has large untapped geothermal resources, yet installed electricity capacity remains below 1 GW despite an estimated technical potential of around 100 GW from conventional and next-generation resources. Development has been slowed by high early-stage exploration risk; long lead times; complex permitting, particularly in national parks; and the need to build durable local acceptance. To reach its target of 1.5 GW by 2030, and a longer term ambition of around 7.7 GW, Japan could further strengthen a milestone-linked risk-sharing approach that crowds in private investment while streamlining permitting requirements according to project size, location and risk.

Japan is well-placed to demonstrate how a resource-constrained economy can advance a secure, affordable, technology-rich energy transformation. The priority now is implementation. This requires stronger market signals; clearer links across innovation and deployment; faster infrastructure delivery; and consistent prioritisation of cost-effective pathways across sectors. Japan looks to advance its energy policy goals with significant advantages, including strong institutions, technological capabilities, well-developed policy frameworks and a long tradition of strategic energy planning. Matched by timely execution, they can help Japan strengthen its own energy security and competitiveness while offering valuable lessons for the wider region and the world.