July 11 (Bloomberg) -- Rikuzentakata, like many cities on Japan’s rugged northeast Pacific coast, was in decline even before last year’s tsunami killed 1,700 of its 24,000 inhabitants and destroyed most of its downtown buildings.
With two-thirds of the remaining residents homeless, Mayor Futoshi Toba questioned whether the city could recover, Bloomberg Markets magazine reports in its August issue. Damage to infrastructure and the economy, he said, would force people to move away to find jobs.
Sixteen months later, the city is trying to rebuild in a way that Toba says would reinvent the region and provide a model to overcome obstacles that have hobbled the Japanese economy for more than 20 years: the fastest-aging population in the developed world, loss of manufacturing competitiveness to China and South Korea and reliance on imported fossil fuels.
Rikuzentakata is part of a government program to create one of the country’s first so-called ecocities.
They would be smaller and more self-sufficient and would lower costs through technology and create new jobs in renewable energy to replace those lost to the decline of agriculture and fisheries.
Toba says Japan must address the depopulation of rural areas that has coincided with agriculture’s shrinking role in the broader economy -- from about 6 percent in the 1970s to 1.4 percent today -- and it must do so as soon as possible.
“It’s a race against time,” he says.
Ecocities can lead the way, says Hideaki Miyata, an engineering professor at the University of Tokyo who’s advising local officials on the project.
“We can provide a solution for Japan’s super-aging society,” he says. “Younger people were already leaving these cities, but what we’re planning to do here will provide new jobs and factories.”
That’s essential, says Kiyoshi Murakami, an executive at BNY Mellon Asset Management Japan Ltd. who grew up in Rikuzentakata and also advises Toba.
“For the ecocity, its impact on employment is the most important thing,” he says.
After the tsunami, which reached as high as the fourth story on the city’s seafront hospital, Rikuzentakata joined forces with neighboring Ofunato and Sumita in the Kesen district.
They applied for aid under the national government’s FutureCity program, which has an annual budget of about 1 billion yen ($12.5 million) to create blueprints for urban development that promotes environmental protection and clean-energy use.
The goal of the Kesen project is to generate at least 50 percent of the region’s electricity through solar and other renewable-energy sources, reducing Kesen’s near-total dependence on Tohoku Electric Power Co., Japan’s fifth-largest utility, and lowering electricity costs for the area’s 67,000 residents.
Planners say they hope to attract clean-energy companies, including makers of lithium ion batteries used to store power before it is fed to the grid.
They also envision using electric buses to ferry residents around town and rebuilding schools to double as community centers and evacuation shelters, thereby streamlining public infrastructure.
Making the Kesen project a reality hinges on how much of the central government’s 19 trillion yen in reconstruction spending goes to the three cities, as well as alternative-energy subsidies, says another project adviser, Kimikazu Uemura, chief executive officer of Index Consulting Inc., a project management firm.
“It’s important that whatever is built brings new business and is sustainable,” he says. “If the government focuses only on rebuilding existing infrastructure, we’ll have areas with new roads and buildings but nobody living there.”
The regeneration ideas swirling around Kesen fit the current anti-nuclear Japanese zeitgeist.
After the March 2011 tsunami damaged the Fukushima Dai-Ichi nuclear power plant, and radiation spread across the area, polling by the Asahi newspaper found that 74 percent of those surveyed were in favor of decommissioning all of Japan’s reactors.
The sour mood is deepening long-standing public disaffection with the economic and political malaise that has gripped Japan since the asset-bubble collapse of the early 1990s, says Andrew DeWit, a professor of the politics of public finance at Tokyo’s Rikkyo University.
The economy has contracted in three of the past four years. As of June 11, the Nikkei 225 Stock Average had fallen 78 percent from its peak in December 1989.
In May, Fitch Ratings cut Japan’s yen sovereign rating by two levels, to A+ from AA, as the country struggled to rein in the biggest public debt burden -- both in absolute terms and as a percentage of gross domestic product -- in the world. The amount of debt is expected to exceed a quadrillion yen for the first time this year.
In rejecting nuclear, DeWit says, the Japanese are rejecting the web of cozy ties at the very top of society, forming what’s commonly called “the nuclear village” -- the politicians, utilities, bureaucrats and academics that promoted Japan’s reliance on atomic energy in the first place.
Energy shortages risk making things worse. Nuclear power has been the linchpin of the resource-poor country’s economic planning since the 1960s.
It has fed industrial giants such as Toyota Motor Corp. and Sony Corp. that helped Japan recover from the devastation of World War II to become the world’s second-largest economy by 1967.
Before the disaster, Japan depended on atomic power for 30 percent of its energy needs.
That share had fallen to zero by May 5 this year as nuclear plants taken offline for regular maintenance weren’t restarted while the government and regulators scrambled to reassure a doubting public of their safety.
The impasse ended in June when Prime Minister Yoshihiko Noda approved the restart of two reactors in western Japan, a measure he says is necessary for the economy. The first was running at full capacity by July 9.
Still, the long-term policy remains to reduce dependency on nuclear and move toward renewables such as wind and solar.
That’s good news for nontraditional energy companies, as well as Kesen-like smart-city projects.
To help the upstarts, the government is introducing so-called feed-in tariffs that force utilities to pay a higher price for renewable power over the next 20 years: 42 yen per kilowatt-hour compared with the 13.65 yen rate charged to industrial and commercial users.
This allows new, alternative-energy operators, who face high startup costs, to enter the market on a more competitive footing.
Out of 11 cities in the government’s FutureCity program, six are in the tsunami-hit northeastern region, which Jun Iio of Japan’s Reconstruction Design Council says is “a microcosm of the problems being faced by all of Japan.”
About a third of Rikuzentakata’s population is over the age of 65. Japan’s population, which peaked in 2005, is poised to shrink to 125.2 million in 2014 from 127.7 million last year, according to data compiled by Bloomberg.
People over the age of 65 make up about 23 percent of the population, a proportion that may increase to 40 percent by 2050, government estimates show.
Smart cities can help reverse rural decline, DeWit says. There’s an economic rationale for converting land to renewable-energy use.
Rice paddies that were inundated with seawater in March 2011 can yield more profit if they’re covered with solar panels than if they’re rehabilitated as agricultural land.
“When you’re sitting on land, or an old factory, rather than clear it up, you can cover it with solar panels,” says Penn Bowers, a utility and trading-company analyst at CLSA Asia-Pacific Markets in Tokyo.
That’s what Masayoshi Son, Japan’s second-richest person, would like to do on irradiated farmland around the Fukushima plant, including the strict no-go area that can’t be used for crops or grazing.
The CEO of mobile-phone-service provider Softbank Corp. is eager to press ahead with a vast array of solar plants producing more than 200 megawatts, enough to power about 48,600 homes. He’s awaiting passage of government legislation that would guarantee projects such as his access to the electricity grid.
The spread of new energy sources could create opportunities for players other than utilities, says Ali Izadi-Najafabadi, an energy technologies analyst at Bloomberg New Energy Finance.
Wind and sunshine aren’t constant, and the energy they produce needs to be stored in batteries so that it can be released in such a way as to meet the ebb and flow of peak and off-peak consumption.
By the end of the year, Japan may have more lithium-ion batteries installed on the power grid than any other country, Izadi-Najafabadi says.
“That wouldn’t have happened without Fukushima,” he says. “The utilities weren’t considering these so-called smart-grid technologies. They operate in a different world now.”
Hitachi Ltd. and NEC Corp., both makers of industrial-grade batteries, are among 30 companies in the Kesen ecocity consortium.
Creating demand in northeast Japan may help battery makers compete against global rivals, the University of Tokyo’s Miyata says.
“Japan led the development of lithium-ion batteries for use in consumer electronics and then with cars,” Miyata says. “Each time, Korea and China caught up rapidly, and now, everyone is trying to be first to develop the next generation of batteries, which is industrial, large scale.”
In Rikuzentakata, Mayor Toba has a personal stake in regeneration.
His wife was killed when the tsunami engulfed their seaside home. He was at city hall and survived, as did their two children, who were at school.
Reborn, Rikuzentakata would be a fitting legacy to those who perished.
“We have to do more than simply rebuild houses,” Toba says. “If we do that but don’t provide people with jobs, their lives won’t get better.”
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