Japan: Lessons From A Miser

Into the gaping maw of a white-hot blast furnace, millions of plastic pellets rain down to fuel the fires that produce molten pig iron at one of Japan's biggest steelmakers. The pellets, made from recycled plastic soda bottles and other containers, account for about 10% of the fuel used by JFE Holdings Inc. (JFEEF ), Japan's second-largest steelmaker, at its two main blast furnaces. Thanks to a strong law requiring recycling, the price of the processed pellets is competitive with imported coal. JFE is so happy with the pellets that it set up its own recycling plant in 2000 near one of its furnaces.

If China is serious about improving its energy efficiency, it ought to look at its regional archrival -- Japan. Forty years ago, Japan imported some 99% of its oil. That's the same level as today. But Corporate Japan is so intent on keeping fuel costs down that its ratio of energy consumption to gross domestic product fell 33% between 1973 and 2000. "In this resources-poor country, improving resource-consumption efficiency is the first priority in any line of business," says Mitsuhito Ono, chief economist at the Institute for International Trade & Investment in Tokyo.

Japan's obsession with energy efficiency started when the oil shocks of the 1970s ended two decades of double-digit growth. It was a bracing wake-up call, and Japan responded in 1979 with a new energy-saving law and by jacking up gasoline taxes -- one reason gas in Japan costs twice as much as in the U.S. Japan also offers hefty tax breaks to consumers who pass over a Mazda RX-8 roadster for a super-fuel-efficient Toyota hybrid or Suzuki minicar.

Japan has also invested heavily in nuclear reactors. There are 53 in operation, producing 26% of the country's electricity. And while Japan has suffered a string of nuclear accidents, more plants are being built. As a percentage of nominal GDP, the government says the amount of energy derived from oil has fallen from nearly 5% of the total in 1980 to about 1% today. That helps explain why the Paris-based International Energy Agency reported last year that a $10 hike in oil prices would shave only 0.4 percentage points off Japan's GDP growth, compared with 0.8 points in the rest of Asia.

Now the conservation effort is about to go into overdrive. Under the terms of the Kyoto Protocol, Japan pledged to reduce greenhouse gas emissions to 6% below 1990 levels by 2012. That means cutting energy waste even more. And if any country can hit that target, it's Japan.

By Hiroko Tashiro in Tokyo, with Chester Dawson in New York

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