Japan extends oil product subsidies to 2024

Market: Electricity, Oil products
24/10/23

The Japanese government will extend domestic oil product subsidies until spring next year to mitigate the impact of soaring energy prices.

The government will extend subsidies for gasoline, gasoil, kerosene and fuel oil, said the country's prime minister Fumio Kishida on 23 October. The government is expected to provide more details, including the precise timelines for the subsidies, when it announces its comprehensive economic stimulus package soon.

The subsidies have been extended as the domestic economy is experiencing severe inflation without sufficient corresponding increases in wages, said Kishida. The government had in September extended the subsidy period until the end of December.

Fuel consumption will increase as winter is approaching, said minister of trade and industry Yasutoshi Nishimura on 24 October. "Without the subsidy, the gasoline price could exceed ¥200/litre ($212/bl)," Nishimura said, adding that the price has been kept under ¥175/litre with the subsidy. The minister voiced concerns last week that the "Oil price is in an underlying upward trend," following the Hamas-Israel conflict and voluntary oil production cuts by some Opec+ members.

But Nishimura also reiterated the importance of an exit strategy as the subsidies require a few trillion yen of public spending. Transforming the country's economy into a more "energy crisis-resilient structure" is required, he added.

The subsidies are not "inefficient fossil fuel subsidies that encourage wasteful consumption," said trade and industry ministry Meti, in reference to G20 members pledging to phase out and rationalise fossil fuel subsidies over the medium term.

Japan, which held the G7 presidency this year, has continued domestic support for fossil fuel consumption in the wake of last year's energy crisis. To mitigate the impact of rising oil product prices, Meti has set aside ¥6.2 trillion for January 2022-December 2023. It has also allocated ¥3.1 trillion to cap rises in retail electricity and city gas prices throughout 2023 to ease inflation.

Global fossil fuel subsidies exceeded $1 trillion in 2022, a record high according to differing methodologies used by the IMF and IEA. Governments have scrambled to cushion the impact of higher energy prices resulting from the war in Ukraine. But more than half the subsidies were in fossil fuel exporting countries, the IEA found. Including implicit subsidies, levels have ballooned to $7 trillion, the IMF says.

By Yusuke Maekawa

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