Commodities
Redirecting Gasoline Subsidies to EVs Could Improve Japan's Energy Security, IEEFA Says
Japan could strengthen energy security by accelerating electric vehicle adoption and reducing oil demand rather than seeking new crude suppliers, the Institute for Energy Economics and Financial Analysis said Tuesday.To limit supply disruptions, Japan has released oil reserves, pursued alternative crude imports, and subsidized domestic fuel wholesalers, yet the country still sourced 94% of its oil imports from the Middle East in 2025 despite spending more than 9 billion Japanese yen ($56.3 million).Although Japan cut annual crude oil consumption by 40% between 2000 and 2024, oil still accounted for 34.5% of primary energy supply in 2024 and remained high relative to other Group of Seven economies, IEEFA said.Utilities drove much of the decline in oil use, with fuel-oil consumption falling 69.3% from its 1994 peak to 2023 as power producers shifted away from oil-fired generation following energy-market reforms, rising costs, and greater use of liquefied natural gas and renewable energy.Kerosene demand dropped more than 62% between its 2000 peak and 2023 as electric heating systems gained popularity, building efficiency improved, and warmer winters reduced consumption, leaving usage concentrated mainly in the Tohoku region, the report said.Transportation remains a major source of oil demand, with gasoline, diesel, and jet fuel accounting for 27%, 24% and 8% of petroleum-product consumption in 2023, while gasoline use fell 27.8% from its 2005 peak and diesel demand declined 26.5% from its 1997 peak.Japan has explored new crude sources by discussing investments in Alaska in March 2026 and agreeing to import 1 million barrels from Mexico a month later, but IEEFA said that falling production in both regions could limit meaningful supply growth.Alaska's oil production fell 80% between 1988 and 2025 and may require up to a decade to deliver significant new output, while Mexico's crude production declined by more than 50% between 2004 and early 2024.A more effective way to strengthen Japan's energy security would be to reduce domestic oil consumption by accelerating transport electrification, as replacing disrupted imports would still leave the country exposed to global oil price swings.Japan has targeted 300,000 EV charging sites by 2030 and aims for electrified vehicles to account for 100% of new passenger-vehicle sales by 2035. EV charging locations have already increased by 41% over the year to 68,000 sites as of March 2025, IEEFA said.Japan allocated 129 billion Japanese yen for EV purchases in fiscal 2024 and another 5.5 billion Japanese yen to support charging and energy-storage equipment, IEEFA said.The report said Japan spent 6 trillion Japanese yen on gasoline subsidies between 2022 and 2024, compared with 171 billion Japanese yen for EV purchases and charging infrastructure, and argued that redirecting more funding toward EV incentives, battery production, and the used-EV market could reduce oil dependence and improve long-term energy security.Japan's EV adoption remains the slowest among Group of Seven countries, with electric vehicles accounting for just 3% to 4% of new passenger-vehicle sales between 2022 and 2024, IEEFA said.Japan should shift part of its gasoline-subsidy spending toward EV purchases, charging infrastructure, and domestic battery production to lower vehicle costs and accelerate the electrification of transport, IEEFA said.The report also urged policymakers to strengthen the used-EV market, noting that about 80% of unsold used EVs are exported, while arguing that broader EV adoption would reduce crude-oil dependence and improve Japan's energy security.