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Government policy and the development of

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 ARTICLE IN PRESS

Energy Policy 34 (2006) 433443

www.elsevier.com/locate/enpol

Government policy and the development of electric vehicles in Japan

Max Ahman
Department of Environmental and Energy Systems Studies, Lund University, Gerdagatan 13, SE-223 62 Lund, Sweden
Available online 10 August 2004

Abstract

The aim of this paper is to analyse the role that the Japanese Government has played in the development of alternatives to
conventional vehicles, the effect of government programmes, and the importance of technical exibility in government support
schemes. The focus is on battery-powered electric vehicles (BPEVs), hybrid electric vehicles (HEVs), and fuel cell electric vehicles.
The effects of government policy and the process of innovation are analysed from a systems approach drawing on the literature
regarding technical change and innovation. The whole chain of government support, including the context in which these different
policies have been implemented since the early 1970s, is studied.
The Japanese Government has adopted a comprehensive strategy including R&D, demonstration programmes and market
support guided by long-term strategic plans. The role of the Government has been that of a conductor in the development process
supplying both R&D support and articially created niche markets, and easing the way for targeted technologies by means of
legislation and standards.
Despite this, the targeted technology (the BPEV) has not been established on the market. However, the recent market success of
the HEV can partly be attributed to the government support of the BPEV technology. The enabling component, the electric
drivetrain, was developed for automotive use within the BPEV programmes offered by the MITI. This technology was later utilised
in the HEV.
The history of BPEVs in Japan demonstrates that picking winners in government policy is not easy. Despite a sustained and
ambitious policy by the MITI, the development of alternative vehicles never unfolded according to plan. The success factors for
policy seem more related to technology specic features than the particular policy style. Our conclusion is that exibility,
adaptability and cooperation in terms of technical choice is necessary in policy. This increases the chances of a technology surviving
the long journey from idea to competitive technology. Another conclusion is that market support, even in the early phases of
development, is an important complement to R&D for gaining experience and building markets.
r 2004 Elsevier Ltd. All rights reserved.

Keywords: Alternative vehicles; Electric vehicles; Policy

1. Introduction alternatives that have been discussed by car manufac-

1.1. Background
Environmental considerations are bringing pressure
on manufacturers to produce vehicle designs that are
radically different from the current, conventional
powertrain consisting of an internal combustion engine
combined with a mechanical drivetrain (ICEV).1 The
Tel.:+46-46-222-86-43; fax: +46-46-222-86-44.
E-mail address: max.ahman@miljo.lth.se (M. Ahman).
1
The term electric drivetrain typically refers to the electric motor, the
turers and governments with increasing intensity during
the past 30 years are battery-powered electric vehicles
(BPEVs), hybrid electric vehicles (HEVs) and fuel cell
electric vehicles (FCEVs) together with more conven-
tional alternatives based on internal combustion engines
(footnote continued)
generator, the power electronics for control and the transmission
system from the motor shaft to the wheels. The term alternative
powertrain, includes both the electric drivetrain and the energy storage
(e.g. batteries and hydrogen storage), and, possibly, a IC engine or a
fuel cell.

0301-4215/$ - see front matter r 2004 Elsevier Ltd. All rights reserved.
doi:10.1016/j.enpol.2004.06.011
 ARTICLE IN PRESS
434 M. Ahman / Energy Policy 34 (2006) 433443
such as compressed natural gas vehicles (CNGVs),
ethanol and methanol-fuelled vehicles. These alterna-
tives have the potential for substantially reduced tail-
pipe emissions and greater energy efciency than
improved conventional ICEVs.
The traditional technical design, the ICEV, has been
rened and improved over 100 years, and together with
a global industry characterised by erce competition
restricting the possibility of taking the risks involved in
developing an alternative design, this could well be
dened as a case of market lock-in (Cowan and Hulten,
1996). This has motivated governments all over the
industrialised world to support the development of less
polluting and more efcient vehicles. However, Japan is
the rst country in which a vehicle with an alternative
powertrain (the HEV) has become available on the
passenger car market. In 2002 there were at least three
different hybrid models on the passenger car market in
Japan.
1.2. Aim
The aim of this paper is to analyse the role that the
Japanese Government has played in the development of
alternatives to conventional vehicles, the effect of
government programmes, and the importance of tech-
nical exibility in government support schemes. The
study presents interesting cases of government support
programmes and technical diversity as there have been a
number of alternative vehicles discussed over the years
and that most of the original drivers and motivations for
supporting alternative vehicles have changed since the
1970s. The focus is on the alternatives with an electric
drivetrain, i.e. BPEVs, HEVs and FCEVs. These
alternatives all depend on the successful development
of the electric drivetrain and there have also been links
between the development of high-power batteries and
high-energy batteries, at least at an early stage of
development.
1.3. Method
This study takes a systems approach and analyses the
whole chain of government programmes since the early
1970s, the technical development and the technical
choices that have been made. The coordination, ambi-
tion, and timing of R&D, infrastructure, and market
support programmes is analysed and compared to the
actual technical development and market deployment.
This study departs thus from studying isolated policy
instruments by looking at the total effects of many
combined programmes and including frame-work con-
ditions, such as institutional settings and business
attitudes towards regulation. Previous innovation stu-
dies using this approach have been rooted in the eld of
energy systems analysis studying the complexity of
energy systems dynamics. Some of the more recent
studies have focussed on the effects of government
programmes for wind power and renewable energy, see
Loiter and Norberg-Bohm (1999), Astrand and Neij
(2004), or studies on how to generally support technical
change in the energy sector, see Turkenburg (2002) and
Holdren et al. (1999).
This study is inspired by the literature on technical
change and by the literature on the role of government
in this process. Another important factor is the specic
Japanese context. This study does not claim to give an
exhaustive analysis of the Japanese governance system
but connes itself to explain the features that have
bearing on the development of alternative vehicles,
notably the strong role played by the MITI. Interna-
tional developments are also included when found
appropriate.
The theoretical framework and the Japanese context
are described below.
1.3.1. The role of government in the process of technical
change
Inuenced by the work of Schumpeter (1934) and the
success of Big Science2 in the 1940s, technical change
was long seen as a linear supply push process, in which
scientic discoveries automatically led to useful applica-
tions that satised market needs. In the linear model the
role of government is limited to the funding of basic
R&D and sometimes applied R&D in the public interest
see e.g. Freeman (1995).
The sequential linear model in government policy and
innovation replaced the linear model in the 1970s (Soete
and Arundel, 1995). The process of technical change is
here seen as separate and sequential development phases
(e.g. R&D, eld tests, demonstration, market introduc-
tion, and diffusion). Government involvement is not
limited to R&D but could be called for in all phases and
could include nancial support for gaining experience
(learning effects) and increasing scale of production,
dissemination of information, building of industrial
networks, and creating standards, see e.g. Freeman
(1994).
Based on the current understanding of what success-
fully drives and guides the process of technical change,
the role of government policy has shifted from pure
supply push, such as government funded R&D, and
become more focussed on the demand side and the
utilisation of scientic discoveries in society (Nelson and
Winter, 1977; Rosenberg, 1982; Freeman, 1995; Lund-
vall, 1992). A key feature of modern technical change
theories is the inuence of socio-technical trajectories
guiding the direction in which technology develops
(Dosi, 1982). These trajectories act as effective barriers
2
An example of Big Science is the Manhattan project where the
rst atomic bomb was developed.
 ARTICLE IN PRESS
M. Ahman / Energy Policy 34 (2006) 433443 435

for alternative technologies, e.g. lock-in effects (Arthur, activities of the MITI, as the development of new
1988). Technical diversity is argued by Stirling to be of vehicles and industrial competitiveness falls under the
great importance for sustaining innovation and mitigat- jurisdiction of the MITI.
ing lock-in into undesirable technological paths of The subsidiaries of the MITI dealing with issues
development (Stirling, 1998). related to new vehicles are the New Energy and
With the inherent uncertainty involved in technical Industrial Technology Development Organisation
development, the sequential linear model can be (NEDO),4 the Japanese Electric Vehicle Association
replaced by a more complex process oriented model (JEVA), and the Japanese Automotive Research In-
where interaction and learning processes are at the core stitute (JARI). NEDO funnels money for research and
of technical-change theory, see e.g. innovation-system market support for the development of new energy
theories (Lundvall, 1992). A government policy where directly to companies and universities or, indirectly, via
the key features of technical change, such as uncertainty, the JARI. A lot of the work done on market support for
learning, path dependence and accumulation of knowl- vehicles has been the responsibility of the JEVA.5
edge, are acknowledged is suggested by Soete and
Arundel (1995) and Kemp et al. (1998). Kemp et al.
1.3.3. The visions of the MITI
(1998) suggest that governments should act as strategic
During the high-growth era of the 1950s and 1960s
niche market organisers modulating the market by for
the MITI formulated and administered industrial policy
example taxes, legislation and niche-market manage-
in Japan by guiding industrial restructuring and invest-
ment. The overall concept, which is based on voluntary
ments towards strategically important sectors. However,
agreements and soft compliance, is to modulate
since the 1970s the automobile sector has had a more
technical change in a desired direction. Strategic niche
independent role than the rest of industry (Johnson,
market management could be seen as a reframing of
1982). The policy style used by the MITI has been an
existing programmes into a comprehensive and coordi-
informal voluntary style where the MITI has relied on
nated policy framework. This interactive model differs
administrative guidance with no formal threats.
from the sequential linear model in that support is
However, the companies have been willing to comply
needed, to some extent, in all development phases at the
and not to risk being excluded from the group of
same time and not in a sequential order.
companies favoured by the MITI when it came to e.g.
issuing soft loans for strategic development and conces-
1.3.2. Regulating vehicles in Japan
sions for industrial activity (Johnson 1982; Wallace,
Responsibility for drafting and implementing policies
1995). The MITI has had the ambition to guide
for regulating vehicle emissions and promoting new
industrial development based on Visions (Watanabe,
environmentally friendly vehicle technology on a na-
2000). The visions of the MITI are foresight exercises
tional scale was divided between the Environmental
that coordinate the various actors including public
Agency (EA), the Ministry of Transport (MOT), and the
agencies, industry, and local communities, and give
Ministry of International Trade and Industry (MITI).3
them a common vision of the future. This vision is then
The EA was formed as a permanent body in 1971 to
used to prioritise R&D, legal changes, funding and
administrate the stricter emission regulations imposed
industrial strategy (Kazunori, 1997). The vision for the
by the Anti-Pollution Law of 1967 (Kazunori, 1997).
1960s emphasized the heavy chemical industry, while the
The MOT is responsible for vehicle inspection and
vision of the 1970s focused on a shift towards knowl-
maintenance programmes in Japan.
edge-based industry. The focus in the 1980s was on
The MITI is responsible for Japanese industrial policy
energy security, and in the 1990s the main theme was
and strategic legislation that affects industry. This
Japans contribution to the international community
makes that the MITI is responsible for Japanese energy
(MITI, 1999). The role and inuence on industry of the
policy, R&D policy and technology policy. The respon-
MITI has been reduced after the burst of the bubble
sibility of the MITI in the transport sector has foremost
economy in the early 1990s and the restructuring and
been to support the development of new vehicles and
reformation process of Japanese Government that
fuels. The MITI administrates the largest programmes
followed. From a position where the MITI could set
for the development and diffusion of clean-energy
the government agenda internally, it now has to include
vehicles and is also responsible for the Energy
other ministries in the process as a consequence of the
Conservation Law. This study focuses mainly on the
administrative reform and diversied interest in
3
In 2001 the administrative bureaucracy in Japan was reformed. The society (Watanabe, 2000; MITI, 1999). As a response
MITI was renamed the Ministry of Economy Trade and Industry to the changing role of the MITI and to the
(METI), the EA was given ministerial status and thus became the
4
Environmental Ministry (EM). However, the time frame studied here Originally New Energy Development Organisation, renamed in
is basically before the reform of government so the old abbreviations 1988.
5
will be used. JEVA and JARI were integrated in 2003 to JARI.
 ARTICLE IN PRESS
436 M. Ahman / Energy Policy 34 (2006) 433443
interdisciplinary threat of global warming, an inter-
ministerial action programme was formed in 1996 and
thus including government actors outside of the ofce of
the MITI more in the strategic process of planning for
new Visions (Watanabe, 2000; Hattori, 1999).
2. Planning and target setting for alternative vehicles
Government support for developing vehicles with
alternative powertrains started in the early 1970s.
Battery-powered electric vehicles were chosen by the
MITI as the most interesting option for the future as
they had the potential to mitigate both local emissions
and oil-dependence.
The MITI established a basic market expansion plan
for BPEVs in 1976 (MITI, 1990). This plan (and the
following revised versions) was a comprehensive com-
mercialisation plan coordinating government agencies,
companies and municipalities in their efforts to expand
BPEV development. Barriers were identied and the
relevant actors were called upon to make efforts to
remove these barriers through technical development,
amending laws and taxes, creating new standards and
building a fuel infrastructure (Iguchi, 1992).
The rst market expansion plan was originally
intended to cover 10 years, but after a few years it
became apparent that the plan was no longer appro-
priate. The oil markets stabilised and the progress in
technical development was slower than rst anticipated
so the plan was revised in 1983 (Iguchi, 1992).
At the end of the 1980s and after the Rio summit in
1992, global environmental and energy issues became an
important topic for the MITI in Japan. These factors,
together with the newly adopted ZEV mandate in
California, increased interest in BPEVs again as a
long-term sustainable option (JEVA, 2002). As a
consequence, a third and more aggressive market
expansion plan for BPEVs was issued by the MITI in
1991. The goal was then to have 200,000 BPEVs on the
road by the year 2000 (MITI, 1990).
In 1997 the MITI altered the third expansion plan
from 1991 to include not only BPEVs, but also HEVs,
CNGVs, methanol-fuelled vehicles and FCEVs under
the denition of Clean-Energy Vehicles (JEVA, 2002). A
new expansion plan was drafted in the same manner as
previously with new targets for the number of vehicles to
Table 1
Targets (revised 2001) for clean-energy vehicles in Japan (JEVA, 2002)
Clean-energy vehicles BPEV
Targets in 2010 110,000
a
Light petroleum gas vehicles to replace diesel vehicles.
be in use by 2010, see Table 1. This was the rst time the
diffusion of HEVs was included by the government. The
inclusion of HEVs can be seen in the light of the new
CO2 reduction target for 20082012 under the Kyoto
protocol. Previous goals had the main ambition of
replacing petrol with electricity, hydrogen or natural gas
in order to ensure energy independence.
In 2000, the Policy Study Group for Fuel Cell
Vehicles drafted a plan for fuel cell commercialisation
organised by the MITI/METI, see METI (2001). The
methodology used is similar to that in previous BPEV
expansion plans, thus including manufacturers, govern-
ment and other possible actors. The plan presents a
common vision for future FCEVs and coordinates
activities such as R&D, infrastructure, demonstration
and standards, among stakeholders. The study group
expects the introduction phase to be between 2005 and
2010, when 50,000 fuel cell vehicles will be introduced in
public utilities and FC-related companies. The target for
the year 2020 is 5,000,000 sold FCEVs (METI, 2001).
The above market expansion plans have in common
that they all present comprehensive plans for the
development and commercialisation of the targeted
technologies. The plans include all the relevant actors
identied by the MITI, including industry, universities,
local governments and government agencies. The aim of
these plans is to induce a common vision among the
actors and coordinate industry and government policy.
The efforts and the process of the relevant actors are
coordinated and supervised by the MITI. Little formal
pressure exists according to the MITI and the plan rests
on a vision in which all actors, including the Govern-
ment, are expected to play their part (Watanabe, 2000).
The market expansion plans should also be seen in the
context of the visions of the MITI for Japanese industry,
including strategic goals such as future competitiveness,
as well as energy and technology independence.
3. Policy instrumentsRD&D, standardisation, and
market support
The above plans required targeted government
programmes in several areas. The programmes have
been categorised here as RD&D on vehicle and
components, support for infrastructure for future fuel
supply and as market support (including subsidies,
HEV and FCEV CNGV D-LPGa Total
2,110,000 1,000,000 260,000 3,480,000

Market support
Leasing & purchasing incentive programmes
Support for infrastructure
Financial support from the MITI
RD&D support
BPEV field tests
R&D Internal company R&D supported by the MITI
1970 1975 1980 1985 1990
Fig. 1. Basic outline of Japanese Government programmes supporting
BPEVs, HEVs and FCEVs.
leasing programmes and also standardisations issues). In
Fig. 1, a chronological overview of Japanese Govern-
ments support targeting alternative vehicles is shown.
The programmes have been structured either as RD&D,
Support for infrastructure or Market support pro-
grammes. Below follows a brief description of the major
programmes. For a more complete description, see
Ahman (2004).
3.1. RD&D support
The MITI has promoted electric vehicles (BPEVs)
since 1971, launching a 5-year government-industry
R&D programme. The MITI also funded company
R&D between 1978 and 1996 supporting leasing
projects (MITI, 1990). The idea of the MITIs R&D
support is to create R&D consortia including companies
from different sectors and universities by adding a
limited amount of government funding and strategic
guidance in line with the Vision. The idea is to induce
more company funded R&D by this way and to
stimulate inter-rm technology spillover. This has been
empirically analysed by Watanabe (1999) and Watanabe
et al. (2004) and the ndings are that the inter-company
spillover and build up of a knowledge base within
industry are the most important positive effects of these
MITI-guided R&D consortia.
In 1995 BPEV eld tests were launched by the MITI
but these were replaced by several BPEV-ITS pro-
grammes starting in 1998, demonstrating the feasibility
of BPEVs in combination with Intelligent Transporta-
tion Systems (ITS).6 The ambition was to develop a
6
ITS include the use of advanced communications technology for
e.g. road guidance, management of car pools etc.
ARTICLE IN PRESS
M. Ahman / Energy Policy 34 (2006) 433443 437
niche where BPEVs with limited range and speed can be
Public procurement
a viable option.
Purchase CEV Under the New Sunshine Programme,7 R&D on
incentive project
programme polymer electrolyte fuel cells (PEMFC) has been
Millennium undertaken since 1992. Research is also conducted
project
under the same programme on lithium batteries
ECO-Station Project (through the organisation LIBES) since 1992. The aim
The WE-NET project was to develop both stationary and vehicle applications
of the next generation of batteries based on lithium.
In 1997 the MITI initiated the Advanced Clean
BPEV-ITS
Energy (ACE) vehicle programme. This is an R&D
ACE
project programme extending from 1997 to 2003 with the
New Sunshine programme
objective of developing different high-energy efcient
hybrid vehicles.
The MITI funded programmes are usually long (410
1995 2000
years) and divided into three phases starting with (i)
R&D on basic technologies, then (ii) demonstration and
prototype, and the last phase (iii) production and early
deployment. All three phases receive government fund-
ing. However, companies and other interested parties
are expected to increase their share of responsibility as
the technology comes closer to commercialisation.
Generally, the MITI funds company research on
technologies that are in the public interest with 100%
funding at the early stage of development and between
50 and 67% as the technology comes closer to
commercialisation. Standardisation projects receive
100% funding from the MITI (Daito, 2002).
3.2. Support for infrastructure
The ECO-Station Project, was initiated in 1993 with
the aim of establishing 2000 fuelling stations for clean-
energy vehicles by the year 2000. Approximately 50% of
these were intended as BPEV charging stations (Hayashi
et al., 1994). Quick-charging facilities for BPEVs with
nighttime energy storage systems for load levelling were
targeted.
Hydrogen as a future fuel and the associated
infrastructure, are being explored in the WE-NET
programme by the NEDO. This project focuses on
hydrogen as the future energy carrier research is being
conducted and eld tests carried out on hydrogen energy
solutions. The research applicable for vehicles includes
hydrogen storage and hydrogen production. The WE-
NET programme also has a three phase structure: phase
(i) Basic R&D 19931998, phase (ii) demonstration
19992003 and phase (iii) early commercialisation 2004.
7
The new Sunshine programme was formed in 1993 by consolidating
existing programmes (the sunshine and the moon-light programme)
within the energy eld to one programme.
 ARTICLE IN PRESS
438 M. Ahman / Energy Policy 34 (2006) 433443
3.3. Market support
From 1978 to 1996 the JEVA conducted various
leasing and purchasing incentive programmes. These
programmes included relief from commodity and
acquisition tax in 1975 and 1976, leasing services
directed towards private enterprises, the collection of
eld data for further research, feasibility studies and
subsidies to local governments to buy BPEVs (Iguchi,
1992).
Under the Environment Conservation Programme
(1995), the Government announced that it would
replace 10% of their public vehicles with low emission
vehicles (LEVs)8 by 2000 in a procurement programme.
In 2001, the central Government took a new initiative to
replace all vehicles used by government with LEVs by
the year 2004. Of these vehicles, 60% is expected to be
HEVs, according to the Environmental Ministry, which
corresponds to roughly 4000 vehicles (EVAAP, 2002).
The rest will mainly be replaced by CNGVs and some
BPEVs. Also the larger prefecture governments (Tokyo,
Chiba, Kanagawa, Osaka and Hyogo) laid out aggres-
sive market plans in 1993 for introducing BPEVs in
order to reduce NOx emissions in accordance with the
Auto-NOx Law. The plans included a total number of
almost 100,000 BPEVs and 170,000 LPGVs in the year
2000 (JEVA, 1998).
In 1996, an BPEV Purchasing Incentive Programme
was introduced which replaced existing leasing and
purchasing incentive programmes that had been in
operation since 1976. Fifty percent of the extra
incremental vehicle price was subsidized.
In 1998, the programme was integrated into the
Clean-Energy Vehicles Introduction Programme (CEV)
together with other promotional programmes for
methanol-fuelled vehicles and CNG vehicles. Previous
programmes for the promotion of CEVs had been
running since 1993 and primarily targeted infrastructure
issues for BPEVs, CNG and methanol-fuelled vehicles.
The Clean Energy Vehicle Programme of 1998 had an
improved budget and included for the rst time HEVs.
When it comes to direct market support, the MITI
takes half of the nancial risk of a new technology, e.g.
subsidizes half of the extra cost compared to an
comparable ICEV (Daito, 2002). Local governments
and other agencies can supply further funding within
their area jurisdiction.
Within the framework of the Millennium Project the
JARI and the NEDO are conducting a standardisation
project especially targeting future fuel cell vehicles The
programme is planned to end in 2005 when a viable fuel
cell vehicle market has hopefully been established.
8
BPEVs, HEVs, FCEVs, CNGVs, LPGVs and methanol-fuelled
vehicles qualies as LEVs.
Market support Support for infrastructure RD&D
16000
14000
12000
JPY (million)
10000
8000
6000
4000
2000
0
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
Fig. 2. Estimated targeted funding from MITI for R&D support and
from related agencies (e.g. JEVA, WE-NET) for infrastructure and
market support. Note: The funding is divided into R&D, infrastructure
and market support according to the previous section. Based on
ofcial documents except the period between 1976 to 1996. Here, the
cost of the leasing programmes between 1976 and 1996 were estimated
to be approximately JPY 600,000 for RD&D, JPY 600,000 for market
support and JPY 600,000 for infrastructure per vehicle leased. This is
most likely an overestimation. JPY 100 equals approx. 0.8 dollars
(2002-12-12).
In Fig. 2 the government funding on the programmes
described above over the years is given. The funding
from Government has increased substantially since
market subsidizes were introduced and the success of
the HEV. This corresponds well with the view of the
MITI on introducing new technology, where the
commercialisation phase is the shortest phase in time,
but denitely the most expensive (Daito, 2002). The
period between 1976 and 1993 has received relatively
low government funding. No comprehensive data exists
on how much this support actually was but in the plans
of the MITI, this was supposed to be a commercialisa-
tion phase were targeted support was offered to vehicles
produced. As the number of vehicles actually produced
was very low, the targeted support also became low.
However, it should be noted that Fig. 2 only covers
targeted efforts for vehicles, not the basic generic R&D
in the general eld of e.g. energy, general automotive
research and electrochemistry.
4. Results of programmes and drivers for vehicle
development
4.1. Early development (19711995)
The initial R&D project sponsored by the MITI
resulted in a prototype BPEV with a range of 455 km in
1976 (JEVA, 1998). The basic technology was lead/acid
batteries with a DC motor.
The following leasing and purchasing incentive
programmes resulted in the introduction of 655 BPEVs
between 1977 and 1996. The outcome was mostly small-
size BPEVs and niche-market BPEVs, such as commer-
 ARTICLE IN PRESS
M. Ahman / Energy Policy 34 (2006) 433443
cial vans, pick-ups and motorcycles. Most of these
BPEVs were converted ICE vehicles with lead/acid
batteries, conventional thyristor control techniques and
DC motors (JEVA, 1996). After 1987 MOSFET control
technology was introduced in BPEVs and after 1994,
transistor choppers in combination with AC-induction
motors were used (JEVA, 1996). Daihatsu, now a
member of the Toyota group, was the bearer of BPEV
technology during this time supplying over 400 of the
total 655 BPEVs (Patchell, 1999). This is partly due to
the small size of the BPEVs deployed as Daihatsu is a
small-size car manufacturer. Toyota only supplied ve
BPEVs, Nissan supplied 40 and Honda none during this
programme (JEVA, 1996).
A comprehensive evaluation of the leasing and
purchasing incentive programme, covering 19 years,
was conducted in 1996 by the JEVA. The programme
did not succeed in increasing the diffusion of BPEVs
outside the programme, but the 19 years of effort
sustained automobile manufacturers interest and R&D
in the eld of electric drivetrains and led to substantial
feedback into R&D according to the JEVA (1996). This
corresponds well to the more general analysis by
Watanabe et al. (2004) stating that the inter-company
spillover effects and the knowledge base build of these
MITI sponsored R&D programmes is a major positive
effect.
The reason for the lack of market success was largely
attributed to inadequate performance but also to a lack
of interest, as the original policy drivers, reduction of oil
dependence and tail pipe emission, seemed less urgent in
the mid 1980s (Iguchi, 1992).
4.2. The Californian push (19901998)
The Californian ZEV mandate in 1990 and growing
concern for global environmental and energy issues led
to a renewed interest in BPEVs at the beginning of the
1990s where the Japanese Government wanted to take a
leading role in transforming society towards sustain-
ability (Yamaguchi, 1997). The larger exporting auto-
mobile manufacturers saw the future BPEV market in
California as both strategically and economically
important. Toyota, Nissan and Honda were all affected
by the Californian ZEV mandate and now entered the
BPEV development race more seriously than before and
began investing heavily in BPEV technology (Mauro,
2000; Patchell, 1999).
New technologies for electric drivetrain components
with substantially better performance, including cost,
were needed in order to market a BPEV in the
Californian in 1998. All the major Japanese automobile
manufacturers chose to develop the permanent-magnet
(PM) motor, the most advanced, with the highest
efciency among the alternatives. Electric traction is
seen as a vital core technology and therefore Japanese
439
manufacturers are developing these technologies (mo-
tors and power electronics) in-house (Mauro, 2000),
although there was some cooperation with the electric
machinery industry at an early stage (Mauro, 2000;
Patchell, 1999). There was no targeted government
funded R&D for the motor or power electronics
components (Otsubo, 2002).
Batteries needed to have higher specic energy, longer
lifetime and lower cost than the lead/acid batteries
available. The MITI identied the battery as the crucial
part in need of government support for the successful
introduction of BPEVs onto the market. The lithium
battery project (LIBES) that started in 1992 presented in
2001 a BPEV battery that meets most of the criteria set
and that is now ready for eld tests. A Li-ion battery
developed by Shin-Kobe Electric machinery and cur-
rently used in the Nissan Hypermini is a result of this
programme (Terada et al., 2001). Toyota chose to
develop the nickel-metal hydride (NiMH) battery in
collaboration with Matsushita in a joint owned com-
pany called PEVE and Nissan chose to cooperate rst
with Sony and later with Shin-Kobe after Sony
discontinued their Li-ion battery development (Kal-
hammer et al., 1998). Honda uses NiMH batteries from
PEVE (Kalhammer et al., 1998). Car manufacturers
made the strategic choice to develop batteries in
collaboration with battery manufacturers thus keeping
their options open as they thought the future still to be
highly uncertain (Patchell, 1999).
4.3. Market expansion for BPEVs (19951998)
The purchasing incentive programme between 1996
and 1997 led to the introduction of 117 BPEVs (JEVA,
2000). In this programme, BPEVs targeted for the
Californian market and equipped with NiMH batteries
and PM motors (e.g. the Toyota RAV4EV and the
Honda EVPlus) were introduced.
The rst procurement programme, initiated in 1995,
did not meet the targets. Only a few BPEVs were
actually in use 2000. The turbulent economy during the
1990s made the more expensive, low-emission vehicles
unaffordable for agencies and local governments ac-
cording to JEVA (2002). The larger prefecture govern-
ments did not meet (or even come close to) the
aggressive targets for BPEVs set in 1993 in which the
total number of BPEVs in Japan in 2000 was set to 2600
(JEVA, 2002).
The inuence of the Memorandum of Agreement
between the vehicle manufacturers and the Californian
state led to a rise in production of BPEVs in 1998 and
1999 to approximately 500550 units/year, mostly the
Toyota RAV4EV and Honda EVPlus. However, pro-
duction fell directly after the agreement was fullled.
Development of the Honda EVPlus has been ceased is
 ARTICLE IN PRESS
440 M. Ahman / Energy Policy 34 (2006) 433443
and the Toyota RAV4EV is currently sold only in
limited numbers to Japanese authorities.
The infrastructure ECO-Station Programme failed to
meet the targets of approximately 1000 installed BPEV
quick-charging facilities by 2000. To date, only 36
stations have been established for BPEVs (Chiba, 2002).
The high cost of charging stations in combination with
limited nancial resources in the municipalities due to
the economic downturn in the 1990s and the limited
number of BPEVs on the road can explain the poor
results. Another reason for the small numbers of
charging stations is that local authorities could chose
between installing CNG, LPG, methanol or BPEV
stations. Clearly, most local authorities anticipated
CNG stations to have the best potential. The expensive
strategy of advanced quick-charging stations is now
being complemented with slow-charging stations in
designated parking zones and joint use of charging
facilities together with commercial eets operating
BPEVs (JEVA, 2002). The MITI regards the lack of
charging facilities as one of the most serious obstacles to
the widespread use of BPEVs in Japan (Daito, 2002).
From the BPEV eld tests in 1996 it became relatively
clear to the automotive industry that the targets set up
by the MITI in the third expansion plan in 1990 would
not be met (Patchell, 1999). The development in
California was not encouraging, as the ZEV mandate
was being stalled and the market response to BPEVs was
weak. The perceived market outlook was thus bleak and
several battery development projects were halted, e.g.
Sony and 3M/HydroQuebec (Kalhammer et al., 1998).
Based on these reactions the marketing efforts for
BPEVs shifted from R&D on advanced batteries to
educating users and nding applications (e.g. rental,
sharing or ITS systems) where a state-of-the-art BPEV
can function rather than trying to force the technology
to produce a vehicle with features comparable to those
of conventional vehicles. The MITI has been sponsoring
the BPEV-ITS programmes since 1997, but private
programmes initiated by Toyota and Honda are also
exploring this path of development. Toyota has devel-
oped a special vehicle, the Toyota e-com, which is
available only through these projects.
4.4. Hybrid focus (1997)
The lack of condence in the future BPEV-market
and the American PNGV programme focusing on HEVs
prompted the MITI and the NEDO to start the ACE
programme in 1997, unaware of Toyotas imminent
release of the Prius (JARI, 2002b). The ACE pro-
gramme was changed at the last minute due to the
release of the Prius and is currently supporting research
in and evaluating the potential for, longer-term hybrid
concepts, including ywheels, ceramic engines for CNG
vehicles, and bus concepts (JARI, 2002a, b).
100000
10000
Vehicles
1000
100
10
1
1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
BPE HEV
Fig. 3. The total numbers of BPEVs and HEVs on the road (JEVA,
2002).
The real expansion came with the launch of the Prius
and the inclusion of HEVs into the denition of CEVs,
which qualied them for economic support, see Fig. 3.
During the rst 2 years of the Clean Energy Vehicles
Introduction Programme (19982000) 276 BPEVs and
12,242 HEVs were subsidized by the programme. The
total number of HEVs sold was 22,400, thus only 55%
of sales was subsidized, whereas most of the BPEVs sold
received a subsidy (JEVA, 2002). The CEV introduction
programme scheduled to continue until 2001, but as
more models became available on the market, both
BPEVs and HEVs, the programme has been extended
until 2003.
In 2001, over 50,000 HEVs were in use in Japan, and
several new models of HEVs were being introduced onto
the market, e.g. the Toyota Estima, the Crown, and the
second generation of the Toyota Prius. Modern HEVs
are based on PM motors in combination with either a
NiMH or lithium-based battery.
In Fig. 3, the number of BPEVs and HEVs introduced
to the market between 1976 and 2000 is shown. Note the
logarithmic scale.
4.5. Developments so far (19712001)
HEVs are now established as a commercial option to
ICEVs in Japan. However, it is still too soon to tell
whether hybrid congurations, either with an IC-engine
or fuel cells, will become the dominant design or only
continue as a fuel-efcient option. Despite the success of
the Prius and the Insight, HEVs still only account for
1% of the newly registered passenger cars in Japan. New
concepts, such as neighbourhood vehicles, are also being
explored as a potential future niche market for BPEVs.
Thirty years of development since the rst modern
prototype vehicles with electric drivetrains has advanced
alternative powertrain technologies substantially. The
batteries have developed from lead/acid batteries
(greatly improved versions of lead/acid batteries are
still used in some applications) to currently deployed
NiMH batteries and in some cases Li-ion batteries. AC-
induction motors replaced DC motors in the late 1980s
and currently PM motors are deployed in all Japanese
 ARTICLE IN PRESS
M. Ahman / Energy Policy 34 (2006) 433443
BPEV and HEV models. The perhaps most crucial and
enabling technology for HEVs has been the develop-
ment of advanced, light, efcient and affordable power
electronics and control systems in combination with
electric motors (Chan and Chau, 1997). Power electro-
nics have been crucial for the utilisation of electric
drivetrains in vehicles. The main driver behind the
development of power electronics development has,
however, not been the automotive industry, but the
needs from home electronics and the heavy industry.
Another important development is the integration of
mechanical and electronic transmission systems, which
enabled the further development hybrid systems.
5. Government role in the development process
The Japanese Government, via the MITI, was early in
identifying technical innovation as a way to mitigate the
environmental and energy problems associated with
transport. Apart from stricter tail-pipe regulations
targeting short-term effects, the MITI identied electric
vehicles as a long-term target for vehicle development.
With a background in the visions of the 1950s and 1960s
and the government-guided transformation of the
Japanese industry, it was natural for the MITI in the
early 1970s to also try to guide the long-term develop-
ment of vehicles.
5.1. Japanese policy style and technology choices
The view held on technical change and government
policy by the MITI and other related ministries was a
sequential linear view advocating government support in
all development phases, including early diffusion
throughout the market (Daito, 2002). Here, the MITI
identied long-term technical winners and guided
technical development towards the target set by offering
R&D support, demonstration programmes and, via
other government agencies, market promotion pro-
grammes. A typical long-term programme (see e.g. the
LIBES project, the WE-NET and the fuel cell pro-
grammes) had a three-phase structure starting with basic
R&D, via demonstration and feasibility studies to
standardisation issues and early market development.
Supporting the necessary infrastructure is also regarded
as a possible task for government.
The MITI has orchestrated the development of the
BPEV industry in Japan in the early phases, offering
both RD&D support and an initial niche market,
together with a long-term target (Patchell, 1999). The
MITI had the ambition of inducing a virtuous circle
of increasing R&D efforts among companies by estab-
lishing R&D consortia in elds of interest for the society
(Watanabe et al., 2004). The establishment of the JEVA
in 1976 and the rst market expansion plan for BPEVs
441
was the starting point for a coordinated effort to
introduce a common vision among market actors for a
future BPEV market. Industrial cooperation has always
been seen as an important part of government support
for new technologies, but the long-term targets has
ultimately been set by the MITI.
The choice of technology has been guided by the
overall energy policy of Japan. Ridding the country of
its dependence on foreign oil has been at top of the list
and this partly explains the resistance of the MITI
towards petrol-fuelled HEVs as an alternative. Moving
away from fuels based on a petroleum feedstock has
been the main issue. Electricity and hydrogen are two
fuels that offer great exibility in terms of primary
energy sources. However, the perceived development
potential for BPEVs was, with hindsight, too optimistic
and associated with a high risk of failure.
5.2. Real effectsde facto technology strategy
The MITI has had the ambition to pick winners but
failed on numerous occasions in introducing BPEVs
according to plan. This can partly be explained by the
fact that the early plans in the 1970s and 1980s lacked
credibility within industry and that the original motiva-
tion (local emissions and oil shortage) behind the
development of BPEVs partly disappeared in the 1980s.
However, the Japanese Government never offered the
HEV targeted support, but the HEV was able to benet
from the technical development and the experiences
gained from the sustained governmental support, which
was primarily aimed at BPEVs. The actual outcome of
the Governments policy has thus been a relatively
exible policy enabling a number of alternatives (the
HEV, the CNGV, the BPEV, and the FCEV) to
challenge the dominating ICEV technology and where
government policy, via the MITI, increased the technical
diversity by offering both RD&D support and support
for building initial markets to non-conventional vehicles.
This has resulted in a system where the sustained efforts
created feedback to the RD&D process from early
market experience and the possibility of accumulating
and maintaining knowledge, even when interest and
support were low. The role played by the Japanese
Government in the HEV development process (though
not intended) resembles much more the interactive model
than the sequential linear model forwarded by the MITI.
The long-sustained effort that included R&D, support
for infrastructure and market support led to a knowl-
edge base and accumulated experience in the eld of
electric traction that has contributed to the current fast-
growing sales of HEVs. The basic technologies (the PM
motor, control techniques and partly the NiMH
battery) later utilised in HEVs were rst developed for
BPEVs. Companies were able to utilise the knowledge
accumulated in BPEV deployment. Market support for
 ARTICLE IN PRESS
442 M. Ahman / Energy Policy 34 (2006) 433443
HEVs expanded, not created, the initial market thus
securing and increasing market condence in a critical
phase. The MITI and the JEVA was quick to respond
and extend the support programmes to include HEVs as
the framework for a subsidy system was already at hand.
The winner in the sustained BPEV effort in Japan
seems to have been the electric drivetrain that was
developed and adapted to vehicular use as a response to
policy-created niche market applications. In this respect,
the BPEV effort has contributed to the unintentional
success of HEVs.
6. Discussion
The last 30 years, the Japanese Government and
automotive manufacturers has succeeded in drastically
reducing tail-pipe emissions from single vehicles and
increasing the fuel economy. However, attempts to shift
away from imported oil as the primary feedstock have
failed so far. The electric drivetrain technology devel-
oped has instead been utilised in a petrol-based HEV
conguration. The numerous alternative energy carriers
tested previously, electricity, CNG and methanol, have
not succeeded in attaining a signicant market share.
HEV technology does not, however, exclude future
shifts towards FCEVs or BPEVs using hydrogen,
electricity or biofuels. Rather, present HEV technology
should be considered a stepping-stone towards FCEVs
or BPEVs.
The development of alternative powertrains conrms
that trial and error is important in gaining experience
and supplying the R&D process with important feed-
back. Another important feature is the build-up of
market knowledge. These observations support a more
process oriented and interactive government policy.
Government ambitions to guide technical change (the
sequential linear model) in a more radical direction (the
BPEV) that better suited the overall energy policy of
Japan have so far been too radical.
The difculty of making technical choices in govern-
ment policy is also highly relevant and needs to be
considered carefully if governments are to promote a
future shift of transportation fuel away from fossil-
based petrol. Currently, a number of alternative fuels
are discussed but no clear winner has so far emerged. A
continued Government support for alternative fuels
cannot support all alternatives but needs to make a
choice and to focus on some of the most promising
alternatives. Here, knowledge on technical exibility,
both in terms of development paths and in terms of
benets (environmental, industrial, and social), seems to
be crucial for making this choice and needs to be
analysed further. In order to implement a process-
oriented and interactive government policy, we need to
explore further how the technical choices in government
policy can be made with special attention to maintaining
technical diversity without losing focus.
7. Conclusions
The Japanese Government has actively tried to induce
technical change within the automobile manufacturing
industry. Within the framework of the visions of the
MITI a common understanding has developed and the
future direction of development has been negotiated.
The role of the Government has been that of a
conductor in the development process supplying both
R&D support and articially created niche markets, and
easing the way for targeted technologies by means of
legislation and standards. The ambition of the MITI has
been to inuence the direction of technical development
by setting long-term goals and issuing ambitious market
development plans.
The history of BPEVs in Japan demonstrates that
picking winners in government policy is not easy. The
focus of the MITI on BPEVs was, however, not entirely
a failure even though the targets were not met (not even
remotely). The technology base developed for BPEVs
was later successfully utilised in the introduction of
HEVs.
The conclusion drawn from this is that governments
should, if possible, focus on technologies that full
several policy aims and can be used in several different
applications. Despite a sustained and ambitious policy
by the MITI, the success factors for policy seems more
related to technology specic features than the parti-
cular policy style. Flexibility, adaptability and coopera-
tion in terms of technical choice is necessary in policy.
This increases the chances of a technology surviving the
long journey from idea to competitive technology. The
development of alternative powertrains and the role
played by the Japanese Government indicates that
market support, including industry and market exper-
tise, early in R&D processes are important. In this
process, early market support has been important for
the development process as well as the R&D efforts.
Acknowledgements
The nancial support of the Swedish Agency for
Innovation Systems (VINNOVA) is greatly acknowl-
edged. Valuable comments have also been offered by
Dr. Lena Neij, IIIEE and by anonymous referees.
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