Japan's 'Green Transformation' receives a welcome shot of credibility

Welcome to Carbon Risk — helping investors navigate 'The Currency of Decarbonisation'! If you haven’t already subscribed please click on the link below, or try a 7-day free trial giving you full access.

By subscribing you’ll join more than 3,000 people who already read Carbon Risk. You can also follow my posts on LinkedIn and benefit from my referral program. Thanks for reading!

---

Estimated reading time ~ 8 mins

Photo by Tianshu Liu on Unsplash

Up until very recently Japan held the coveted position as the world’s third largest economy, albeit someway behind the US and China. By virtue of its size, Japan is also a major emitter of greenhouse gases (GHG). Spewing over 1Gt CO2 in power generation, industrial, and transportation emissions, it is the fifth largest emitter of GHGs. Despite it’s economic, technological and industrial leadership on the global stage, Japan has a mixed record when it comes to leading the energy transition and advocating for ambitious climate policies.

Among its peers, Japan stands out as being unusually reliant on coal, natural gas, and oil to fire its electricity generation plants. Fossil fuels accounted for almost three-quarters of its electricity output in 2022, according to Ember. In comparison, the US, China, and Germany rely on fossil fuels for 56%, 65%, and 32% of power generation respectively.

Nuclear reactor closures in the aftermath of the 2011 Fukushima disaster led to an increased reliance on fossil fuels. Although some facilities have since been brought back online since 2015, the share of total electricity produced from nuclear remains a fraction of its pre-2011 levels. The share of renewables in power generation (particularly solar) has increased over the past decade, but remains very low by the standards of other advanced economies.¹

It’s heavy reliance on fossil fuels to generate electricity is also scuppering efforts to decarbonise Japan’s heavy industry. The overall carbon intensity of its industrial base was estimated to be 54.2g of CO2 per MJ in 2020, according to the International Energy Agency (IEA). Although it’s carbon intensity compares favourably to that of China, it is significantly worse than it’s two other nearest economic competitors - the US and Germany. Even worse, the country has made absolutely no progress in decarbonising its industry over the previous decade, while others are powering forward.

A recent study from the Lawrence Berkeley National Laboratory makes the argument that the declining cost of solar, offshore wind, and battery technology should enable Japan to achieve a 90% clean electricity system by 2035. The study projects that solar could account for almost one-quarter of total generation by 2035, up from 10% in 2022. If Japan was able to achieve 90% clean energy the emissions savings are estimated to represent around 345 Mt CO2, equivalent to one-third of Japan’s total emissions.²

Source: Berkeley Lab

The report outlines several recommendations necessary to overcome current policy, market, and land-use barriers. These include increasing the price of carbon to accelerate the phaseout of coal-fired power, and investing a portion of the carbon revenues generated in the technology necessary to create a zero-carbon grid.

Japan was the first Asian country to introduce a carbon tax. In 2012 the government introduced a national carbon price of ¥289 per tonne CO2. Equivalent to ~€2 per tonne, the carbon tax is imperceptivity low. Despite being an early pioneer in the region successive Japanese governments have been slow to move the needle on carbon pricing to a level that makes a difference. A national voluntary emissions trading system (ETS) known as the GX-ETS and launched in April 2023, could begin to inject some life into the country’s green transformation (see Why Asia is pivotal to future carbon market growth).