- Japan announced new energy plans including an increasing renewables to account for 36-38% of the power supply
- Government commits to being carbon neutral by 2050
- Ministry of Economy to launch an experimental carbon market in 2022-2023
- Government and private sector launch new instruments to stimulate green investments and practices in financial markets
- Business community resistance impedes greater progress in efforts to reduce fossil fuel usage
Three Game Changing Events
- Japan announced and approved a plan to have renewables account for 36-38% of power supplies by 2030, up from the previous target of 22-24%. The plan will aim to have fossil fuels account for 41% of the energy mix (down from 56%). However, the country’s plan keeps the target for nuclear power unchanged at 20-22%.
- Japan failed to introduce a carbon tax in the 2022 budget after the Ministry of Environment made the request this summer after pressure from business circles whole claimed economic weakness stemming from the pandemic has made it impossible bear additional financial burdens. While the exclusion of a carbon tax is a big blow to progress, METI, Japan’s Ministry of Economy, Trade, and Industry has announced that 2022-2023 will see the launching of an experimental carbon market.
- Cultural shift in 2021 from broader ESG towards a climate/carbon in its capital markets and financial sector. Some highlights are:
- Japan’s Financial Services Agency announced that it will require around 4,000 companies, including those listed on the Tokyo Stock Exchange, to make disclosures in accordance with the Task Force on Climate-related Financial Disclosures (TCFD) most likely from April, 2022;
- The Japan Exchange Group, parent of the Tokyo Stock Exchange, along with London Stock Exchange’s FTSE Russel division, announced the FTSE/JPX Net Zero Index Series, which will aim to align with net zero by 2050, integrating Transition Pathway Initiative scores based on the Taskforce for Climate Related Financial Disclosure;
- The Bank of Japan extended US $18 billion worth of loans to financial institutions aimed at promoting activities to fight climate change;
- Japan’s “transition bond” market was born and is expected to grow dramatically among Japan’s heavy polluters such as steelmakers and chemical producers which are unable to tap into the pure-play green bond market in an effort to stimulate investment into carbon-reducing projects.
Paris Agreement Pledge Update
For 2030, Japan has announced the goal having of 36-38% of its power supply come from renewable energy sources, and for 2050, it has announced the goal of being carbon neutral. Moreover, Japan has pledged US$10 billion dollars in funds over the next five years to Assist Asia on its path to net zero emissions. While these positive announcements are to be lauded for their concrete terms and large amount of financial backing, Japan is falling short on moving with the speed and aggressiveness necessary to succeed in executing on its goals successfully due to the ongoing resistance from powerful business circles.
At COP26, for example, more than 20 countries announced that they would phase out coal; Japan was not able to make the commitment. Moreover, Japan is still funding coal overseas in Asia, with the caveat that funding must be for projects with emissions reduction measures—even though the carbon capture and storage are not currently commercially realistic. Japan’s rationale for the lack of commitment on coal was that it needs to keep all options open for power, but as the third largest importer of coal this stance is not congruent with its 2030 and 2050 goals. This brings into question Japan’s ability to contribute to limiting global warming to 1.5 degrees Celsius. Further, due to strong opposition by the general public for well-known historical reasons, Japan’s nuclear power goals would appear completely unrealistic, creating a gap that will need to be filled, most likely, with some kind of less-than-ideal mix of both fossil and sustainable power sources.
Japan has announced lofty goals, and now it is time for the government to move swiftly in the planning and execution to achieve these goals. Currently the Japanese government is falling short on concrete details to reveal the seriousness of these announcements as it continues to haggle with business community on the costs of change. The good news is that when the government does enact strongly, its top-down culture will lead to rapid compliance but time is of the essence, and we need to see the seemingly innumerable hurdles to change start to fall like dominoes in 2022 if Japan is going to successfully execute on its lofty goals for 2030 and 2050.
This Post was submitted by Climate Scorecard Japan Country Manager James Hawrylak