Carbon intensity in Japan

We have written about renewable energy and the energy transition in Europe, the US and China.  Today we look at Japan, where multiple factors collude to result in government policies that support a slower transition towards green energy, a source of frustration for many and garnering criticism.

At the Paris Agreement in 2015 Japan agreed to reduce their CO2 emissions by 80% by 2050, a less ambitious target than the EU and one that many are concerned now will not be reached. Despite an announcement last month of a plan to shut down 100 inefficient coal-fired power plants, most of these are being replaced by larger, more efficient coal-fired power plants making the country the only one in the G7 still investing in coal. While these can reduce emissions by 20-30%, they are still some way off the emission reduction from renewable energy sources such as solar and wind.

Japan relies on coal for more than a third of their power generation needs and expects this to decline only slightly to 25% over the next 10 years. Its energy policy is heavily influenced by public opposition to nuclear power since the Fukushima disaster in 2011, resulting in a reduction of nuclear power from 30% of the energy mix down to 1.7%. Geography and geology are also partly to blame with a high population density and a mountainous landscape making large solar farms more difficult to place. Finally, the 1973 oil crisis had a lasting impact on Japan, resulting in a continued commitment to maintain diversity of energy sources and a preference for coal over oil.

The plan to continue investing in coal is an issue for international shareholders who are increasingly looking to exclude companies with coal-related revenue, especially those investing in new coal-fired power. It may also be an issue for international companies who are committed to very ambitious emission reduction goals. Earlier this year Microsoft set a goal to be carbon negative by 2030 and by 2050 it plans to effectively remove from the environment all the carbon the company has emitted either directly or by electrical consumption since it was founded in 1975. Apple and Google have both also committed to be net zero by 2030, and many other large companies are setting themselves equally ambitious goals.

What is particularly important to note of these goals is that they include their supply chain, which means working and influencing suppliers to reduce their own emission footprints and ultimately incorporating carbon emissions as a factor in committing to suppliers.

A recent Bloomberg report noted that due to a low penetration of renewable energy and a policy to continue with coal-fired power CO2 emission intensity in Japan is high, while its exposure to these international businesses with ambitious climate goals is high, amounting to a total $72.5bn in corporate revenue. Perhaps corporate pressure can influence national policy better than international criticism.

On the positive side there is also continued investment in solar and wind energy, with a national goal to reach 22-24% of Japanese power by 2030. This is some way behind the 32% target for the EU but is in addition to a target of a re-expansion of nuclear to 20-22% of the mix which, while controversial, is of very low-carbon intensity.

While domestic policy is lagging, Japan is making progress on its international policy. Last month the Japanese environmental minister Shinjiro Koizumi vowed to slash Japan’s controversial support for coal-fired energy in developing countries. Japan has provided billions of dollars of financing for coal-fired energy projects in developing countries through its Japan Bank for International Cooporation, using equipment from Japanese companies such as Toshiba, Hitachi and Mitsubishi Heavy. It has been the second largest financer of overseas coal behind only China.

According to the new policy Japan will only support the export of ultra-supercritical generators and only when the destination country has a decarbonisation strategy in place. The expectation is that these policy changes, along with the rapidly changing economics of renewable energy projects, the growing global pressure against coal-fired energy projects and the connected reluctance of banks to finance coal, will result in fewer coal projects getting off the ground.


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