Energy transition in Japan: sunrise at last?

The situation in Japan illustrates the extent to which a country’s path towards net zero is subject to constraints.

  • Geographical constraints first and foremost. Japan lacks the space to switch to renewable energy. The population density, if only the plains are taken into account, is over 1,500 inhabitants per km2, leading to major conflicts over land use.
  • Natural resource constraints: Japan has neither fossil resources nor the main critical minerals needed for transition. This relative geological “poverty” affects certain energy choices (such as the use of nuclear power).
  • Geopolitical constraints: Japan has not waited for the war in Ukraine to integrate geopolitics into its decision-making. Because of its delicate relations with China, for example, the country introduced a policy of securing its mineral supplies more than ten years before the US and the EU (in response to a Chinese embargo on rare earths in 2010). Climate policy is now inextricably linked to the country’s geopolitical situation.
  • Cultural constraints: more anecdotal, there are also constraints linked to the culture of each country. Japan, for example, has enormous geothermal potential, but the industry is struggling to develop because the Japanese, who have a strong attachment to their onsens[1], fear that future geothermal power plants will be to their detriment.

These particularities and constraints need to be borne in mind when understanding Japan’s climate strategy and assessing the policies the country is implementing.

Transition policy: could do better

Empirical evidence shows that there is a link between the political affiliation of a country and its progress in energy transition. With rare exceptions, if the party in power is labelled “conservative”, it will more often than not act as a brake on the country’s energy transition. Japan is a perfect example of this, being more of a “follower” than a “leader” when it comes to climate change.

Japan wants to achieve net zero by 2050, a goal announced in 2020 and enshrined in law in 2021. To achieve this, the country aims to reduce its greenhouse gas (GHG) emissions by 46-50% by 2030, compared with their 2013 levels. It is regrettable, however, that these ambitious plans are not sufficiently backed up by concrete decarbonisation strategies.

Under Prime Minister Fumio Kishida, who took office in 2021, the country has begun to specify its objectives. In particular, he has presented a Clean Energy Strategy for the country in 2022, based on eight major areas (including renewables, hydrogen/ammonia, carbon capture and the revival of nuclear power). The Prime Minister put a figure of USD 1,100 billion on the investment (public and private) needed over the next decade to put the country on the right trajectory.

Although this plan marks a break with past hesitations, it has been greeted with a degree of scepticism. Controversial points include:

  1. That the plan to decarbonise electricity production relies heavily on restarting the nuclear power plants closed after the Fukushima disaster. However, this has been considerably delayed.
  2. No concrete measures have been put in place to “charge” for the carbon emitted.
  3. That the share of liquid natural gas (LNG) in Japan’s energy mix is increasing and that Japan is going to subsidise the creation of new LNG capacity.

In conclusion, Japanese politicians have taken up the issue of transition, but the plans announced at this stage do not augur well for the change of model that the country needs if it is to meet its commitments.

Toyota symbolises how far the automotive industry has fallen behind

A country cannot be reduced to a single company – even if it is by far its biggest market capitalisation[2] – but Toyota’s lack of vision on electrification is reminiscent of Japan’s procrastination in the area of transition.

The world’s leading carmaker has long defended a multi-technology strategy, including hybrid, hydrogen and biofuel vehicles, while many of its historical rivals have chosen to focus exclusively on electric vehicles (EVs). This positioning is widely seen as a reluctance to develop EVs, even when the signs of the market taking off were obvious. An ignition delay that could prove costly.

This strategic error led to the surprise departure of the Group’s CEO earlier this year. The departure of Akio Toyoda, grandson of the company’s founder in the 1930s, is a major event in the muffled world of the Japanese establishment. For the first time in its history, the group will no longer be headed by a Toyoda. The end of an era…

..but its competitors are not to be outdone

Every year, Bloomberg analyses the exposure of the world’s leading carmakers to EVs. In its latest report[3], the company makes a stark observation: “by region, Japanese carmakers received the worst score for the fifth year in a row”. Out of 33 manufacturers, the 7 Japanese manufacturers assessed ranked between 23rd (Mitsubishi Motors) and 33rd and last (Suzuki)[4].

National champion Toyota is in 30th place, the worst ranking for a major manufacturer. The report states that Toyota’s sales of EVs (plug-in hybrids and pure electrics) and hydrogen will account for just 1.1% of total sales volumes in 2022.

The automotive industry’s lag is far from insignificant. In addition to the loss of export market share, Japan has still not reached the tipping point in its domestic market at which a virtuous circle begins: Growing consumer interest, an increasing number of models offered by manufacturers, a fast-growing electric vehicle fleet justifying investment in infrastructure (notably public fast-charging stations)… The EV share of new vehicle sales in Japan was just 3% in 2022, a much lower level than that of Western countries or China (25% market share for EVs that same year[5]).

A leader in hydrogen

While Japan is lagging behind in some areas associated with the transition, it is at the forefront in others, such as hydrogen. The country has just updated its Basic Hydrogen Strategy, incorporating a forecast demand of 12mt of hydrogen per year by 2040. The plan calls for JPY 15,000 billion (EUR 100 billion) of public and private investment in the sector’s supply chain over the next 15 years. A significant proportion of the volumes the country will need will be imported (in the form of hydrogen or ammonia), which explains why a significant proportion of the investment will favour the development of certain key supply chain infrastructures such as ports.

The policy is being reoriented to favour the use of hydrogen in the most difficult sectors to decarbonise (hard-to-abate sectors), such as steel and petrochemicals. Hydrogen should also play a growing role in aviation, maritime transport and heavy goods vehicles. Private vehicles, on the other hand, are no longer targeted[6].

In terms of taxonomy, Japan has adopted a less strict definition than the EU to describe hydrogen as “green”, which will favour the sector in the coming years.


[1] Japanese thermal baths using hot water from volcanic springs.
[2]At USD 223 billion on 16 June, Toyota Motor’s market capitalisation was almost double that of the country’s second-largest company (Sony).
[3] Bloomberg New Energy Finance (BNEF) – Automotive EV exposure score – 2023 Edition (06/2023)
[4]The latest report from the ICCT (International Council on Clean Transportation) comes to the same conclusions. In its analysis of the relevance of the EV transition strategy for the world’s top 20 carmakers, the five Japanese manufacturers studied are in the “Laggards” category.
[5] Source : IEA (International Energy Agency)
[6] The government’s targets for hydrogen cars (using a fuel cell) have never been met, with fewer than 8k FCEVs on the road by the end of 2022, compared with a target of 40k by 2020.