Japan 2030 Carbon Target Presents Great Opportunities

Japan has seen a change of heart over the last year or so in its approach to decarbonization. The country has moved from paying lip-service to energy transition goals while emphasizing energy security – resulting in limited progress to date – to fully committing to a rapid acceleration towards carbon neutrality, even if that is justified as much by potential business opportunities as by the challenge of global warming. In its 6th Basic Energy Plan draft, published in July, Japan outlines how to get to its new 46% GHG reduction target by 2030, en route to net-zero by 2050. The targets are ambitious, but recent price rises in fossil fuel markets, as well this summer’s frightening weather, are adding to momentum, and many opportunities are likely to be created along the way.

It is perhaps understandable that Japan has been less focused on decarbonizing its energy system than the UK and parts of the EU over the last ten years, given its preoccupation with energy security, not to mention the Fukushima Dai-ichi accident. Japan is among the most energy import-dependent nations in the world, so it feels vulnerable to supply interruption and has historically prioritized energy supply security above all else. The Fukushima accident took out the country’s entire nuclear fleet for a time and undermined the limited progress towards energy independence that had been made up to 2010 (nuclear power is counted as a domestic energy source). Japan’s self-sufficiency rate fell from 20.3% in 2010 to 6.4% in 2014 (see Figure 1), before it began to recover with the expansion of renewables and the return of some nuclear units after 2015, rising to 11.8% by 2018. During this time, the country had little choice but to import more LNG and coal – and emit more carbon – to make up for the shortfall in nuclear power.

Statements in the 5th Basic Energy Plan, published in 2018, focus primarily on energy supply security. The plan re-emphasized Japan’s desire to become less dependent on energy imports, adding only that the generating choice would also be influenced by the global movement to decarbonize energy, as agreed under the 2015 Paris Accord. Moreover, the 2030 generation mix in the 5th Plan was the same as the mix in the 4th Basic Energy Plan of 2014 – so the targeted mix had remained unchanged for the last 7 years. Nevertheless, there has been some success, with renewable generation nearly doubling from FY2010 to 18% of the total in FY2019.

Policymakers have upped their game since then. The pandemic provided additional green energy spending, justified under stimulus measures in response to COVID-19. And in October 2020, Prime Minister Suga announced Japan intended to become carbon neutral by 2050 – which was followed by a sharp upward revision of the 2030 target to 46% in April 2021 compared to 2013 levels (up from its existing, modest 26% target).

The eagerly awaited 6th Basic Energy Plan draft outlining how to achieve that goal has now been published and contains few surprises. It relies heavily on existing technology, raising the 2030 target for solar by 8 percentage points to 15% and the wind target by 4.3 points to 6% (see Figure 9 on page 13). This growth is the main constituent of a planned 60% rise (see Figure 2) in the 2030 total renewables target (including hydro). The draft will be discussed, and a final version is expected by the end of October.

Of course, the gains for renewables will also translate to gains for energy independence, and the report continues to frame them as such. It goes on to note that, if sufficient low carbon sources can be developed, Japan may also have the answer to its energy security problem. The success of offshore wind in the UK certainly suggests this is possible. Currently, Japan’s offshore wind capacity is minimal at 0.2GW partly due to limited shallow water sites; however, the government is aiming to greatly increase this capacity to 10GW by 2030 and to 30-45GW by 2040. Further advances in floating wind technology may allow Japan to expand its offshore wind capacity even further beyond the government’s current target levels.

Business First?

Although the government appears much more motivated to tackle decarbonization in the 6th plan, it seems to be as much for the potential business opportunities that may bring as to address the potential catastrophe of global warming. According to the draft, “For decarbonization, each country is striving to create rules that are advantageous to its own country, not only in terms of technology, but also in terms of international rule-making, taking into account the industrial structure of its own country.” It goes on to note that businesses are also beginning to make efforts to play their part in reaching carbon neutrality, sometimes justified by improved public image or to control long-term energy costs. Other companies are seeking new green business opportunities based on their existing strengths.

The report argues that: “Since the start of the 21st century, the competition for supremacy in digital technology has been combined with the competition for supremacy in climate change and decarbonization. Japan is seeking to enhance its international competitiveness not only through the creation of international rules, but also through new innovations that contribute to decarbonization technology and carbon neutrality that it has cultivated.

And if Japan leads the international rule-making process and makes use of its decarbonization technology to solve the problems of decarbonization in the world, especially in Asia, it could become an opportunity to create new growing industries.”

Feasible Targets?

Some observers question the rapid growth forecast for solar, suggesting that there may not be the incentive to install sufficient capacity to reach the 15% target, given the switch from FIT to less generous FIPs. The FIT subsidy system was introduced in 2012, when solar power generation accounted for only 0.6%, and they were successful in pushing the share up to 6.7% by 2019. But this is a slower rate of growth than is now expected over the next nine years, and most of the best large scale solar sites have already been taken. There could be more potential in biomass and wind power, which both grew by less than 100% in the past 10 years, while solar has expanded almost 20-fold. There will also be implications for grid spending from the renewable expansion, which will make renewable integration more challenging.

As well as renewables, the 46% target (and high LNG prices) may provide renewed momentum to efforts to return nuclear plants to operation, as this will also be essential if Japan is to even get close to the target. Recent restarts and Nuclear Regulation Authority relaxation of restrictions could be evidence of the added pressure.

While existing, proven technologies are to be used to achieve the 2030 GHG target, the government is investing in research into less developed energy technologies to make a bigger difference after 2030, which should help it accelerate towards the 2050 carbon neutrality goal. In December 2020, Japan announced a 2 trillion-yen fund to invest in R&D projects that lead to decarbonization, with offshore wind, hydrogen production from renewables, and CCUS, among 14 priority areas. As previously mentioned, the government is aiming to increase offshore wind capacity to 10GW by 2030 and to 30-45GW by 2040. Other countries have similar 2030 capacity targets as well, including 40GW of hydrogen in the EU, and 40GW of offshore wind in the UK.

Sincere Commitment?

There had been suggestions that pressure from its fellow nations may have encouraged Japan to make s net-zero commitment in 2020, not to mention China’s carbon neutrality pledge. And some now say that figures are being massaged to make it easier to achieve the 46% GHG reduction goal, which is already less ambitious than many other developed nations – for example, the EU has a legally binding 55% by 2030 (with Spain at 74%); and the UK is targeting 68% by 2035, and had already achieved 50% by 2020 (compared to 1990 levels). In particular, the METI expert committee is suggesting that total electricity demand will fall 10% by 2030, despite a sharp rise of 30-50% expected by 2050 (compared to 2013 levels) as more of the economy is electrified. Lower overall power demand would make it easier to achieve the 46% fall. Germany, on the other hand, recently raised its projected 2030 power demand by over 10% following the introduction of more ambitious decarbonization policy, in anticipation of more rapid electrification.

Critics of this anticipated decrease in demand include one of the METI expert committee members. Professor Takeo Kikkawa (Energy Industry Expert, Vice-President of International University of Japan) said the projected decrease had been included “because if we don’t reduce the denominator, we can’t increase the ratio of renewables and nuclear power.” He said it was wrong for the government to play with the figures for the sake of achieving the 2030 non-fossil power generation targets.

On the other hand, the forecasters may be justified. The bulk of the mooted output reduction is expected to come from efficiency gains, and much can be done immediately in this area with current technology available in Japan – on the other hand, promising technologies such as offshore wind, hydrogen, CCUS, etc. are expected to be developed and commercialized over a longer timeline extending beyond 2030. Therefore, as argued in the 6th plan, there would be more emphasis on efficiency gains as one of the few tools available in the run up to 2030, after which the more advanced low carbon generation options should be able to expand more quickly – just as the increasing rate of electrification of the economy starts to outpace gains from efficiency savings.

By Dan Shulman, CEO, Shulman Advisory

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