Reacting to Japan’s Environmental Strategy: Threading the Green Needle

Despite having one of the world’s largest economies, Japan is a country with a low energy self-sufficiency ratio due to the scarcity of natural energy resources. As a result, Japan relies heavily on fossil fuels such as oil, coal and liquefied natural gas—most of which are imported—and is one of the top emitters of greenhouse gases.

Acknowledging the environmental, economic, and human costs of climate change, the government of Japan has moved to establish targets and plans to reduce emissions and accelerate decarbonization. In 2016, Japan ratified the Paris Agreement and swiftly outlined plans to tackle global warming by 2030. In the following years, Japan introduced a plan to achieve an energy saving society and a long-term strategy towards the Paris Agreement.

In October 2020, former Prime Minister Yoshihide Suga announced that it would aim to achieve carbon neutrality by 2050, reducing greenhouse gas emissions to net zero and realizing a decarbonized society, which would be a step forward from the previous administration that had pledged to reduce greenhouse gas emissions by 80% compared to 2013 levels. Six months later, the government set an interim, 2030 target of reducing emissions by 46% relative to 2013. This shift and increased commitment to achieve carbon neutrality is likely to have been influenced by domestic and international pressure and during his short-lived administration, the Suga government approved a series of plans related to climate change and energy policy. Suga’s successor, Prime Minister Fumio Kishida stated he would continue Suga’s policies to work towards achieving carbon neutrality by 2050.

Policy Developments from the Kishida Government

Consistent with these 2030 and 2050 goals, the government of Prime Minister Fumio Kishida has established the Green Transformation Implementation Council to promote decarbonization policies. Led by the Ministry of Economy, Trade and Industry (METI), Japan’s Green Transformation (GX) initiative focuses primarily on the dramatic transition of industrial and social structures away from fossil fuel dependency and towards clean energy solutions with no carbon dioxide emissions. It also represents one of the main pillars and investment priorities of Prime Minister Kishida’s Grand Design and Implementation Plan for New Capitalism.

Shortly after establishing the implementation council, the Basic Policy for the Realization of Green Transformation (GX Basic Policy) was unveiled. This policy is intended to be a roadmap to implement GX for the next decade and consists of two main pillars:

1. Efforts to realize decarbonization on the premise of securing a stable supply of energy, including nuclear, renewables, and other energy resources.
2. Formulating a policy package to advance the growth-oriented carbon pricing measures.

The GX Basic Policy includes many economic and technological implications that invite and encourage the active involvement of the private sector in sustainable investments and cooperation amongst stakeholders, as they play an important role in steering Japan towards a more sustainable and green future.

Reactions to and Concerns About Kishida’s GX Policy

The GX Basic Policy has faced criticism from various corners, from academics and environmental organizations, to citizen groups and political opponents. These diverse stakeholders point to an equally diverse array of issues around the GX Basic Policy. For instance, at a broad level, some suspect that the policy is more focused on promoting industrial activity rather than decarbonization. Others note that it promotes investments in fossil fuel-based technologies that would still contribute to climate change. Some of these critics further object to the pressure applied against neighboring Southeast Asia countries to adopt similar policies and technologies.

The fossil-fuel based technologies that are attracting criticism include:

• Blue hydrogen development and ammonia co-firing. Although hydrogen and ammonia do not emit greenhouse gases when burned, most blue hydrogen and ammonia production heavily relies on fossil fuels. Therefore, promoting co-firing hydrogen and ammonia has little effectiveness in reducing greenhouse gas emissions, and some research points out that such fuels may even increase emissions.
• Carbon Capture and Storage (CCS). CCS is a controversial technology that involves the capture, transportation and storage of carbon dioxide emissions. Although the government considers it a climate-mitigation technology, others view this as expensive, energy-intensive and unnecessary. Furthermore, even if the country were to capture the vast amount of CO2 forecast to achieve targets, there is nowhere to store them in Japan.
• Liquefied Natural Gas (LNG). LNG is considered an improvement from burning other fossil fuels, such as coal and oil, and it comprises a significant share of Japan’s energy mix. However, it is primarily made of methane, a greenhouse gas, and impacts the environment when it accidentally leaks into the atmosphere while making or transporting it.

Although these technologies are part of the GX Basic Policy toward a decarbonized society, given the controversy surrounding them, there is concern that the GX initiative is not ambitious enough to achieve the country’s goals set by the government and the targets of international accords, such as the Paris Agreement and the G7 Agreement. It may also prolong the country’s dependency on fossil fuels and delay the policy actions that are needed now.

Implications for Domestic and International Companies

As a result of the development of the GX initiative, as well as the discussion and attention on environmental policies, companies are being called upon to increase their efforts to address sustainability issues and take action to pursue initiatives that align with the government’s goals.

With the building momentum and attention around GX, there is also an opportunity for companies with the expertise and resources to further clarify their stance on environmental issues. This likely should not involve direct, public comment on the government’s green initiatives. Rather, companies and executives can set examples and show leadership by promoting their own activities and strategies, or by engaging with stakeholders such as the GX League, a multi-industry cooperation forum, or the Japan Climate Leaders Partnership, a business coalition.

Although strategic alignment with national or local policies can be beneficial when building a relationship with government stakeholders, businesses should be careful and attentive to the impression that their actions may convey to the public and other stakeholders they may be engaging with. It is important that businesses are fully aware and sensitive to these stakeholders’ stance on environmental issues, as well as their position on government initiatives, in order to maintain a good working relationship with them.