Need for Vehicle Electrification

Policy Overview

The Japanese government has set a target of achieving 100% electric vehicles (EVs) in new light-duty vehicle (LDV) sales by 2035 and a 46% reduction in CO2 emissions compared to FY2013 by FY 2030. Following its October 2020 announcement to achieve carbon neutrality by 2050, the government has introduced several policies including the "Green Growth Strategy Through Achieving Carbon Neutrality in 2050" in June 2021, and “the Basic Policy for Realizing GX – A roadmap for the next 10 years" in February 2023.

Electrified Vehicles Target by 2035
The vehicle electrification target and its associated charging infrastructure goal have been set as key initiatives in the Green Growth Strategy and “the Basic Policy on Economic and Fiscal Management and Reform 2023” approved by the Cabinet in May 2023. The automotive and storage battery industries are among the 14 industries identified for growth in these policies.

　　1, For passenger vehicles, the goal is for electrified vehicles to account for 100% of new vehicle sales by 2035.
　　2, For commercial vehicles, the aim is for electrified vehicles to account for 20-30% of new light vehicles sales by 2030 and for electrified vehicles and decarbonized fuel vehicles to reach 100% by 2040. For heavy vehicles, the aim is to achieve early adoption of 5,000 vehicles in the 2020s and set a target for 2040 electrified vehicle penetration by 2030.
　　3, In the “Guidelines for Promoting the Development of EV Charging Infrastructure” announced in October 2023, it aims to “double the current target number of EV chargers to be installed (from 150,000 ports to 300,000 ports by 2030): Increasing the total number and total output of EV chargers to 10 times the current levels”.

Challenges in the Promotion of Electrification
In the Green Growth Strategy, Japanese government appears to acknowledge that Japan falls behind Europe and China in the widespread use of EVs and plug-in hybrid vehicles (PHEVs). The government states that the “sales of electric vehicles and plug-in hybrid vehicles in the first quarter of 2021 will be approximately 350,000 units in the EU as a whole (more than 1.5 times as many as in the same period of 2020, on the preliminary basis of the European Automobile Manufacturers Association) and approximately 11,000 units in Japan (approximately 20% more than in the same period of 2020, based on data from the Japan Automobile Dealers Association and compiled by the Ministry of Economy, Trade and Industry)”.
The proposed measures to address the challenges to widespread use of electrified vehicles include increasing social acceptance through vehicle price reductions and infrastructure development, such as expanding EV charging infrastructure and hydrogen stations. Strengthening technologies, supply chains, and value chains related to EVs, including storage batteries, fuel cells, and motors is also essential. Critical issues include (i) the strong cost awareness of light vehicle and commercial vehicle users, (ii) the electrification of automobiles with body design restrictions, and (iii) the need to strengthen the competitiveness of suppliers such as SMEs (Small and Medium Enterprises). Facilitating procurement of low-carbon energy sources is also essential to reducing life-cycle CO 2 emissions from automobiles.

Framework for 100% vehicle electrification and 1.5°C
METI defines electrified vehicles as including battery electric vehicles (BEVs), fuel cell electric vehicles (FCEVs), PHEVs, and hybrid vehicles (powered by internal combustion engines (HEVs)). This definition is outlined in the Green Growth Strategy and the Basic Policy on Economic and Fiscal Management and Reform 2023. To meet the 1.5°C target by the Intergovernmental Panel on Climate Change (IPCC), the International Energy Agency (IEA), and the Institute for Global Environmental Strategies (IGES), the following new vehicle sales ratios must be achieved, with a target of 0% for HEVs across all studies:

　・IPCC Sixth Assessment Report： The Summary for Policymakers (SPM) report notes that “electric vehicles powered by low emissions electricity offer the largest decarbonization potential for land-based transport, on a life cycle basis (high confidence)” (SPM-41, C.8). The report further states that because “ICEV, HEV, and PHEV technologies … are powered using combustion engines, they have limited potential for deep reduction of GHG emissions” (10-43, 25-26), providing only a “suitable temporary solution” to automotive sector decarbonization (10-40, 21-31).

・IEA Net Zero by 2050：66% of all light-duty vehicle sales globally must be electric (BEVs, FCEVs or PHEVs) by 2030 to meet net-zero targets by 2050.
　・IGES 1.5°C Roadmap：100% of new passenger car sales must be BEVs and PHEVs by 2035 (60% of new passenger vehicle sales must be BEVs and PHEVs by 2030).

Toward the Realization of the 2035 Target
In order to achieve carbon neutrality in the automotive industry, it is necessary to aim for effective CO2 emission reductions in particular to achieve 100% vehicle electrification in new passenger vehicle sales in 2035. The Revised Act on Rationalizing Energy Use, which has been put into effect on April 1, 2023, requires to (i) rationalize the use of all kinds of energy, including non-fossil energy, and (ii) shift to non-fossil energy. It will also change the legal system to (iii) promote the optimization of power toward the realization of carbon neutrality by 2050.
Furthermore, the "Plan for Global Warming Countermeasures" in October 2021 sets a target of reducing energy-derived CO2 emissions in FY2030 by 45% from the FY2013 level (approximately 677 million tons-CO2). To achieve this goal, it is necessary to take comprehensive measures to expand the introduction of EVs, improve infrastructure, and strengthen technologies related to EVs, including batteries, supply chains, and value chains, including support measures such as subsidies and tax incentives for EVs, which are currently in the early stages of introduction and face issues such as high costs.

Eco-Car Tax Break/ Subsidies
Currently, the government and local governments provide eco-car subsidies to promote and support electrified vehicles, which, as mentioned above, face issues such as high costs. This is intended to contribute to environmental measures by promoting the purchase of new vehicles with superior environmental performance, and to stimulate the electrified vehicle market in Japan. The applicable vehicle types are so-called "eco-cars" (BEVs, PHEVs, and FCEVs). In addition to subsidies for purchase, preferential tax treatment is also provided.