The proposed Green Transformation (GX) Basic Policy, which is open for public comment until January 22, 2023. It is effectively an investment roadmap for 150 trillion yen (over USD 1.1 trillion) of public-private financing over the next 10 years to transform 22 industrial sectors to meet carbon neutrality.
The Japanese government aims to introduce ‘carbon pricing’ combining a ‘carbon levy’ and voluntary emissions trading. The late introduction timelines and the voluntary design brings into question whether this ‘carbon pricing’ can effectively reduce emissions, but given that much is still under discussion, there is room for corporate advocacy for more robust regulations.
Heavy industry has advocated for the funding to be allocated to technologies misaligned with IPCC timelines, including thermal power (LNG, ammonia co-firing with coal, hydrogen, CCS), hybrid vehicles, and weakened the role of renewables. The draft strategy also proposes to build new nuclear reactors in a major reversal of policy since the Fukushima disaster.
On December 22, 2022 the government unveiled the Green Transformation (GX) Basic Policy. It outlines regulatory, financing and technology development priorities for the green transformation of 22 industrial sectors. The strategy was formulated after months of consultations at the GX Executive Council chaired by the Prime Minister of Japan Fumio Kishida and various hearings at the Ministry of Economy Trade and Industry (METI), the Ministry of Environment and others.
Despite its name, the Green Transformation strategy’s objective is to encourage investment into key industrial sectors loosely in line with 2050 carbon neutrality. As such it promotes investment into technologies that are not necessarily aligned with IPCC decarbonization timelines, including LNG power generation, hydrogen/ammonia co-firing with gas and coal, and hybrid vehicles.
The Japanese government aims to raise initial 20 trillion yen (USD 140 billion) through ‘GX Bonds.' They will be repaid through ‘carbon pricing’ revenues that combine a ‘carbon levy’ to be introduced in 2028, and voluntary emissions trading introduced in 2023 and expanded to the power sector with allowance auctions in 2033. The late introduction timelines and the voluntary design brings into question whether this ‘carbon pricing’ can effectively reduce emissions, but given that much is still under discussion, there is room for corporate advocacy for more robust regulations.
A carbon levy will be gradually introduced from 2028 on power, gas and oil companies. While the government has not disclosed the price, the Renewable Energy Institute estimates that it will amount to a carbon price equivalent of up to 1,500 yen/t-CO2 (Less than USD 12/t-CO2) under current assumptions disclosed by the government.
Current draft plan proposes introducing emissions trading in phases, with a prolonged initial period of voluntary trading based on carbon allowances set by the companies themselves.
While being eligible for a significant share of financing (20 trillion yen) under the package, renewables are mentioned with newly added caveats emphasizing that their deployment should be “based on 3E+S Principles” (Energy security, economic efficiency, environmental considerations and safety), reflecting industry narratives that call for their roll out to be moderated because of high cost and intermittency. Moreover, internationally, compared to the long-term support promised to expand hydrogen and ammonia supply chains in Asia (subsidies, regulatory support, export credits, risk insurance etc), support is limited for Japanese companies looking to participate in regional renewable business.
Current draft proposes the construction of new reactors, a major reversal of policy over the last decade since the Fukushima meltdown. The heavy industry sector has been strongly advocating for the restart and development of tradition reactors, as well as new generation technologies including SMR.
The focus on supporting the energy transition in Asia is a key pillar of the strategy. Japan aims to play a stronger role as a lender and technology exporter in Asia, and regional cooperation is expected to be high on the agenda at the G7 summit hosted by Japan in May 2023. Based on proposals from the heavy industry, there is a risk that thermal power expansion (LNG, hydrogen and ammonia co-firing, CCS) will feature prominently on the agenda.
|Influencemap Performance Band||Organization||Engagement Intensity|
|B+||Renewable Energy Council (REC)||19||Utilities||Asia|
|D||Petroleum Association of Japan (PAJ)||29||Energy||Asia|
|C+||Real Estate Companies Association of Japan||23||Construction Materials||Asia|
|D||Japan Chamber of Commerce and Industry (JCCI)||26||All Sectors||Asia|
|D+||Japan Business Federation (Keidanren)||50||All Sectors||Asia|
|D||ENEOS Holdings (formerly JX Holdings Inc)||29||Energy||Asia|
|A-||Japan Climate Leaders Partnership (JCLP)||39||All Sectors||Asia|
|D+||Central Japan Economic Federation (CJEF)||20||All Sectors||Asia|
|E+||Japan Iron and Steel Federation (JISF)||44||Metals & Mining||Asia|
|B-||Japan Association of Corporate Executives (Keizai Doyukai)||38||All Sectors||Asia|
|D||Federation of Electric Power Companies of Japan (FEPC)||36||Utilities||Asia|
|C-||Japan Electrical Manufacturers' Association (JEMA)||16||Industrials||Asia|
|D||Japan Gas Association||26||Energy||Asia|
|D||Japan Society of Industrial Machinery Manufacturers (JSIM)||10||Industrials||Asia|
|D||Japan Paper Association (JPA)||10||Paper & Forest Products||Asia|
|D||Japan Chemical Industry Association (JCIA)||19||Chemicals||Asia|