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The struggle for renewables in Japan

EOS Insight
2 November 2020 |
With most nuclear power still offline in Japan in the wake of the Fukushima disaster, the country is unlikely to meet its target to reduce its greenhouse gas emissions unless it ramps up its renewable energy capacity. Engager Haonan Wu examines the challenge.

Fast reading

  • Japan’s energy policy has been shaped by the impact of the 2011 earthquake 
  • Reliance on coal increased to 32% in 2018 from 28% in 2010
  • Globally, the top three lenders to coal plant developers since 2017 are all Japanese banks

In late October, Japan’s Prime Minister Yoshihide Suga set a target for the country to become carbon neutral by 2050. This is a significant step and aligns with similar commitments by South Korea (2050)1 and China (2060). We are encouraged by the momentum in the region but want to see greater detail on how this will be achieved. For Japan it will be critical to set out a strategy for phasing out the use of coal, which accounts for a significant portion of the country’s emissions. Japan’s Environment Minister Shinjiro Koizumi has also advocated a shift away from coal and is working more closely with the Ministry of Economy, Trade and Industry (METI) to establish a revised Fifth Strategic Energy Plan, and increase the focus on climate change.

The financial sector will play an important role in supporting the transition from coal. However, the top three lenders to coal plant developers since 2017 are all Japanese banks. Together, they accounted for more than US$39bn, or a third, of the direct lending to coal plant developers globally, according to NGO research.2 Some Japanese mega-banks have now stated that they will not finance new coal projects unless the plants are already in the pipeline. Although this is a step in the right direction, such policies could be extended to include corporate financing.

Ditching coal

The “fade out” plan proposed by METI in 2018’s Fifth Basic Energy Plan says that inefficient coal-fired power stations will be shut down. However, the plan retains coal as one of Japan’s core energy generators, by supporting coal projects that use “high efficiency” technology for power generation.

The utility sector has also expressed concerns about the phase out of coal-fired power stations. It has stated that some regions, such as Okinawa, rely heavily on coal, and has argued that coal is required in the short-term to ensure a stable electricity supply.

Japan’s energy policy has also been shaped by the impact of the 2011 earthquake and the Fukushima nuclear accident. At COP 15 in 2009, Japan conditionally pledged to reduce its greenhouse gas emissions by 25% from 1990 to 2020, relying on a planned increase in nuclear power. However, the country’s entire nuclear power capacity was shut down in the aftermath of Fukushima. This left an electricity capacity shortfall of around 30%, forcing Japan to save energy on a scale not seen in decades. The gap was mainly closed by – at the time – expensive fossil fuels, primarily liquefied natural gas (LNG) and coal. 

Shifting to solar

In some respects, the disaster accelerated the growth of renewable energy in Japan through the introduction of the Feed-in-Tariff (FIT) scheme. This offered generous fixed incentives for solar and other renewable power generation, making Japan the third largest solar power generator in the world.

Historically, the Japanese electricity market comprised 10 privately-owned utility companies that operated vertically-isolated grids, served exclusively by each company. Liberalisation began in the 1990s but accelerated after the nuclear disaster, allowing independent power producers to enter the generation market, while electricity could be traded.

But the situation remains challenging. Japan’s current renewable energy target, setting out the country’s energy mix to 2030, envisages renewables accounting for at least 22% of the power generated. Such targets will need to be revised upwards if the country is to meet its carbon neutral goal. With most nuclear power plants still offline, and strong opposition to restarting them, reliance on coal has increased to 32% in 2018 from 28% in 2010.

The most viable and sustainable option is a transition towards using more renewable energy. To achieve the net-zero target by 2050, the utility sector needs to lead the way in decarbonisation, establishing a net-zero target earlier than the rest of the economy, supporting electrification and committing to a move away from high carbon energy generation sources.

We recommend that the Japanese government sets a clear net-zero target for electricity generation for 2050 or sooner, with a commitment to removing coal-fired power generation and building out grid infrastructure to accommodate more renewables. To mitigate climate risks and move towards net-zero emissions in Japan, we engage with companies across the energy market to establish targets and plans for reducing greenhouse gas emissions in line with the Paris Agreement.

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