Japan’s strategy to achieve climate neutrality

A researcher with roots in the energy industry emphasizes Japan’s need for low carbon electrification, backed by innovative energy and business solutions, to achieve its goal of carbon neutrality by 2050.

How do I remember well the aura of excitement and optimism that engulfed the Conference Center on 12 December 2015, the day the United Nations Climate Change Conference (COP21) adopted the Paris Agreement? Young people shouted “Planet Earth saved!” I inhaled this lively atmosphere and said to myself, “For years from now, we will remember it as the moment when the world changed.” The new agreement certainly does not have legally binding targets, but it still looks like a victory, given the failure of previous attempts to create a framework for reducing emissions to follow the Kyoto Protocol. With the credibility of the UN-led climate negotiations at stake, the adoption of a comprehensive framework, with the active participation of all parties, was a truly emotional moment.

Where are we now, six and a half years later?

As of November 2021, more than 150 countries have set zero emission targets, and Japan, like many other developed countries, has promised to reach this target by 2050. The finance industry, which embraces ESG principles, has come together to reduce fuel financing. and sustainable energy support, as climate change is the focus of unprecedented attention and action around the world.

However, our goal of climate neutrality seems as remote as ever. Globally, carbon emissions declined in 2020 as economic activity slowed during the pandemic, but it recovered sharply as countries acted to restart their economies. Early estimates suggest that emissions have already returned to pre-pandemic levels by 2021. Why is decarbonization so difficult to achieve?

The question of the basic principles of economics

Since the Industrial Revolution, mankind has relied on the burning of energy-intensive fossil fuels (oil, coal and natural gas) to promote economic growth and development. In the process, we are releasing ever-increasing amounts of carbon dioxide, the biggest cause of global warming on the planet. Only during short periods of economic stagnation – the Great Depression, the oil embargo of the 1970s, the Great Recession of 2008-2009, the recession caused by the coronavirus pandemic – did carbon dioxide emissions decrease even for a short period of time. Each of these cuts was due to the economic downturn, as opposed to investing in low-carbon or energy-efficient technologies. Each decline was therefore followed by a sharp recovery as the economy recovered.

Empirical studies have confirmed a strong link between carbon emissions and GDP growth. One can name a few isolated examples of GDP growth amid low carbon emissions, but it is the product of special circumstances, which does not apply to Japan or most other countries. The problem of climate change is rooted in the energy that fuels our economy. It will not be solved just by asking everyone to do more.

The only realistic path to environmentally sustainable economic growth is through reliable, low-carbon technologies that can compete with the fossil fuels on which our economy and society currently depend. As long as alternative energy sources remain more expensive than fossil fuels, the government will have to support the transition, and the burden will dampen overall economic growth (even if individual sectors thrive). This is the reality we have to face.

Three forces of decarbonization

There are three primary forces we can harness to reduce carbon emissions: the power of regulation, the power of capital markets, and the power of technology.

Regulation is like a powerful remedy: it can work fast and straightforward, but the side effects can be worse than illness. Poorly designed regulations can lead to inefficient allocation of resources. Regulations that focus too narrowly on greenhouse gases, without looking at the big picture, can have serious economic and social repercussions.

An example of a regulatory approach is the Climate Act, which was approved by the French Parliament in July 2021. The law calls for a radical transformation of French society and imposes new restrictions and bans on various sectors, including a ban on domestic flights for journeys that can be taken by train in less than 2.5 hours and a requirement that school cafeterias offer vegetarian options every day (based on the fact that meat and dairy farms produce high levels of greenhouse gases). Of course, one can argue the pros and cons of these policies, but it seems to me inappropriate to adopt such comprehensive regulations solely on the basis of greenhouse gas emissions.

The power of capital can certainly influence business decisions in today’s world. But capital is only a means to an end. It can not lead to an economically sound energy transition unless new competitive solutions emerge using targeted investment. Under the IEA’s “net zero emissions 2050 scenario”, demand for fossil fuels and energy costs is expected to decline as the transition to solar and wind continues. But at the moment, the opposite is happening. Demand for fossil fuels remains high, and supply is scarce, leading to higher fuel prices, which has led to a bad attack on inflation. Japan, which imports most of its fossil fuels, has been hit hard.

In the end, only the power of technology can lead to decarburization. The key to achieving a carbon-neutral society is to foster industrial innovation aimed at developing low-cost, low-carbon processes, products and services. Organization and capital must be directed to support and expedite this process.

Electrification plus decarbonization

When I talk about the need to promote innovation, I am sometimes criticized for basing our hopes on a technology that does not exist. This reveals a misunderstanding of the term innovation. Innovation does not necessarily mean the development of completely new technologies. Some of the key innovations are incremental improvements that reduce costs or improve the usability of existing technologies.

Energy Economics tells us that the most practical formula for reducing carbon emissions is the electrification of energy consumption as well as the decarbonization of the electrical grid. Unfortunately, the Japanese government overemphasized the second component without paying sufficient attention to the first. Electricity generation currently accounts for only 30% of Japan’s final energy consumption, and the remaining 70% consists of the direct use of fossil fuels in cars, buildings and manufacturing processes. The effect of decarbonization of electric power generation is certainly limited if we ignore the other 70% of energy demand. By electrifying the final energy consumption, we double this effect. With this approach, we can reduce carbon emissions by only 70% by using currently proven commercial technologies.

To achieve complete carbon neutrality, we apply the same formula, while also looking at new hydrogen technologies – including the use of ammonia and other hydrogen energy carriers – to provide clean energy in areas where electricity is impractical. Initially, it would likely take the form of “blue hydrogen” produced from natural gas, with CCS being used to reduce greenhouse gas emissions. But by the second half of this century, most hydrogen fuel is likely to be “green hydrogen”, which is produced using climate-neutral electricity from renewable or nuclear power.

Do not give up on nuclear energy

For this strategy to work, we need the ability to produce an abundant, reliable source of low-cost, carbon-neutral electric power. Globally, the cost of solar and wind energy is falling rapidly, but in Japan, renewable energy remains very expensive. Megasolar facilities, for example, cost on average about twice as much to build here. There are a number of reasons for this, but one of the main problems is that generous government subsidies and incentives have hampered the development of an internationally competitive industry. Japan is already third in the world in terms of installed solar power. But Japan’s random subsidy system has encouraged the entry of speculators and beginners rather than long-term investment by the energy industry. It has given renewable energy a bad reputation in rural areas across Japan.

But another important factor that increases the cost of renewable energy is the limited availability of land. Because of these limitations, the need to decarbonize electricity production eventually forces us to deal with nuclear power. In the decade following the 2011 Fukushima nuclear disaster, almost all nuclear power plants in Japan remained idle due to strict new safety standards that plants must meet before they can be reopened. Meanwhile, the liberalization of the retail electricity market in Japan has also reduced the expected return on investment, making the nuclear power industry unsustainable by private companies. The obvious fact, however, is that we are unlikely to achieve decarbonisation of electrical power generation if we insist on nuclear disarmament at the same time.

Let us now turn to the other essential component of our strategy, the electrification of the ultimate demand for energy throughout the economy. The first priority should be to improve the electrification of buildings and cars, given their long life cycles. For this we will need new policies. The Japanese government should study regulatory steps taken elsewhere, including local California laws banning natural gas in new buildings and the impending European ban on the production and sale of gasoline and diesel vehicles. But it must proceed with caution, based on extensive discussion and deliberation, for this shift has implications for families, work, and our entire industrial structure.

The need for new business models

In our quest to achieve the goal of carbon neutrality by 2050, we seek a more radical transformation of the Industrial Revolution, and in a much shorter time frame. While the Industrial Revolution took between 60 and 80 years to reach, Japan has less than three decades left from now until our target year of 2050.

The Industrial Revolution was driven primarily by coal, which has a much higher energy density than wood. This shift has led to efficiencies and productivity gains that have enriched society as a whole. In contrast, the switch to solar and wind energy, which have much lower energy densities, does not promise such economic benefits. For this reason, the economic impetus for the coming revolution must come largely from the development of innovative business models that create new value addition. The same companies that need to switch from petrol and diesel to electric cars, for example, can add ride-sharing services to their portfolio. The forthcoming shift to a carbon-neutral society should lead to a widespread rethinking of business strategy.

During the transition, we will need a realistic roadmap based on the understanding that carbon neutrality is an energy-economic issue with implications for our entire way of life. Wholesale change is always painful. But without comprehensive change, the future of the planet is dark. Although there are many obstacles to overcome along the way, our primary path is clear. The question now is whether we have the collective will and political leadership to pursue it.

(Originally published in Japanese, English translation. Banner photo: The new Tokuruzaza Kitaiwaka solar power plant in Saitama Prefecture, installed on agricultural land, simultaneously produces crops and electric power in an example of “sharing solar energy”).

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