Workers on a site operated by Chiba Ecological Energy, a start-up that uses farmland to produce both crops and solar power
Doubling up: a site operated by Chiba Ecological Energy, a start-up that uses farmland to produce both crops and solar power © Toru Hanai/Bloomberg

Japan may be the world’s fifth biggest carbon emitter but its leaders are unequivocal in their commitment to do better.

“Being carbon neutral by 2050 is the long-term strategy that Japan has mapped out, and we plan to see it through,” prime minister Fumio Kishida told the UN’s COP26 climate conference in Glasgow last year. Like his predecessor, Yoshihide Suga, he also vowed to cut CO₂ emissions by 46 per cent from 2013 levels by 2030.

While such pledges are not unusual, Japan may be better placed than many of its Asia-Pacific peers to meet them. Research by McKinsey, the consultancy, indicates that Japan will need to spend 4.2 per cent of its GDP on the physical assets required to cut emissions and secure low-carbon growth until 2050, compared with India’s 10.8 per cent and China’s 5.2 per cent.

This advantage is reflected in the FT’s inaugural Asia-Pacific Climate Leaders list, compiled with Nikkei Asia and data provider Statista. Of the 200 companies on the list — comprising businesses that have significantly cut their Scope 1 and 2 greenhouse gas emissions relative to revenue — 86 are from Japan, far more than any other country. Scope 1 and 2 emissions arise, respectively, from a business’s own operations and from generating the energy it buys.

But regional pre-eminence is not the same as global pre-eminence. Japan’s reliance on coal increased after regulators took most nuclear power plants offline in the wake of the Fukushima disaster in 2011, and it lags Europe in renewable energy. About 20 per cent of its electricity comes from renewables, which is roughly half the equivalent figure for the EU — though that may work to its advantage in the short term.

“Japan is likely to keep [its] decarbonisation cost relatively lower than the EU until 2030, as there is still ample room for its existing mature technologies to reduce emissions,” says Yuito Yamada, a partner at McKinsey. He argues that the country can achieve big wins quickly by building more solar and wind power facilities, converting oil and coal boilers to less carbon-intensive gas, and switching from petrol to electric vehicles.

Japan’s geography, however, limits its ability to rely heavily on solar and wind power. Solar farms are ideally situated on level ground, but 70 per cent of Japan’s territory is mountainous. And, as an island, it is harder for Japan to tap other countries’ grids to compensate for fluctuations in the supply of electricity from renewables.

A coal-fired power station under construction in the Greater Tokyo area
Old-school fuel: a coal-fired power station under construction in the Greater Tokyo area. Japan’s use of coal surged after the 2011 Fukushima nuclear disaster © Carl Court/Getty

Yamada warns that “costs will rise substantially by 2050” if net zero is to be achieved, because the emphasis will have to shift to newer, more expensive technologies such as hydrogen power and carbon capture and storage (CCS).

Some of Japan’s heavy industrial businesses, traditionally big emitters of greenhouse gases, see opportunities here. To encourage them, Kishida has promised lavish subsidies, and has said that state and corporate spending on green technologies will reach ¥150tn ($1.1tn) over the next decade.

Eisaku Ito, chief technology officer of Mitsubishi Heavy Industries, believes hydrogen and CCS technology may be cheaper to implement than some analysts predict if companies take advantage of existing facilities and supply chains. “We are in a transition period,” he says. “Technology doesn’t change all in one day but it will rather take a couple of decades.”

Mitsubishi executives think existing gas turbines can be run in a more eco-friendly way by fuelling them either with hydrogen — at only minimal extra cost if it is sourced nearby — or with natural gas from which carbon is captured after combustion.

Along with US multinational General Electric and Germany’s Siemens, MHI is one of the world’s biggest suppliers of gas turbines. It also has a substantial share of the market for CCS plants, and has developed smaller and cheaper versions of these to broaden their use.

Next year, it plans to build a pilot hydrogen power facility in western Japan, where it can test the full process from producing hydrogen to generating power. MHI has earmarked ¥2tn for developing decarbonisation technologies until 2030, and has set itself a net zero target of 2040, including not only Scope 1 and 2 emissions, but also so-called Scope 3 emissions, which are produced along the rest of the value chain.

Meanwhile, it has managed to reduce energy use at its own plants over the past few years by calculating the amount of energy that is theoretically required, and then comparing it with the reality.

Another advocate of carbon capture is construction company Kajima. It has co-developed a type of concrete that absorbs and locks in CO₂ when it solidifies. Conventional concrete has a huge carbon footprint because the cement it contains generates a lot of emissions during manufacture — but it also has the significant advantage of being cheaper than Kajima’s green product.

Kajima, which will receive a government subsidy worth ¥25bn over the next decade for its carbon-absorbing concrete, is trying to produce it more cheaply. But Yoshitake Yoshimura, who heads the group’s environment initiatives, points out that cost is only one among several considerations.

“Providing materials that help customers make decisions could be more important,” he says. He wants them to “understand how much emissions they can reduce by pouring that amount of money in.”

Faced with growing customer demand for environmental data, Kajima has started to measure carbon emissions at all of its nearly 1,000 construction projects — the first initiative of its kind in Japan’s construction sector, according to Yoshimura.

Yukimi Yamada, a researcher at consultancy the Japan Research Institute, says that, while Japanese companies have valuable low-carbon technologies, they are behind their European counterparts in turning them into a business. But she thinks that may change as Kishida’s policies take effect.

“With the government’s aggressive subsidies, more companies are now increasingly investing people and money into decarbonisation to boost businesses,” she says.

McKinsey’s Yamada says that, while Japanese companies have so far lacked the dynamism to expand their low-carbon technologies in Europe, substantial opportunities await them there. His argument is that, as growth in Europe’s renewables sector becomes harder to sustain, demand for hydrogen and CCS will surge, providing a valuable test bed.

“It is important for Japanese companies to train first in Europe to become globally competitive and then bring [knowhow] back to Japan,” he suggests.

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