Japan’s heavy industry looks to a greener future

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Doubling down: 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 fifth biggest carbon emitter in the world, 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 carry it out,” Prime Minister Fumio Kishida said at the UN COP26 climate conference. in Glasgow last year. Like his predecessor, Yoshihide Suga, he has also pledged to reduce CO₂ emissions by 46% below 2013 levels by 2030.

While such promises are not unusual, Japan is perhaps better placed than many of its Asia-Pacific peers to deliver on them. Research by McKinseythe consultancy, says Japan will need to spend 4.2% of its GDP on the physical assets needed to reduce emissions and deliver low-carbon growth through 2050, compared to 10.8% for India and 5.2% for China.

This advantage is reflected in the FT’s inaugural list of Asia-Pacific Climate Leaders, compiled with Nikkei Asia and data provider Statistical. Of the 200 companies on the list – including companies that have significantly reduced their Scope 1 and 2 greenhouse gas emissions relative to their revenues – 86 are from Japan, far more than any other country. Scope 1 and 2 emissions arise from a company’s own activities and from the production of the energy it purchases, respectively.

But regional pre-eminence is not the same as global pre-eminence. Japan’s reliance on coal grew after regulators shut down most nuclear power plants following the 2011 Fukushima disaster, and it lags Europe in renewable energy. Around 20% of its electricity comes from renewables, around half the equivalent figure for the EU, although this could be advantageous in the short term.

“Japan is likely to keep [its] relatively lower cost of decarbonization than the EU until 2030, as its existing mature technologies still have ample room to reduce emissions,” says Yuito Yamada, Partner at McKinsey. He says the country can achieve big wins quickly by building more solar and wind power plants, converting oil and coal-fired boilers to low-carbon gas, and switching from gasoline to electric vehicles.

However, Japan’s geography limits its ability to rely heavily on solar and wind power. Solar farms are ideally located on flat land, but 70% of Japan’s territory is mountainous. And, as an island, it is more difficult for Japan to tap into other countries’ grids to offset fluctuations in electricity supply from renewables.

A coal-fired power plant under construction in the Greater Tokyo area
Old-fashioned fuel: A coal-fired power plant under construction in the Greater Tokyo area. Coal use in Japan increased after the Fukushima nuclear disaster in 2011 © Carl Court/Getty

Yamada warns that “costs will rise dramatically by 2050” if net zero is to be achieved, as the focus will need to be on newer, more expensive technologies such as hydrogen and carbon capture and storage. carbon (CSC).

Some of Japan’s heavy industrial companies, traditionally big emitters of greenhouse gases, see opportunities there. To encourage them, Kishida pledged lavish subsidies and said state and corporate spending on green technologies would reach 150 billion yen ($1.1 billion) 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 leverage facilities and supply chains existing. “We are in a period of transition,” he says. “Technology doesn’t change overnight, but rather it will take a few decades.”

Mitsubishi executives believe that existing gas turbines can be operated more environmentally friendly by fueling them either with hydrogen – at minimal additional cost if it is sourced nearby – or with natural gas from which the carbon is captured after combustion.

Together with the American multinational General Electric and the German Siemens, MHI is one of the world’s largest suppliers of gas turbines. It also has a substantial market share of CCS plants and has developed smaller, cheaper versions to expand their use.

Next year, it plans to build a pilot hydrogen power plant in western Japan, where it can test the entire process from hydrogen production to electricity generation. MHI has earmarked 2 billion yen for the development of decarbonization technologies until 2030 and has set a goal of net zero for 2040, including not only scope 1 and 2 emissions, but also so-called scope 3 emissions, which are produced with the rest of the string value.

In the meantime, he has managed to reduce the energy consumption of his own factories over the past few years by calculating the amount of energy theoretically needed and then comparing it to reality.

Another proponent of carbon capture is construction company Kajima. She co-developed a type of concrete that absorbs and traps CO₂ as it solidifies. Conventional concrete has a huge carbon footprint because the cement it contains generates a lot of emissions during its manufacture – but it also has the significant advantage of being cheaper than Kajima’s green product.

Kajima, which will receive a government subsidy worth 25 billion yen over the next decade for its carbon-absorbing concrete, is trying to produce it at a lower cost. But Yoshitake Yoshimura, who leads the group’s environmental initiatives, stresses that cost is only one consideration.

“Providing documents that help customers make decisions might be more important,” he says. He wants them to “understand how many emissions they can reduce by paying this amount of money”.

In response to growing customer demand for environmental data, Kajima began measuring the carbon emissions of all of its nearly 1,000 construction projects – the first such initiative in the construction industry in Japan. according to Yoshimura.

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

“With aggressive government subsidies, more companies are investing more and more people and money in decarbonization to boost business,” she says.

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

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

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