Wrtsil Oyj: Can Japan’s New Form of Capitalism Stimulate Hope for a Greener Future?

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In January 2022, the Japanese Prime Minister Kishida Fumio presented plans to the World Economic Forum to establish a “new form of capitalism”, pledging to pursue sustainable economic and social developments by putting people and planet first in his government’s policies.

His speech criticized state capitalism without checks and balances for bringing challenges such as climate change, widening income gaps, rural-urban disparities and social tensions. “That’s why I want to transform the economy and society towards a new era of protecting the universal value of democracy,” he added.

Transforming Japan’s decades-long neoliberalism-centric growth model has been Kishida’s flagship program since taking office in October 2021. The proposed replacement is a “virtuous cycle of growth and distribution” created by promoting digitalization, increasing wages and limiting climate change, all of which will require large-scale structural reforms.

Achieve ambitious environmental goals

Addressing climate change is a key part of Kishida’s program to achieve sustainable growth. In 2021, Japan renewed its environmental goals by dramatically increasing its target of reducing carbon emissions by 2030 from 26% to 46% and bringing forward the year of carbon neutrality to 2050. It presented several policy proposals to reshape the energy sector, including doubling investment in green technologies, building next-generation grids, promoting research into new nuclear technologies, and introducing a carbon pricing system.

These initiatives are seen by stakeholders in the energy sectors as an encouraging signal to accelerate the transition to renewable energy in Japan, which is the sixth largest emitter of greenhouse gases in the world and highly dependent on fuels. fossil fuels for power generation compared to other developed economies. Its carbon intensity notably increased after 2011, when most Japanese nuclear facilities ceased to operate after the Fukushima accident. According to the International Energy Agency, 88% of Japan’s primary energy supply was produced by fossil fuels in 2019, compared to 75% in Germany and 60.8% in the United States.

Increasing investment in green technologies and building next-generation grids will accelerate the expansion of renewable energy and the development of future fuel technology.

Nicolas Leong, Energy Business Director, North & Southeast Asia at Wärtsilä

Due to geographical restrictions, renewable energy installations in Japan are mostly located far from major cities that consume most of the electricity. According to Leong, building more advanced grids can facilitate the distribution of renewable energy and increase the share of clean energy. However, Japan’s renewable energy capacity is rather weak as its deep coastal waters and mountainous terrain limit the feasibility of building wind turbines and solar parks.

In a 2021 report, consulting firm McKinsey said that after Japan reaches its renewable energy capacity, its energy sector should start using alternative fuels such as hydrogen and ammonia to supply enough green electricity while reducing long-term carbon emissions.

Overcoming barriers through public-private collaboration

In addition to these renewable energy limitations, Japan faces challenges in meeting its climate goals. The country is frequently hit by natural disasters that disrupt its electricity networks, has a low rate of energy self-sufficiency and must be careful of possible price spikes resulting from too rapid an introduction of renewable energies. In addition to this, the Japanese public still has a negative attitude towards nuclear power after the Fukushima disaster.

When presenting his climate program, Kishida admitted that it would be “extraordinarily difficult” to meet Japan’s environmental goals. To overcome vulnerabilities on the electricity supply side, he urged the public and private sectors to work together to transform and innovate towards a carbon neutral society.

Energy technology providers have already put in place ideal solutions to help Japan overcome obstacles in its decarbonization journey, such as hydrogen and ammonia engines, as well as internal combustion engine technology that can significantly improve power supply flexibility.

“A flexible power supply is essential for Japan to move forward, as power generation from renewables is relatively unstable compared to fossil fuels. As more and more renewable energy sources are introduced, Japanese power producers need flexible assets to ensure stable and sufficient power supply,” says Leong. .

Progress on the way

Despite the optimism, it remains to be seen if Kishida’s plans will come true. Hiroshi Ohta, a professor at Waseda University in Japan who has long followed Japan’s energy policy, points out that influential cabinet positions are dominated by politicians with close ties to energy-intensive industries. They are concerned about the higher costs of renewable energy and have shown their position of favoring nuclear energy over renewable energy.

The Japanese government is encouraging regional decarbonization by building eco-cities and supporting green start-ups.

Hiroshi Ohta, professor at Waseda University, Japan

“In practice, the Kishida government has yet to put much effort into advancing clean energy policies that will bring fundamental change,” Ohta says. Since taking office, Kishida has only twice held a special meeting to coordinate decarbonization policies in relevant ministries.

As Kishida’s promise of a “new capitalism” waits to be proven, Japan’s energy development experts are noticing gradual shifts toward a greener future. “More and more power producers are recognizing the need to introduce new technologies to meet the Japanese government’s climate goals,” Leong said.

“The Japanese government is encouraging regional decarbonization by building eco-cities and supporting green start-ups. Despite reservations about Kishida’s promises, the introduction of more green energy is already underway in Japan, and it’s an irreversible trend,” echoes Ohta.

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