Japan faces major challenges in meeting its aim of being carbon neutral by 2050, according to the International Energy Agency (IEA).

These challenges include substantially accelerating the deployment of hydrogen and other low-carbon technologies, addressing regulatory and institutional barriers and further enhancing competition in its energy markets, according to the IEA's Japan 2021 Energy Policy Review, which was launched on Thursday.

It will also be important for Japan to develop different decarbonisation scenarios, to prepare for the possibility that certain low-carbon technologies — such as nuclear — do not expand as quickly as is hoped.

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Japan’s emissions reached a peak in 2013, as fossil fuels filled the gap caused by the temporary shutdown of all nuclear power plants after the Fukushima disaster in 2011, caused by an earthquake and subsequent tsunami.

By 2018, emissions had decreased by 12% compared to 2013, back to the same level they were in 2009.

However, Japan remains heavily reliant on imported fossil fuels. In 2019, fossil fuels accounted for 88% of the nation’s total primary energy supply — the sixth-highest share among IEA member countries.

Green growth strategy

Japan’s ‘Green Growth Strategy in line with Carbon Neutrality in 2050’ was unveiled in December 2020. Suga specifically highlighted the benefits of regulatory reforms and digitalisation to advance the green transformation and to ensure green investments.

The Green Growth Strategy identifies 14 sectors with high growth potential towards the 2050 ambition.

The Tokyo administration is banking on an ambitious expansion of renewables, a recovery of nuclear power and on the deployment of new technologies, including low-carbon hydrogen, safer advanced nuclear reactors and carbon recycling to decarbonise the electricity sector, noted the IEA.

Hydrogen is key

Hydrogen is expected to play a central role in Japan’s clean energy transition.

“By 2030, Japan aims to have 800,000 fuel-cell vehicles, more than 5 million residential fuel cells and to establish an international hydrogen supply chain. It is also experimenting with large-scale power generation based on hydrogen,” the IEA said.

Carbon capture, utilisation and storage is another focus area, due to Japan’s large reliance on fossil fuels. Because of its limited storage sites, Japan has a strong focus on carbon recycling.

“However, given the uncertainty about the technology’s true mitigation potential, the promotion of low-carbon technologies should remain a focus, so as to reduce Japan’s dependence on carbon-intensive assets,” the report said.

Japan to date has mainly relied on regulatory measures and voluntary agreements to reach its climate goals.

Stronger reliance on market-based instruments could be one policy option for Japan to effectively reduce emission costs, foster innovation for CCUS and other low-carbon technologies, and further increase Japan’s high level of energy efficiency, the report said.

Carbon border adjustment mechanism

The nation currently imposes lower prices on CO2 emissions from energy use than many other IEA member countries. The agency sees scope for Japan to make better use of price signals to enhance low-carbon technologies by steering behaviour, both of end consumers and of the industrial sector, and to redirect industrial investments to innovative technologies.

“However, such price signals would need to be designed carefully, so as to limit negative impacts on end-user electricity prices, which are already high in Japan," the agency said.

“The Green Growth Strategy... calls for a discussion about a carbon border adjustment mechanism to ensure a level playing field for Japanese companies vis-a-vis their foreign competitors.

“This marks a major development in Japan’s climate policy and a reversal of its earlier position regarding carbon pricing,” the IEA said.