Fundamental shift in business activities vital to Japan’s decarbonization by MIYAKE Takayuki

“API Geoeconomic Briefing” is a weekly analysis of significant geopolitical and geoeconomic developments that precede the post-pandemic world. The briefing is written by experts at Asia Pacific Initiative (API) and includes an assessment of burgeoning trends in international politics and economics and the possible impact on Japan’s national interests and strategic response. (Editor-in-chief: Dr. HOSOYA Yuichi, Research Director, API; Professor, Faculty of Law, Keio University; Visiting Fellow, Downing College, University of Cambridge)

This article was posted to the Japan Times on November 23, 2021:

API Geoeconomic Briefing

November 23, 2021

Fundamental shift in business activities vital to Japan’s decarbonization

MIYAKE Takayuki,
Representative Director & COO, Dream Incubator Inc.
Miyake Takayuki




Japan’s goal of achieving carbon neutrality by 2050 has come under the spotlight since then-Prime Minister Yoshihide Suga announced the aim late last year, prompting many Japanese firms to scramble to find ways to meet the target.

But Suga’s declaration did not come out of the blue — we must remember that Japan signed the Paris climate agreement in April 2016.

And, from November the same year, the agreement came into force at a surprising speed after meeting the requirement of having at least 55 countries, representing at least 55% of global emissions, depositing their instruments of ratification.

This means if Japan really intended to comply with the agreement, the country should have started efforts to become carbon neutral five years ago.

Decarbonizing utilities

The electric power sector is often regarded as the easiest to achieve carbon neutrality.

But we have to be aware that becoming carbon neutral is a hard-to-reach goal if it depends only on solar and wind power. Biomass power is also not a strong option considering costs and the volume of electricity it can generate.

As a matter of fact, the biggest issue with decarbonizing utilities in Japan is not the cost but capacity of other energy sources, due to Japan’s geographical conditions with few plains and shallow seas to set up renewable energy generation facilities.

In 2018, fossil fuels accounted for 77% of the country’s electricity generation. Even if we assume that utilities will make efforts to replace a maximum of 25% with solar power, 20% with wind power — including offshore turbines — and 10% with hydropower, 22% would still be left.

It has been said that electricity demand will decline along with the shrinking population, but the drop will be offset by the spread of electric vehicles and all-electric homes.

That is why we have to seriously think about whether to rely on nuclear power. But even that would still not be enough, drawing attention to thermal plants that use nonfossil sources like hydrogen.

Hydrogen, for instance, can be used as fuel in existing liquefied natural gas thermal power plants. This may be costly, but we need to think outside the box. Japan should adopt all possible measures, such as feed-in tariff schemes or a carbon tax, to accelerate the use of hydrogen.

If Japan is to use hydrogen power for 10% of its overall electricity generation, about 6 million tons of hydrogen will be necessary each year. However, 99% of hydrogen currently produced in Japan is self-consumed at facilities where it is generated and only about 10,000 tons are distributed annually.

In order to expand hydrogen supply, the country needs to push projects to produce hydrogen overseas and import it, such as the initiatives planned by Kawasaki Heavy Industries Ltd. or Eneos Holdings Inc.

Considering the massive amount of investment and time needed to get the projects on track, the government must come up with a specific policy design no later than in two or three years.

Impact of renewables

On the other hand, it is necessary to think about what will happen to utilities if the use of renewable energy sources reaches 50%.

In the Kyushu region, Kyushu Electric Power Co. is already having difficulty accepting a huge increase in electricity generated by solar power, since natural energy sources such as solar power are time-inconsistent.

Thermal power plants, the major source of electric power in Japan today, can adjust the amount of electricity they generate to meet demand fluctuations. They have functioned as an adjusting valve for highly volatile renewable power generation as well as for nuclear power plants, which cannot adjust the amount of power supplied in a short period of time.

This means if the number of thermal power plants is reduced, the power system will be greatly affected by volatility in supply that cannot be adjusted at the source of generation.

The Ministry of Economy, Trade and Industry and the Agency for Natural Resources and Energy are greatly concerned with the liberalization of electricity generation and the retail market leading to the power supply overwhelming the adjustment capacity of the power transmission and distribution infrastructure.

If they hoped to cope with the problem only by boosting the existing electric power infrastructure, it would require more than ¥10 trillion.

The government is considering other steps, including programs to encourage the upgrading of energy management technology and the use of storage batteries. But because such measures tend to be implemented without much consideration for business feasibility, it is extremely important that the government works closely with the private sector so that the programs will be utilized.

Steel, cement and other industries

Sectors other than utilities are facing even harsher challenges.

The steel industry, the biggest industrial producer of carbon dioxide, is under pressure to replace coke, used as a reducing agent in melting iron ore, to become carbon-free.

Using hydrogen — a process known as direct reduction — is seen as the most viable program, although the technology is yet to be applied for practical use.

Some 7 million tons of hydrogen will be needed in a year — more than the amount needed for hydropower generation — to put this new steel-making process into practice, with costs being an even bigger issue.

The government set a target to cut the so-called cost, insurance and freight base price of hydrogen to ¥20 per normal cubic meter in 2050.

Although it is challenging, meeting the target will make hydroelectric power generation feasible. Meanwhile, the cost of hydrogen required in the steel industry is even lower at ¥8 per normal cubic meter.

The chemical sector, the second largest carbon emitter among industries, is discussing chemical recycling, while the cement industry, the third largest carbon emitter, announced the development of concrete that can absorb carbon dioxide. Such measures that involve great efforts both technologically and economically indicate the heavy pressure industries are facing.

The transportation industry will be required to stop production of gasoline cars and shift to electric vehicles (EVs) and fuel cell vehicles.

If electricity generation is carbon neutral, vehicles that use such electricity when moving will therefore be carbon neutral as well. But carbon emitted during the manufacturing of EVs is a different matter.

The housing industry is also going all-electric. Oil and gas firms, meanwhile are battling unprecedentedly severe challenges.

Decarbonizing the forestry industry

Even if we delve into just a few individual issues, we can see that we will need to take measures to fundamentally rethink our economic activities to date. Moreover, no matter how hard we try in all fields, we will probably never be able to reduce carbon emissions to zero. This is why the term “carbon neutral” (rather than “zero carbon”) is so meaningful and the concept of “sinks” comes up.

There are various ways to secure sources to absorb carbon dioxide, such as restoring forests and soil as vital carbon sinks and developing concrete that absorbs carbon.

It is important to focus on forests, which by far have the most potential in terms of the amount of carbon dioxide that can be absorbed. Trees are good carbon sinks because of their ability to absorb carbon dioxide and store carbon during photosynthesis when they grow.

In Japan, however, many trees are old and are no longer growing. Since the country already has large areas of forest and it is difficult to develop more forests, it is necessary to cut down old trees and plant new ones.

If the carbon-dioxide-absorbing ability of forests in Japan is brought up to the maximum, it might become possible for forests to absorb around 20% of total carbon emissions.

Cutting down trees means there needs to be a business to make up for the expenses, since simply piling them up on fields is not sustainable.

The key is to encourage the construction of wooden buildings.

Statistics show that while most of the detached houses built in Japan are made of wood, most buildings with four or more stories are made of iron and concrete.

High-rise buildings need to be built with high-strength materials, but technologies are being established to enable the construction of wooden houses and buildings with up to 10 stories that meet architectural standards.

The government and the private sector must work together to create new demand for wooden buildings by coping with remaining issues of costs, taking into account fireproofing methods.

While creating additional carbon sinks is attracting growing attention, an international framework to handle the issue is yet to be established.

Government ministries in Japan are aware of the significance of this and are working to create related policies. This is the area in which Japan has the potential to lead the world in line with international frameworks.

Opportunity for Japan

Achieving carbon neutrality requires unprecedented efforts, but it also offers chances for innovation for Japanese companies that have recently been losing steam in the global business arena.

To seize the opportunity, we should never try to turn around business simply through technological innovation. It is vital to carefully consider a feasible business model in coordination with government programs.

The private sector should be highly aware and willing to take the lead rather than waiting for systems and regulations to be established, while the government needs to work together with the private sector in the spirit of creating real businesses.

Disclaimer: The views expressed in this API Geoeconomic Briefing do not necessarily reflect those of the API, the API Institute of Geoeconomic Studies or any other organizations to which the author belongs.