Warning: members of the public are being contacted by people claiming to work for AXA Investment Managers UK Limited.  Find out more information and what to do by clicking here.

Sustainability

Japan needs political will to meet its carbon pledge

  • 03 November 2020
  • 5 min read

Image
Bloomberg logo

Japan’s bold pledge to cut net carbon emissions to zero by 2050 is very doable, but will require a degree of political will and coordinated, far-sighted policymaking that the nation hasn’t enjoyed for some time.

The government’s declaration comes as part of a wave of similar promises. In particular, China, Japan’s regional rival, recently pledged carbon neutrality by 2060. The European Union’s date is 2050, and presidential candidate Joe Biden has promised to commit the U.S. to decarbonizing by mid-century as well.

So a cynical observer might suspect that Japan’s announcement is just playing politics and keeping up with the crowd. Furthermore, countries have a bad habit of setting ambitious goals for decarbonization and then not meeting them — few signatories are reaching their targets under the Paris Climate Agreement, for example. And when countries do manage to hit their objectives, they often do it by buying carbon credits or outsourcing heavy industry to other countries, rather than by installing green technologies.

This time might be different, thanks to technology. Solar energy has plunged in price, so that on the margin it’s now the cheapest energy source in most nations; it’s often less expensive to build new solar plants than to keep operating existing coal-fired generators. And with batteries continuing to get cheaper at a rapid pace, solar’s intermittency will be less of a problem. Soon, better batteries will also allow electric cars to replace internal combustion vehicles, reducing the need to burn oil.

Japan is in a fairly advantageous position when it comes to reducing total emissions. Its population is shrinking, even with expanded immigration, reducing the size of the task. Japanese per-capita emissions, which are already much lower than those of the U.S., have been effectively flat for two decades:

Advantage Japan
Advantage Japan
Source: https://ourworldindata.org/co2/

But in order to meet its lofty new goals, Japan is going to have to muster serious political will. The nuclear disaster at Fukushima in 2011, which left a whole area of the country largely uninhabitable, has given rise to a popular and successful movement against nuclear energy. That has made decarbonization an uphill battle, since much of the lost nuclear power was replaced with coal.

So why hasn’t Japan adopted solar power? One might expect the nation to be a leader in the field, given the historic strength of its semiconductor industry; there are similarities between the processes used to make solar cells and those used to make computer chips. Indeed, Japanese companies like Sharp Corp. and Panasonic Corp. were once leaders in solar manufacturing, and solar power surged in Japan in the 1990s.

A number of factors have limited the sector’s growth. Japanese chipmakers have been decisively outcompeted by South Korean, Taiwanese and Chinese rivals in the last two decades, eroding that industrial advantage. Meanwhile, Japan’s geography puts it at a disadvantage — the country isn’t very sunny, much of it is mountainous, and the flat lowlands are often reserved for agriculture and human habitation. Japan has become a leader in offshore floating solar plants, but these can be vulnerable to the country’s frequent typhoons.

Another reason solar is so costly in Japan is that the country doesn’t install very much. Solar manufacturing and construction are subject to a learning curve — the more you build, the cheaper it gets. Japan’s powerful, vertically integrated utility companies have long resisted the transition to solar, viewing fossil fuels and nuclear as inherently more reliable. Various inefficiencies in the construction industry and a proliferation of middlemen in the supply chain for solar modules have also raised costs and inhibited adoption.

These factors have conspired to make solar twice as expensive in Japan as in other rich nations. In order to make a rapid transition to green energy, the government will have to deploy industrial and regulatory policy on a scale not seen in decades.

Increasing competition is already putting utilities under pressure; offering preferential government support only to those utilities that commit to more solar power will help overcome the resistance of stodgy managers. The government should also demand that utilities unbundle power generation and transmission. Making it easier for foreign companies to invest in Japanese solar, and to build solar plants directly, will also help.

The government can also help on the supply side. Investing heavily in researching new renewable technologies, in both solar and batteries, will help Japanese companies regain their competitive edge. Building a national grid will reduce intermittency and help break local utilities’ transmission monopolies.

In the end, the main requirement is political will. The appetite for action exists — many Japanese companies are committing to increase their use of renewable energy. Companies and citizens can’t do this alone, though. The government has to commit to a decades-long integrated strategy of regulatory policy, bureaucratic pressure, and big-ticket spending, while going up against powerful entrenched interests. This is the kind of thing Japan used to do in the 1960s and 1970s, but has shied away from recently, preferring comfortable stasis. When facing a menace like climate change, stagnation and inaction are simply not an option.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners or of AXA IM.

©2020 Bloomberg L.P

    Not for Retail distribution

    This document is intended exclusively for Professional, Institutional, Qualified or Wholesale Clients / Investors only, as defined by applicable local laws and regulation. Circulation must be restricted accordingly.

    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date.
    All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document. Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.

    Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales, No: 01431068. Registered Office: 22 Bishopsgate, London, EC2N 4BQ. In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries. 

    Risk Warning

    The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested.