Comment The GX Basic Policy Falls Short in Proposing Strategies for Overcoming the Current CrisesReview of the GX Basic Policy and GX Promotion Bill Approved by the Cabinet

28 February 2023

in Japanese

This comment was originally published in Japanese on 14 February 2023.

At a cabinet meeting on February 10, the Japanese government approved the “Basic Policy for the Realization of Green Transformation (GX)” (hereinafter “GX Basic Policy”) and the “Bill on the Promotion of a Smooth Transition to a Decarbonized Growth-Oriented Economic Structure (hereinafter “GX Promotion Bill”).

The GX Basic Policy, a document drafted by the GX Implementation Council at the end of last year, was approved with very little revision. In a comment published on 27 December 2022, titled “Japan’s Green Transformation (GX) Policy is a Missed Opportunity to Respond to the Current Climate and Energy Crises,” Renewable Energy Institute pointed out four specific issues with the policy: (1) opacity of the policy-making process; (2) continued dependence on nuclear power and fossil fuels; (3) lack of determination to accelerate renewable energy deployment; and (4) inadequate carbon pricing concept. The GX Basic Policy falls short in providing Japan with any roadmap for overcoming the energy and climate crises, despite the document’s subtitle of “Roadmap for the Next 10 Years.”

The G7 Leaders’ Communiqué issued last year (at G7 Germany in June 2022) states, “we commit to achieving a fully or predominantly decarbonized power sector by 2035.” This is based on a shared global understanding that the first step toward a decarbonized society is to decarbonize the electricity sector. On top of this, the invasion of Ukraine has also heightened awareness of the urgency of reducing our dependence on fossil fuels.

And yet, the GX Basic Policy decided by the Kishida government, which will be hosting this year’s G7, says nothing about how to decarbonize all or most of Japan’s electric power sector by 2035.

Nuclear Power Cannot Be Relied on to Deliver Decarbonization

In the policy, the government rates nuclear power as a “highly effective energy source for decarbonization” that should be “utilized to the maximum extent possible.” Without any public debate or deliberation in the Diet, it also abruptly changed its longstanding rule for the operating life of nuclear power plants (“40 years in principle, with an extension of up to 20 years”), announcing a new policy of “allowing additional extension if plants are shut down for a certain period.” The policy also included a provision to proceed with the construction of a new nuclear power plant, a plan that had hitherto not been allowed.

However, even if the Kishida administration manages to restart existing nuclear power plants as planned, the goal of supplying 20%–22% of Japan’s electricity from nuclear energy by FY2030 can never be reached. Considering the slow response of power companies to safety reviews, repeated scandals at power companies, difficulty in obtaining the consent of local governments, and the risk of litigation, nuclear is unlikely to deliver more than 10% or so of Japan’s electric power by FY2030.

In terms of new construction, the roadmap touts the development of “next-generation innovative reactors,” but even in the case of “innovative light water reactors,” the only type of reactor that is moving forward with commercialization, production, and construction will not begin until well into the 2030s. Taking into account the policy of “rebuilding on the sites of nuclear power plants that are earmarked for decommissioning,” it is difficult to see how such a reactor will be realized by the 2040s, let alone the 2030s.

The bottom line is that nuclear power cannot be considered a solution to the challenge of decarbonizing Japan.

Zero-emission Thermal Power with Few Prospects

“Zero-emission thermal power” is another option the Kishida administration is pushing to help decarbonize power sources. However, only a very small amount of this kind of power can be supplied over the next 10 years. Even Japan’s Strategic Energy Plan foresees that hydrogen/ammonia co-firing will only account for 1% of total power generation in 2030. While green hydrogen-fueled power generation may play a significant role by 2050, it will certainly not do so in the 2030s. Furthermore, another technology currently being promoted, co-firing power generation with coal, is widely seen as a cynical measure for prolonging the life of coal-fired power plants. About carbon capture and storage (CCS) in power generation, the policy only states that “by 2030, the business environment will be ready for the start of CCS projects (CO2 injection).” There is no mention of any timeline for when CCS technology will become commercially viable for use with thermal power generation.

Putting Renewables at the Center of Decarbonization

A review of the contents of the GX Basic Policy makes it very clear that the way for Japan to achieve a dramatic reduction in CO2 emissions by 2030, as well as the decarbonization of its power sources by 2035, as agreed by the G7 nations is to accelerate the adoption of renewable energy sources, which are not only already commercially viable but also declining in cost in Japan.

A look at the targets and actual development trends for renewables in other G7 countries shows that Germany has set itself targets of 80% renewable electricity by 2030. Meanwhile, Italy is aiming at 70% renewable electricity by 2030, while Canada is already supplying nearly 70% of its electricity from renewables. The UK has not specified the energy sources it will use to decarbonize by 2035, but while it is pursuing offshore wind power development on a large scale, 10 of the 11 nuclear reactors it is currently operating are set to be decommissioned by 2028. Construction of the only new nuclear power project is already behind schedule. Meanwhile, in the USA, two new reactors are expected to start operating in 2023, but there are no plans for any further new reactors. So, since existing nuclear power plants continue to age and get decommissioned, the proportion of energy provided by nuclear power plants in the USA, currently at around 20%, is unlikely to increase. Ultimately, renewables are expected to supply around 70% to 80% of total electric power in these five countries (the G7 countries other than Japan and France).

Although the GX Basic Policy states that “renewable energy will become the main source of electric power” and includes some positive statements, it does not take a single step beyond the target of 36%–38% renewables by FY2030. And there is no mention at all of 2035.

The Fallacy of “Omnidirectional Strategies” in Energy Policy

The GX Basic Policy reiterates and reaffirms the government’s policy that “the basic strategy of Japan’s energy policy is based on the view that all available technologies should be used, without excluding any possibilities.” As a general principle, pursuing a wide variety of possibilities seems reasonable. However, given the urgency of the energy transition to 2030 and 2035, the government seems to have turned its back on the strategy of supplying the bulk of electricity from renewable energy sources that are already internationally proven and established. Instead, it is choosing to focus on technology development and business development of “innovative light water reactors” and thermal power plants with CCS for the next 10 years. It has to be said that it is misguided for Japan to try and address the energy and climate crises by investing financial and human resources from the public and private sectors into these technologies.

Japan’s car makers, which have been leaders in the global automotive industry until today, are dispersing their management resources in the name of an “omnidirectional strategy,” thereby getting left behind in global EV competition. The Kishida administration’s energy strategy of “not ruling out any possibilities” will only serve to repeat the unsuccessful “omnidirectional strategy” of the country’s automotive sector on a larger scale.

To confront the energy and climate crises, Japan must aim to lift its electricity supply through renewables in 2035 to a level comparable to that of other G7 countries. To achieve this goal, it must urgently introduce concrete policies and systems, as well as undertake essential regulatory reforms.

The Risk that the GX Promotion Bill will Entrench the GX Basic Policy

The GX Promotion Bill, approved by the Cabinet on the same day as the GX Basic Policy, includes, for the first time, a provision that allows the imposition of a fossil fuel levy and paid auctions under an emissions trading system (ETS). Focusing only on this point, one might consider the GX Promotion Bill positively as evidence that the Ministry of Energy, Trade and Industry (METI) has finally been compelled to accept the global trend after turning its back on the notion of carbon pricing for the past 20 years or so. However, the level of carbon pricing assumed in the GX Basic Policy is expected to be only about one-tenth of the level required by the IEA. It is, therefore, essential to aim for the realization of effective carbon pricing earlier and more comprehensively.

There are three issues with the GX Basic Policy being fixed as legislation in this bill. These issues need to be resolved if the GX Promotion Act is to be truly conducive to the transition to a 'decarbonized growth economic structure', which is the goal of the Act.

1)  Risk of Excluding Renewable Energy Development from Government Support

The first point concerns the target of injecting financial resources through GX transition bonds and other means. Article 4 stipulates that it is the “responsibility of the national government” to “concentrate policy resources in business fields where its technologies and businesses are innovative and can expect to enjoy a high level of policy effectiveness in the medium to long term.” From the text alone, it is unclear what specific projects fall under this provision. However, in the materials submitted by METI to the Joint Meeting to Study Clean Energy Strategies held on December 14, 2022, renewable energy is not included as part of the approximately ¥20 trillion in government support over the next 10 years.

In the EU’s REPowerEU plan and the U.S. Inflation-Reduction Act (IRA), both formulated last year, the acceleration of renewable energy development is positioned as the biggest challenge and focus of support. The IRA, in particular, focuses on expanding decarbonized energy sources that are already commercially viable, such as domestic production of solar panels, wind turbines, and batteries, as well as on strengthening domestic production systems. In 2023, a total of 29 GW of solar PV power generation capacity is expected to be introduced, equivalent to over half of new power generation facilities in the U.S.A.

As pointed out earlier, the GX Basic Policy is focused on the promotion of nuclear power and zero-emission thermal power, at the same time as claiming to make renewable energy the main source of electric power. Provisions need to be amended and implemented to ensure that government financial support is focused on the development of renewable energy and the transmission network required for its utilization.

There is another fear relating to GX Transition Bonds, specifically that they may include co-firing power generation with coal and the use of gray hydrogen, which tend to increase CO2 emissions rather than reduce them. If this turns out to be true, GX transition bonds would be seen as nothing more than a means of promoting “greenwashing.”

2) Entrenchment of Emissions Trading Schemes that Deviate from International Standards

The concept of an emissions trading system (ETS) set forth in the GX Basic Policy assumes that companies will voluntarily participate in the system over the next 10 years. In materials submitted to the study group, METI itself pointed out problems with voluntary participation, such as the possibility of an imbalance in the burden shouldered by non-participating and participating companies and the risk of unfairness even among participating companies. Any emission allowances traded under a system of dubious fairness will not be internationally recognized for their value in terms of emission reductions.

The GX Promotion Bill does not include any provision that obligates participation in the ETS for business facilities and operators larger than a certain scale, an essential requirement for any international ETS. Nor does it include a provision for total emission reductions by business facilities and operators. As it stands, the bill could become a law that entrenches a voluntary system that deviates from international standards. The opinion of the High Level Expert Group on the Net-Zero Emissions Commitments of Non State Entities (“Expert Group”), released at COP27, sets the standard that voluntary emission reduction credits should not be credited toward emission reductions by non-state actors, such as companies. This means that reduction credits under any voluntary ETS based on the GX Basic Policy could not be used internationally.

Another problem is the narrow scope for the paid auctions of emission allowances, scheduled for implementation just 10 years from now, in 2033. Article 2 of the bill limits the “specified business operators” qualified to participate in paid auctions to electricity generation utilities, as defined in the Electricity Business Act. While it is natural that power generators should be eligible for auctions to increase the effectiveness of emission reductions, the “specified business operators” of the bill (eligible to participate in auctions) should include steelmakers too, since the steel industry is one of the largest emitters of CO2 by sector. Under the EU ETS, the steel industry is required to auction its emissions for money and to use the proceeds from auctions as financial support to promote even greater decarbonization. This kind of approach, integrating regulation and support, would not only accelerate the decarbonization of Japan’s steel industry but also help Japanese steelmakers become more internationally competitive, even as the center of demand shifts to green steel.

3) Concerns about the “GX Transition Promotion Strategy” Formulation Process Led by METI

The third problem relates to the formulation of the “Strategy for Promoting the Transition to a Decarbonized Growth-Oriented Economic Structure” that gives shape to the GX Basic Policy. Although Article 6 stipulates that “in preparing a draft, the Minister of Finance, the Minister of the Environment, and the heads of other relevant administrative agencies must be consulted in advance” of this strategy, it is also clearly stated that “the Minister of Economy, Trade and Industry (METI) shall formulate it” and that METI shall be the core body for the policy formulation.

On the other hand, regarding the formulation of the Plan for Global Warming Countermeasures, which is also a strategy for realizing a decarbonized society, the Act on Promotion of Global Warming Countermeasures stipulates that “the government must establish a plan to combat global warming in order to comprehensively and systematically promote global warming countermeasures,” but no specific ministry or agency is named as the core body for formulating the countermeasures. As the GX Basic Policy states at the outset, the Green Transformation should be “the biggest transition in industrial and social structure since the Industrial Revolution.” It is, therefore, inappropriate that the formulation of such a strategy is left to a single ministry or agency.

Furthermore, in reference to the Strategic Energy Plan formulated by the Minister of Economy, Trade and Industry, the Basic Act on Energy Policy stipulates that “by hearing the opinions of the heads of the relevant administrative organs and hearing the opinions of the Advisory Committee for Natural Resources and Energy, the Minister of Economy, Trade and Industry must formulate a draft of the basic energy plan and seek a cabinet decision thereon.” With the GX Promotion Bill, there is no requirement for the involvement of an advisory council. 

It goes without saying that the actual responsibility for a transition to a decarbonized economy and society lies with a broad variety of businesses, local governments, and above all, the public. It is, therefore, necessary to revise the provisions of the bill to make the formulation process more open.

Shifting to a Strategy Aimed at Transitioning to a Society Based on Renewable Energy

The opening of the GX Basic Policy states that “we are entering an era in which the success or failure of decarbonization investments aimed at green transformation will determine the competitiveness of companies and nations,” and that “accelerating GX by taking full advantage of Japan’s technologically advanced fields can help to ensure a stable energy supply and serve as a catalyst for getting the Japanese economy back on a growth trajectory.” This observation is totally correct, but questions remain. In what direction should Japan’s technologies be utilized? How should government resources be invested? And how should private investment be guided? Unfortunately, the GX Basic Policy offers the wrong prescription.

Solar PV power generation technology was originally developed and nurtured in Japan, but the domestic power supply system now puts us at an international disadvantage. Similarly, in the field of wind power generation, the efforts of Japanese companies that pioneered the business were undermined by a lack of growth opportunities in an electric power system that has long been stuck in the past. If Japan’s economic strategy is to attract domestic and foreign investment and enable new growth in Japan, that strategy needs to be straightforward and honest, as well as consistent with international trends, even as a decarbonization strategy.

To decarbonize both new growth industries and traditional heavy chemical industries such as steelmaking, a large domestic supply of inexpensive, renewable energy is vital.

We must therefore free ourselves from our persistence with nuclear power and fossil fuels and shift as quickly as possible to a strategy that makes the best use of those renewable energy resources that Japan is most blessed with.

<Related Links>
[Comment] Japan’s “GX: Green Transformation Policy” is a Missed Opportunity to Respond to the Current Climate and Energy Crises
Why Does the Government Cling to Nuclear Power and Continue to Rely on Fossil Fuels?
 (27 December 2022)

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