As of April 2024, 146 countries accounting for over 90% of the world’s gross domestic product have committed to carbon neutrality, making decarbonization a global movement. In October 2020, Japan declared that it aims to achieve carbon neutrality by 2050.
We have entered an era where the success or failure of efforts toward “green transformation” (GX), the shift from a fossil fuel-centered industrial and social structure to one focused on clean energy without carbon dioxide, will significantly impact the competitiveness of companies and nations.
GX 2040 Vision
Japan’s GX plan aims to simultaneously achieve economic growth and industrial competitiveness while reducing CO2 emissions and creating a stable energy supply. At the end of last year, we presented a draft of the GX 2040 Vision. Given the increasing uncertainties in the business environment due to factors such as Russia’s invasion of Ukraine, escalating tensions in the Middle East, U.S.-China friction and rising electricity demand driven by digital transformation (DX) and electrification, it is crucial to provide a medium- to long-term outlook. To this end, we have compiled a vision looking toward 2040, and based on this we aim to enhance predictability and expand investment to accelerate GX in the public and private sectors.
We believe that the efforts toward GX present a significant opportunity to break Japan’s economic stagnation, which has lasted for 30 years. In the GX 2040 Vision, we present our goal of an advanced industrial structure where new GX businesses utilizing innovative technologies emerge one after another, and entire supply chains are created based on decarbonized energy and DX. The key to these new investments will be decarbonized power sources, which could lead to a clustering of new industries in their vicinity. Currently, significant investments are already underway in fields such as semiconductors and batteries, leading the way in both GX and DX. In the future, we will work to solidify this trend by promoting corporate investments and considering policies that support the development of decarbonized power sources in various regions.
We are already advancing upfront investment support of around ¥20 trillion over 10 years to achieve GX, using income from GX economy transition bonds. This includes the conversion of raw materials, fuels and production processes in industries where CO2 reduction is difficult, as well as the formation of supply chains in next-generation renewable energy fields, such as perovskite solar cells and water electrolysis devices.
In December 2023, we established the Sector-Specific Investment Strategy focusing on 16 prioritized areas, such as steel, chemicals, life-related industries and aviation, as part of our support policy. At the end of last year, considering the discussions at the Working Group of Experts for the Realization of GX, we revised our strategy to include newly built net-zero energy houses and next-generation geothermal power in the scope of up-front investment support.
Emissions trading system
We will continue to promote investments that contribute to emission reductions and the enhancement of industrial competitiveness, aiming to realize over ¥150 trillion in public and private GX investments over 10 years.
At the same time, we are developing carbon pricing, which is crucial to realizing GX. The issuance of GX economy transition bonds to provide upfront investment support is underpinned by the revenues to be generated by the introduction of carbon pricing. The emissions trading system, which has been trialed within the voluntary framework of the GX League, will be fully launched in fiscal 2026. This system will set limits on CO2 emissions for each company, allowing for the trading of the surpluses and deficits between participants. This approach aims to encourage concentrated and efficient emission-reduction efforts, while using market mechanisms, among companies that emit CO2 above a certain threshold.
Transition finance and GX
Private financial institutions play a crucial role in realizing the more than ¥150 trillion in GX investments. The decarbonization of most production processes requires innovative technologies, which take a long time and great expense to develop, especially in sectors where reduction is difficult to achieve.
Japan has led global discussions on transition finance, highlighting the importance of supporting these sectors. To further familiarize and expand transition finance, we issued the world’s first sovereign transition bonds in February 2024. We chose this format to not only promote the transition of our economy, but also to spur the transition of the world.
Another vehicle that will appeal to private financial institutions is the GX Acceleration Agency. Having started its financial support operations in July, the agency will facilitate financing for corporate decarbonization efforts by using measures such as debt guarantees to help address risks that cannot be managed by private financial institutions alone.
Circular economy
The realization of a “circular economy” will also significantly contribute to the promotion of GX by reducing CO2 emissions in the manufacturing and waste disposal processes. In recent years, the transition toward this concept has progressed globally, notably via the strengthening of market-creating regulations in Europe. It is essential to respond to these trends. At the same time, if Japan, a small country with limited natural resources, continues to rely solely on the import of raw materials amid soaring resource prices, there is a risk of accelerating the outflow of national wealth. Therefore, we aim to establish a robust domestic supply chain by leveraging Japan’s advanced resource recycling technologies and aspire to create a strong circular economy. We are working on this transition based on three pillars: collaboration among industry, government and academia; technological development and capital investment support; and the establishment of systems and regulations.
Regarding the collaboration pillar, we have established a “Circular Partners” initiative and are deepening discussions with over 600 partners to identify resource circulation obstacles for specific products and materials, and to develop a road map for achieving resource circulation.
In terms of technological development and capital investment support, we have been using the aforementioned GX bonds to provide consistent government support throughout, from research and development to demonstration and implementation, with a commitment of ¥10 billion over three years since fiscal 2024.
As for the regulations, we have outlined the following directions: mandatory planning and regular reporting on the use of recycled materials by manufacturers, and the establishment of a certification system to promote environmentally friendly designs. By accelerating these initiatives, we aim to realize a Japanese model for a circular economy and strive for further growth.
Asia Zero Emission Community
Many countries in Asia share industrial and energy structures that are similar to Japan’s, with a heavy reliance on thermal power generation and significant emphasis on manufacturing to drive their economies. This means sharing the same challenges Japan faces in its efforts to achieve decarbonization.
In this context, there are several fields where Japanese companies possess strengths, particularly in decarbonization-related technologies. By leveraging these technologies, we can accelerate efforts toward achieving GX, which is expected to significantly contribute to decarbonization in Asia and worldwide. Simultaneously, this can create new industries and markets in the decarbonization sector, potentially serving as a catalyst for economic growth throughout the Asia region.
To advance these efforts, we will promote policy coordination, including rulemaking with partner countries in line with the Action Plan for the Next Decade agreed upon at the Second AZEC Leaders Meeting held in Laos last year. This includes encouraging initiatives such as transition finance and the visualization of greenhouse gas emissions throughout the supply chain, thereby creating a positive cycle that generates further decarbonization projects. At the end of last year, we released our new emission reduction target proposals that aim to reduce GHG emissions by 60% in fiscal 2035 and 73% in fiscal 2040, compared with fiscal 2013 levels. Regarding the current fiscal 2030 target of 46%, Japan has made steady reductions so far, while some countries and regions may not have been doing as well. We will continue to promote GX further and contribute to global GHG reduction.
World expo looks to future
The 2025 World Expo will be held in Osaka this year from mid-April to mid-October under the theme “Designing Future Society for Our Lives.” Based on the concept of “People’s Living Lab,” cutting-edge technologies in the GX field will be implemented at the expo site, including experience-based activities such as a sightseeing tour of a hydrogen-powered ship, and an explainer on “direct air capture” — a process that removes CO2 from the atmosphere — enabling visitors to experience what the future may hold. In addition, there will be a variety of attractions and experiences, including shows on future food experiences at company pavilions. We invite everyone to visit the expo.
