Japan on the Trailing Edge of Global Climate Action

Negotiations are underway for an international agreement on further measures to combat climate change. On July 17, Japan announced its "intended nationally determined contribution," a 26% reduction in greenhouse gas emissions from 2013 levels by 2030. The INDCs submitted by Japan and other countries to the Secretariat of the United Nations Framework Convention on Climate Change will form the basis for efforts to hammer out an agreement on post-2020 commitments when the parties to the UNFCCC meet in Paris at COP 21 (21st Conference of the Parties) in December this year.

Japan’s New Emissions Reduction Targets

Let’s take a closer look at Japan’s commitment. The proposed reduction is equivalent to an 18% cut from 1990, the base year adopted by the European Union, or a 25.4% cut from 2005, the year used by the United States. The Japanese government has chosen to set the baseline at 2013, when Japanese greenhouse gas emissions were close to an all-time high owing to the shutdown of the country's nuclear power plants in the wake of the March 2011 tsunami and nuclear disaster. Unlike the plan adopted under the Kyoto Protocol, which depended heavily on credits from overseas reductions, the new INDC centers on a combination of domestic emissions reductions and carbon sinks.

So, how should we evaluate Japan's INDC? The proposed 18% reduction from 1990 levels pales beside the EU's pledge of 40%. It also falls short of cuts promised by the United States, which seeks a 26%–28% reduction by 2025, five years earlier than Japan’s target date. On the other hand, where domestic emissions are concerned, the proposed commitment represents an improvement of more than 19 percentage points over Japan's performance during the Kyoto Protocol commitment period (2008–12), when the nation registered a 1.4% increase in domestic emissions (from 1990 levels) and only met its obligation through carbon offsetting schemes.

Japan's Fading Enthusiasm

Now let us review key developments leading up to the adoption of the latest target.

During the first commitment period of the Kyoto Protocol, the Japanese government stressed the need for a post-2012 framework that included emissions commitments by developing and emerging countries. But attempts to reach an international consensus on such commitments did not progress smoothly, and in late 2010 Japan announced that it would not participate in the second commitment period of the Kyoto Protocol, which European countries were advocating as a stopgap to cover the period leading up to 2020.

Japan opposed an extension of the Kyoto Protocol on the grounds that it set binding emissions reduction targets for Europe and Japan, who ratified the agreement, without imposing obligations on the United States and China, who did not. The extension of such an agreement, it argued, would actually lower the incentive for the world's two biggest GHG emitters to participate in international efforts to stem global warming. At the same time, Japan pledged to voluntarily pursue its own climate-change policies in the post-2012 period.

At that time, two key factors seem to have sapped Japan of its determination to lead the global charge against climate change—namely, the lack of progress in international negotiations and the economic contraction following the 2009 global financial crisis.

Japan’s enthusiasm for emissions reduction flagged even further following the Fukushima nuclear disaster triggered by the tsunami that struck northeast Japan in March 2011. In the aftermath of the disaster, the shutdown of the nation's nuclear power plants led to an energy crisis and forced Japan to boost its dependence on fossil fuels, particularly low-cost coal, to fire its thermal power plants. This led to a growing sentiment in government and industry circles that the important thing was to secure enough electricity; reduction of CO2 emissions would have to wait. The Japanese people, meanwhile, strongly opposed resumption of operations at the nuclear plants without an overhaul of safety measures, and as a consequence saw little choice but to accept increased output from thermal facilities. Pressure for emissions reduction dissipated dramatically.

It was in this context that Japan submitted its 2020 national reduction commitment, requested from each country by the UNFCCC Secretariat in advance of the 2013 COP 19. The target Japan set then was a 3.8% reduction from the base year of 2005, equivalent to a 3.7% increase from 1990. One reason for this singularly unambitious goal is that the government had yet to adopt a clear-cut policy on the use of nuclear power going forward, and had consequently refrained from figuring in reductions tied to the resumption of nuclear power operations. Be that as it may, environmental groups and others inside and outside the country criticized the target harshly.

By comparison, the recently announced reduction target for 2030 represents an 18% cut in emissions from fiscal 1990—an improvement of 21 percentage points over the previous plan. The main factors behind this improvement are a revised outlook for energy demand and the adoption of clear government policies regarding Japan's energy mix going forward.

Electricity-Rate Concerns Blunt Supply-side Efforts

Japan’s 2030 INDC envisions total electric power generation of around 1,000 terawatt hours (as compared with current output of roughly 900 TWh). It calls for renewable energy to increase roughly twofold from current levels, contributing 22%–26% of all electricity produced, while nuclear power plants and coal-powered thermal plants would account for 46%–48%. The contribution of nuclear plants would be somewhat lower than pre-Fukushima levels, at 20%–22%, with coal accounting for 26% or so.

According to media reports, the government's plan envisions an average CO2 emissions intensity of 0.38 kilograms per kilowatt hour of electricity produced, roughly 10% more than the 0.34 kg/kWh associated with Japan's Kyoto Protocol target achievement plan. The main reason for the increase, despite the expansion of renewable energy, is the reduced contribution of nuclear power and the increased share of coal-fired thermal power. In any case, the lack of a plan for reducing the CO2 intensity of power generation makes it unlikely that Japan will achieve significant CO2 reductions through efforts on the energy supply side.

The reason for this, according to some reports, is that Prime Minister Abe Shinzō expressly asked the plan's drafters to avoid any steps that could lead to further increases in electricity rates, which have gone up 20% since the 2011 disaster. High electricity costs could slow economic growth and cause hardship for households, undermining public support for the Abe cabinet. This is doubtless a key consideration behind the plan's increased reliance on nuclear power and coal.

Environmentalists have complained that the energy mix posits too large a share for coal- fired thermal energy power and not enough for renewables, and one can see their point. Taking solar energy as an example, if all of the solar projects now in progress (as of late April 2015) under the government's feed-in-tariff (FIT) system were to be completed, then solar power generation could surpass the anticipated level of 74,900 GWh by 30%.

Incidentally, thanks to the powerful incentives of the FIT scheme, Japan has led the world in the installation of new solar power facilities (by capacity) over the past several years, and it is now number three in the world in cumulative installed capacity—23.3 GW as of 2014, according to the International Energy Agency.

High Hopes for Energy-Efficient Technology

One of the biggest changes in Japan's new plan is that it anticipates that overall energy consumption will contract despite ongoing economic growth. This outlook is based on the belief that ongoing advances in energy efficiency will continue to weaken the link between economic growth and energy consumption.

Until fairly recently, Japan's elasticity of energy consumption with regard to GDP growth hovered around 1.0. The 2030 targets adopted in Japan's INDC are predicated on an average GDP elasticity of 0.01. It is noteworthy that, since the 2011 disaster, Japan's GDP energy elasticity has actually entered negative territory. The reason is that improvements in energy efficiency implemented to offset the rising cost of energy imports (exacerbated by the weak yen) led to a drop in electricity consumption despite economic growth. The government seems to be assuming that this trend will continue over the medium term with the help of policies to encourage greater energy efficiency.

Some in the business world have argued that a more realistic estimate of GDP growth over the commitment period would require less drastic energy-efficiency measures to achieve the same results in terms of overall energy consumption. From a policy standpoint, however, development of the energy-efficiency market could prove an important key to economic growth. There are plenty of business opportunities waiting to be tapped in such areas as green buildings, energy-efficient homes, and eco-cars, as well as the development of eco-friendly cities incorporating such technologies.

Another key difference between the 2030 INDC and previous plans for emissions reduction is that this time Japan did not rely on the use of the Kyoto mechanisms, which allow countries to use reductions from overseas energy projects or emissions trading to offset domestic emissions in order to reach their commitment. After having been obliged to purchase a large quantity of carbon credits from China and other countries via the Clean Development Mechanism (CDM) in order to meet its Kyoto Protocol commitment in 2012, the government wanted to avoid a similar scenario this time around.

Economics Reigns Triumphant

Having provided this objective overview of the situation, I would like to offer my own views on Japan’s approach to the problem of climate change.

Ever since the start of negotiations for the UNFCCC (adopted in 1992), economic interests have tended to dominate Japanese deliberations over the nation’s commitment to fighting climate change. The only actions seriously considered are those guaranteed to have a limited impact on businesses and consumers. In the latest plan, instead of taking aggressive action that could encourage a shift to a more environmentally friendly industrial structure, the government has focused on keeping electricity prices low and has persisted in using bottom-up, industry-by-industry calculations to set its emissions reduction target.

The one exception to this focus on protecting economic interests is the government’s quite significant expectations regarding energy efficiency, which have the potential to become a major force driving the transition of the Japanese economy toward a more environmentally friendly model.

Still, Japan has clearly relinquished its lofty ambition—often expressed during the period of the Kyoto Protocol negotiations—to become one of the world’s environmental leaders. The business community has become leery of commitments that could force them into more overseas emissions-reducing projects or purchases. There is a major discrepancy between Japan’s economic strength—which is still considerable when viewed in terms of foreign assets, overseas investment, and technological capacity—and its contribution to the global environment.

Not one of Japan’s industries has developed by gaining a comparative advantage through the use of cheap energy. The Japanese emphasis on monozukuri (manufacturing craftsmanship) requires a knowledge-intensive approach, and manufacturers are increasingly reliant on a vertical division of labor with regional emerging economies. This basic approach is highly compatible with policies to stem global warming.

Japan has already committed itself, at Group of Seven summits and other international forums, to an 80% reduction in greenhouse gases by 2050. Under the pressure of the Kyoto Protocol, it has previously taken—albeit reluctantly—a variety of actions to protect the environment. Gradually, as the effects of these measures kick in, the Japanese economy’s structural shift is sure to accelerate.

My view is that instead of passively responding to trends in the economy or the international community, Japan should actively leverage environmental policy to hasten a positive restructuring of the Japanese economy. In other words, I think the time has come for Japanese policymakers to abandon their attachment to suboptimization, a bottom-up approach focused on the interests of individual sectors, in favor of bold, top-down measures oriented to total optimization.

Japan’s Kyoto Protocol targets were achievable even without drastic emissions reductions. What was the result? As seen in figure 2, Japan trails countries like Germany and Britain in energy performance as measured by the macroeconomic energy-efficiency indicator of CO2 emissions per unit of GDP (adjusted to purchasing power parities). By delaying the adoption of strong environmental policies at home, Japan could miss its chance to become a leading player in the environmental markets that are sure to expand globally in the wake of COP 21. Japan needs to be aware of this danger and set ambitious environmental goals.

Japan’s Responsibility as Host of the 2016 G7 Summit

The purpose of COP 21, scheduled for the end of 2015, is to reach a basic agreement on a global post-2020 plan for climate-change action in which both developed and developing countries can participate. Any such agreement is bound to differ substantially from the Kyoto Protocol, which pertained only to industrially advanced countries.

The new agreement must make room for many different types and degrees of climate action geared to the diverse circumstances and capacities of the participating countries. For instance, the INDCs submitted by each country are expected to include various proposals on such key matters as mechanisms for verifying progress toward targets and measures to support stronger action, including financing from the international community to assist efforts in developing countries and incentives to reward progress among the industrially advanced countries. This means that the content of any overarching agreement reached at the Paris conference is bound to be fairly rough in nature, requiring further negotiations to flesh out the details of implementation.

As host of the 2016 G7 Summit, Japan has a key role to play in building a global consensus regarding the ideas for financing and other implementation mechanisms discussed at COP 21. International pressure on Japan is sure to build in the wake of the December conference. Let us hope that our government rises to the occasion and recommits itself to playing a leading role in the global effort to stem climate change.