A Non-Green Non-Transformation: Kishida’s Green Transformation Strategy
Japan’s GX plan perpetuates the energy policy goals that the government’s been declaring for the last decade
As the new session of the Japanese Diet begins, much of the debate swirls around raising the defense budget and how to deal with inflation. But a set of policies that so far haven’t received as much attention can shape Japan’s future and its international standing just as much.
I’m referring to the “Green Transformation (GX) Strategic Plan” that the Kishida Cabinet unveiled on December 22 last year. In Kishida’s words, this plan “will bring about a major transformation of all sectors, including energy, and the broader economy and society.” Much of the reporting on this initiative frames it as an effort to shift the fossil fuel-based economy to one powered by clean energy.
But that’s an overstatement. This plan is neither green nor transformative. Rather, it simply restates most of the energy policy goals that the government’s been declaring for the last decade and pledges to accelerate the same trend over the next ten years. That’s not all. Many of the ambitions set out in the plan in fact run counter to Japan’s efforts to decarbonize. And those items that do break from the past are likely to run into difficulties, both economically and politically.
What’s the Green Transformation Strategic Plan, Anyway?
So what exactly is this Green Transformation Strategic Plan?
When the last prime minister Yoshihide Suga took office, he announced his government’s intention to reduce greenhouse gas (GHG) emissions to net zero by 2050. More recently, the current Prime Minister Kishida began to label this effort to reach net zero the “green transformation.”
Join me as I briefly digress. For reasons utterly unclear to me and anyone outside of Japan, the Japanese government has abbreviated the term “green transformation” to “GX.” So the official tentative title of the December 22 plan is literally “The Basic Strategy to Realize GX” (GX実現に向けた基本方針). It follows the equally enigmatic rhetorical wizardry of shortening “digital transformation” – the Japanese government’s effort to accelerate the economy’s digitalization – to “DX.” No one who is proudly waving around these acronyms have explained the use of the letter X. Also frustratingly, GX and DX have unproblematically entered the compendium of business buzzwords in the Japanese private sector. The incomprehensible label isn’t just a personal gripe - it has the potential to derail a crucial part of Kishida’s policy agenda. Read on to find out how 😉
Okay, so this GX Strategic Plan. To hammer out concrete steps to get to net zero emissions by 2050, Kishida convened a panel last July called the GX Implementation Council. Nothing unusual about this in Japan’s policy-making process. Government bureaucracies often summon business executives, think tank experts, and academics to discuss the ins and outs of policy areas over several sessions. More often than not, these panels are composed of mostly men, over 60 years young, industry insiders who have a stake in maintaining the status quo.
So it was with the GX Implementation Council. The Council met over five sessions between July and December. The final product was the GX Plan. For now it’s just a policy paper that doesn’t have any legal force. The Kishida Cabinet is likely to ask the upcoming regular session of the Diet to consider specific policies for legislation.
The Plan makes its 3 overarching objectives very clear. First is climate: Japan’s commitment to reduce greenhouse gas emissions by 46% (from a 2013 baseline) and to reach carbon neutrality by 2050. Second, energy security. As a resource-poor country, Japan is neurotic about maintaining a diversified portfolio of energy sources. The war in Ukraine made this concern even more acute. The last objective is to link the development of low-carbon technologies to Japan’s economic growth and competitiveness, something that the Japanese government’s been struggling to achieve for years. The Kishida Cabinet also seems to have linked the GX initiative to his "New Capitalism" initiative for this purpose.
The GX Plan is extensive. But the important provisions can be summarized like this:
facilitate energy conservation and energy efficiency throughout the economy
accelerate renewable energy, especially onshore and offshore wind
support the development of energy storage and grid reforms to encourage the renewables rollout
accelerate other new technologies in the energy sector, like hydrogen, ammonia, carbon capture, utilization and storage (CCUS)
restart nuclear plants whose operations have been stopped since the Fukushima disaster and start the construction of new, next-generation plants
reduce emissions in the transport sector through the adoption of electric and fuel cell vehicles and sustainable aviation fuel
The government estimates that it will need around ¥150 trillion (USD $1.17 trillion) to support all of these areas. The Kishida administration’s pledging to cover ¥20 trillion (USD $156 billion) of that by issuing what it tentatively calls “GX economic transition bond,” whose payouts will eventually be covered by the revenue from a carbon price and emissions trading scheme.
Here’s a nice graphic from Nikkei summarizing the tentative policy. Translated by yours truly, sloppily, no doubt.
But beware. The GX Basic Plan is dubious as a decarbonization strategy. It’s certainly not transformative - many of the key policies are a continuation of policies and plans that have been in place over the last decade. And many of the technologies that the government hopes will decarbonize the energy sector, in fact, will not.
Forces of Continuity
As an energy policy roadmap, the GX Strategic Plan contains few surprises for people familiar with the Japanese government’s thinking about the country’s energy mix. Many of the items in it are the same commitments that clean energy advocates both inside and outside Japan have criticized for years.
Most glaringly, the GX Plan maintains the government’s refusal to phase out coal-based electricity generation. Coal-fired power plants (CFPPs) have always been an important baseload power. A year before the 2011 disaster at the Fukushima Daiichi Nuclear Power Station, CFPPs accounted for 25% of Japan’s electricity. The Ministry of Economy, Trade and Industry (METI), in charge of energy policy, planned to reduce that share by more than half over 20 years and increase nuclear power to fill the gap. But the Fukushima accident and the subsequent complete shutdown of Japan’s nuclear fleet forced a reversal. Coal generated 32% of all electricity produced in Japan, and METI’s latest energy plan projects coal to account for 19% of the overall energy mix by 2030. All of this in the face of global condemnation of coal.
How does the government justify CFPPs? As Gregory Trencher and colleagues have documented, METI and utility companies have long maintained that coal, as an energy source, is the fossil fuel with the lowest and most stable price. They also emphasize the widespread geographical distribution and abundance of global coal reserves. In short, coal is indispensable from an economic and energy security perspective.
Of course, these officials are well aware of the emissions intensity of coal. In a decision praised by the International Energy Agency, the Japanese government has announced plans to phase out inefficient CFPPs by 2030. The more dubious strategy is one of the main items in the GX Strategic Plan. “Hydrogen and ammonia that can be co-fired with fossil fuels,” the Plan reads, “is expected to reduce CO2 emissions from thermal electric generation and ensure a stable energy supply, as well as supporting the transition to carbon neutrality” (pp. 7-8). The basic idea is to mix hydrogen with gasified coal or natural gas, and ammonia with coal to cut their emissions. The Plan also continues the government’s plans to use CCUS technologies to capture the CO2 emitted during the hydrogen and ammonia production process.
Environmental groups have persistently challenged these proposals. The UK- based TransitionZero published a report last year showing that the emissions reduction potential of ammonia co-firing and carbon capture and storage (CCS) is so marginal as to be inconsistent with a net-zero outcome. This, added to the tremendous cost required to bring these technologies to commercial scale, led TransitionZero to conclude that these policies “will only serve to prolong the life of coal in Japan’s energy mix, lock-in long-term emissions, and narrow Japan’s abatement trajectories.” Domestic groups like Kiko Network and the Renewable Energy Institute have launched similar critiques. To my knowledge, METI hasn’t acknowledged these critiques.
Next, let’s talk about renewables. The GX Strategic Plan sets out a roadmap for 2030 in which renewable energy becomes the main electricity source at 36-38% of the energy mix. Accelerated adoption of solar PV and a gradual expansion of offshore and onshore wind are supposed to be the workhorses on that path (pp. 5-6). Rapidly expanding renewables is much needed and very welcome. But again, this is not a departure from past policy goals.
Through successive administrations since 2011, both under the Liberal Democratic Party (LDP) and the Democratic Party of Japan (DPJ), projections for 2030 envisioned that renewables would account for somewhere between 20-30% of the total energy mix. The Long-term Energy Supply and Demand Outlook that METI issued in 2015 planned for between 22-24% of the energy mix to be filled by renewables, particularly geothermal, hydropower and biomass. What METI’s 6th Strategic Energy Plan in 2021 called an “ambitious outlook” projects that renewables will account for 36-38% by 2030. The GX Strategic Plan took its own target straight out of the 6th Strategic Energy Plan. Yes, an update from 22-24% to 36-38% for 2030 is big. But I think it’s hardly a transformative leap, especially when credible bodies (like Japan’s own Ministry of the Environment) have found that Japan has more than enough renewable energy potential to power its entire economy.
Japan has been dragging its feet on renewables. Why? When puzzling over why things don’t change much in Japan, you quickly encounter the metaphor of an iron triangle. A close affinity between 3 actors - the relevant industries, the main government bureaucracy, and the LDP - maintain a strong grip on the policymaking process, keeping outside disruptions at bay. In the field of energy policy, too, this metaphor can take us pretty far. It’s the triangle between the electric utilities and their industry associations (like the Japan Business Federation - Keidanren - and the Federation of Electric Power Companies - Denjiren), METI and the LDP. This trio have, since the 1970s, favored nuclear power and energy efficiency as means to achieve energy security and environmental goals, while keeping clean energy alternatives on the margins. Espen Moe’s research is particularly good on this.
With fossil fuels and renewables, the GX Strategic Plan is little more than a restatement of the status quo. In others areas, though, it offers glimpses of change.
Embattled Transformation
There are a few elements of the GX Plan that do seem to depart from recent policy trends. But these pivots will likely face political, economic, technological and regulatory headwinds. Let’s talk about nuclear power and “GX bonds.”
The Plan assumes that nuclear power will account for 20-22% of the 2030 energy mix, and the Kishida administration hopes to do this in two ways. First is by extending the time period that nuclear power plants can remain in operation beyond the current limit of 60 years by excluding the time spent on inspections from the total service life. Second and more controversially, the Cabinet proposes to replace aging nuclear facilities with new technologies like next generation light-water reactors, small nuclear reactors and nuclear fusion.
Since the earliest days of government-sponsored research in the 1950s and the start of commercial nuclear power in the mid-1960s, the government has promoted nuclear power through financial incentives, public relations, and pro-nuclear science curricula on atomic energy for kids. Even in the wake of the Fukushima nuclear disaster, the LDP never endorsed nuclear phase-out, only keeping quiet on the issue because of public opposition to nuclear power. Especially under Abe since 2012, the party has positioned nuclear power as an important pillar in enhancing Japan’s energy self-sufficiency, GHG gas reduction in line with Japan’s commitments under the 2015 Paris Agreement, and a valuable source of baseload electricity. But for years, the Abe administration’s penchant for restarting nuclear power plants was frustrated by the stringent safety regulation and inspection of the new Nuclear Regulation Authority and citizens’ class-action lawsuits against reactors. Florentine Koppenborg documents this dynamic wonderfully.
Restarting idled reactors was as far as the LDP ever went. With his GX Strategic Plan, Kishida is pushing for a more aggressive pro-nuclear stance. For the House of Councilors election last July, the LDP removed its pledge to reduce reliance on nuclear power from its platform. It instead committed to make maximum use of nuclear energy. The sharp rise in energy prices caused by the war in Ukraine turned up the urgency of enhancing energy security. For the LDP, nuclear power is Japan’s sleeping energy giant that can alleviate this hardship.
Kishida’s belief that Japan critically needs nuclear power for fortifying its energy security and reducing reliance on fossil fuels is no different from his predecessors. But recently, public opinion seems to have shifted to become less hostile toward nuclear power. This opened a window of opportunity for Kishida to boldly propose building new reactors. Yomiuri Shimbun’s public opinion poll in August 2022 found that 58% of respondents out of 3,000 ppl said they support reactivation, while 39% opposed. But the plan to build new reactors is by no means determined. For one thing, the new technologies under consideration are far from being commercially viable. And while public opinion might be shifting, the NRA’s safety standards will remain stringent and the threat of lawsuits hasn’t disappeared.
Another potentially transformative element of the plan is the proposed mechanism to fund the research and development of the new technologies we’ve been talking about. The main nexus of this mechanism is what the cabinet tentatively calls the “GX Economic Transition Bond.” The government hopes that enough investors will buy into this bond to invest ¥20 trillion (USD $156 billion) to “crowd in” massive private-sector investments. Eventually, the hope is to summon an upwards of ¥150 trillion (USD $1.17 trillion) of blended (public and private) investments.
This vision evokes Mariana Mazuccato’s concept of the Entrepreneurial State. In a word, an entrepreneurial state is a government that “makes things happen that otherwise would not.” In the clean technology sector, this would mean the government, with technology-specific expertise and a mission for what innovation needs to happen, creates and supports markets by sharing the risks of long-term and uncertain R&D with private-sector firms.
In the energy transition, this kind of government vision and intervention is valuable because of the dilemma that’s inherent in this sector. Developing clean energy capacities at mass scale is capital intensive, but the long time horizon of bringing new technology from conception to market means the prospect of financial returns on investments is highly uncertain. This, combined with the presence of industry incumbents (utilities, grid operators, fossil fuel-dependent companies) make it hard to scale up clean energy. Government policy can break this dilemma by jump-starting investments and tipping the balance in favor of clean energy. Once money starts flowing in that direction, the theory goes, private investors are more likely to step in. Both the federal support for decarbonization in the United States under the Inflation Reduction Act and the acceleration of renewables set out by the RePowerEU plan in the European Union would fit the entrepreneurial state concept.
So Kishida’s GX proposal to massively increase spending in energy transition should be celebrated in theory. But in practice, it has several problems. We’ve already touched on the first one. The new technologies, particularly the next generation fossil fuel technologies, will lock-in CO2 emissions for decades to come rather than aiding in the clean energy transition. These investments also potentially doom Japanese equipment manufacturers to develop technological capabilities that will soon become stranded.
The GX Bond idea is also wanting from a PR and transparency perspective. This is where you see that my gripe about the “GX” abbreviation isn’t just a personal pet peeve. International investors point out that the term GX is unique to Japan, too loosely defined, and doesn’t convey precisely what their funds would be used for. Just when the financial world is grappling with the true merits of ESG, some are weary that the GX Bond is yet another instance of greenwashing.
If large institutional investors don’t bite, the entire GX Strategy might fall flat on its face. Since GX Bond is still a tentative name, the government should ditch it in favor of a name that’s clearer and more familiar to an international audience, and explain in detail how the funds will be used.
What’s To Come?
At the moment, the issue of restarting nuclear plants and building new ones are the issues receiving most attention in the Diet. Beyond that, there is no serious opposition to the GX Plan or any credible alternative proposals that politicians are considering. The opposition Constitutional Democratic Party and the Social Democratic Party are consistently anti-nuclear, but neither party holds any veto power.
So, assuming that the GX Bond will be issued and that the government can raise enough funds, we can expect that policies largely aligned with the GX Plan will go ahead. But continuing its use of coal and not committing to rapid renewables adoption will make Japan more and more at odds with other developed countries as they take more proactive steps toward decarbonization.